UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM10-Q

(Mark One)

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

For the quarterly period ended ~~June 30, 2017~~March 31, 2018

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

For the transition period from to

Commission file number001-14905

BERKSHIRE HATHAWAY INC.

(Exact name of registrant as specified in its charter)

Delaware

47-0813844

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

3555 Farnam Street, Omaha, Nebraska 68131

(Address of principal executive office)

(Zip Code)

(402)346-1400

(Registrant’s telephone number, including area code)

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

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of RegulationS-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-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 Rule12b-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 Rule12b-2 of the Act). Yes ☐ No ☒

Number of shares of common stock outstanding as of ~~July~~April 27, ~~2017:~~2018:

BERKSHIRE HATHAWAY INC.


		Page No.
Part I – Financial Information

Item 1. Financial Statements
	Consolidated Balance Sheets—~~June 30, 2017~~March 31, 2018 and December 31, ~~2016~~2017		2-3
	Consolidated Statements of Earnings—~~Second~~First Quarter 2018 and ~~First Six Months~~ 2017 ~~and 2016~~		4
	Consolidated Statements of Comprehensive Income—~~Second~~First Quarter 2018 and ~~First Six Months~~ 2017 ~~and 2016~~		5
	Consolidated Statements of Changes in Shareholders’ Equity—First ~~Six Months~~Quarter 2018 and 2017 ~~and 2016~~		5
	Consolidated Statements of Cash Flows—First ~~Six Months~~Quarter 2018 and 2017 ~~and 2016~~		6
	Notes to Consolidated Financial Statements		7-24
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		25-42
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		4342
Item 4.	Controls and Procedures		4342

Part II – Other Information			43

Item 1.	Legal Proceedings		43
Item 1A.	Risk Factors		43
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds and Issuer Repurchases of Equity Securities		43
Item 3.	Defaults Upon Senior Securities		43
Item 4.	Mine Safety Disclosures		43
Item 5.	Other Information		43
Item 6.	Exhibits		44

Signature			44

Part I Financial Information

Item 1. Financial Statements

BERKSHIRE HATHAWAY INC.

and Subsidiaries

CONSOLIDATED BALANCE SHEETS

(dollars in millions)


	June 30, 2017		December 31, 2016		March 31, 2018		December 31, 2017
	(Unaudited)				(Unaudited)
ASSETS
*Insurance and Other:*
Cash and cash equivalents		$ 20,142		$ 23,581	$	50,559	$	25,460
Short-term investments in U.S. Treasury Bills		66,008		47,338		48,040		78,515
Investments in fixed maturity securities		23,381		23,432		19,920		21,353
Investments in equity securities		135,355		120,471		166,658		164,026
Investment in The Kraft Heinz Company (Fair Value: June 30, 2017 – $27,871; December 31, 2016 – $28,418)		15,584		15,345
Other investments		16,838		14,364
Investment in The Kraft Heinz Company (Fair Value: 2018 – $20,272; 2017 – $25,306)						17,687		17,635
Receivables		28,953		27,097		30,906		28,578
Inventories		16,442		15,727		16,244		16,187
Property, plant and equipment		19,790		19,325		23,807		20,104
Goodwill		54,471		53,994		55,079		54,985
Other intangible assets		33,220		33,481		32,260		32,518
Deferred charges reinsurance assumed		13,597		8,047
Deferred charges under retroactive reinsurance contracts						15,007		15,278
Other		7,560		7,126		11,939		11,158

		451,341		409,328		488,106		485,797

*Railroad, Utilities and Energy:*
Cash and cash equivalents		4,962		3,939		3,550		2,910
Property, plant and equipment		125,328		123,759		128,385		128,184
Goodwill		24,306		24,111		24,766		24,780
Regulatory assets		4,644		4,457		2,987		2,950
Other		14,129		13,550		15,394		15,589

		173,369		169,816		175,082		174,413

*Finance and Financial Products:*
Cash and cash equivalents		1,314		528		3,772		3,213
Short-term investments in U.S. Treasury Bills		7,323		10,984		2,641		5,856
Investments in equity and fixed maturity securities		408		408
Other investments		3,396		2,892
Loans and finance receivables		14,559		13,300		13,845		13,748
Property, plant and equipment and assets held for lease		9,791		9,689		9,920		9,931
Goodwill		1,398		1,381		1,492		1,493
Other		2,691		2,528		7,793		7,644

		40,880		41,710		39,463		41,885

		$ 665,590		$620,854	$	702,651	$	702,095

See accompanying Notes to Consolidated Financial Statements

BERKSHIRE HATHAWAY INC.

and Subsidiaries

CONSOLIDATED BALANCE SHEETS

(dollars in millions)


	June 30, 2017			December 31, 2016			March 31, 2018			December 31, 2017
	(Unaudited)						(Unaudited)
LIABILITIES AND SHAREHOLDERS’ EQUITY
*Insurance and Other:*
Losses and loss adjustment expenses		$ 95,307			$ 76,918
Unpaid losses and loss adjustment expenses							$	62,094		$	61,122
Unpaid losses and loss adjustment expenses under retroactive reinsurance contracts								42,344			42,937
Unearned premiums		16,129			14,245			18,448			16,040
Life, annuity and health insurance benefits		16,663			15,977			17,935			17,608
Other policyholder liabilities		7,357			6,714			7,864			7,654
Accounts payable, accruals and other liabilities		21,024			22,164			25,782			23,099
Notes payable and other borrowings		27,781			27,175			25,663			27,324

		184,261			163,193			200,130			195,784

*Railroad, Utilities and Energy:*
Accounts payable, accruals and other liabilities		11,273			11,434			10,786			11,334
Regulatory liabilities		3,156			3,121			7,599			7,511
Notes payable and other borrowings		60,701			59,085			62,667			62,178

		75,130			73,640			81,052			81,023

*Finance and Financial Products:*
Accounts payable, accruals and other liabilities		1,510			1,444			1,566			1,470
Derivative contract liabilities		2,494			2,890			2,378			2,172
Notes payable and other borrowings		13,788			15,384			10,755			13,085

		17,792			19,718			14,699			16,727

Income taxes, principally deferred		84,314			77,944			55,718			56,607

Total liabilities		361,497			334,495			351,599			350,141


Shareholders’ equity:
Common stock		8			8			8			8
Capital in excess of par value		35,663			35,681			35,681			35,694
Accumulated other comprehensive income		46,652			37,298			(2,477	)		58,571
Retained earnings		220,099			211,777			315,952			255,786
Treasury stock, at cost		(1,763	)		(1,763	)		(1,763	)		(1,763	)

Berkshire Hathaway shareholders’ equity		300,659			283,001			347,401			348,296
Noncontrolling interests		3,434			3,358			3,651			3,658

Total shareholders’ equity		304,093			286,359			351,052			351,954

		$ 665,590			$ 620,854		$	702,651		$	702,095

See accompanying Notes to Consolidated Financial Statements

BERKSHIRE HATHAWAY INC.

and Subsidiaries

CONSOLIDATED STATEMENTS OF EARNINGS

(dollars in millions except per share amounts)


	Second Quarter				First Six Months				First Quarter
	2017		2016		2017		2016		2018			2017
	(Unaudited)				(Unaudited)				(Unaudited)
Revenues:
*Insurance and Other:*
Insurance premiums earned	$	12,367	$	10,799	$	34,120	$	21,923		$ 13,373			$ 21,753
Sales and service revenues		31,733		30,542		61,962		58,821		31,623			30,229
Interest, dividend and other investment income		1,322		1,411		2,484		2,562		1,315			1,162
Investment gains/losses		287		640		599		2,486

		45,709		43,392		99,165		85,792		46,311			53,144

*Railroad, Utilities and Energy:*
Revenues		9,843		8,851		19,247		17,696
*Railroad, Utilities and Energy operating and other revenues*										10,102			9,378

*Finance and Financial Products:*
Sales and service revenues		1,664		1,577		3,178		2,969		1,693			1,498
Interest, dividend and other investment income		364		411		714		743		367			350
Investment gains/losses		3		3		6		7
Derivative gains/losses		(65)		20		395		(790)

		1,966		2,011		4,293		2,929		2,060			1,848

Total revenues		57,518		54,254		122,705		106,417		58,473			64,370

Investment and derivative contract gains/losses:
Investments gains (losses)										(7,809	)		315
Derivative contract gains (losses)										(206	)		460

										(8,015	)		775

Costs and expenses:
*Insurance and Other:*
Insurance losses and loss adjustment expenses		8,747		7,178		27,313		14,710		8,963			18,566
Life, annuity and health insurance benefits		1,263		1,241		2,490		2,408		1,287			1,227
Insurance underwriting expenses		2,378		1,870		4,717		3,947		2,604			2,339
Cost of sales and services		25,419		24,349		49,779		47,145		25,415			24,360
Selling, general and administrative expenses		4,020		4,066		8,136		7,788		4,024			4,116
Interest expense		700		28		970		415		390			270

		42,527		38,732		93,405		76,413		42,683			50,878

*Railroad, Utilities and Energy:*
Cost of sales and operating expenses		6,940		6,339		13,694		12,658		7,401			6,754
Interest expense		697		596		1,390		1,281		710			693

		7,637		6,935		15,084		13,939		8,111			7,447

*Finance and Financial Products:*
Cost of sales and services		962		875		1,829		1,643		1,029			867
Selling, general and administrative expenses		469		443		911		836		467			442
Interest expense		103		103		207		204		92			104

		1,534		1,421		2,947		2,683		1,588			1,413

Total costs and expenses		51,698		47,088		111,436		93,035		52,382			59,738

Earnings before income taxes and equity in earnings of Kraft Heinz Company		5,820		7,166		11,269		13,382
Equity in earnings of Kraft Heinz Company		309		206		548		446
Earnings (loss) before income taxes and equity method earnings										(1,924	)		5,407
Equity method earnings										401			281

Earnings before income taxes		6,129		7,372		11,817		13,828
Income tax expense		1,774		2,290		3,323		3,089
Earnings (loss) before income taxes										(1,523	)		5,688
Income tax expense (benefit)										(452	)		1,549

Net earnings		4,355		5,082		8,494		10,739
Less: Earnings attributable to noncontrolling interests		93		81		172		149
Net earnings (loss)										(1,071	)		4,139
Earnings attributable to noncontrolling interests										67			79

Net earnings attributable to Berkshire Hathaway shareholders	$	4,262	$	5,001	$	8,322	$	10,590
Net earnings (loss) attributable to Berkshire Hathaway shareholders										$ (1,138	)		$ 4,060

Net earnings per share attributable to Berkshire Hathaway shareholders *	$	2,592	$	3,042	$	5,060	$	6,443
Average equivalent Class A Shares outstanding *		1,644,580		1,643,745		1,644,503		1,643,616
Net earnings (loss) per average equivalent Class A share										$ (692	)		$ 2,469
Net earnings (loss) per average equivalent Class B share*										$ (0.46	)		$ 1.65
Average equivalent Class A shares outstanding										1,644,958			1,644,425
Average equivalent Class B shares outstanding										2,467,436,888			2,466,636,938

~~Equivalent Class~~ ~~B shares outstanding are 1,500 times the~~Net earnings (loss) per average equivalent Class ~~A amount. Net earnings per equivalent Class~~ B share outstanding areone-fifteen-hundredth ~~(1/1,500)~~ of the equivalent Class A amount.

See accompanying Notes to Consolidated Financial Statements

BERKSHIRE HATHAWAY INC.

and Subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(dollars in millions)

   Second Quarter    First Six Months
   2017    2016    2017      2016
   (Unaudited)    (Unaudited)

Net earnings
   $ 4,355    $ 5,082    $ 8,494      $   10,739








Other comprehensive income:

Net change in unrealized appreciation of investments
   4,711    (271)    13,088      (2,962 )
Applicable income taxes
   (1,659)    94      (4,531 )      993
Reclassification of investment appreciation in net earnings
   (284)    (9)    (589 )      (1,816 )
Applicable income taxes
   99    4      206      636
Foreign currency translation
   798    (607)    1,356      (114 )
Applicable income taxes
   (23)    44      (92 )      14
Prior service cost and actuarial gains/losses of defined benefit pension plans
   (44)    51      (54 )      55
Applicable income taxes
   18    (19)    25      (19 )
Other, net
   3    16      6      (6 )








Other comprehensive income, net
   3,619    (697)    9,415      (3,219 )








Comprehensive income
   7,974    4,385      17,909      7,520
Comprehensive income attributable to noncontrolling interests
   130    61      233      135








Comprehensive income attributable to Berkshire Hathaway shareholders
   $     7,844    $     4,324      $   17,676      $ 7,385


	First Quarter
	2018			2017
	(Unaudited)
Net earnings (loss)	$	(1,071	)	$	4,139

Other comprehensive income:
Net change in unrealized appreciation of investments		(45	)		8,377
Applicable income taxes		(2	)		(2,872	)
Reclassification of investment appreciation in net earnings		(221	)		(305	)
Applicable income taxes		46			107
Foreign currency translation		601			558
Applicable income taxes		(6	)		(69	)
Prior service cost and actuarial gains/losses of defined benefit pension plans		(24	)		(10	)
Applicable income taxes		17			7
Other, net		(31	)		3

Other comprehensive income, net		335			5,796

Comprehensive income		(736	)		9,935
Comprehensive income attributable to noncontrolling interests		75			103

Comprehensive income attributable to Berkshire Hathaway shareholders	$	(811	)	$	9,832

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)

(dollars in millions)

   Berkshire Hathaway shareholders’ equity       Total
   Common stock
and capital in
excess of par
value Accumulated
other
comprehensive
income    Retained
earnings    Treasury
stock    Non-
controlling
interests
Balance at December 31, 2015
   $ 35,628     $ 33,982        $ 187,703      $ (1,763)    $ 3,077    $ 258,627
Net earnings
   — —        10,590      —    149    10,739
Other comprehensive income, net
   — (3,205)    —      —    (14 )    (3,219 )
Issuance of common stock
   52 —        —      —    —    52
Transactions with noncontrolling interests
   38 —        —      —    21    59










Balance at June 30, 2016
   $ 35,718     $ 30,777        $ 198,293      $ (1,763)    $ 3,233    $ 266,258










Balance at December 31, 2016
   $ 35,689     $ 37,298        $ 211,777      $(1,763)    $ 3,358    $ 286,359
Net earnings
   — —        8,322      —    172    8,494
Other comprehensive income, net
   — 9,354      —      —    61    9,415
Issuance of common stock
   40 —        —      —    —    40
Transactions with noncontrolling interests
   (58 ) —        —      —    (157 )    (215 )










Balance at June 30, 2017
   $ 35,671     $ 46,652        $ 220,099      $   (1,763)    $ 3,434    $   304,093


	Berkshire Hathaway shareholders’ equity															Total
	Common stock and capital in excess of par value			Accumulated other comprehensive income			Retained earnings			Treasury stock			Non- controlling interests			Total
Balance at December 31, 2016	$	35,689		$	37,298		$	210,846		$	(1,763	)	$	3,358		$	285,428
Net earnings		—			—			4,060			—			79			4,139
Other comprehensive income, net		—			5,772			—			—			24			5,796
Issuance of common stock		34			—			—			—			—			34
Transactions with noncontrolling interests		(16	)		—			—			—			(32	)		(48	)

Balance at March 31, 2017	$	35,707		$	43,070		$	214,906		$	(1,763	)	$	3,429		$	295,349

Balance at December 31, 2017	$	35,702		$	58,571		$	255,786		$	(1,763	)	$	3,658		$	351,954
Adoption of new accounting pronouncements		—			(61,375	)		61,304			—			—			(71	)
Net earnings (loss)		—			—			(1,138	)		—			67			(1,071	)
Other comprehensive income, net		—			327			—			—			8			335
Issuance of common stock		24			—			—			—			—			24
Transactions with noncontrolling interests		(37	)		—			—			—			(82	)		(119	)

Balance at March 31, 2018	$	35,689		$	(2,477	)	$	315,952		$	(1,763	)	$	3,651		$	351,052

See accompanying Notes to Consolidated Financial Statements

BERKSHIRE HATHAWAY INC.

and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in millions)

   First Six Months
   2017 2016
   (Unaudited)
Cash flows from operating activities:

Net earnings
   $ 8,494 $ 10,739
Adjustments to reconcile net earnings to operating cash flows:

Investment gains/losses
   (605 ) (2,493)
Depreciation and amortization
   4,539 4,359
Other
   403 (119)
Changes in operating assets and liabilities:

Losses and loss adjustment expenses
   18,075 1,769
Deferred charges reinsurance assumed
   (5,550 ) 35
Unearned premiums
   1,830 1,444
Receivables and originated loans
   (1,608 ) (2,716)
Derivative contract assets and liabilities
   (395 ) 790
Income taxes
   1,893 1,822
Other
   (449 ) (366)


Net cash flows from operating activities
   26,627 15,264


Cash flows from investing activities:

Purchases of U.S. Treasury Bills and fixed maturity securities
   (68,547 ) (33,029)
Purchases of equity securities
   (13,628 ) (4,129)
Sales of U.S. Treasury Bills and fixed maturity securities
   20,164 2,625
Redemptions and maturities of U.S. Treasury Bills and fixed maturity securities
   34,164 8,828
Sales and redemptions of equity securities
   7,815 12,444
Purchases of loans and finance receivables
   (1,350 ) (188)
Collections of loans and finance receivables
   393 174
Acquisitions of businesses, net of cash acquired
   (1,721 ) (30,440)
Purchases of property, plant and equipment
   (5,149 ) (6,144)
Other
   (112 ) (397)


Net cash flows from investing activities
   (27,971 ) (50,256)


Cash flows from financing activities:

Proceeds from borrowings of insurance and other businesses
   1,295 8,600
Proceeds from borrowings of railroad, utilities and energy businesses
   2,413 2,211
Proceeds from borrowings of finance businesses
   1,298 3,494
Repayments of borrowings of insurance and other businesses
   (1,180 ) (1,148)
Repayments of borrowings of railroad, utilities and energy businesses
   (1,768 ) (1,781)
Repayments of borrowings of finance businesses
   (2,897 ) (195)
Changes in short term borrowings, net
   462 618
Other
   (92 ) (46)


Net cash flows from financing activities
   (469 ) 11,753


Effects of foreign currency exchange rate changes
   183 2


Increase in cash and cash equivalents
   (1,630 ) (23,237)
Cash and cash equivalents at beginning of year *
   28,048 67,161


Cash and cash equivalents at June 30 *
   $ 26,418 $ 43,924


* Cash and cash equivalents are comprised of the following:

Beginning of year—

Insurance and Other
   $ 23,581 $ 56,612
Railroad, Utilities and Energy
   3,939 3,437
Finance and Financial Products
   528 7,112


   $ 28,048 $ 67,161


June 30—

Insurance and Other
   $ 20,142 $ 33,033
Railroad, Utilities and Energy
   4,962 3,036
Finance and Financial Products
   1,314 7,855


   $ 26,418 $ 43,924


	First Quarter
	2018			2017
	(Unaudited)
Cash flows from operating activities:
Net earnings (loss)	$	(1,071	)	$	4,139
Adjustments to reconcile net earnings (loss) to operating cash flows:
Investment gains/losses		7,809			(315	)
Depreciation and amortization		2,387			2,243
Other		(1	)		120
Changes in operating assets and liabilities:
Losses and loss adjustment expenses		69			16,900
Deferred charges reinsurance assumed		271			(5,783	)
Unearned premiums		2,352			1,829
Receivables and originated loans		(2,186	)		(1,197	)
Other assets		(881	)		(339	)
Other liabilities		(392	)		(753	)
Income taxes		(801	)		1,451

Net cash flows from operating activities		7,556			18,295


Cash flows from investing activities:
Purchases of U.S. Treasury Bills and fixed maturity securities		(13,037	)		(45,342	)
Purchases of equity securities		(14,765	)		(10,590	)
Sales of U.S. Treasury Bills and fixed maturity securities		13,577			10,048
Redemptions and maturities of U.S. Treasury Bills and fixed maturity securities		35,088			23,990
Sales and redemptions of equity securities		4,240			3,452
Purchases of loans and finance receivables		(41	)		(52	)
Collections of loans and finance receivables		100			97
Acquisitions of businesses, net of cash acquired		(112	)		(1,599	)
Purchases of property, plant and equipment		(2,589	)		(2,355	)
Other		(153	)		(181	)

Net cash flows from investing activities		22,308			(22,532	)


Cash flows from financing activities:
Proceeds from borrowings of insurance and other businesses		17			1,203
Proceeds from borrowings of railroad, utilities and energy businesses		3,613			2,094
Proceeds from borrowings of finance businesses		20			1,298
Repayments of borrowings of insurance and other businesses		(1,840	)		(1,130	)
Repayments of borrowings of railroad, utilities and energy businesses		(1,221	)		(446	)
Repayments of borrowings of finance businesses		(2,352	)		(1,068	)
Changes in short term borrowings, net		(1,929	)		87
Other		(102	)		(23	)

Net cash flows from financing activities		(3,794	)		2,015

Effects of foreign currency exchange rate changes		92			61

Increase (decrease) in cash and cash equivalents and restricted cash		26,162			(2,161	)
Cash and cash equivalents and restricted cash at beginning of year		32,212			28,643

Cash and cash equivalents and restricted cash at end of first quarter *	$	58,374		$	26,482

*Cash and cash equivalents and restricted cash are comprised of the following:
Beginning of year—
Insurance and Other	$	25,460		$	23,581
Railroad, Utilities and Energy		2,910			3,939
Finance and Financial Products		3,213			528
Restricted cash, included in other assets		629			595

	$32,212			$28,643

End of first quarter—
Insurance and Other	$	50,559		$	18,362
Railroad, Utilities and Energy		3,550			5,584
Finance and Financial Products		3,772			2,017
Restricted cash, included in other assets		493			519

	$58,374			$26,482

See accompanying Notes to Consolidated Financial Statements

BERKSHIRE HATHAWAY INC.

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~June 30, 2017~~March 31, 2018

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 Form10-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. ~~At December 31, 2016, we began presenting U.S. Treasury Bills with maturity dates greater than three months from their purchase dates separately~~Changes to those policies due to the adoption of new accounting standards effective January 1, 2018 are described in ~~our Consolidated Balance Sheets. Accordingly, we revised the comparative 2016 Consolidated Statement of Cash Flows~~Note 2. Certain immaterial amounts in 2017 related to ~~reflect this change.~~equity method earnings were reclassified to conform to current presentations.

Financial information in this Quarterly Report reflects all adjustments (consisting only of normal recurring adjustments) that are, in the opinion of management, necessary to a fair statement of results for the interim periods in accordance with accounting principles generally accepted in the United States (“GAAP”). For a number of reasons, our results for interim periods are not normally indicative of results to be expected for the year. The timing and magnitude of catastrophe losses incurred by insurance subsidiaries and the estimation error inherent to the process of determining liabilities for unpaid losses of insurance subsidiaries can be more significant to results of interim periods than to results for a full year. ~~Variations~~Changes in market prices of the ~~amount and timing~~equity securities we own can produce significant effects on our consolidated shareholders’ equity. Beginning in 2018, those effects are included in our Consolidated Statements of ~~investment gains/losses can cause significant variations~~Earnings, whereas in ~~periodic net earnings.~~pre-2018 periods, such effects were included in other comprehensive income. In addition, changes in the fair values of ~~liabilities associated with~~certain derivative ~~contracts~~contract liabilities and gains and losses ~~associated with~~from the periodic revaluation of certain assets and liabilities denominated in foreign currencies can cause significant variations in periodic net earnings.

Note 2. New ~~accounting pronouncements~~Accounting Pronouncements

~~In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU2014-09~~ ~~“Revenue from Contracts with Customers.” ASU2014-09~~ ~~applies to contracts with customers, excluding, most notably, insurance and leasing contracts. The framework prescribed by ASU2014-09~~ includes (a) identifying the contract, (b) identifying the related performance obligations, (c) determining the transaction price, (d) allocating the transaction price to the identified performance obligations and (e) recognizing revenues as the identified performance obligations are satisfied. Based on our evaluations~~to-date,~~ ~~we do not currently believe the adoption of ASU2014-09~~ will have a material effect on our Consolidated Financial Statements. However, timing of the recognition of revenue and related costs may change with respect to certain of our contracts with customers. For instance, revenues and costs for certain contracts may be recognized over time rather than when the product or service is delivered, as is the current practice. In addition, certain contracts may be treated as leases for accounting purposes, rather than contracts with customers subject to ASU~~2014-09.~~ ~~Our evaluations of these and other issues and implementation efforts concerning ASU2014-09~~ ~~are ongoing and also include consideration of the new disclosure requirements. We will adopt ASU2014-09~~ ~~as of~~On January 1, 2018, ~~under the modified retrospective method.~~

~~In January 2016, the FASB issued ASU~~we adopted Accounting Standards Update (“ASU”)2016-01 “Financial Instruments—Recognition and Measurement of Financial Assets and Financial ~~Liabilities.”~~Liabilities” (“ASU2016-01”), ASU2018-02 “Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income” (“ASU2018-02”) and Accounting Standards Codification (“ASC”) 606 – “Revenues from Contracts with Customers” (“ASC 606”). A summary of the effects of the initial adoption of ASU2016-01, ~~generally requires that~~ASU2018-02 and ASC 606 follows (in millions).


	ASU 2016-01			ASU 2018-02			ASC 606			Total
Increase (decrease):
Assets	$	—		$	—		$	3,382		$	3,382
Liabilities		—			—			3,453			3,453
Accumulated other comprehensive income		(61,459	)		84			—			(61,375	)
Retained earnings		61,459			(84	)		(71	)		61,304
Shareholders’ equity		—			—			(71	)		(71	)

With respect to ASU2016-01, we reclassified netafter-tax unrealized gains on equity securities ~~(excluding~~as of January 1, 2018 from accumulated other comprehensive income to retained earnings. We continue to carry our investments in equity ~~method investments) be measured~~securities at fair value ~~with~~and there is no change to the asset values or total shareholders’ equity that we would have otherwise recorded. Beginning in 2018, we are including unrealized gains and losses arising from the changes in the fair ~~value recognized~~values of our equity securities as a component of investment gains in ~~net income. Under existing GAAP,~~the Consolidated Statements of Earnings. ASU2016-01 prohibited the restatement of prior year financial statements and for periods ending prior to 2018, unrealized gains and losses from the changes in fair value ofavailable-for-sale equity ~~investments are~~securities were recorded in other comprehensive income. ~~Given~~

We also reclassified the ~~current magnitude of our investments in equity securities, the adoption of ASU2016-01~~ ~~will have a significant impact on the periodic net earnings reported in our Consolidated Statement of Earnings, although it will not significantly affect our comprehensive~~stranded deferred income ~~or total shareholders’ equity. We will adopt ASU2016-01~~ ~~as of January 1, 2018. As of that date, the accumulated unrealized appreciation relating to our investments in equity securities, which is currently included~~taxes in accumulated other comprehensive income ~~will be reclassified~~as of January 1, 2018 to retained earnings in connection with our adoption of ASU2018-02. These stranded deferred income tax effects arose from the reduction in the U.S. statutory income tax rate under the U.S. Tax Cuts and Jobs Act enacted on December 22, 2017. Prior year financial statements were not restated. The effect of the reduction in the statutory income tax rate on accumulated other comprehensive income items was recorded in earnings in December 2017.

We adopted ASC 606 using the modified retrospective method, whereby the cumulative effect of the adoption was recorded as an adjustment to retained earnings. Prior year financial statements were not restated. The initial adoption of ASC 606 resulted in an increase to both assets (primarily property, plant and equipment) and other liabilities and a relatively minor reduction in retained earnings as of the beginning of 2018. ASC 606 also provides for certain other disclosures which are included in Note 3.

Notes to Consolidated Financial Statements(Continued)

Note 2. New accounting pronouncements(Continued)

In February 2016, the ~~FASB~~Financial Accounting Standards Board (“FASB”) issued ASU2016-02 “Leases.” ASU2016-02 requires a lessee to recognize in the statement of financial position a liability to make lease payments and aright-of-use asset representing its right to use the underlying asset for the lease term ~~along with~~and also requires additional qualitative and quantitative disclosures. ASU2016-02 is effective for reporting periods beginning after December 15, 2018, with early adoption permitted. We are currently evaluating the effect this standard will have on our Consolidated Financial Statements.

In June 2016, the FASB issued ASU2016-13 “Financial Instruments—Credit Losses,” which provides for the recognition and measurement at the reporting date of all expected credit losses for financial assets held at amortized cost andavailable-for-sale debt securities. Currently, credit losses are recognized and measured when such losses become probable based on the prevailing facts and circumstances. ASU2016-13 is effective for reporting periods beginning after December 15, 2019. We are currently evaluating the effect this standard will have on our Consolidated Financial Statements.

~~Notes to Consolidated Financial Statements~~~~(Continued)~~

~~Note 2. New accounting pronouncements~~~~(Continued)~~

In January 2017, the FASB issued ASU2017-04 “Simplifying the Test for Goodwill Impairment.” ASU2017-04 eliminates the requirement to determine the implied value of goodwill in measuring an impairment loss. Upon adoption of ASU2017-04, the measurement of a goodwill impairment will represent the excess of the reporting unit’s carrying value over fair value, limited to the carrying value of goodwill. ASU2017-04 is effective for goodwill impairment tests in fiscal years beginning after December 15, 2019, with early adoption permitted.

Note 3. ~~Significant business acquisitions~~Revenues from contracts with customers

As discussed in Note 2, we adopted ASC 606 “Revenues from Contracts with Customers” on January 1, 2018. Our ~~long-held acquisition strategy~~revenue recognition practices under ASC 606 do not differ materially from prior practices. Under ASC 606, revenues are recognized when a good or service is to acquire businesses at sensible prices 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 29, 2016, Berkshire acquired all outstanding common stock of Precision Castparts Corp. (“PCC”) for $235 per share in cash pursuant~~transferred to a ~~merger agreement dated August 8, 2015. The aggregate~~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 ~~paid was approximately $32.7 billion, which included the value~~we expect to receive in connection with our promises to deliver goods and services to our customers. Our accounting policies related to revenue from contracts with customers follow.

We manufacture and/or distribute a wide variety of ~~PCC shares we already owned. We funded the acquisition~~industrial, building and consumer products. Our sales contracts provide customers with ~~a combination of existing cash balances~~manufactured products and ~~proceeds from a short-term credit facility. PCC is a worldwide, diversified manufacturer of complex metal components~~goods acquired for resale through wholesale and products. It serves the aerospace, power and general industrial markets. PCC is a market leader in manufacturing complex structural investment castings and forged components for aerospace markets, machined airframe components and highly engineered critical fasteners for aerospace applications, and in manufacturing airfoil castings for the aerospace and industrial gas turbine markets. PCC also is a leading producer of titanium and nickel superalloy melted and mill products for the aerospace, chemical processing, oil and gas and pollution control industries, and manufactures extruded seamless pipe, fittings and forgings for power generation and oil and gas applications.

On February 29, 2016, we acquired the Duracell business from The Procter & Gamble Company (“P&G”) pursuant to an agreement entered into in November 2014. Pursuant to the agreement, we received a recapitalized Duracell Companyretail channels in exchange for ~~shares~~consideration specified under the contracts. Contracts generally represent customer orders for individual products at stated prices. Sales contracts may contain either single or multiple performance obligations. In instances where contracts contain multiple performance obligations, we allocate the expected consideration to each obligation based on the relative stand-alone selling prices of ~~P&G common stock held~~each product or service.

Expected consideration (and therefore revenue) reflects reductions for returns, allowances, volume discounts and other incentives, some of which may be contingent on future events. In certain customer contracts of our grocery distribution business, consideration includes certain state and local excise taxes billed to customers on specified products when those taxes are levied directly upon us by ~~Berkshire subsidiaries,~~the taxing authorities. Expected consideration excludes sales and value-added taxes collected on behalf of taxing authorities. Revenue includes consideration for shipping and other fulfillment activities performed prior to the customer obtaining control of the goods. We also elect to treat consideration for such services performed after control has passed to the customer as fulfillment activities.

Our product sales revenues are predominantly recognized at a point in time when control of the product transfers to the customer, which ~~had a fair value~~coincides with customer pickup or product delivery or acceptance, depending on terms of ~~approximately $4.2 billion. Duracell is a leading manufacturer of high-performance alkaline batteries and is an innovator in wireless charging technologies.~~

~~Pro forma consolidated~~the arrangement. We recognize sales revenues and related costs with respect to certain contracts over time, primarily from certain castings, forgings and aerostructures contracts. Control of the product units under these contracts transfers continuously to the customer as the product is manufactured, given the products generally have no alternative use and the contract requires the customer to provide reasonable compensation if terminated for reasons other than breach of contract.

Our energy revenue derives primarily from tariff based sales arrangements approved by various regulatory bodies. These tariff based revenues are mainly comprised of energy, transmission, distribution and natural gas and have performance obligations to deliver energy products and services to customers which are satisfied over time as energy is delivered or services are provided. Our nonregulated energy revenue primarily relates to our renewable energy business.

Energy revenues recognized are equivalent to the amounts we have the right to invoice as it corresponds directly with the value to the customer of the performance to date and includes billed and unbilled amounts. As of March 31, 2018 and December 31, 2017, trade receivables, net ~~earnings data for 2016 was not materially different~~included in other assets on the Consolidated Balance Sheets relate substantially to customer revenue, and includes unbilled revenue of $582 million and $665 million, respectively. Payments from customers are generally due from the ~~amounts reflected in~~customer within 30 days of billing. Rates charged for energy products and services are established by regulators or contractual arrangements that establish the ~~accompanying Consolidated Financial Statements. Goodwill from these acquisitions~~transaction price, as well as the allocation of price amongst the separate performance obligations. When preliminary regulated rates are permitted to be billed prior to final approval by the applicable regulator, certain revenue collected may be subject to refund and a liability for estimated refunds is not amortizable for income tax purposes. The fair values of identified assets acquired and liabilities assumed and residual goodwill of PCC and Duracell at their respective acquisition dates are summarized as follows (in millions).accrued.

   PCC    Duracell
Cash and cash equivalents
     $ 250    $ 1,807
Inventories
   3,430    319
Property, plant and equipment
   2,765    359
Goodwill
   16,011    866
Other intangible assets
   23,527    1,550
Other assets
   1,916    242




Assets acquired
     $ 47,899    $ 5,143




Accounts payable, accruals and other liabilities
     $ 2,442    $ 410
Notes payable and other borrowings
   5,251    —
Income taxes, principally deferred
   7,548    494




Liabilities assumed
     $ 15,241    $ 904




Net assets
     $ 32,658    $ 4,239

Notes to Consolidated Financial Statements(Continued)

Note 3. Revenues from contracts with customers(Continued)

Service revenues mainly derive from contracts with customers in which performance obligations are satisfied over time, including instances where customers receive and consume benefits as we perform the services. Revenues under such contracts are recorded over time. Service revenues primarily derive from contracts for freight rail transportation, real estate brokerage, automotive repair, aircraft management, aviation training and news distribution services.

The primary performance obligation under our freight rail transportation service contracts is to move freight from a point of origin to a point of destination for its customers. The performance obligations are represented by bills of lading which create a series of distinct services that have a similar pattern of transfer to the customer. The revenues for each performance obligation are based on various factors including the product being shipped, the origin and destination pair, and contract incentives which are outlined in various private rate agreements, common carrier public tariffs, interline foreign road agreements and pricing quotes. The transaction price is generally a per car amount to transport railcars from a specified origin to a specified destination. Freight revenues are recognized over time as the service is performed because the customer simultaneously receives and consumes the benefits of the service. Revenues recognized represent the proportion of the service completed as of the balance sheet date. Invoices for freight transportation services are generally issued to customers and paid within thirty days or less. Customer incentives, which are primarily provided for shipping a specified cumulative volume or shipping to/from specific locations, are recorded as a reduction to revenue on apro-rata basis based on actual or projected future customer shipments.

Prior to January 1, 2018, we recognized revenues from the sales of fractional ownership interests in aircraft over the terms of the related management services agreements, as the transfers of the ownership interests were inseparable from the management services agreements. These agreements also include provisions that require us to repurchase the fractional interest at fair market value at contract termination or upon the customer’s request following the minimum commitment period. ASC 606 provides that such contracts are subject to accounting guidance for lease contracts and not ASC 606. The principal effects of thisre-characterization were to increase both assets (primarily property, plant and equipment) and other liabilities by approximately $3.5 billion with a small reduction to retained earnings as of January 1, 2018. There-categorization of these contracts as operating leases did not have a significant effect on our consolidated revenues or earnings for the first three months of 2018.

The following table summarizes customer contract revenues disaggregated by reportable segment and the source of the revenue for the three months ended March 31, 2018 (in millions). Other revenues included in our consolidated revenues were primarily insurance premiums earned, interest, dividend and other investment income and lease income which are not within the scope of ASC 606.


	Manufacturing			McLane Company			Service and Retail			BNSF			Berkshire Hathaway Energy			Finance and Financial Products			Insurance, Corporate and other			Total
Manufactured products:
Industrial and commercial products		$	6,393		$	—		$	54		$	—		$	—		$	161		$	—		$	6,608
Building products			2,919			—			—			—			—			1			—			2,920
Consumer products			2,848			—			—			—			—			848			—			3,696
Grocery and convenience store distribution			—			8,512			—			—			—			—			—			8,512
Food and beverage distribution			—			3,643			—			—			—			—			—			3,643
Auto sales			—			—			1,931			—			—			—			—			1,931
Other retail and wholesale distribution			496			—			2,694			—			—			20			—			3,210
Service			218			17			942			5,580			700			8			—			7,465
Electricity and natural gas			—			—			—			—			3,524			—			—			3,524

Total			12,874			12,172			5,621			5,580			4,224			1,038			—			41,509
Other revenue			38			17			939			10			288			1,022			14,650			16,964

		$	12,912		$	12,189		$	6,560		$	5,590		$	4,512		$	2,060		$	14,650		$	58,473

Notes to Consolidated Financial Statements(Continued)

Note 3. Revenues from contracts with customers(Continued)

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 March 31, 2018 follows (in millions). Such contracts relate to our utilities and energy businesses.


	Performance obligations expected to be satisfied:
	Less than 12 months		Greater than 12 months		Total
Electricity and natural gas	$	1,007	$	4,352	$	5,359

Note 4. Investments in fixed maturity securities

Investments in securities with fixed maturities as of ~~June 30, 2017~~March 31, 2018 and December 31, ~~2016~~2017 are summarized by type below (in millions).

   Amortized
Cost    Unrealized
Gains    Unrealized
Losses Fair
Value
June 30, 2017

U.S. Treasury, U.S. government corporations and agencies
     $ 4,800      $ 6      $ (14 )   $ 4,792
States, municipalities and political subdivisions
   1,050    54    (1 ) 1,103
Foreign governments
   8,726    223    (27 ) 8,922
Corporate bonds
   6,897    668    (6 ) 7,559
Mortgage-backed securities
   924    115    (4 ) 1,035






     $   22,397      $ 1,066      $ (52 )   $ 23,411






December 31, 2016

U.S. Treasury, U.S. government corporations and agencies
     $ 4,519      $ 16      $ (8 )   $ 4,527
States, municipalities and political subdivisions
   1,159    58    (1 ) 1,216
Foreign governments
   8,860    207    (66 ) 9,001
Corporate bonds
   6,899    714    (9 ) 7,604
Mortgage-backed securities
   997    126    (6 ) 1,117






     $ 22,434      $     1,121      $ (90 )   $ 23,465

~~Investments in fixed maturity securities are reflected in our Consolidated Balance Sheets as follows (in millions).~~

   June 30,
2017    December 31,
2016
Insurance and other
   $   23,381    $ 23,432
Finance and financial products
   30    33




   $ 23,411    $   23,465


	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
March 31, 2018
U.S. Treasury, U.S. government corporations and agencies	$	3,633	$	11	$	(36	)	$	3,608
States, municipalities and political subdivisions		737		30		(8	)		759
Foreign governments		7,837		83		(32	)		7,888
Corporate bonds		6,308		519		(8	)		6,819
Mortgage-backed securities		761		88		(3	)		846

	$	19,276	$	731	$	(87	)	$	19,920

December 31, 2017
U.S. Treasury, U.S. government corporations and agencies	$	3,975	$	4	$	(26	)	$	3,953
States, municipalities and political subdivisions		847		19		(12	)		854
Foreign governments		8,572		274		(24	)		8,822
Corporate bonds		6,279		588		(5	)		6,862
Mortgage-backed securities		772		92		(2	)		862

	$	20,445	$	977	$	(69	)	$	21,353

Investments in foreign government securities include securities issued by national and provincial government entities as well as instruments that are unconditionally guaranteed by such entities. As of ~~June 30, 2017,~~March 31, 2018, approximately ~~93%~~89% of foreign government holdings were rated AA or higher by at least one of the major rating agencies. ~~Approximately 81% of foreign government holdings were issued or guaranteed by the United Kingdom, Germany, Australia or Canada.~~

The amortized cost and estimated fair value of securities with fixed maturities at ~~June 30, 2017~~March 31, 2018 are summarized below by contractual maturity dates. Actual maturities may differ from contractual maturities due to early call or prepayment rights held by issuers. Amounts are in millions.


	Due in one year or less		Due after one year through five years		Due after five years through ten years		Due after ten years		Mortgage- backed securities		Total		Due in one year or less		Due after one year through five years		Due after five years through ten years		Due after ten years		Mortgage- backed securities		Total
Amortized cost		$8,690		$10,009		$ 607		$2,167		$ 924		$22,397	$	7,178	$	9,884	$	460	$	993	$	761	$	19,276
Fair value		8,762		10,280		660		2,674		1,035		23,411		7,227		9,982		515		1,350		846		19,920

Notes to Consolidated Financial Statements(Continued)

Note 5. Investments in equity securities

Investments in equity securities as of ~~June 30, 2017~~March 31, 2018 and December 31, ~~2016~~2017 are summarized based on the primary industry of the investee in the table below (in millions).


	Cost Basis		Unrealized Gains		Unrealized Losses			Fair Value		Cost Basis		Net Unrealized Gains		Fair Value
June 30, 2017 *
March 31, 2018 *
Banks, insurance and finance	$	20,887	$	32,754	$	—		$	53,641	$	25,986		$ 50,091	$	76,077
Consumer products		19,495		22,267		—			41,762		38,130		23,864		61,994
Commercial, industrial and other		31,540		10,946		(776	)		41,710		21,714		13,191		34,905

	$	71,922	$	65,967	$	(776	)	$	137,113	$	85,830		$ 87,146	$	172,976

Approximately ~~62%~~68% of the aggregate fair value was concentrated in ~~the equity securities of~~ five ~~companies: American~~companies (American Express Company ~~- $12.8~~ ~~billion,~~– $14.1 billion; Apple Inc. ~~- $19.4~~ ~~billion,~~– $40.7 billion; Bank of America Corporation – $21.0 billion; The Coca-Cola Company ~~- $17.9~~ ~~billion, International Business Machines Corporation (“IBM”) - $8.3~~– $17.4 billion and Wells Fargo & Company ~~- $27.3~~ ~~billion.~~– $25.2 billion).


	Cost Basis		Unrealized Gains		Unrealized Losses			Fair Value		Cost Basis		Net Unrealized Gains		Fair Value
December 31, 2016*
December 31, 2017 *
Banks, insurance and finance	$	19,852	$	30,572	$	—		$	50,424	$	25,783		$ 55,026	$	80,809
Consumer products		10,657		16,760		(9	)		27,408		25,177		25,698		50,875
Commercial, industrial and other		35,868		9,033		(701	)		44,200		23,716		15,140		38,856

	$	66,377	$	56,365	$	(710	)	$	122,032	$	74,676		$ 95,864	$	170,540

Approximately ~~62%~~65% of the aggregate fair value was concentrated in ~~the equity securities of~~ five ~~companies: American~~companies (American Express Company ~~- $11.2~~ ~~billion,~~– $15.1 billion; Apple Inc. ~~- $7.1~~ ~~billion,~~– $28.2 billion; Bank of America Corporation – $20.7 billion; The Coca-Cola Company ~~- $16.6~~ ~~billion, IBM - $13.5~~– $18.4 billion and Wells Fargo & Company ~~- $27.6~~ ~~billion.~~– $29.3 billion).

As of June 30, 2017 and December 31, 2016, unrealized losses on equity securities in a continuous unrealized loss position for more than twelve consecutive months were $110 million and $551 million, respectively.

Investments in equity securities are reflected in our Consolidated Balance Sheets as follows (in millions).


	June 30, 2017		December 31, 2016		March 31, 2018		December 31, 2017
Insurance and other	$	135,355	$	120,471	$	166,658	$	164,026
Railroad, utilities and energy *		1,380		1,186		1,755		1,961
Finance and financial products		378		375
Finance and financial products *						4,563		4,553

	$	137,113	$	122,032	$	172,976	$	170,540

Included in other assets.

Note 6. Equity Method Investments

Berkshire holds investments in ~~The Kraft Heinz Company~~

~~In June 2013, Berkshire invested $12.25 billion~~certain businesses that are accounted for pursuant to the equity method. Currently, the most significant of these is our investment in ~~a newly-formed company, H.J. Heinz Holding Corporation (“Heinz Holding”), consisting of 425 million shares of~~the common stock ~~warrants to acquire approximately 46 million additional shares~~ of common stock at $0.01 per share and cumulative compounding preferred stock (“Preferred Stock”) with a liquidation preference of $8 billion. An affiliate of the global investment firm 3G Capital (such affiliate, “3G”) also acquired 425 million shares of Heinz Holding common stock for $4.25 billion. At that time, Berkshire and 3G each owned a 50% share of Heinz Holding common stock. Heinz Holding then acquired H.J. Heinz Company.

~~Notes to Consolidated Financial Statements~~~~(Continued)~~

~~Note 6.~~ ~~Investments in The Kraft Heinz Company~~~~(Continued)~~

In March 2015, Heinz Holding entered into an agreement to acquire all of the outstanding common stock of Kraft Foods Group, Inc. (“Kraft”). In June 2015, Berkshire exercised the aforementioned common stock warrants. On July 1, 2015, Berkshire and 3G also acquired new shares of Heinz Holding common stock for $5.26 billion and $4.74 billion, respectively. After these transactions, Berkshire owned approximately 52.5% of the outstanding shares of Heinz Holding. On July 2, 2015, Heinz Holding completed its acquisition of Kraft, at which time Heinz Holding was renamed The Kraft Heinz Company (“Kraft Heinz”). In connection with its acquisition of Kraft, Kraft Heinz issued one new share of Kraft Heinz common stock for each share of Kraft common stock, which reduced Berkshire’s and 3G’s ownership interests in Kraft Heinz to 26.8% and 24.2%, respectively.

Berkshire currently owns 26.7% of the outstanding shares of Kraft Heinz common stock. We account for our investment in Kraft Heinz common stock pursuant to the equity method. The carrying value of this investment was approximately $15.6 billion at June 30, 2017 and $15.3 billion at December 31, 2016. Our earnings determined under the equity method for the first six months were $548 million in 2017 and $446 million in 2016. We received dividends on the common stock of $391 million in the first six months of 2017 and $374 million in the first six months of 2016, which we recorded as reductions of our investment. In the second quarter of 2016, we also received dividends of $180 million on our Preferred Stock investment, which Kraft Heinz redeemed for cash of $8.32 billion on June 7, 2016.

Kraft Heinz is one of the world’s largest manufacturers and marketers of food and beverage products, including condiments and sauces, cheese and dairy, meals, meats, refreshment beverages, coffee and other grocery products. Berkshire currently owns 325,442,152 shares of Kraft Heinz common stock representing 26.7% of the outstanding shares. The carrying value of this investment was approximately $17.7 billion at March 31, 2018 and $17.6 billion at December 31, 2017. Our earnings determined under the equity method during the first quarter of 2018 were $265 million and $239 million in the first quarter of 2017. We received dividends on the common stock of $203 million during the first quarter of 2018 and $195 million in 2017, which we recorded as reductions of our investment.

Notes to Consolidated Financial Statements (Continued)

Note 6. Equity Method Investments(Continued)

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

       July 1, 2017            December 31, 2016
Assets
   $119,416      $120,480
Liabilities
   60,870      62,906

   Second Quarter      First Six Months
   2017      2016      2017      2016
Sales
   $     6,677      $     6,793      $     13,041      $ 13,363








Net earnings attributable to Kraft Heinz common shareholders
   $     1,159      $     770      $ 2,052      $ 1,666

~~Note 7. Other investments~~


	March 31, 2018		December 30, 2017
Assets	$	120,787			$120,232
Liabilities		54,324			53,985
	First Quarter
	2018			2017
Sales	$	6,304			$ 6,324

Net earnings attributable to Kraft Heinz common shareholders	$	993			$ 893

Other investments accounted for pursuant to the equity method include ~~preferred stock~~our investments in Berkadia Commercial Mortgage LLC (“Berkadia”), Pilot Travel Centers LLC, d/b/a Pilot Flying J (“Pilot Flying J”), and Electric Transmission Texas (“ETT”). Our investments in these entities were approximately $3.5 billion as of ~~Bank~~March 31, 2018 and $3.4 billion as of ~~America~~December 31, 2017 and were included in other assets. Our equity method earnings in these entities for the first quarter were $136 million in 2018 and $42 million in 2017. Additional information concerning these investments follows.

We own a 50% interest in Berkadia, with Leucadia National Corporation (“~~BAC”~~Leucadia”) owning the other 50% interest. Berkadia is a servicer of commercial real estate loans in the U.S., ~~warrants~~performing primary, master and special servicing functions for U.S. government agency programs, commercial mortgage-backed securities transactions, banks, insurance companies and other financial institutions. A source of funding for Berkadia’s operations is through its issuance of commercial paper, which is currently limited to ~~purchase common stock of BAC and preferred stock of Restaurant Brands International, Inc. (“RBI”). Other investments are classified asavailable-for-sale~~ ~~and carried at fair value and are shown in our Consolidated Balance Sheets as follows (in millions).~~

   Cost    Fair Value
   June 30,
2017    December 31,
2016    June 30,
2017    December 31,
2016
Insurance and other
   $   6,720    $ 6,720    $   16,838    $ 14,364
Finance and financial products
   1,000    1,000    3,396    2,892








   $   7,720    $ 7,720    $   20,234    $ 17,256

$1.5 billion. We ~~currently own 50,000 shares of 6%Non-Cumulative~~ ~~Perpetual Preferred Stock of BAC (“BAC Preferred”)~~support the commercial paper with a ~~liquidation value~~surety policy issued by a Berkshire insurance subsidiary. Leucadia is obligated to indemnify us forone-half of ~~$100,000 per share~~any losses incurred under the policy. We also own a 50% ownership interest in ETT through a subsidiary of Berkshire Hathaway Energy Company. ETT owns and ~~warrants to~~operates electric transmission assets in the Electric Reliability Council of Texas footprint. American Electric Power owns the other 50% interest.

On October 3, 2017, we entered into an investment agreement and an equity purchase ~~700,000,000 shares~~agreement whereby we acquired a 38.6% interest in Pilot Flying J, headquartered in Knoxville, Tennessee. Pilot Flying J is one of ~~common stock~~the largest operators of ~~BAC (“BAC Warrants”). The BAC Preferred is redeemable at~~travel centers in North America, with more than 27,000 team members, 750 locations across the ~~option of BAC beginning on May 7, 2019 at a redemption price of $105,000 per share (or $5.25~~U.S. and Canada, and approximately $20 billion in ~~aggregate).~~annual revenues. The ~~BAC Warrants expire~~Haslam family currently owns a 50.1% interest in ~~2021~~Pilot Flying J and ~~are exercisable for~~a third party owns the remaining 11.3% interest. We also entered into an ~~aggregate cost of $5 billion ($7.142857/share). On June 28, 2017, BAC’s Board of Directors announced plans~~agreement to ~~increase the quarterly dividend on BAC’s common stock to $0.12 per share, beginning~~acquire in the third quarter of 2017. On June 30, 2017, we announced our intention to exercise all of the BAC Warrants we currently own when the BAC quarterly dividend increase occurs. We currently expect to use substantially all of our BAC Preferred as consideration for the $5 billion cost to exercise the BAC Warrants.

We currently own Class A 9% Cumulative Compounding Perpetual Preferred Shares of RBI (“RBI Preferred”) having a stated value of $3 billion. RBI, domiciled in Canada, franchises and operates quick service restaurants. The RBI Preferred is entitled to dividends on a cumulative basis of 9% per annum plus2023 an additional ~~amount, if necessary, to produce anafter-tax~~ ~~yield to~~41.4% interest in Pilot Flying J with the Haslam family retaining a 20% interest. As a result, Berkshire ~~as if~~will become the ~~dividends were paid by a U.S.-based company. The RBI Preferred is redeemable at the option~~majority owner of RBI beginning on December 12, 2017. In the second quarter of 2017, RBI announced its intention to redeem all or a portion of our RBI Preferred investment. If not redeemed prior to December 12, 2024, we can cause RBI to redeem the RBI Preferred. In either case, the redemption price will be 109.9% of the stated value of such shares.

~~Notes to Consolidated Financial Statements~~~~(Continued)~~

Pilot Flying J in 2023.

Note 8.7. Income taxes

Our consolidated effective income tax rates for the ~~second~~first quarter of 2018 and ~~first six months of~~ 2017 were ~~28.9%~~29.7% and ~~28.1%~~27.2%, ~~respectively, and 31.1% and 22.3%, respectively, in the second quarter and first six months of 2016.~~respectively. Our effective income tax rate normally reflects recurring benefits from: (a) dividends received deductions applicable to certain investments in equity securities and (b) income production tax credits related to wind-powered electricity generation placed in service in the U.S. In 2018, our effective income tax rate reflects the U.S. statutory rate of 21%, while the rate for 2017 reflects the U.S. statutory rate of 35%. Our periodic effective income tax rate is also affected by the relative mix ofpre-tax earnings or losses and ~~(c) lower~~underlying income tax rates applicable to the various taxing jurisdictions.

In December 2017, the Securities and Exchange Commission issued Staff Accounting Bulletin 118 (“SAB 118”) to provide clarification in implementing the Tax Cuts and Jobs Act of 2017 (“TCJA”) when registrants do not have the necessary information available to complete the accounting for an element of the TCJA in the period of its enactment. SAB 118 provides for tax amounts to be classified as provisional and subject to remeasurement for up to one year from the enactment date for such elements when the accounting effect is not complete, but can be reasonably estimated. We consider our estimate of the tax on accumulated undistributed earnings of ~~certain~~ foreign ~~subsidiaries.~~

~~On February 29, 2016,~~subsidiaries to be provisional and subject to remeasurement when we ~~exchanged~~obtain the necessary additional information to complete the accounting. While we believe our ~~long-held investment in P&G common stock~~estimate is reasonable, it will take additional time to validate the inputs to the foreign earnings and profits calculations, the basis on which the repatriation tax is determined, and how the applicable states will address the U.S. repatriation tax. We currently expect that our accounting for the ~~common stock of Duracell. This exchange produced apre-tax~~ ~~gain of $1.1 billion for financial reporting purposes. The exchange transaction was structured as atax-free~~ ~~reorganization~~repatriation tax under the ~~Internal Revenue Code. As a result, no income taxes were payable on~~TCJA will be completed by the ~~excess~~end of ~~the fair value of the business received over the tax basis of the P&G shares exchanged, and we recorded aone-time~~ reduction of certain deferred income tax liabilities (approximately $750 million) that were recorded in 2005 in connection with our exchange of The Gillette Company common stock for P&G common stock upon the merger of those two companies. The P&G/Duracell exchange produced an 8.3 percentage point reduction in our consolidated effective income tax rate for the first six months of 2016.2018.

Notes to Consolidated Financial Statements (Continued)

Note 9.8. Investment gains/losses

~~Investment gains/~~A summary of investment gains and losses ~~included~~ in ~~earnings are summarized below~~the first quarter of 2018 and 2017 follows (in millions).

   Second Quarter    First Six Months
         2017                2016                2017                2016
Fixed maturity securities—

Gross gains from sales and redemptions
   $ 15    $ 20    $ 26    $ 39
Gross losses from sales and redemptions
   (8)    (14)    (14)    (17)
Equity securities—

Gross gains from sales and redemptions
   359    740    784    2,547
Gross losses from sales and redemptions
   (82)    (53)    (207)    (63)
Other-than-temporary impairment losses
   —    (63)    —    (63)
Other
   6    13    16    50








   $     290    $     643    $ 605    $ 2,493

~~We record investments in equity and fixed maturity securities classified asavailable-for-sale~~ ~~at fair value and record the difference between fair value and cost in other comprehensive income.~~


	2018		2017
Equity securities:
Investment gains and losses during 2018 on securities sold in 2018		$ (240)	$	—
Unrealized investment gains and losses on securities held at the end of the period		(7,807)		—
Gross realized gains		—		425
Gross realized losses		—		(125	)

		(8,047)		300

Fixed maturity securities:
Gross realized gains		359		11
Gross realized losses		(138)		(6	)
Other		17		10

		$(7,809)	$	315

We recognize investment gains and losses when we sell or otherwise dispose of such securities. ~~Gains~~Beginning in 2018, equity security investment gains and losses also include unrealized gains and losses from ~~sales~~changes in market prices during the period. See Note 2. Prior to 2018, we recorded the changes in unrealized gains and ~~redemptions of~~losses on our investments in equity securities in the second quarter of 2016 included $610 million from the redemption of our investment in Kraft Heinz Preferred Stock. Gains in the first six months of 2016 also included approximately $1.1 billion from the exchange of our P&G common stock in connection with the acquisition of Duracell.other comprehensive income.

Note ~~10. Inventories~~

~~Inventories are comprised of the following (in millions).~~

   June 30,
2017    December 31,
2016
Raw materials
   $ 2,935      $ 2,789
Work in process and other
   2,787    2,506
Finished manufactured goods
   4,199    4,033
Goods acquired for resale
   6,521    6,399




   $ 16,442      $ 15,727

~~Note 11.~~9. Receivables

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

   June 30,
2017 December 31,
2016
Insurance premiums receivable
   $ 11,124 $ 10,462
Reinsurance recoverable on unpaid losses
   3,076 3,338
Trade and other receivables
   15,089 13,630
Allowances for uncollectible accounts
   (336 ) (333)


   $ 28,953 $ 27,097

~~Notes to Consolidated Financial Statements~~~~(Continued)~~

~~Note 11. Receivables~~~~(Continued)~~


	March 31, 2018		December 31, 2017
Insurance premiums receivable	$	12,570	$	11,058
Reinsurance recoverable on unpaid losses		3,048		3,201
Trade receivables		12,568		11,756
Other		3,078		2,925
Allowances for uncollectible accounts		(358)		(362)

	$	30,906	$	28,578

A summary of loans and finance receivables of our finance and financial products businesses follows (in millions).


	June 30, 2017			December 31, 2016			March 31, 2018		December 31, 2017
Loans and finance receivables before allowances and discounts	$	14,967		$	13,728		$	14,209	$	14,126
Allowances for uncollectible loans		(177	)		(182	)		(179)		(180)
Unamortized acquisition discounts		(231	)		(246	)		(185)		(198)

	$	14,559		$	13,300		$	13,845	$	13,748

Loans and finance receivables are ~~primarily~~predominantly installment loans originated or acquired by our manufactured housing business. In June 2017, we agreed to provide a Canada-based financial institution with a C$2 billion (approximately $1.5 billion) one-year secured revolving credit facility. The agreement expires on June 29, 2018. The outstanding loan balance of C$1.4 billion at June 30, 2017 was repaid during July. Provisions for loan losses in ~~both~~ the first ~~six months~~quarter of 2018 and 2017 were $34 million and ~~2016 were $78 million.~~$38 million, respectively. Loan charge-offs, net of recoveries, in the first ~~six months~~quarter were ~~$83~~$35 million in ~~2017~~2018 and ~~$78~~$43 million in ~~2016.~~2017. At ~~June 30, 2017, we evaluated~~March 31, 2018, approximately 98% of the ~~manufactured housing~~ loan balances were evaluated collectively for impairment. As a part of the evaluation process, credit quality indicators are reviewed and loans are designated as performing ornon-performing. At ~~June 30, 2017,~~March 31, 2018, we considered approximately 99% of the loan balances to be performing and approximately ~~95%~~96% of the loan balances to be current as to payment status. In June 2017, we agreed to provide a Canada-based financial institution with a C$2 billion (approximately $1.55 billion)one-year secured revolving credit facility. The agreement expires on June 29, 2018. There was no outstanding loan balance as of March 31, 2018.

Notes to Consolidated Financial Statements(Continued)

Note 10. Inventories

Inventories are comprised of the following (in millions).


	March 31, 2018		December 31, 2017
Raw materials	$	3,094	$	2,997
Work in process and other		2,228		2,315
Finished manufactured goods		4,188		4,179
Goods acquired for resale		6,734		6,696

	$	16,244	$	16,187

Note ~~12.~~11. Property, plant and equipment and assets held for lease

A summary of property, plant and equipment of our insurance and other businesses follows (in millions). In conjunction with the adoption of ASC 606, we recorded a net asset of approximately $3.5 billion in aircraft sold under fractional aircraft ownership programs in machinery and equipment. Such amount consisted of cost of approximately $5.3 billion and accumulated depreciation of $1.8 billion. We also recorded other liabilities of approximately $3.5 billion for estimated repurchase obligations and unearned lease revenues, substantially offsetting the amount recorded in machinery and equipment. See Note 2.


	Ranges of estimated useful life		June 30, 2017			December 31, 2016			March 31, 2018			December 31, 2017
Land		—	$	2,213		$	2,108		$	2,310			$ 2,292
Buildings and improvements		5 – 40 years		8,538			8,360			8,961			8,810
Machinery and equipment		3 – 25 years		21,220			20,463			27,707			21,935
Furniture, fixtures and other		2 – 15 years		4,395			4,080			4,493			4,387

				36,366			35,011			43,471			37,424
Accumulated depreciation				(16,576	)		(15,686	)		(19,664	)		(17,320	)

			$	19,790		$	19,325		$	23,807			$20,104

A summary of property, plant and equipment of our railroad and our utilities and energy businesses follows (in millions).

   Ranges of
  estimated useful life      June 30,
2017    December 31,
2016
Railroad:

Land
   —    $ 6,074      $ 6,063
Track structure and other roadway
   7 – 100 years    50,344      48,277
Locomotives, freight cars and other equipment
   6 – 41 years    12,264      12,075
Construction in progress
   —    896      965




      69,578      67,380
Accumulated depreciation
      (7,936)    (6,130)




      61,642      61,250




Utilities and energy:

Utility generation, transmission and distribution systems
   5 – 80 years    72,317      71,536
Interstate natural gas pipeline assets
   3 – 80 years    6,969      6,942
Independent power plants and other assets
   3 – 30 years    7,044      6,596
Construction in progress
   —    2,607      2,098




      88,937      87,172
Accumulated depreciation
      (25,251)    (24,663)




      63,686      62,509




      $     125,328      $     123,759

~~Notes to Consolidated Financial Statements~~~~(Continued)~~

~~Note 12. Property, plant and equipment and assets held for lease~~~~(Continued)~~

The utility generation, transmission and distribution systems and interstate natural gas pipeline assets are owned by regulated public utility and natural gas pipeline subsidiaries.


	March 31, 2018			December 31, 2017
Railroad:
Land	$	6,090		$	6,088
Track structure and other roadway		51,652			51,320
Locomotives, freight cars and other equipment		12,600			12,543
Construction in progress		943			989

		71,285			70,940
Accumulated depreciation		(8,954	)		(8,627	)

		62,331			62,313

Utilities and energy:
Utility generation, transmission and distribution systems		75,068			74,660
Interstate natural gas pipeline assets		7,230			7,176
Independent power plants and other assets		7,622			7,499
Construction in progress		2,735			2,556

		92,655			91,891
Accumulated depreciation		(26,601	)		(26,020	)

		66,054			65,871

	$	128,385		$	128,184

Notes to Consolidated Financial Statements(Continued)

Note 11. Property, plant and equipment and assets held for lease(Continued)

Assets held for lease and property, plant and equipment of our finance and financial products businesses are summarized below (in millions). Assets held for lease includes railcars, intermodal tank containers, cranes,over-the-road trailers, storage units and furniture.


	Ranges of estimated useful life		June 30, 2017			December 31, 2016			March 31, 2018				December 31, 2017
Assets held for lease		5 – 35 years	$	12,110		$	11,902			$	12,337			$	12,318
Land		—		226			224				232				231
Buildings, machinery and other		3 – 50 years		1,365			1,302				1,464				1,444

				13,701			13,428				14,033				13,993
Accumulated depreciation				(3,910	)		(3,739	)			(4,113	)			(4,062	)

			$	9,791		$	9,689			$	9,920			$	9,931

A summary of depreciation expense for the first quarters of 2018 and 2017 follows (in millions).


	First Six Months				First Quarter
	2017		2016		2018		2017
Insurance and other	$	1,089	$	1,037	$	649	$	542
Railroad, utilities and energy		2,389		2,298		1,225		1,175
Finance and financial products		321		308		161		159

	$	3,799	$	3,643	$	2,035	$	1,876

Note ~~13.~~12. Goodwill and other intangible assets

A reconciliation of the change in the carrying value of goodwill is as follows (in millions).


	June 30, 2017		December 31, 2016			March 31, 2018		December 31, 2017
Balance at beginning of year	$	79,486	$	62,708		$	81,258	$	79,486
Acquisitions of businesses		616		17,650			52		1,545
Other, including foreign currency translation		73		(872	)		27		227

Balance at end of period	$	80,175	$	79,486		$	81,337	$	81,258

Other intangible assets are summarized as follows (in millions).


	June 30, 2017				December 31, 2016				March 31, 2018				December 31, 2017
	Gross carrying amount		Accumulated amortization		Gross carrying amount		Accumulated amortization		Gross carrying amount		Accumulated amortization		Gross carrying amount		Accumulated amortization
Insurance and other		$40,419		$7,199		$39,976		$6,495	$	40,317	$	8,057	$	40,225	$	7,707
Railroad, utilities and energy		903		312		898		293		993		334		988		324

		$41,322		$7,511		$40,874		$6,788	$	41,310	$	8,391	$	41,213	$	8,031

Trademarks and trade names		$ 5,275		$ 653		$ 5,175		$ 616	$	5,394	$	710	$	5,381	$	692
Patents and technology		4,435		2,512		4,341		2,328		4,383		2,579		4,341		2,493
Customer relationships		28,457		3,299		28,243		2,879		28,353		3,943		28,322		3,722
Other		3,155		1,047		3,115		965		3,180		1,159		3,169		1,124

		$41,322		$7,511		$40,874		$6,788	$	41,310	$	8,391	$	41,213	$	8,031

Amortization expense in the first ~~six months~~quarter was ~~$740~~$352 million in ~~2017~~2018 and ~~$716~~$367 million in ~~2016.~~2017. Intangible assets with indefinite lives were approximately ~~$18.8~~$18.9 billion as of ~~June 30, 2017~~March 31, 2018 and ~~$18.7 billion as of~~ December 31, ~~2016.~~2017.

Notes to Consolidated Financial Statements(Continued)

Note ~~14.~~13. Derivative contracts

We are party to derivative contracts primarily through our finance and financial products and our utilities and energy businesses. Currently, the derivative contracts of our finance and financial products businesses ~~include~~consist of equity index put option contracts written between 2004 and 2008. The liabilities and related notional values of such contracts follows (in millions).

   June 30, 2017    December 31, 2016
   Liabilities

  Notional
Value
   Liabilities

  Notional
Value

Equity index put options
   $   2,494      $27,911⁽¹⁾    $   2,890      $26,497⁽¹⁾


	March 31, 2018					December 31, 2017
	Liabilities		Notional Value			Liabilities		Notional Value
Equity index put options	$	2,378	$	29,479	⁽¹⁾	$	2,172	$	28,753	⁽¹⁾

⁽¹⁾

Represents the aggregate undiscounted amounts payable assuming that the value of each index is zero at each contract’s expiration date. Certain of these contracts are denominated in foreign currencies. Notional amounts are based on the foreign currency exchange rates as of each balance sheet date.

We record derivative contract liabilities at fair value and include the changes in the fair values of such contracts in earnings as derivative contract gains/losses. ~~We entered into these contracts with the expectation that the premiums received would exceed the amounts ultimately paid to counterparties.~~ A summary of ~~the~~ derivative contract gains/losses included in our Consolidated Statements of Earnings in the first quarter of 2018 and 2017 follows (in millions).

   Second Quarter    First Six Months


2017
   2016    2017    2016
Equity index put options
   $ (65)      $     (83)      $ 395    $ (879)
Credit default
   —       103       —       89








   $     (65)      $     20       $     395    $     (790)


	First Quarter
	2018				2017
Equity index put options		$	(206	)		$	460

The equity index put option contracts are European style options written prior to March 2008 on four major equity ~~indexes and~~indexes. The contracts expire between June 2018 and January 2026. Future payments, if any, under any given contract will be required if the prevailing index value is below the contract strike price at the expiration date. We received aggregate premiums of $4.2 billion on these contracts at the contract inception dates and ~~therefore~~ we have no counterparty credit risk. The aggregate intrinsic value (the undiscounted liability assuming the contracts are settled based on the index values and foreign currency exchange rates as of the balance sheet date) was ~~$842 million at June 30, 2017 and~~approximately $1.0 billion at March 31, 2018 and $789 million at December 31, ~~2016. However, these~~2017. These contracts may not be unilaterally terminated or fully settled before the expiration ~~dates. Therefore,~~dates and the ultimate amount of cash basis gains or losses on these contracts will not be determined ~~for several years.~~until the contract expiration dates. The remaining weighted average life of all contracts was approximately ~~3.4~~2.7 years at ~~June 30, 2017.~~March 31, 2018.

A limited number of our equity index put option contracts contain collateral posting requirements with respect to changes in the fair value or intrinsic value of the contracts and/or a downgrade of Berkshire’s credit ratings. As of ~~June 30, 2017,~~March 31, 2018, we did not have any collateral posting requirements. If Berkshire’s credit ratings (currently AA from Standard & Poor’s and Aa2 from Moody’s) are downgraded below eitherA- by Standard & Poor’s or A3 by Moody’s, collateral of up to $1.1 billion could be required to be posted.

~~In July 2016, our last remaining credit default contract was terminated by mutual agreement with the counterparty. We paid $195 million upon termination of the contract.~~

Our regulated utility subsidiaries are exposed to variations in the prices of fuel required to generate electricity, wholesale electricity purchased and sold and natural gas supplied for customers. ~~Derivative instruments, including~~We may use forward purchases and sales, futures, swaps and options ~~are used~~ to manage a portion of these price risks. Derivative contract assets ~~are~~ included in other assets ~~and~~ were ~~$123~~$141 million as of ~~June 30, 2017~~March 31, 2018 and $142 million as of December 31, ~~2016.~~2017. Derivative contract liabilities ~~are~~ included in ~~accounts payable, accruals and~~ other liabilities ~~and~~ were ~~$139~~$105 million as of ~~June 30, 2017~~March 31, 2018 and ~~$145~~$82 million as of December 31, ~~2016. Net~~2017. Most of the net derivative contract assets or liabilities of our regulated utilities ~~that~~ are probable of recovery through rates and are offset by regulatory liabilities or assets. Unrealized gains or losses on contracts accounted for as cash flow or fair value hedges are recorded in other comprehensive income or in net earnings, as appropriate.

~~Notes to Consolidated Financial Statements~~~~(Continued)~~

Note ~~15.~~14. Supplemental cash flow information

Supplemental cash flow information follows (in millions).


	First Six Months					First Quarter
	2017			2016		2018		2017
Cash paid during the period for:
Income taxes	$	1,082	$		1,055	$	289	$	26
Interest:
Insurance and other businesses		390			253		338		306
Railroad, utilities and energy businesses		1,410			1,406		747		737
Finance and financial products businesses		211			184		83		78
Non-cash investing and financing activities:
Liabilities assumed in connection with business acquisitions		167			16,997		4		142
Equity securities exchanged in connection with business acquisition		—			4,239

Notes to Consolidated Financial Statements(Continued)

Note ~~16.~~15. Unpaid losses and loss adjustment expenses

~~The~~Our liabilities for unpaid losses and loss adjustment expenses (also referred to as “claim liabilities”) under ~~our short duration~~short-duration 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 forincurred-but-not-reported (“IBNR”) claims. Reconciliations of the changes in claim liabilities, excluding liabilities under retroactive reinsurance contracts (see Note 16), for each of the ~~six~~three months ending ~~June 30,~~March 31, 2018 and 2017 ~~and 2016 follows~~follow (in millions).

   2017    2016
Unpaid losses and loss adjustment expenses—beginning of year:

Gross liabilities
     $   76,918         $ 73,144
Reinsurance recoverable and deferred charges
   (11,385)      (10,994)




Net balance
   65,533       62,150




Incurred losses and loss adjustment expenses with respect to:

Current accident year events
   16,980       14,898
Prior accident years’ events
   (199)      (1,071)
Retroactive reinsurance and discount accretion
   10,532       883




Total incurred losses and loss adjustment expenses
       27,313       14,710




Paid losses and loss adjustment expenses with respect to:

Current accident year events
   (6,656)      (6,049)
Prior accident years’ events
   (7,265)      (6,512)
Retroactive reinsurance
   (618)      (534)




Total payments
   (14,539)      (13,095)




Foreign currency translation adjustment
   327       (168)




Unpaid losses and loss adjustment expenses—June 30:

Net balance
   78,634           63,597
Reinsurance recoverable and deferred charges
   16,673       11,111




Gross liabilities
     $ 95,307         $ 74,708

Incurred losses and loss adjustment expenses in the preceding table reflect the losses and loss adjustment expenses recorded in earnings in each period related to insured events occurring in the current year and in prior years. We present incurred and paid losses under retroactive reinsurance contracts and discount accretion separately. Such amounts relate to prior accident years.

~~Notes to Consolidated Financial Statements~~~~(Continued)~~

~~Note 16. Unpaid losses and loss adjustment expenses~~~~(Continued)~~


	2018			2017
Balances – beginning of year:
Gross liabilities	$	61,122		$	53,379
Reinsurance recoverable on unpaid losses		(3,201	)		(3,338	)

Net liabilities		57,921			50,041


Incurred losses and loss adjustment expenses:
Current accident year events		9,475			8,165
Prior accident years’ events		(753	)		134

Total incurred losses and loss adjustment expenses		8,722			8,299


Paid losses and loss adjustment expenses:
Current accident year events		(3,091	)		(2,678	)
Prior accident years’ events		(4,759	)		(4,216	)

Total payments		(7,850	)		(6,894	)


Foreign currency translation adjustment		253			77
Balances – March 31:
Net liabilities		59,046			51,523
Reinsurance recoverable on unpaid losses		3,048			3,221

Gross liabilities	$	62,094		$	54,744

Incurred losses and loss adjustment expenses in the first ~~six months~~quarter of ~~2017 and 2016 reflected decreases~~2018 included net reductions of ~~$199 million and $1,071 million, respectively, in the~~ estimated ultimate liabilities for prior accident ~~years’ events. In the first six months~~years of ~~2017, the decrease included a $532~~$753 million ~~decrease related~~compared to net increases of $134 million in 2017. We decreased estimated ultimate liabilities with respect to primary insurance ~~operations (primarily~~by $571 million in the first quarter of 2018 and $261 million in 2017. In each period, these reductions primarily related to medical malpractice, workers’ compensation and private passenger automobile ~~healthcare malpractice~~insurance. Estimated ultimate liabilities with respect to property and ~~workers’ compensation coverages), which was partly offset~~casualty reinsurance decreased by $182 million in the first quarter of 2018 compared to an increase ~~attributable to reinsurance operations. The increase related to our reinsurance operations~~of $395 million in 2017. Incurred losses for prior years’ events in 2017 included ~~$215 million with respect to~~increases in the estimated liabilities for certain personal injury claims in the United Kingdom due to a regulatory decision, ~~that increases calculated lump sum settlement amounts. In addition, during 2017, we increased ultimate liability estimates~~for unanticipated property claims under certain reinsurance contracts ~~due~~and for estimates of IBNR losses.

Notes to ~~higher than expected reported~~Consolidated Financial Statements(Continued)

Note 16. Retroactive reinsurance contracts

Retroactive reinsurance policies provide indemnification of losses ~~from hurricane~~ and ~~earthquake~~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, if applicable, once a contractual retention amount has been reached. Reconciliations of the changes in ~~2016.~~ estimated liabilities for retroactive reinsurance unpaid losses and loss adjustment expenses (“claim liabilities”) and related deferred charge reinsurance assumed assets for each of the three months ending March 31, 2018 and 2017 follows (in millions).


	2018				2017
	Unpaid losses and loss adjustment expenses		Deferred charges reinsurance assumed		Unpaid losses and loss adjustment expenses		Deferred charges reinsurance assumed
Balances – beginning of year:	$	42,937	$	(15,278)	$	24,972	$	(8,047)

Incurred losses and loss adjustment expenses
Current year contracts		—		—		16,448		(6,192)
Prior years’ contracts		(30)		271		(398)		409

Total		(30)		271		16,050		(5,783)


Paid losses and loss adjustment expenses		(563)		—		(435)		—


Balances – March 31:	$	42,344	$	(15,007)	$	40,587	$	(13,830)

Incurred losses and loss adjustment expenses, net of deferred charges	$	241			$	10,267

In the preceding table, classifications of incurred losses and loss adjustment expenses are based on the inception dates of the contracts. We do not believe that analysis of losses incurred and paid by accident year of the underlying event is relevant or meaningful given that our exposure to losses incepts when the contract incepts. Further, we believe the classifications of reported claims and case development liabilities has little or no practical analytical value.

In the first ~~six months~~quarter of ~~2016,~~2017, we reduced estimated ultimate liabilities for prior accident years’ events for reinsurance operations ($619 million) and primary insurance ($452 million). The reductions related to reinsurance operations were primarily attributable to lower than expected reported losses, while the reductions for primary insurance primarily related to private passenger automobile, healthcare malpractice and workers’ compensation coverages.

~~In January 2017,~~entered into an agreement through a Berkshire subsidiary, National Indemnity Company (“NICO”), ~~entered into a retroactive reinsurance agreement~~ with various subsidiaries of American International Group, Inc. (collectively, “AIG”)., which became effective on February 2, 2017. Under this agreement, NICO ~~received cash consideration of $10.2 billion and~~ agreed to indemnify AIG for 80% of up to $25 billion of losses and allocated loss adjustment expenses in excess of $25 billion retained by AIG, ~~of losses and allocated loss adjustment expenses~~ with respect to certain commercial insurance loss events occurring ~~in years~~ prior to 2016. ~~The transaction became~~As of the effective ~~on February 2, 2017.~~date, we recorded premiums earned of $10.2 billion, a liability for unpaid losses and loss adjustment expenses of $16.4 billion and a deferred charge reinsurance assumed asset of $6.2 billion. Berkshire agreed to guarantee the timely payment of all amounts due to AIG under the agreement.

~~We accounted for~~ Our estimated ultimate claim liabilities with respect to the AIG ~~agreement as retroactive reinsurance~~contract at March 31, 2018 and at December 31, 2017 were $18.2 billion. Deferred charge assets were approximately $7.4 billion at March 31, 2018 and $7.5 billion at December 31, 2017, which reflected an increase in estimated ultimate liabilities recorded in the fourth quarter of ~~short-duration insurance contracts. As~~2017 of ~~the effective date, we recorded premiums earned and~~$1.8 billion.

Incurred losses and loss adjustment expenses ~~incurred~~related to contracts written in prior years were $241 million in the first quarter of ~~$10.2 billion. We also recorded a liability for unpaid~~2018 and $11 million in the first quarter of 2017. Such losses ~~and loss adjustment expenses~~included recurring amortization of ~~$16.4 billion, representing the estimated ultimate liabilities assumed, and a~~ deferred charge reinsurance assumed asset of $6.2 billion, representing the excess of the liability over the premiums earned. This deferred charge asset will be amortized over the estimated claims settlement period using the interest method based on the estimated timingassets and ~~amount of future loss payments. Amortization charges are included~~net gains from contract commutations in ~~losses~~2018 and ~~loss adjustment expenses in the Consolidated Statements of Earnings.~~2017.

Note 17. Notes payable and other borrowings

Notes payable and other borrowings are summarized below (in millions). The weighted average interest rates and maturity date ranges shown in the following tables are based on borrowings as of ~~June 30, 2017.~~March 31, 2018.


	Weighted Average Interest Rate		June 30, 2017		December 31, 2016		Weighted Average Interest Rate		March 31, 2018		December 31, 2017
Insurance and other:
Issued by Berkshire:
U.S. Dollar denominated borrowings due 2017-2047		2.8%		$10,615		$11,709
U.S. Dollar denominated borrowings due 2018-2047								3.0%	$	9,804		$10,603
Euro denominated borrowings due 2020-2035		1.1%		7,766		5,994		1.1%		8,383		8,164
Short-term subsidiary borrowings		3.0%		2,013		2,094		3.7%		1,800		1,832
Other subsidiary borrowings due 2017-2045		3.9%		7,387		7,378
Other subsidiary borrowings due 2018-2045								4.0%		5,676		6,725

				$27,781		$27,175			$	25,663		$27,324

In January 2017, Berkshire issued €1.1 billion in senior unsecured notes. The notes consisted of €550 million of 0.25% notes due in 2021 and €550 million of 0.625% notes due in 2023. In January 2017, senior notes of $1.1 billion matured. The increase in the carrying value of Berkshire’s Euro denominated senior notes in the first six months of 2017 included $597 million that was charged to earnings as additional interest expense for the first six months of 2017 (including $526 million in the second quarter) and resulted from the revaluation attributable to changes in foreign currency exchange rates.

Notes to Consolidated Financial Statements(Continued)

Note 17. Notes payable and other borrowings(Continued)

In 2018, the carrying value of Berkshire’s Euro denominated senior notes increased $217 million due to changes in the Euro/U.S. Dollar exchange rates. This increase produced a corresponding charge topre-tax earnings of $217 million, which was recorded as additionalnon-cash interest expense. During the first quarter of 2018, $800 million of Berkshire U.S. Dollar denominated notes matured.

   Weighted
Average
Interest Rate June 30,
2017    December 31,
2016
Railroad, utilities and energy:

Issued by Berkshire Hathaway Energy Company (“BHE”) and its subsidiaries:

BHE senior unsecured debt due 2018-2045
   5.4% $ 7,420      $ 7,818
Subsidiary and other debt due 2017-2064
   4.6% 30,729    29,223
Issued by BNSF due 2017-2097
   4.8% 22,552    22,044




   $ 60,701      $ 59,085


	Weighted Average Interest Rate		March 31, 2018		December 31, 2017
Railroad, utilities and energy:
Issued by Berkshire Hathaway Energy Company (“BHE”) and its subsidiaries:
BHE senior unsecured debt due 2018-2048		4.6%	$	8,627	$	6,452
Subsidiary and other debt due 2018-2064		4.8%		28,871		28,739
Short-term debt		2.6%		2,608		4,488
Issued by BNSF due 2018-2097		4.7%		22,561		22,499

			$	62,667	$	62,178

BHE subsidiary debt represents amounts issued pursuant to separate financing agreements. Substantially all of the assets of certain BHE subsidiaries are, or may be, pledged or encumbered to support or otherwise secure debt. These borrowing arrangements generally contain various covenants including, but not limited to, leverage ratios, interest coverage ratios and debt service coverage ~~ratios. During the first six months of 2017,~~ratios, among other covenants. In January 2018, BHE ~~and its subsidiaries~~ issued ~~approximately $1.275~~$2.2 billion of ~~debt~~senior notes with maturity dates ranging from ~~2027~~2021 to ~~2057 and~~2048 with a weighted average interest rate of ~~3.7%~~3.2%. Proceeds from this debt issuance were used to repay short-term debt and for general corporate purposes.

BNSF’s borrowings are primarily senior unsecured debentures. In ~~March 2017,~~the first quarter of 2018, BNSF issued ~~$1.25 billion~~$750 million of 4.05% senior unsecured debentures ~~consisting of $500 million of 3.25% debentures~~ due in ~~2027~~2048 and ~~$750 million of 4.125% debentures due in 2047. In May 2017,~~ $650 million of ~~BNSF~~ debentures matured. As of ~~June 30, 2017,~~March 31, 2018, BNSF, BHE and their subsidiaries were in compliance with all applicable debt covenants. Berkshire does not guarantee any debt, borrowings or lines of credit of BNSF, BHE or their subsidiaries.

   Weighted
Average
Interest Rate June 30,
2017    December 31,
2016
Finance and financial products:

Issued by Berkshire Hathaway Finance Corporation (“BHFC”) due 2017-2043
   2.7% $ 13,323    $ 14,423
Issued by other subsidiaries due 2017-2036
   4.7% 465    961




   $ 13,788    $ 15,384


	Weighted Average Interest Rate		March 31, 2018		December 31, 2017
Finance and financial products:
Issued by Berkshire Hathaway Finance Corporation (“BHFC”) due 2018-2043		3.1%	$	10,578	$	12,926
Issued by other subsidiaries due 2019-2028		4.0%		177		159

			$	10,755	$	13,085

~~In January 2017,~~Borrowings of BHFC ~~issued $1.3 billion~~are used to fund manufactured housing loans originated or acquired and assets held for lease of senior notes consisting of $950 million of floating rate notes due in 2019 and $350 million of floating rate notes due in 2020. In the first six months of 2017, senior notes of $2.4 billion matured.certain finance subsidiaries. The borrowings of BHFC, a wholly owned finance subsidiary of Berkshire, consist of senior unsecured notes, which are fully and unconditionally guaranteed by Berkshire. During the first quarter of 2018, $2.35 billion of BHFC senior notes matured.

As of ~~June 30, 2017,~~March 31, 2018, our subsidiaries had unused lines of credit and commercial paper capacity aggregating approximately ~~$8.4~~$7.3 billion to support short-term borrowing programs and provide additional liquidity. Such unused lines of credit included about ~~$4.8~~$5.3 billion related to BHE and its subsidiaries. In addition to BHFC’s borrowings, at ~~June 30, 2017,~~March 31, 2018, Berkshire guaranteed approximately ~~$2.6~~$1.9 billion of other subsidiary borrowings. 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.

Notes to Consolidated Financial Statements(Continued)

Note 18. Fair value measurements

Our financial assets and liabilities are summarized below as of ~~June 30, 2017~~March 31, 2018 and December 31, ~~2016~~2017 with fair values shown according to the fair value hierarchy (in millions). The carrying values of cash and cash equivalents, U.S. Treasury Bills, receivables and accounts payable, accruals and other liabilities are considered to be reasonable estimates of their fair values.


	Carrying Value		Fair Value		Quoted Prices (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Carrying Value		Fair Value		Quoted Prices (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
June 30, 2017
March 31, 2018
Investments in fixed maturity securities:
U.S. Treasury, U.S. government corporations and agencies		$ 4,792		$ 4,792		$ 3,326		$ 1,466		$ —	$	3,608	$	3,608	$	2,399		$ 1,209		$ —
States, municipalities and political subdivisions		1,103		1,103		—		1,103		—		759		759		—		759		—
Foreign governments		8,922		8,922		7,143		1,779		—		7,888		7,888		5,906		1,982		—
Corporate bonds		7,559		7,559		—		7,552		7		6,819		6,819		—		6,813		6
Mortgage-backed securities		1,035		1,035		—		1,035		—		846		846		—		846		—
Investments in equity securities		137,113		137,113		137,104		8		1		172,976		172,976		172,928		48		—
Investment in Kraft Heinz common stock		15,584		27,871		27,871		—		—		17,687		20,272		20,272		—		—
Other investments		20,234		20,234		—		20,234		—
Loans and finance receivables		14,559		15,015		—		1,095		13,920		13,845		14,084		—		18		14,066
Derivative contract assets⁽¹⁾		123		123		2		15		106		141		141		1		26		114
Derivative contract liabilities:
Railroad, utilities and energy⁽¹⁾		139		139		2		120		17		105		105		—		88		17
Equity index put options		2,494		2,494		—		—		2,494		2,378		2,378		—		—		2,378
Notes payable and other borrowings:
Insurance and other		27,781		28,489		—		28,489		—		25,663		26,046		—		26,046		—
Railroad, utilities and energy		60,701		68,603		—		68,603		—		62,667		68,603		—		68,603		—
Finance and financial products		13,788		14,296		—		13,973		323		10,755		11,059		—		11,035		24

December 31, 2016
December 31, 2017
Investments in fixed maturity securities:
U.S. Treasury, U.S. government corporations and agencies		$ 4,527		$ 4,527		$ 3,099		$ 1,428		$—	$	3,953	$	3,953	$	2,360		$ 1,593		$ —
States, municipalities and political subdivisions		1,216		1,216		—		1,216		—		854		854		—		854		—
Foreign governments		9,001		9,001		7,237		1,764		—		8,822		8,822		6,946		1,876		—
Corporate bonds		7,604		7,604		—		7,540		64		6,862		6,862		—		6,856		6
Mortgage-backed securities		1,117		1,117		—		1,117		—		862		862		—		862		—
Investments in equity securities		122,032		122,032		122,031		—		1		170,540		170,540		170,494		46		—
Investment in Kraft Heinz common stock		15,345		28,418		28,418		—		—		17,635		25,306		25,306		—		—
Other investments		17,256		17,256		—		—		17,256
Loans and finance receivables		13,300		13,717		—		13		13,704		13,748		14,136		—		17		14,119
Derivative contract assets⁽¹⁾		142		142		5		43		94		142		142		1		28		113
Derivative contract liabilities:
Railroad, utilities and energy⁽¹⁾		145		145		3		114		28		82		82		3		69		10
Equity index put options		2,890		2,890		—		—		2,890		2,172		2,172		—		—		2,172
Notes payable and other borrowings:
Insurance and other		27,175		27,712		—		27,712		—		27,324		28,180		—		28,180		—
Railroad, utilities and energy		59,085		65,774		—		65,774		—		62,178		70,538		—		70,538		—
Finance and financial products		15,384		15,825		—		15,469		356		13,085		13,582		—		13,577		5

⁽¹⁾

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

Notes to Consolidated Financial Statements(Continued)

Note 18. Fair value measurements(Continued)

The fair values of substantially all of our financial instruments were measured using market or income approaches. Considerable judgment may be required in interpreting market data used to develop the estimates of fair value. Accordingly, the fair values presented are not necessarily indicative of the amounts that could be realized in an actual current market exchange. The use of alternative market assumptions and/or estimation methodologies may have a material effect on the estimated fair value. 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 assets and liabilities measured and carried at fair value on a recurring basis with the use of significant unobservable inputs (Level 3) for the ~~six~~three months ~~ending June 30,~~ended March 31, 2018 and 2017 ~~and 2016~~ follow (in millions).


	Investments in fixed maturity securities		Investments in equity securities and other investments				Net derivative contract liabilities				Investments in equity and fixed maturity securities			Net derivative contract liabilities
Six months ending June 30, 2017
Three months ending March 31, 2018
Balance at December 31, 2017											$	6		$	(2,069	)
Gains (losses) included in:
Earnings												—			(176	)
Other comprehensive income												—			(1	)
Regulatory assets and liabilities												—			(9	)
Acquisitions, dispositions and settlements												—			(26	)
Transfers into/out of Level 3												—			—

Balance at March 31, 2018											$	6		$	(2,281	)

Three months ending March 31, 2017
Balance at December 31, 2016		$ 64		$	17,257			$	(2,824	)	$	17,321		$	(2,824	)
Gains (losses) included in:
Earnings		—			—				473			—			499
Other comprehensive income		1			1,156				(2	)		1,157			(2	)
Regulatory assets and liabilities		—			—				(2	)		—			1
Acquisitions, dispositions and settlements		(58)			—				(50	)		(3	)		(23	)
Transfers into/out of Level 3		—			(18,412	)			—			(1	)		—

Balance at June 30, 2017		$ 7		$	1			$	(2,405	)
Balance at March 31, 2017											$	18,474		$	(2,349	)

Six months ending June 30, 2016
Balance at December 31, 2015		$100		$	21,403			$	(3,785	)
Gains (losses) included in:
Earnings		—			—				(737	)
Other comprehensive income		1			(927	)			—
Regulatory assets and liabilities		—			—				(11	)
Acquisitions, dispositions and settlements		5			—				(35	)
Transfers into/out of Level 3		(1)			—				195

Balance at June 30, 2016		$105		$	20,476			$	(4,373	)

Gains and losses included in earnings are included as components of investment gains/losses, derivative gains/losses and other revenues, as ~~appropriate and are primarily related to changes in the values of derivative contracts and settlement transactions.~~appropriate. Gains and losses included in other comprehensive income are primarily the net change in unrealized appreciation of investments and the reclassification of investment appreciation in net earnings, as appropriate in our Consolidated Statements of Comprehensive Income.

Notes to Consolidated Financial Statements(Continued)

Note 18. Fair value measurements(Continued)

As disclosed in Note 7, we expect to exercise our BAC Warrants in the third quarter of 2017 using the BAC Preferred as consideration and additionally, RBI intends to redeem our RBI Preferred investment. As of June 30, 2017, we based our valuations of these investments on these expectations and we significantly reduced expected durations and effectively eliminated the discounts for transferability and other restrictions. As a result, we concluded the Level 3 inputs used in the previous fair value determinations of our investments in BAC Warrants and RBI Preferred were not significant and that the valuations of such investments were Level 2 measurements as of June 30, 2017.

Quantitative information as of ~~June 30, 2017,~~March 31, 2018, with respect to ~~significant~~ assets and liabilities measured and carried at fair value on a recurring basis with the use of significant unobservable inputs (Level 3) follows (in millions).

Fair
Value

Principal Valuation

Techniques

Unobservable Inputs

Weighted
Average

Fair
Value

Principal Valuation
Techniques

Unobservable Inputs

Weighted
Average

Derivative contract liabilities:

Derivative liabilities:

Equity index put options

2,494

Option pricing model

Volatility

19%

$2,378

Option pricing model

Volatility

18%

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

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

Note 19. Common stock

Changes in Berkshire’s issued, treasury and outstanding common stock during the ~~first six~~three months ~~of 2017~~ending March 31, 2018 are shown in the table below.

   Class A, $5 Par Value
(1,650,000 shares authorized) Class B, $0.0033 Par Value
(3,225,000,000 shares authorized)


Issued
     Treasury        Outstanding   Issued    Treasury    Outstanding
Balance at December 31, 2016
   788,058    (11,680)    776,378 1,303,323,927    (1,409,762)    1,301,914,165
Conversions of Class A common stock to Class B common stock and exercises of replacement stock options issued in a business acquisition
   (8,124)    —      (8,124 ) 12,609,748    —       12,609,748










Balance at June 30, 2017
   779,934    (11,680)    768,254 1,315,933,675    (1,409,762)    1,314,523,913


	Class A, $5 Par Value (1,650,000 shares authorized)									Class B, $0.0033 Par Value (3,225,000,000 shares authorized)
	Issued			Treasury			Outstanding			Issued		Treasury			Outstanding
Balance at December 31, 2017		762,755			(11,680	)		751,075			1,342,066,749		(1,409,762	)		1,340,656,987
Conversions of Class A common stock to Class B common stock and exercises of replacement stock options issued in a business acquisition		(3,038	)		—			(3,038	)		4,806,083		—			4,806,083

Balance at March 31, 2018		759,717			(11,680	)		748,037			1,346,872,832		(1,409,762	)		1,345,463,070

Each Class A common share is entitled to one vote per share. Class B common stock possesses dividend and distribution rights equal toone-fifteen-hundredth (1/1,500) of such rights of Class A common stock. Each Class B common share possesses voting rights equivalent toone-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 ~~1,644,603~~1,645,012 shares outstanding as of ~~June 30, 2017~~March 31, 2018 and ~~1,644,321~~1,644,846 shares outstanding as of December 31, ~~2016.~~2017. In addition to our common stock, 1,000,000 shares of preferred stock are authorized, but none are issued.

~~Notes to Consolidated Financial Statements~~~~(Continued)~~

~~Note 19. Common stock~~~~(Continued)~~

Berkshire’s Board of Directors ~~(“Berkshire’s Board”)~~ has approved a common stock repurchase program ~~under which~~permitting Berkshire ~~may~~to repurchase its Class A and Class B shares at prices no higher than a 20% premium over the book value of the shares. ~~Berkshire may repurchase shares~~The program allows share repurchases in the open market or through privately negotiated ~~transactions. Berkshire’s Board authorization~~transactions and does not specify a maximum number of shares to be repurchased. However, repurchases will not be made if they would reduce the total value of Berkshire’s consolidated cash, cash equivalents and U.S. Treasury Bills holdings below $20 billion. The repurchase program does not obligate Berkshire to repurchase any specific dollar amount or number of Class A or Class B shares and there is no expiration date to the program.

Notes to Consolidated Financial Statements(Continued)

Note 20. Accumulated other comprehensive income

A summary of the net changes inafter-tax accumulated other comprehensive income attributable to Berkshire Hathaway shareholders and ~~significant~~ amounts reclassified out of accumulated other comprehensive income for the ~~six~~three months ending ~~June 30,~~March 31, 2018 and 2017 ~~and 2016~~ follows (in millions).

Unrealized
appreciation of
investments, net

Foreign
currency
translation    Prior service
and actuarial
gains/losses of
defined benefit
pension plans

Other    Accumulated
other
comprehensive
income
2017

Balance at December 31, 2016
$ 43,176 $ (5,268 ) $ (593) $ (17) $   37,298
Other comprehensive income, net before reclassifications
8,540 1,221 (64) (7) 9,690
Reclassifications from accumulated other comprehensive income into net earnings
(383 ) —     34 13 (336 )

Balance at June 30, 2017
$ 51,333 $ (4,047 ) $ (623 ) $ (11) $ 46,652

Reclassifications into net earnings:

Investment gains/losses
$ (589 ) $ —     $ —    $ —    $ (589 )
Other
—   —     45 24 69

Reclassifications before income taxes
(589 ) —     45 24 (520 )
Applicable income taxes
(206 ) —     11 11 (184 )

$ (383 ) $ —     $ 34 $ 13 $ (336 )

2016

Balance at December 31, 2015
$ 38,598 $ (3,856) $ (762) $ 2   $ 33,982
Other comprehensive income, net before reclassifications
(1,971 ) (78 ) (5) (22) (2,076 )
Reclassifications from accumulated other comprehensive income into net earnings
(1,180 ) —     35 16    (1,129 )

Balance at June 30, 2016
$ 35,447 $ (3,934) $ (732) $ (4) $ 30,777

Reclassifications into net earnings:

Investment gains/losses
$ (1,816 ) $ —     $ —   $ — $ (1,816 )
Other
—   —     51 35 86

Reclassifications before income taxes
(1,816 ) —     51 35 (1,730 )
Applicable income taxes
(636 ) —     16 19 (601 )

$ (1,180 ) $ —     $ 35 $ 16 $ (1,129 )

~~Notes to Consolidated Financial Statements~~~~(Continued)~~


	Unrealized appreciation of investments, net			Foreign currency translation			Prior service and actuarial gains/losses of defined benefit pension plans			Other			Accumulated other comprehensive income
2018
Balance at December 31, 2017	$	62,093		$	(3,114	)	$	(420	)	$	12		$	58,571
Reclassifications to retained earnings		(61,340	)		(65	)		36			(6	)		(61,375	)
Other comprehensive income, net before reclassifications		(74	)		585			(17	)		2			496
Reclassifications into net earnings		(175	)		—			9			(3	)		(169	)

Balance at March 31, 2018	$	504		$	(2,594	)	$	(392	)	$	5		$	(2,477	)

Reclassifications into net earnings:
Reclassifications before income taxes	$	(221	)	$	—		$	10		$	(5	)	$	(216	)
Applicable income taxes		(46	)		—			1			(2	)		(47	)

	$	(175	)	$	—		$	9		$	(3	)	$	(169	)

2017
Balance at December 31, 2016	$	43,176		$	(5,268	)	$	(593	)	$	(17	)	$	37,298
Other comprehensive income, net before reclassifications		5,497			475			(22	)		(6	)		5,944
Reclassifications into net earnings		(198	)		—			18			8			(172	)

Balance at March 31, 2017	$	48,475		$	(4,793	)	$	(597	)	$	(15	)	$	43,070

Reclassifications into net earnings:
Reclassifications before income taxes	$	(305	)	$	—		$	24		$	14		$	(267	)
Applicable income taxes		(107	)		—			6			6			(95	)

	$	(198	)	$	—		$	18		$	8		$	(172	)

Note 21. Contingencies and Commitments

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

In ~~the third quarter of~~ 2016, NICO entered into a definitive agreement to acquire Medical Liability Mutual Insurance Company (“MLMIC”), a writer of medical professional liability insurance domiciled in New York. ~~MLMIC’s assets and policyholders’ surplus determined under statutory accounting principles as of March 31, 2017 were approximately $5.6 billion and $2.1 billion, respectively.~~ The acquisition price will be ~~an amount equal to the sum of: (i) the tangible book value of MLMIC at the closing date (determined under U.S. GAAP); plus (ii) $100 million.~~approximately $2.5 billion. The acquisition will involve the conversion of MLMIC from a mutual company to a stock company. The closing of the transaction is subject to various regulatory approvals, customary closing conditions and the approval of the MLMIC policyholders eligible to vote on the proposed demutualization and sale. We currently expect this ~~transaction~~acquisition will be completed in ~~late 2017.~~

~~We own a 50% interest in a joint venture, Berkadia Commercial Mortgage LLC (“Berkadia”), with Leucadia National Corporation (“Leucadia”) owning~~ the other 50% interest. Berkadia is a servicer of commercial real estate loans in the U.S. A significant source of funding for Berkadia’s operations is through the issuance of commercial paper, which is limited to $1.5 billion. Berkadia’s commercial paper outstanding is supported by a surety policy issued by a Berkshire insurance subsidiary. Leucadia has agreed to indemnify us for~~one-half~~ ~~of any losses we incur under the policy.~~

On July 7, 2017, Berkshire Hathaway Energy Company (“BHE”) agreed to acquire 80.03% of the outstanding equity interests of Oncor Electric Delivery Company LLC (“Oncor”) for $9 billion pursuant to an agreement between BHE and Energy Future Holdings Corp. (“EFH”). Since April 2014, EFH and the substantial majority of its direct and indirect subsidiaries, excluding Oncor, have operated as~~debtors-in-possession~~ ~~under the jurisdiction of the U.S. Bankruptcy Court and pursuant to Chapter 11 of the U.S. Bankruptcy Code.~~

Oncor is a regulated electricity transmission and distribution company that operates the largest transmission and distribution system in Texas, delivering electricity to more than 3.4 million homes and businesses and operating more than 122,000 miles of transmission and distribution lines. Texas Transmission Investment LLC owns 19.75% and certain Oncor directors, employees and retirees own the remaining 0.22% of Oncor’s equity interests. BHE intends to acquire the remaining 19.97% minority interest positions in Oncor through transactions separate from the agreement with EFH.

The completion of this transaction is subject to numerous approvals, rulings and conditions, including those from the U.S. Bankruptcy Court, the Public Utility Commission of Texas and the Federal Energy Regulatory Commission (“FERC”), and the expiration of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. Subject to obtaining the necessary approvals, we expect the transaction between BHE and EFH will close in the fourththird quarter of ~~2017.~~2018.

Notes to Consolidated Financial Statements(Continued)

Note 22. Business segment data

Our operating businesses include a large and diverse group of insurance, railroad, utilities and energy, finance, manufacturing, service and retailing businesses. Our reportable business segments are organized in a manner that reflects how management views those business activities. Certain businesses have been grouped together for segment reporting based upon similar products or product lines, marketing, selling and distribution characteristics, even though those business units are operated under separate local management. Revenues by segment for the ~~second~~first quarter of 2018 and ~~first six months of~~ 2017 ~~and 2016~~ were as follows (in millions).


	Second Quarter				First Six Months				First Quarter
	2017		2016		2017		2016		2018		2017
Operating Businesses:
Insurance group:
Insurance:
Underwriting:
GEICO	$	7,244	$	6,247	$	14,089	$	12,297		$ 7,915		$ 6,845
General Re		1,578		1,389		2,969		2,779
Berkshire Hathaway Reinsurance Group		1,786		1,652		13,627		3,895		3,540		13,232
Berkshire Hathaway Primary Group		1,759		1,511		3,435		2,952		1,918		1,676
Investment income		1,284		1,236		2,416		2,385		1,213		1,132

Total insurance group		13,651		12,035		36,536		24,308
Total insurance										14,586		22,885
BNSF		5,250		4,585		10,435		9,352		5,624		5,185
Berkshire Hathaway Energy		4,623		4,299		8,880		8,417		4,512		4,231
Manufacturing		12,738		12,201		24,835		22,755		12,934		12,097
McLane Company		12,581		12,049		24,682		23,850		12,189		12,101
Service and retailing		6,550		6,385		12,643		12,276		6,587		6,093
Finance and financial products		2,033		1,989		3,898		3,715		2,063		1,849

		57,426		53,543		121,909		104,673		58,495		64,441
Reconciliation of segments to consolidated amount:
Investment and derivative gains/losses		225		663		1,000		1,703
Eliminations and other		(133)		48		(204)		41
Corporate, eliminations and other										(22)		(71)

	$	57,518	$	54,254	$	122,705	$	106,417		$ 58,473		$ 64,370


Earnings before income taxes by segment were as follows (in millions).

	Second Quarter				First Six Months
	2017		2016		2017		2016
Operating Businesses:
Insurance group:
Underwriting:
GEICO	$	119	$	150	$	294	$	414
General Re		25		2		(118)		44
Berkshire Hathaway Reinsurance Group		(400)		184		(1,000)		105
Berkshire Hathaway Primary Group		232		174		421		295
Investment income		1,283		1,235		2,412		2,377

Total insurance group		1,259		1,745		2,009		3,235
BNSF		1,537		1,238		2,882		2,496
Berkshire Hathaway Energy		670		666		1,285		1,235
Manufacturing		1,939		1,687		3,426		3,169
McLane Company		69		129		157		265
Service and retailing		555		457		948		781
Finance and financial products		508		583		974		1,061

		6,537		6,505		11,681		12,242
Reconciliation of segments to consolidated amount:
Investment and derivative gains/losses		225		663		1,000		1,703
Income from Kraft Heinz		309		386		548		626
Interest expense, not allocated to segments		(646)		31		(857)		(317)
Eliminations and other		(296)		(213)		(555)		(426)

	$	6,129	$	7,372	$	11,817	$	13,828

Earnings before income taxes by segment for the first quarter of 2018 and 2017 were as follows (in millions).


	First Quarter
	2018		2017
Operating Businesses:
Insurance:
Underwriting:
GEICO		$ 677		$ 175
Berkshire Hathaway Reinsurance Group		(258)		(743)
Berkshire Hathaway Primary Group		99		189
Investment income		1,205		1,129

Total insurance		1,723		750
BNSF		1,513		1,345
Berkshire Hathaway Energy		487		589
Manufacturing		1,855		1,487
McLane Company		60		88
Service and retailing		515		393
Finance and financial products		494		450

		6,647		5,102

Reconciliation of segments to consolidated amount:
Investment and derivative gains/losses		(8,015)		775
Interest expense, not allocated to segments		(337)		(211)
Equity method investments		401		281
Corporate, eliminations and other		(219)		(259)

	$	(1,523)	$	5,688

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

Results of Operations

Net earnings (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).


	Second Quarter				First Six Months				First Quarter
	2017		2016		2017		2016		2018			2017
Insurance – underwriting	$	(22)	$	337	$	(289)	$	550	$	407		$	(267	)
Insurance – investment income		965		978		1,873		1,897		1,012			908
Railroad		958		772		1,796		1,556		1,145			838
Utilities and energy		516		482		1,017		923		585			480
Manufacturing, service and retailing		1,662		1,493		2,979		2,759		1,822			1,317
Finance and financial products		332		396		635		707		374			291
Investment and derivative gains/losses		143		394		647		2,246		(6,426	)		504
Other		(292)		149		(336)		(48)		(57	)		(11	)

Net earnings attributable to Berkshire Hathaway shareholders	$	4,262	$	5,001	$	8,322	$	10,590
Net earnings (loss) attributable to Berkshire Hathaway shareholders									$	(1,138	)	$	4,060

Through our subsidiaries, we engage in a number of diverse business activities. We manage our operating businesses on an unusually decentralized basis. There are essentially no centralized or integrated business functions ~~(such as sales, marketing, purchasing, legal or human resources)~~ and there is minimal involvement by our corporate headquarters in theday-to-day business activities of the operating businesses. Our senior corporate management team participates in and is ultimately responsible for significant capital allocation decisions, investment activities and the selection of the Chief Executive to head each of the operating businesses. ~~It also is responsible for establishing~~Beginning in 2018, our periodic net earnings will include unrealized gains and ~~monitoring Berkshire’s corporate governance practices, including, but not limited~~losses on our investments in equity securities. These gains and losses are likely to ~~communicating~~be very significant given the ~~appropriate “tone at~~size of our current holdings and the ~~top” messages~~volatility inherent in securities prices. Prior to ~~employees~~2018, these gains and ~~associates, monitoring governance efforts, including those at~~losses were recorded in other comprehensive income. Thus, the ~~operating businesses, and participating in~~new accounting treatment has no effect on the ~~resolution of governance-related issues as needed.~~consolidated shareholders’ equity we would have otherwise reported. The business segment data (Note 22 to the accompanying Consolidated Financial Statements) should be read in conjunction with this discussion.

Ourafter-tax earnings in the first quarter of 2018 were favorably affected by lower U.S. income tax expense, primarily attributable to a reduction in the U.S. statutory income tax rate from 35% to 21% effective January 1, 2018 in connection with the Tax Cuts and Jobs Act of 2017 (“TCJA”) enacted on December 22, 2017. The effect of the lower U.S. statutory income tax rate in 2018, generally resulted in increased comparative after-tax earnings of our various business operations, although the effects varied, reflecting the differences in the mix of earnings subject to tax in the U.S. and internationally and the varying effects of U.S. state and local income taxes. Further, the effective U.S. income tax rates on dividend income under the TCJA are not significantly different from the prior income tax law.

Our insurance businesses generatedafter-tax ~~losses~~earnings from underwriting ~~in the second quarter and first six months~~ of ~~2017. These losses included foreign currency exchange rate losses from the revaluation of reinsurance liabilities denominated in foreign currencies of $122 million in the second quarter and $196~~$407 million in the first ~~six months~~quarter of ~~2017. Ourafter-tax~~ ~~underwriting earnings in 2016 included foreign currency exchange rate gains~~2018, compared to a loss of ~~$185~~$267 million in ~~the second quarter and $223 million~~2017. Results in ~~the first six months. Additionally, underwriting results in 2017 declined as compared to 2016 due to decreased earnings from there-estimation~~2018 included reductions of ~~ultimate liabilities~~losses for prior years’ property/casualty loss events ~~higher~~and the favorable effect of a lower effective income tax rate, partly offset by increased losses ~~from current year catastrophe events and increased deferred charge amortization~~ on retroactive reinsurance contracts.

Our railroad business generated ~~comparative increases in~~increased earnings in the ~~second~~first quarter ~~and first six months~~ of ~~2017~~2018 compared to ~~2016,~~2017, reflecting ~~increased~~an increase in unit volume and a lower effective income tax rate, partly offset by increased fuel and other costs. Our ~~utility~~utilities and energy business produced higherafter-tax earnings in the ~~second~~first quarter ~~and first six months~~ of ~~2017~~2018 compared to ~~2016,~~2017, reflecting a lower effective income tax ~~rates.~~rate. Earnings offrom our manufacturing, service and retailing businesses in ~~2017 increased 11.3% in the second quarter and 8.0% in~~ the first ~~six months compared~~quarter of 2018 increased 38% over 2017, due to ~~the same periods~~lower effective income tax rates and a 23% increase in 2016. These increases reflected comparatively higher earnings from several of our larger operations and the impact of businesses acquired in 2016 (PCC and Duracell), partly offset by losses and impairment charges related to the disposition of a prior~~bolt-on~~pre-tax ~~acquisition by one of our manufacturing businesses.~~earnings.

After-tax investment and derivative ~~gains~~losses in the ~~second~~first quarter ~~and first six months of 2017~~ were ~~$143 million and $647 million, respectively, and $394 million and $2.25~~$6.4 billion in 2018, which included anafter-tax charge of approximately $6.2 billion from changes in market values on our investments in equity securities held at March 31, 2018. In the ~~second~~first quarter ~~and first six months~~ of ~~2016, respectively.~~2017,~~After-tax~~after-tax investment gains inon equity securities included only the gains and losses realized from the dispositions or exchanges of securities during the period. In the first ~~six months~~quarter of ~~2016 included anon-cash~~ ~~gain~~2017, we also recorded after-tax unrealized gains on our investments in equity securities of approximately ~~$1.9~~$5.3 billion ~~related to the exchange of P&G common stock for 100% of the common stock of Duracell.~~in other comprehensive income. We believe that investment and derivative gains/losses, whether realized from dispositions or settlements or from unrealized gains and losses from changes in market prices of equity securities, are ~~often~~generally meaningless in ~~terms of~~ understanding our reported results or evaluating our economic ~~performance. Investment and derivative~~performance of our businesses. These gains and losses have caused and will ~~likely~~ continue to cause significant volatility in our periodic earnings. ~~Other earnings in 2017 are net~~

Item 2. Management’s Discussion and Analysis of~~after-tax~~ ~~foreign currency exchange rate losses~~ Financial Condition and Results of ~~$342 million in the second quarter and $399 million for the first six months from the revaluation~~Operations (Continued)

Results of ~~parent company Euro denominated notes payable. In 2016, other earnings includedafter-tax~~ ~~foreign currency exchange rate gains of $101 million in the second quarter and losses of $60 million in the first six months from the revaluation of Euro denominated notes payable.~~Operations (Continued)

Insurance—Underwriting

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

~~Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations~~~~(Continued)~~

~~Insurance—Underwriting~~~~(Continued)~~

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

The timing and amount of catastrophe losses can produce significant volatility in our periodic underwriting results, particularly with respect to our reinsurance businesses. ~~Our periodic underwriting results may be affected significantly by changes~~Generally, we consider catastrophe losses in excess of $100 million from a current year event as significant. Changes in estimates for unpaid losses and loss adjustment expenses, including amounts established for occurrences in prior ~~years. Actual claim settlements and revised~~years can also significantly affect our periodic underwriting results. Unpaid loss estimates, ~~will develop over time and the unpaid loss~~including estimates ~~recorded~~under retroactive reinsurance contracts, as of ~~the balance sheet date will develop upward or downward in future periods, producing a corresponding decrease or increase topre-tax~~ ~~earnings.~~March 31, 2018 were approximately $104 billion. Our periodic underwriting results may also include significant foreign currency transaction gains and losses arising from the changes in the valuation ofnon-U.S. Dollar denominated reinsurance liabilities of our U.S. based insurance subsidiaries ~~as a result of~~due to foreign currency exchange rate fluctuations. ~~Foreign currency exchange rates can be volatile and the resulting impact on our underwriting earnings can be relatively significant.~~

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


	Second Quarter				First Six Months				First Quarter
	2017		2016		2017		2016		2018		2017
Underwriting gain (loss) attributable to:
Underwriting gain (loss):
GEICO	$	119	$	150	$	294	$	414	$	677	$	175
General Re		25		2		(118)		44
Berkshire Hathaway Reinsurance Group		(400)		184		(1,000)		105		(258)		(743	)
Berkshire Hathaway Primary Group		232		174		421		295		99		189

Pre-tax underwriting gain (loss)		(24)		510		(403)		858		518		(379)
Income taxes and noncontrolling interests		(2)		173		(114)		308		111		(112)

Net underwriting gain (loss)	$	(22)	$	337	$	(289)	$	550	$	407	$	(267)

Effective income tax rate										21.4%		30.6%

GEICO

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


	Second Quarter								First Six Months								First Quarter
	2017				2016				2017				2016				2018				2017
	Amount		%		Amount		%		Amount		%		Amount		%		Amount		%		Amount		%
Premiums written	$	7,270			$	6,229			$	14,857			$	12,794			$	8,689			$	7,587

Premiums earned	$	7,244		100.0	$	6,247		100.0	$	14,089		100.0	$	12,297		100.0	$	7,915		100.0	$	6,845		100.0

Losses and loss adjustment expenses		6,108		84.3		5,173		82.8		11,698		83.0		9,996		81.3		6,075		76.7		5,590		81.7
Underwriting expenses		1,017		14.1		924		14.8		2,097		14.9		1,887		15.3		1,163		14.7		1,080		15.7

Total losses and expenses		7,125		98.4		6,097		97.6		13,795		97.9		11,883		96.6		7,238		91.4		6,670		97.4

Pre-tax underwriting gain	$	119			$	150			$	294			$	414			$	677			$	175

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

Insurance—Underwriting (Continued)

GEICO (Continued)

Premiums written and earned in the ~~second~~first quarter of 2018 were approximately $8.7 billion and ~~first six months~~$7.9 billion, representing increases of ~~2017 increased $1.0 billion (16.7%)~~14.5% and ~~$2.1 billion (16.1%)~~15.6%, respectively, compared to ~~2016. Over the past year,~~2017. These increases reflected voluntary auto~~policies-in-force~~policy-in-force ~~grew approximately 10.2%~~growth of 6.5% and increased premiums per auto policy ~~increased 5.0%.~~of approximately 8.2% over the past twelve months. The increase in ~~average~~ premiums per policy was attributable to rate increases, coverage changes and changes in state and risk mix. The increases in rates were in response to accelerating losses in recent years. Voluntary auto new business sales in ~~2017 increased 17.8% in the second quarter and 24.1% in~~ the first ~~six months~~quarter of 2018 decreased 11.8% compared to the ~~same periods in 2016. Voluntary~~record first quarter of 2017, while our voluntary autopolicies-in-force increased approximately ~~876,000~~290,000 during the first ~~six months~~quarter of ~~2017. Premiums earned in 2017 increased 16.0% in the second quarter and 14.6% in the first six months compared to the same periods in 2016.~~2018.

~~Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations~~~~(Continued)~~

~~Insurance—Underwriting~~~~(Continued)~~

~~GEICO (Continued)~~

~~In the second quarter and first six months of 2017, ourpre-tax~~ ~~underwriting gains declined compared to 2016, as claim costs grew faster than premiums earned.~~ Losses and loss adjustment expenses in ~~2017 increased $935 million (18.1%) in the second quarter and $1.7 billion (17.0%) in~~ the first ~~six months over the corresponding periods in 2016.~~quarter of 2018 were approximately $6.1 billion, an increase of $485 million (8.7%) compared to 2017. Our ~~loss ratio (the~~ ratio of losses and loss adjustment expenses to premiums earned ~~premiums) increased 1.5 percentage points in the second quarter and 1.7 percentage points~~(the “loss ratio”) in the first ~~six months~~quarter of ~~2017 as~~2018 was 76.7%, a decline of 5.0 percentage points compared to ~~2016.~~the first quarter of 2017. The decline in the loss ratio reflected the effects of premium rate increases and comparatively lower storm-related losses.

We also reduced ultimate claim loss estimates for prior years’ loss events by $407 million in the first quarter of 2018 and $93 million in 2017. These reductions produced corresponding increases inpre-tax underwriting gains. The increase in such gains was primarily related to collision and property damage losses, which usually have short claim-tails. Claims frequencies in the first ~~six months~~quarter of ~~2017 were relatively flat~~2018 for property damage and collision coverages ~~increased approximately three percent for bodily~~and personal injury protection coverage were down slightly compared to 2017, and decreased about two percent for ~~personal~~bodily injury ~~protection coverage compared to 2016.~~coverage. Average claims severities ~~were higher~~ in the first ~~six months~~quarter of ~~2017~~2018 were higher for property damage and collision coverages (four to ~~five~~six percent range) and bodily injury coverage ~~(four~~(five to ~~six~~seven percent range). ~~Losses and loss adjustment~~

Our underwriting expenses in the first ~~six months~~quarter of ~~2017 and 2016 included reductions~~2018 were approximately $1.2 billion, an increase of ~~$106~~$83 million ~~and $216 million, respectively, from there-estimation~~ of liabilities for prior years’ claims. In addition, in the first six months of 2017, we incurred storm losses of approximately $268 million (1.9% of premiums earned), compared to $290 million (2.4% of premiums earned) in the first six months of 2016.

~~Underwriting expenses in the second quarter and first six months of 2017 increased $93 million (10.1%~~(7.7%) ~~and $210 million (11.1%), respectively, compared to 2016.~~over 2017. Our expense ~~ratios~~ratio (underwriting expenses to premiums earned) in ~~2017 declined 0.7 percentage points in the second quarter and 0.4 percentage points in~~ the first ~~six months~~quarter of 2018 decreased 1.0 percentage point compared to ~~2016.~~2017. The largest components of underwriting expenses are employee-related expenses (salaries and benefits) and advertising costs. The increase in underwriting expenses reflects the increase inpolicies-in-force.

~~General Re~~Berkshire Hathaway Reinsurance Group

~~General Re conducts a~~We offerexcess-of-loss and quota-share reinsurance ~~business offering~~coverages on property and casualty ~~coverages to clients worldwide through General Reinsurance Corporation, Germany-based General Reinsurance AG, Faraday Holdings in London~~risks and ~~other wholly-owned affiliates. We also write~~ life and health reinsurance ~~primarily on a direct basis~~to insurers and reinsurers worldwide through several legal entities, led by National Indemnity Company (“NICO Group”), Berkshire Hathaway Life Insurance Company of Nebraska (“BHLN Group”), and General Reinsurance Corporation, General Reinsurance AG and General Re Life Corporation (collectively, “General Re Group”). We also periodically assume property and ~~General Reinsurance AG. We~~casualty risks under retroactive reinsurance contracts written through NICO. In addition, the BHLN Group writes periodic payment annuity contracts.

With the exception of our retroactive reinsurance and periodic payment annuity businesses, we strive to generatepre-tax underwriting ~~profits~~profits.Time-value-of-money concepts are important elements in ~~essentially all~~establishing prices for our retroactive reinsurance and periodic payment annuity businesses due to the expected long durations of the liabilities. We expect to incurpre-tax underwriting losses from such businesses, primarily through deferred charge amortization and discount accretion charges. Premiums received at inception under these contracts are often large, which are then available for investment. A summary of the premiums andpre-tax underwriting results of our ~~product lines. General Re’s underwriting results are summarized in the following table~~reinsurance business follows (in millions).


																	First Quarter
																	Premiums earned				Pre-tax underwriting gain (loss)
																	2018		2017		2018		2017
Property/casualty																	$	2,026	$	1,742	$	130	$	(410)
Retroactive reinsurance																		—		10,185		(311)		(261)

																		2,026		11,927		(181)		(671)


Life/health																		1,234		1,085		96		73
Periodic payment annuity																		280		220		(173)		(145)

	Premiums earned								Pre-tax underwriting gain (loss)									1,514		1,305		(77)		(72)
	Second Quarter				First Six Months				Second Quarter				First Six Months
	2017		2016		2017		2016		2017		2016		2017		2016		$	3,540	$	13,232	$	(258)	$	(743)

Property/casualty	$	777	$	624	$	1,431	$	1,276	$	(14)	$	23	$	(157)	$	53
Life/health		801		765		1,538		1,503		39		(21)		39		(9)

	$	1,578	$	1,389	$	2,969	$	2,779	$	25	$	2	$	(118)	$	44

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

Insurance—Underwriting (Continued)

Property/casualty

~~In the second quarter~~A summary of premiums and ~~first six months~~underwriting results of ~~2017,~~our property/casualty reinsurance businesses follows (in millions).


	First Quarter
	Premiums earned				Pre-tax underwriting gain (loss)
	2018		2017		2018		2017
NICO Group	$	1,054	$	1,088	$	23	$	(269)
General Re Group		972		654		107		(141)

	$	2,026	$	1,742	$	130	$	(410)

NICO Group’s premiums earned ~~increased $153 million (25%) and $155 million (12%), respectively, as~~in the first quarter of 2018 declined 3% compared to ~~2016.~~2017. In each period, approximately 40% of NICO Group’s premiums earned derived from a10-year, 20% quota-share contract with Insurance Australia Group Ltd. that incepted in July 2015. General Re Group’s premiums earned in the first quarter of 2018 were $972 million, an increase of $318 million (49%) compared to 2017. The ~~increases~~increase reflected higher ~~written premiums in both~~ direct and broker markets business and derived primarily ~~attributable to~~from new business and increased participations for ~~renewals. Despite the increase in premiums in 2017, industry~~renewal business, and foreign currency translation effects. Industry capacity dedicated to property and casualty markets remains high and price competition in most reinsurance markets persists. We continue to decline business when we believe prices are inadequate.

~~Our~~On a combined basis, our property/casualty ~~operations~~reinsurance business generated~~pre-tax~~ ~~underwriting losses of $14 million in the second quarter and $157 million in the first six months of 2017 compared to~~pre-tax underwriting gains of ~~$23~~$130 million ~~and $53 million, respectively,~~ in the ~~comparable 2016 periods.~~ first quarter of 2018 compared topre-tax losses of $410 million in 2017. There were no significant catastrophe loss events in the first quarter of 2018. We incurred estimated losses of $102 million in the first quarter of 2017 from a cyclone in Australia.

In the first ~~six months~~quarter of ~~2017,~~2018, we ~~increased our estimates~~also decreased estimated ultimate claims liabilities for ~~unpaid losses approximately $140~~prior years’ loss events by $182 million, ~~with respect~~compared to ~~certain United Kingdom (“U.K.”) liability business written~~an increase of $395 million in ~~prior years.~~the first quarter of 2017. The increase in 2017 was ~~the result of~~driven by the U.K. Ministry of Justice’s decision in the first quarter to reduce the fixed discount rate required in lump sum settlement calculations of U.K. personal injury ~~claims. The discount rate, referred to as the Ogden rate, was reduced~~claims, unanticipated property claims from 2.5% to negative 0.75%. We expect the Ogden rate decrease will significantly increase claim costs associated with currently unsettled cases, as well as for future cases. Underwriting results in the first six months of 2017 also included estimated losses of $50 million from a cyclone in Australia. General Re incurred no losses from significant catastrophe loss events in ~~the first six months of 2016.~~

~~Item~~ ~~2. Management’s Discussion~~2016 and ~~Analysis of Financial Condition and Results of Operations~~~~(Continued)~~

~~Insurance—Underwriting~~~~(Continued)~~

increases in estimatedincurred-but-not reported losses.

~~General Re (Continued)~~Retroactive reinsurance

~~Life/health~~

Life/health premiums earned in the second quarter and first six months of 2017 increased $36 million (5%) and $35 million (2%), respectively, compared to 2016. The increases reflected growth in North America and certain international markets. Our life/health operations produced~~pre-tax~~ ~~underwriting gains of $39 million in the second quarter and first six months of 2017 compared topre-tax~~ underwriting losses of $21 million in the second quarter and $9 million in the first six months of 2016. The improved underwriting results in 2017 reflected lower underwriting expenses and the impact of increasing liabilities for estimated premium deficiencies on certain disability business in 2016. Underwriting results in the first six months of 2017 and 2016 included~~pre-tax~~ losses from the runoff of U.S. long-term care and disability business of $38 million and $37 million, respectively, which were primarily due to the periodic discount accretion on long-term care liabilities.

~~Berkshire Hathaway Reinsurance Group~~

~~BHRG underwritesexcess-of-loss~~ reinsurance and quota-share coverages on property and casualty risks for insurers and reinsurers worldwide, including property catastrophe insurance and reinsurance. BHRG also writes retroactive reinsurance on property/casualty exposures as well as life reinsurance and periodic payment annuity business. A summary of BHRG’s underwriting results follows (in millions).

Premiums earned      Pre-tax underwriting gain (loss)
Second Quarter      First Six Months      Second Quarter      First Six Months
2017      2016      2017      2016      2017      2016      2017      2016
Property/casualty
  $ 1,183          $ 1,067          $ 2,271          $ 2,194        $ 52        $ 249        $ (217)        $ 375
Retroactive reinsurance
1        2        10,186        582      (331)      9      (590)      (82)
Life and annuity
602        583        1,170        1,119      (121)      (74)      (193)      (188)















  $   1,786          $   1,652          $   13,627          $   3,895        $     (400)        $     184        $ (1,000)        $ 105

~~Property/casualty~~

~~In the second quarter and first six months of 2017, premiums earned increased $116 million (11%) and $77 million (4%), respectively, compared to 2016. Approximately half of our premiums written and~~Premiums earned in the first ~~six months~~quarter of 2017 ~~derived~~included $10.2 billion from two contracts. Our premium volume was constrained for most reinsurance coverages, as rates, in our view, were generally inadequate. We have the capacity and desire to write more business when prices are appropriate.

~~Our property/casualty business generatedpre-tax~~ ~~underwriting gains of $52 million in the second quarter andpre-tax~~ ~~losses of $217 million in the first six months of 2017, compared topre-tax~~ gains of $249 million in the second quarter and $375 million in the first six months of 2016. In the first six months of 2017, we incurred losses of approximately $250 million related to prior years’ loss events, which included losses from unanticipated reported claims from hurricane and earthquake events in 2016 and increased liability estimates attributable to the Ogden discount rate decrease. In the first six months of 2016, we reduced estimated ultimate liabilities for prior years’ loss events by approximately $375 million, primarily due to lower than expected reported losses. In the first six months of 2017, we also incurred estimated losses of approximately $115 million from a cyclone in Australia. In the first six months of 2016, we incurred no significant losses from catastrophe loss events.

~~Retroactive reinsurance~~

~~We periodically write retroactive reinsurance contracts, which provide indemnification of losses and loss adjustment expenses with respect to past loss events. In January 2017, NICO entered into~~ an aggregateexcess-of-loss retroactive reinsurance agreement with ~~AIG~~various subsidiaries of American International Group, Inc. (the “AIG Agreement”) ~~that~~, which became effective on February 2, 2017. ~~In connection with~~At the inception of the AIG Agreement, we ~~received cash premiums of $10.2 billion. As of the effective date, we~~also recorded losses and loss adjustment expenses incurred of $10.2 billion, representing our initial estimate of the unpaid losses and loss adjustment expenses assumed of $16.4 billion, partly offset by aan initial deferred charge asset of $6.2 billion. Thus, on the effective date, the AIG Agreement had no effect on ourpre-tax underwriting results. ~~See Note 16 to the accompanying Consolidated Financial Statements.~~

Pre-tax underwriting ~~results in 2017 included~~ losses ~~of $102 million in the second quarter and $191 million~~from retroactive reinsurance contracts in the first ~~six months from~~quarter were $311 million in 2018 and $261 million in 2017. Certain liabilities related to retroactive reinsurance contracts written by our U.S. subsidiaries are denominated in foreign currencies. Underwriting results in the first quarter includedpre-tax losses of $60 million in 2018 and $89 million in 2017 associated with there-measurement of such liabilities due to changes in foreign currency exchange ~~rates, which increased~~rates.

Pre-tax underwriting losses before foreign currency ~~denominated liabilities of U.S subsidiaries. In 2016, foreign currency exchange rate changes reduced such liabilities and resulted inpre-tax~~ ~~gains of $158 million in the second quarter and $177 million~~gains/losses in the first ~~six months.~~quarter were $251 million in 2018 and $172 million in 2017. The increase inpre-tax losses was primarily due to increased amortization charges related to the AIG Agreement, which included the effects of a previously reported increase to our ultimate claim liability estimates of approximately $1.8 billion in the fourth quarter of 2017 and an increase in the related deferred charge asset of $1.7 billion.

Gross unpaid losses assumed under retroactive reinsurance contracts were approximately $42.3 billion at March 31, 2018 and $42.9 billion at December 31, 2017. Unamortized deferred charge assets related to such reinsurance contracts were approximately $15.0 billion at March 31, 2018 and $15.3 billion at December 31, 2017. Deferred charge asset balances will be amortized as charges topre-tax earnings over the expected remaining claims settlement periods.

Item 2. Management ~~2. Management’s~~’s Discussion and Analysis of Financial Condition and Results of Operations(Continued)

Insurance—Underwriting(Continued)

~~Berkshire Hathaway Reinsurance Group (Continued)~~Life/health

Premiums earned andpre-tax underwriting results of our life/health reinsurance businesses are further summarized as follows (in millions).


	First Quarter
	Premiums earned				Pre-tax underwriting gain (loss)
	2018		2017			2018		2017
General Re Group	$	919	$	737		$	47	$	—
BHLN Group		315		348			49		73

	$	1,234	$	1,085		$	96	$	73

~~Retroactive reinsurance (Continued)~~

~~Before~~General Re Group’s premiums earned in the first quarter of 2018 were $919 million, an increase of $182 million (25%) compared to 2017, which was primarily attributable to growth in the Asia and Australia markets and foreign currency ~~gains/losses, retroactive reinsurance contracts~~translation effects. The General Re Group producedpre-tax underwriting ~~losses~~gains of ~~$229 million and $399~~$47 million in the ~~second~~first quarter of 2018 and ~~first six months of 2017, respectively, and $149 million and $259 million, respectively,~~break-even results in the ~~comparable 2016 periods. The comparative increases~~first quarter of 2017. First quarter results in ~~such~~2018 reflected increasedpre-tax gains from international life business and lowerpre-tax losses from business in ~~2017 were primarily due to deferred charge amortization related to~~North America.

BHLN Group’spre-tax underwriting results includedpre-tax gains of $45 million in the ~~AIG Agreement~~first quarter of 2018 and ~~another retroactive reinsurance contract written in December 2016, partly offset by a small net gain from a contract commuted~~$78 million in the first quarter of 2017 ~~and comparatively lower deferred charge amortization~~ from ~~other contracts. We currently estimate~~the~~pre-tax~~run-off ~~deferred charge amortization for the year ending December 31, 2017 will approximate $975 million, which includes the aforementioned AIG Agreement.~~

Liabilities for losses and loss adjustment expenses associated with our retroactive reinsurance contracts were approximately $40.1 billion at June 30, 2017 and $24.7 billion at December 31, 2016. Unamortized deferred charges related to these contracts were approximately $13.5 billion at June 30, 2017 and $8.0 billion at December 31, 2016.

~~Life and annuity~~

~~A summary~~ of ~~BHRG’s life and annuity underwriting results follows (in millions).~~

Premiums earned Pre-tax underwriting gain (loss)
Second Quarter First Six Months Second Quarter First Six Months
2017 2016 2017 2016 2017 2016 2017 2016
Periodic payment annuity
  $ 230   $ 195     $ 450     $ 404     $ (198)   $ 8      $ (343)   $ (62)
Life reinsurance
        368 383   712   706   3 3    (2) 14
Variable annuity guarantee
4 5   8   9   74 (85)   152 (140)

  $ 602   $         583     $         1,170     $         1,119     $         (121)   $         (74)     $         (193)   $         (188)

Periodic payment annuity premiums consist of upfront consideration received under direct and assumed contracts that provide for structured settlement annuity payments, typically over very long periods.~~Pre-tax~~ underwriting losses in 2017 included losses of $86 million in the second quarter and $110 million in the first six months from changes in foreign currency exchange rates. In 2016, foreign currency exchange rate changes resulted in~~pre-tax~~ ~~gains of $126 million in the second quarter and $166 million in the first six months.~~

~~Before foreign currency gains and losses,pre-tax~~ underwriting losses from periodic payment annuity contracts were $112 million in the second quarter and $233 million in the first six months of 2017 and $118 million and $228 million, respectively, in the second quarter and first six months of 2016. We expect these contracts will generate~~pre-tax~~ underwriting losses over time attributable to the accretion of discounted annuity liabilities. Discounted periodic payment annuity liabilities were approximately $10.6 billion at June 30, 2017, reflecting a weighted average interest rate of approximately 4.1%.

Our underwriting results in 2017 from life reinsurance included higher than expected mortality, partially offset by decreased benefit liabilities for certain blocks of business. Underwriting gains in 2016 reflected lower claims and underwriting expenses.

~~Underwriting results of our~~ variable annuity ~~business (reinsurance~~reinsurance contracts that provide guarantees on closed blocks of variable annuity ~~business)~~business. Periodic underwriting results from this business reflect changes in ~~the second quarter and first six months of 2017 producedpre-tax~~ ~~underwriting gains of $74 million and $152 million, respectively, andpre-tax~~ ~~underwriting losses of $85 million and $140 million, respectively, in the corresponding periods of 2016. Underwriting gains and losses in each period reflected changes in~~estimated liabilities for guaranteed benefits, ~~resulting~~which result from changes in securities markets and interest rates and from the periodic ~~recognition~~amortization of expected profit margins, which together, affected our liability estimates. Our estimated liabilities for variable annuity guarantees were approximately $1.9 billion at June 30, 2017 and $2.1 billion at December 31, 2016.margins. Periodic underwriting results from ~~these~~variable annuity contracts can be volatile, reflecting the volatility of securities ~~markets.~~markets, interest rates and foreign currency exchange rates. Estimated liabilities for variable annuity guarantees were approximately $1.7 billion at March 31, 2018 and $1.8 billion at December 31, 2017. BHLN Group’s life reinsurance premiums earned in the first quarter were $311 million in 2018 and $344 million in 2017. This business produced near break-evenpre-tax underwriting results in each period.

Periodic payment annuity

Periodic payment annuity premiums earned in the first quarter of 2018 were $280 million, an increase of $60 million (27%) compared to 2017.Pre-tax losses from these contracts in the first quarter of 2018 were $173 million compared to $145 million in 2017. Certain periodic payment annuity liabilities are denominated in foreign currencies, primarily the Great Britain Pound Sterling. First quarterpre-tax underwriting results includedpre-tax losses of $70 million in 2018 and $24 million in 2017 associated with there-measurement of such liabilities due to changes in exchange rates.

Before foreign currency gains and losses,pre-tax underwriting losses were $103 million in the first quarter of 2018 and $121 million in the first quarter of 2017. These losses were primarily attributable to the recurring discount accretion on annuity liabilities, which approximated $11.6 billion at March 31, 2018 and $11.2 billion at December 31, 2017. The weighted average discount rate on our liabilities at March 31, 2018 was approximately 4.1%.

Berkshire Hathaway Primary Group

The Berkshire Hathaway Primary Group (“BH Primary”) consists of a wide variety of independently managed insurance underwriting businesses that primarily provide a variety of commercial insurance ~~products,~~solutions, including healthcare malpractice, workers’ compensation, automobile, general liability, property and various specialty coverages for small, medium and large clients. The largest of these insurers include ~~the MedPro Group, National Indemnity Company (“NICO Primary”), Berkshire Hathaway Homestate~~

~~Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations~~~~(Continued)~~

~~Insurance—Underwriting~~~~(Continued)~~

~~Companies (“BHHC”),~~ Berkshire Hathaway Specialty Insurance (“BH Specialty”) ~~and~~, Berkshire Hathaway Homestate Companies (“BHHC”), MedPro Group, Berkshire Hathaway GUARD Insurance Companies (“GUARD”) and National Indemnity Company (“NICO Primary”). Other BH Primary insurers include U.S. Liability Insurance Company, Applied Underwriters and Central States Indemnity Company.

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

Insurance—Underwriting (Continued)

Berkshire Hathaway Primary Group (Continued)

A summary of BH ~~Primary’s~~Primary underwriting results follows (dollars in millions).


	Second Quarter								First Six Months								First Quarter
	2017				2016				2017				2016				2018				2017
	Amount		%		Amount		%		Amount		%		Amount		%		Amount		%		Amount		%
Premiums written	$	1,801			$	1,654			$	3,650			$	3,223			$	2,161			$	1,849

Premiums earned	$	1,759		100.0	$	1,511		100.0	$	3,435		100.0	$	2,952		100.0	$	1,918		100.0	$	1,676		100.0

Losses and loss adjustment expenses		1,047		59.5		921		61.0		2,084		60.7		1,832		62.1		1,251		65.2		1,037		61.9
Underwriting expenses		480		27.3		416		27.5		930		27.0		825		27.9		568		29.6		450		26.8

Total losses and expenses		1,527		86.8		1,337		88.5		3,014		87.7		2,657		90.0		1,819		94.8		1,487		88.7

Pre-tax underwriting gain	$	232			$	174			$	421			$	295			$	99			$	189

Premiums written in the ~~second~~first quarter ~~and first six months in 2017 increased 8.9% and 13.2%, respectively, over the same periods in 2016. All~~ of ~~the BH Primary insurers generated increased premiums written in the first six months~~2018 were $2.2 billion, an increase of ~~2017, led by~~17% compared to 2017. The increase was primarily attributable to BH Specialty, ~~(23%),~~MedPro Group, GUARD ~~(28%)~~ and ~~BHHC (11%).~~BHHC. Premiums earned increased ~~$248~~$242 million ~~(16.4%~~(14%) ~~in the second quarter and $483 million (16.4%) in~~compared to the first ~~six months as compared to 2016~~quarter of 2017, reflecting the ~~increases in~~growth of written premiums ~~written.~~of these businesses over the past year.

~~The~~ BH Primary ~~insurers~~ producedpre-tax underwriting gains of ~~$232 million in the second quarter and $421~~$99 million in the first ~~six months~~quarter of 2018 and $189 million in 2017. BH Primary’s first quarter loss ratios were 65.2% in 2018 and 61.9% in 2017. Losses and loss adjustment expenses ~~for~~in the first ~~six months of 2017~~quarter included net reductions of estimated ultimate liabilities for prior years’ loss events of ~~$426~~$164 million in 2018 and $168 million in 2017, which produced a corresponding ~~increase~~increases inpre-tax underwriting gains. ~~Underwriting results in the first six months of 2016 included gains of $236 million from the net~~The reductions ~~of estimated ultimate claims liabilities for prior years’ events. The gains from the development~~ of prior years’ ~~claim~~loss estimates in ~~2017 were~~each year primarily ~~attributable~~related to healthcare malpractice and workers’ compensation business. ~~Many~~BH Primary writes significant levels of ~~our businesses write primarily~~commercial liability and workers’ compensation ~~business~~insurance and the related claim costs may be subject to higher severity and ~~longer-claims tails,~~longer claim-tails, which ~~may~~could contribute to significant increases in claims ~~development gains or losses~~liabilities in the ~~future.~~future attributable to higher than expected claim settlements, adverse litigation or judicial rulings and other factors we have not anticipated.

Insurance—Investment Income

A summary of net investment income generated byfrom investments held by our insurance operations follows (in millions).


	Second Quarter				First Six Months				First Quarter
	2017		2016		2017		2016			2018		2017
Interest income	$	280	$	214	$	526	$	444
Interest and other investment income										$	452	$	246
Dividend income		1,003		1,021		1,886		1,933			753		883

Investment income before income taxes and noncontrolling interests		1,283		1,235		2,412		2,377			1,205		1,129
Income taxes and noncontrolling interests		318		257		539		480			193		221

Net investment income	$	965	$	978	$	1,873	$	1,897		$	1,012	$	908

Effective income tax rate											15.9%		19.5%

Pre-tax interest and other investment income increased $206 million in the ~~second~~first quarter ~~and first six months~~ of 2018 compared to 2017, ~~increased $48 million (4%) and $35 million (1%), respectively, from the same periods~~attributable to an increase in ~~2016. These increases reflected increased~~ interest income, ~~partly offset by lower dividend income. We continue~~primarily due to ~~hold significant amounts~~higher interest rates applicable to our short-term investments and to a fair value adjustment related to a limited partnership investment. Dividend income declined $130 million in the first quarter of ~~cash~~2018 compared to 2017. The decline was primarily attributable to the impact of Restaurant Brands International’s redemption of our $3 billion investment in 9% preferred stock in December 2017 and ~~cash equivalents and U.S. Treasury Bills earning very low yields. While still historically low, the yields were higher~~other changes in ~~2017 than in 2016.~~our portfolio of equity securities. We believe that maintaining ample liquidity is paramount and we insist on safety over yield with respect to such balances. The decrease in dividends in 2017 reflected Dow Chemical Company’s redemption of our $3 billion investment in 8.5% preferred stock in December 2016, partly offset by increased dividend income from investments in other equity securities attributable to increased dividend rates of certain issuers and increased overall investment levels.short-term investments.

Invested assets of our insurance businesses derive from shareholder capital, including reinvested earnings, and from net liabilities under insurance 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, less premium and reinsurance receivables, deferred charges assumed under retroactive reinsurance contracts and deferred policy acquisition costs. Float approximated ~~$107~~$116 billion at ~~June 30, 2017~~March 31, 2018 and ~~$91~~$114 billion at December 31, ~~2016. The increase in float in 2017 was primarily attributable to the AIG Agreement.~~2017. Our average cost of float ~~was approximately 0.4%~~ in the first ~~six months~~quarter of 2018 was negative, as our underwriting operations generatedpre-tax earnings of $518 million. Our cost of float for the year ending December 31, 2017 ~~as we generated an aggregate~~was approximately 3%, reflectingpre-tax underwriting ~~loss~~losses of ~~$403 million.~~approximately $3.2 billion.

Item 2. ~~Management’s~~Management’s Discussion and Analysis of Financial Condition and Results of Operations(Continued)

Insurance—Investment Income(Continued)

A summary of cash and investments held in our insurance businesses as of March 31, 2018 and December 31, 2017 follows (in millions).


	June 30, 2017		December 31, 2016		March 31, 2018		December 31, 2017
Cash and cash equivalents and U.S. Treasury Bills	$	60,198	$	48,888
Cash, cash equivalents and U.S. Treasury Bills					$	66,776	$	73,285
Equity securities		134,525		119,780		165,828		163,134
Fixed maturity securities		22,696		22,778		19,679		21,092
Other investments		16,838		14,364

	$	234,257	$	205,810	$	252,283	$	257,511

Fixed maturity ~~securities~~investments as of ~~June 30, 2017~~March 31, 2018 were as follows (in millions).


	Amortized cost		Unrealized gains(losses)		Carrying value		Amortized cost		Unrealized gains/losses			Carrying value
U.S. Treasury, U.S. government corporations and agencies	$	4,444	$	(7)	$	4,437	$	3,626	$	(25	)	$	3,601
States, municipalities and political subdivisions		1,022		52		1,074		730		22			752
Foreign governments		8,724		196		8,920		7,835		51			7,886
Corporate bonds, investment grade		5,715		441		6,156		5,408		346			5,754
Corporate bonds,non-investment grade		989		219		1,208		729		165			894
Mortgage-backed securities		793		108		901		707		85			792

	$	21,687	$	1,009	$	22,696	$	19,035	$	644		$	19,679

U.S. government obligations are rated AA+ or Aaa by the major rating ~~agencies and approximately 88%~~agencies. Approximately 87% of all state, municipal and political subdivisions, foreign government obligations and mortgage-backed securities were rated AA or ~~higher by the major rating agencies.~~higher.Non-investment grade securities represent securities rated belowBBB- or Baa3. Foreign government securities include obligations issued or unconditionally guaranteed by national or provincial government entities.

Railroad (“Burlington Northern Santa Fe”)

Burlington Northern Santa Fe, LLC (“BNSF”) operates one of the largest railroad systems in North America. BNSF operates approximately 32,500 route miles of track in 28 states, as well as in three Canadian provinces. BNSF’s major business groups are classified by type of product shipped and include consumer products, coal, industrial products and agricultural products. A summary of BNSF’s earnings follows (in millions).


	Second Quarter				First Six Months				First Quarter
	2017		2016		2017		2016		2018		2017
Revenues	$	5,250	$	4,585	$	10,435	$	9,352	$	5,624	$	5,185


Operating expenses:
Compensation and benefits		1,242		1,134		2,525		2,342		1,315		1,297
Fuel		577		431		1,182		826		767		605
Purchased services		609		589		1,235		1,227		692		626
Depreciation and amortization		592		530		1,165		1,050		571		573
Equipment rents, materials and other		437		414		938		917		510		487

Total operating expenses		3,457		3,098		7,045		6,362		3,855		3,588
Interest expense		256		249		508		494		256		252

		3,713		3,347		7,553		6,856		4,111		3,840

Pre-tax earnings		1,537		1,238		2,882		2,496		1,513		1,345
Income taxes		579		466		1,086		940		368		507

Net earnings	$	958	$	772	$	1,796	$	1,556	$	1,145	$	838

Effective income tax rate										24.3%		37.7%

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

Railroad (“Burlington Northern Santa Fe”)(Continued)

~~Consolidated~~BNSF’s revenues were $5.6 billion in the ~~second~~first quarter ~~and first six months~~ of ~~2017 were $5.3 billion and $10.4 billion, respectively,~~2018, representing ~~increases~~an increase of ~~$665~~$439 million ~~(14.5%~~(8.5%) ~~and $1,083 million (11.6%), respectively,~~ versus ~~the corresponding periods in 2016.Pre-tax~~ ~~earnings in the second quarter and first six months of 2017 increased 24.2% and 15.5%, respectively, compared to the same periods in 2016.~~

In2017. During the first ~~six months~~quarter of ~~2017,~~2018, revenues reflected a ~~4.1%~~1.8% comparative increase in average revenue per car/unit and a ~~7.6%~~5.1% increase in volume. Our~~year-to-date~~ volume was ~~5.0~~2.6 million cars/units ~~compared to 4.7 million in 2016. We currently expect our overall volume growth will moderate in the second half of 2017 compared to the growth experienced~~ in the first ~~six months~~quarter of 2018 compared to 2.5 million in 2017. We expect modest volume growth over the remainder of the year. The increase in average revenue per car/unit was primarily attributable to higher fuel surcharge revenue driven primarily by higher fuel prices and ~~business mix changes, as well as~~ increased rates per car/~~unit.~~

~~Freight revenues from consumer products in 2017~~unit, partially offset by business mix changes.Pre-tax earnings were ~~$1.7 billion in the second quarter and $3.4~~approximately $1.5 billion in the first ~~six months, representing increases~~quarter of ~~8.4% and 8.6%, respectively,~~2018, an increase of 12.5% compared to ~~2016.~~2017. The ~~revenue increases reflected~~increase was attributable to the increase in revenues, partly offset by higher fuel and volume-related expenses.

Revenues from consumer products were $1.9 billion in the first quarter of 2018, representing an increase of 10.7% compared to 2017, reflecting volume increases of ~~5.8% in the second quarter and 5.7% in the first six months~~6.2% as well as higher average revenue per car/unit. The volume increases were primarily attributable to higher ~~market share, improving economic conditions, and normalizing of retail inventories, which benefited~~ domestic intermodal and international intermodal volumes due to economic growth and ~~automotive volumes.~~tightening truck capacity leading to conversion from highway to rail.

~~Freight revenues~~Revenues from industrial products ~~in 2017~~ were $1.3 billion in the second quarter and $2.5 billion for the first six months, or increases of 7.4% and 5.7%, respectively, from the comparable 2016 periods. The increases were attributable to higher average revenue per car/unit, as well as volume increases of 4.1% in the second quarter and 2.3% in the first six months. Volumes in 2017 were higher for minerals, steel and other commodities that support domestic drilling activity as well as higher taconite, partly offset by lower petroleum products volume, due to pipeline displacement of U.S. crude traffic, and lower plastics volume.

~~Freight revenues from agricultural products in 2017 increased 18.0% in the second quarter to $1.1 billion and increased 11.4% to $2.2~~$1.4 billion in the first ~~six months compared~~quarter of 2018, an increase of 10.9% from 2017, attributable to ~~the same periods in 2016. The revenue growth reflected higher volumes, 14.5% in the second quarter and 7.8% for the first six months, as well as higher revenue per car/unit. The~~a volume ~~growth in 2017 was primarily due to higher grain exports.~~

~~Freight revenues from coal in 2017 increased 39.2% in the second quarter to $912 million and 30.5% in the first six months to $1.9 billion compared to 2016. The~~ increase ~~in revenues reflected higher volumes, 20.7% in the second quarter and 19.5%year-to-date,~~of 9.2% as well as higher average revenue per car/unit. ~~The volume increases in 2017 were due to mild winter weather~~Volumes in the first quarter of ~~2016~~2018 were higher primarily due to increased sand and ~~higher natural gas prices~~other products that support drilling and broad strengthening in the industrial sector which drove demand for steel, taconite, chemicals and plastics.

Revenues from agricultural products increased 4.0% to $1.2 billion in the first ~~half~~quarter of ~~2017. Together, these factors led~~2018 compared to 2017, primarily due to a volume increase of 6.4%, partially offset by lower average revenue per car/unit. Volumes increased ~~utility~~due to stronger export and domestic grain shipments as well as higher ethanol and other grain products volumes.

Revenues from coal ~~usage~~decreased 1.3% to $948 million in the first quarter of 2018 compared to 2017, which ~~were partly~~reflected a decrease in volume of 2.3%, partially offset by higher average revenue per car/unit. The volume decreases in the ~~effects~~first quarter of ~~unit~~2018 were primarily due to utility plant retirements, ~~of coal generating facilities.~~partially offset by market share gains.

Operating expenses were $3.9 billion in the ~~second~~first quarter ~~and first six months~~ of ~~2017 were $3.5 billion and $7.0 billion, respectively, increases~~2018, an increase of ~~$359~~$267 million ~~(11.6%~~(7.4%) ~~and $683 million (10.7%), respectively,~~ compared to ~~the same periods in 2016.~~2017. Our ~~ratios~~ratio of operating expenses to revenues decreased ~~1.7~~0.7 percentage points to ~~65.8%~~68.5% in the ~~second~~first quarter ~~and 0.5 percentage points to 67.5% for the first six months~~ of ~~2017~~2018 versus ~~the corresponding 2016 periods.~~

Compensation and benefits expenses increased $108 million (9.5%) for the second quarter and $183 million (7.8%) for the first six months compared to 2016. The increases were primarily due to higher health and welfare costs, wage inflation and volume-related increases.2017. Fuel expenses increased ~~$146~~$162 million ~~(33.9%~~(26.8%) ~~for the second quarter and $356 million (43.1%) for the first six months~~ compared to ~~2016,~~2017 primarily due to higher average fuel prices and increased ~~volumes, partially offset by improved efficiency. Depreciation and amortization~~volumes. Purchased services expense increased ~~$62~~$66 million ~~(11.7%~~(10.5%) compared to 2017 due to higher purchased transportation costs of our logistics services business, which are offset in revenues, as well as increased intermodal ramping and drayage activities.

BNSF’s effective income tax rate was 24.3% and 37.7% for the ~~second quarter~~three months ended March 31, 2018 and ~~$115 million (11.0%) for~~2017, respectively. The decrease was driven by the ~~first six months compared to 2016 due to a larger base of depreciable assets~~reduction in ~~service.~~the U.S. statutory income tax rate under the TCJA, effective January 1, 2018.

Utilities and Energy (“Berkshire Hathaway Energy Company”)

We ~~hold a 90.2% ownership interest in~~currently own 90.4% of the outstanding common stock of Berkshire Hathaway Energy Company (“BHE”), which operates a global energy business. BHE’s domestic regulated utility interests are comprised of PacifiCorp, MidAmerican Energy Company (“MEC”) and NV Energy. In Great Britain, BHE subsidiaries operate two regulated electricity distribution businesses referred to as Northern Powergrid. BHE also owns two domestic regulated interstate natural gas pipeline companies. Other energy businesses include ~~AltaLink, L.P. (“AltaLink”),~~ a regulated electricity transmission-only business in Alberta, Canada (“AltaLink, L.P.”) and a diversified portfolio of independent power projects. In addition, BHE also operates the second-largest residential real estate brokerage firm and one of the largest residential real estate brokerage franchise networks in the United States.

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

Utilities and Energy (“Berkshire Hathaway Energy Company”)(Continued)

The rates our regulated businesses charge customers for energy and services are based, in large part, on the costs of business operations, including income taxes and a return on capital, and are subject to regulatory approval. To the extent these regulated operations are not allowed to include such costs in the approved rates, operating results will be adversely affected. The Tax Cuts and Jobs Act of 2017 reduced the U.S. federal statutory income tax rate of our domestic regulated utilities from 35% to 21%. The resulting effects of the lower U.S. income tax expense of those regulated utilities are expected to be substantially offset over time by lower revenues andpre-tax earnings. Revenues and earnings of BHE are summarized below (in millions).


		Second Quarter								First Six Months									First Quarter
		Revenues				Earnings				Revenues				Earnings					Revenues				Earnings
		2017		2016		2017		2016		2017		2016		2017		2016			2018		2017		2018			2017
PacifiCorp		$	1,256	$	1,243	$	258	$	258	$	2,548	$	2,507	$	523	$	502		$	1,202	$	1,292	$	173		$	265
MidAmerican Energy Company			669		593		90		95		1,377		1,225		152		148			767		708		40			62
NV Energy			761		714		141		118		1,355		1,338		192		150			625		594		40			51
Northern Powergrid			220		250		64		92		465		529		167		217			275		245		109			103
Natural gas pipelines			190		189		43		49		508		505		243		229			379		318		219			200
Other energy businesses			568		466		72		78		1,081		974		113		132			500		487		20			15
Real estate brokerage			959		844		113		95		1,546		1,339		116		98			764		587		(10	)		3
Corporate interest																				—		—		(104	)		(110	)

		$	4,623	$	4,299					$	8,880	$	8,417						$	4,512	$	4,231

Earnings before corporate interest and income taxes (“EBIT”)							781		785						1,506		1,476
Corporate interest							111		119						221		241
Pre-tax earnings																		Pre-tax earnings						487			589
Income taxes and noncontrolling interests	Income taxes and noncontrolling interests						154		184						268		312	Income taxes and noncontrolling interests						(98	)		109

Net earnings attributable to Berkshire Hathaway shareholders	Net earnings attributable to Berkshire Hathaway shareholders					$	516	$	482					$	1,017	$	923	Net earnings attributable to Berkshire Hathaway shareholders					$	585		$	480

Effective income tax rate																		Effective income tax rate						(34.3	)%		8.0	%

PacifiCorp

PacifiCorp operates a regulated electric utility in portions of several Western states, including Utah, Oregon and Wyoming. Revenues in the ~~second~~first quarter of 2018 were $1.2 billion, a decrease of 7% compared to the same period in 2017. Retail revenues in the first quarter of 2018 decreased $111 million compared to 2017, reflecting lower average rates ($71 million), primarily due to refund accruals related to 2017 tax reform, and ~~first six months~~a 3.5% reduction in volumes largely attributable to the impacts of ~~2017 increased $13 million (1%) and $41 million (2%), respectively, compared with 2016. In the second quarter and first six months of 2017, wholesale~~weather. Wholesale and other revenues increased due to higher volumes ~~and average rates. In the second quarter of 2017, retail revenues declined slightly and for the first six months increased $14 million, due to higher volumes, partly~~ offset by lower ~~average~~market rates.

EBIT in the second quarter of 2017 was unchanged from 2016, as a slight increase in gross margins and lower operations and maintenance expenses were substantially offset by increased depreciation and amortization expense. EBIT increased $21Pre-tax earnings decreased $92 million ~~(4%~~(35%) in the first ~~six months~~quarter of ~~2017,~~2018 as compared to ~~2016.~~the same period in 2017. Utility margins (operating revenues less fuel and purchased energy costs) in the first quarter of 2018 were $751 million, a decrease of $89 million (11%) versus 2017. The ~~comparative increase in EBIT~~decrease was primarily due to ~~an increase~~the decline in ~~gross margins ($18 million) and lower operations and maintenance expenses ($22 million), partially offset by increased depreciation, amortization and property tax expenses ($18 million).~~revenues. PacifiCorp’safter-tax earnings in the first quarter of 2018 were $148 million, a decline of $31 million (17%) compared to 2017.

MidAmerican Energy Company

MEC operates a regulated electric and natural gas utility primarily in Iowa and Illinois. Revenues in the ~~second~~first quarter of ~~2017 increased $76~~2018 were $767 million, ~~(13%~~an increase of $59 million (8%) as compared to ~~2016. The increase was primarily due to increases~~the same period in 2017. In the first quarter of 2018, electric operating revenues ~~($56 million), due principally to higher wholesale volumes and rates,~~increased $36 million and natural gas revenues ~~($18 million) due to higher averageper-unit~~ ~~cost of gas sold (offset in cost of sales). EBIT in the second quarter of 2017 decreased $5 million (5%) compared to 2016. Although revenues and gross margin dollars~~ increased in the second quarter, average gross margin percentages declined due to higher coal-fueled generation and purchased power costs. In addition, in the second quarter of 2017, operating expenses increased $42$13 million compared to ~~2016, which included an increase in depreciation and amortization expense of $31 million attributable to higher regulatory provisions and increased assets in service.~~

Revenues in the first six months of 2017 increased $152 million (12%) compared to 2016. The increase reflected increases in electric operating revenues ($90 million) and natural gas operating revenues ($54 million).2017. The increase in electric revenues was attributable to higher ~~wholesale and other revenue~~retail revenues ($6732 million), ~~substantially due to higher wholesale~~reflecting comparative increases in aggregate volumes and average rates ~~and increased retail revenues ($23 million). The increase in retail revenues reflected increased~~from higher recoveries through bill riders, ~~(which are substantially~~largely offset by ~~increases~~refund accruals related to 2017 tax reform. The increase in ~~costs and expenses) and fromnon-weather~~ ~~usage and rate factors,~~natural gas revenues was primarily due to increased volumes, partially offset by ~~the unfavorable impact~~lower averageper-unit costs of ~~temperatures in 2017. EBIT~~gas sold and refund accruals related to 2017 tax reform.

Pre-tax earnings in the first ~~six months~~quarter of ~~2017 increased $4~~2018 decreased $22 million ~~(3%~~(35%) compared to ~~2016. The~~the same period in 2017. Electric utility margins in the first quarter of 2018 were $361 million, an increase of $30 million compared to 2017, which was due to the net increase in ~~EBIT reflected the increases in revenues substantially~~retail revenues. However, this increase was more than offset by ~~higher coal-fueled generation and purchased power costs, higher per-unit cost of natural gas sold and~~ increased depreciation, maintenance and other operating expenses. The increase in depreciation reflects higher accruals of $27 million for Iowa regulatory arrangements and wind generation and otherplant-in-service of $14 million. MEC’safter-tax earnings are greater than itspre-tax earnings due to the significant production income tax credits it receives related to its wind-powered generating facilities. MEC’safter-tax earnings in the first quarter of 2018 were $103 million, which was relatively unchanged from 2017.

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

Utilities and Energy (“Berkshire Hathaway Energy Company”)(Continued)

NV Energy

NV Energy operates regulated electric and natural gas utilities in Nevada. Revenues ~~increased $47 million (7%) in the second quarter and $17 million (1%)~~ in the first ~~six months~~quarter of ~~2017~~2018 were $625 million, an increase of $31 million (5%) compared to ~~the same periods in 2016. These increases were~~2017. The increase was primarily due ~~primarily~~ to ~~increases~~an increase in retail electric operating revenues of $25 million, which reflected ~~a combination of~~ increased rates from pass-through cost adjustments, ~~and higher volumes,~~ partly offset by lower revenues from energy efficiency programs, which are offset by lower operating expenses. In 2017, NV Energy also experienced declines in operating revenues from commercial and industrial customers electing to purchase power from alternative sources and, thus, becoming distribution service only customers.volumes. Natural gas operating revenue ~~decreased~~increased $7 million in the first ~~six months~~quarter of ~~2017~~2018, primarily due to ~~lower~~higher rates, partially offset by ~~higher~~lower customer usage.

~~EBIT increased $23 million (19%) in the second quarter and $42 million (28%)~~Pre-tax earnings in the first ~~six months~~quarter of ~~2017~~2018 decreased $11 million (22%) compared to the ~~corresponding 2016 periods. These increases were~~same period in 2017. The decrease was primarily due to the higher revenues that were offset by higher pass-through cost adjustments and increased ~~gross~~depreciation as a result of a 2017 regulatory rate review outcome. Utility margins ~~and lower interest expense.~~in the first quarter of 2018 were relatively unchanged from 2017. NV Energy’s after-tax earnings in the first quarter of 2018 were $33 million, which was unchanged from 2017.

Northern Powergrid

Revenues ~~in the second quarter and first six months of 2017 declined~~increased $30 million (12%) and $64 million (12%) compared to 2016, primarily due to the unfavorable currency translation effect of a comparatively stronger U.S. Dollar in 2017 and lower distribution revenue, partially offset by higher smart metering revenue. Changes in the average foreign currency exchange rates accounted for $27 million and $65 million of the comparative revenue declines in the second quarter and first six months of 2017, respectively. Distribution revenues in the first six months of 2017 declined primarily due to the recovery in the first quarter of ~~2016~~2018 compared to 2017, primarily due to the favorable foreign currency translation effects of ~~the December 2013 customer rebate ($11 million), unfavorable movements~~a weaker U.S. Dollar in ~~regulatory provisions and lower distribution volumes ($12 million), partially offset by higher tariff rates ($15 million). EBIT~~2018.Pre-tax earnings in the first ~~six months~~quarter of ~~2017 declined $50~~2018 increased $6 million ~~(23%~~(6%) compared to ~~2016,~~2017, primarily due to foreign currency translation effects, ~~as well as~~partially offset by higher depreciation ~~expense from additional assets placedin-service~~and ~~increased pension~~other operating expenses.

Natural gas pipelines

Revenues increased $61 million (19%) in the ~~second~~first quarter of 2018 compared to 2017, primarily due to higher transportation revenues of $36 million and ~~first six months of 2017 were relatively unchanged from 2016. In the first six months of 2017, higher~~increased gas sales ~~primarily from~~volumes related to system balancing activities, ~~(largely~~which were largely offset in cost of ~~sales), and higher transportation revenues at Northern Natural Gas were offset by lower transportation revenues at Kern River. EBIT~~sales.Pre-tax earnings increased $19 million (10%) in the first ~~six months~~quarter of ~~2017 increased $14 million (6%)~~2018 compared to ~~2016.~~2017. The increase was primarily due to the changes in transportation revenues, partly offset by a ~~reduction~~comparative increase in operating expenses, ~~and regulatory liabilities related to~~which included the ~~impact~~effects of an alternative rate structure approved by Kern River’s regulators that reduced expenses and regulatory liabilities in the first quarter of ~~2017 and from the changes in transportation revenues.~~2017.

Other energy businesses

Revenues increased $13 million (3%) in the ~~second~~first quarter ~~and first six months~~ of ~~2017 increased $102 million (22%) and $107 million (11%), respectively,~~2018 compared to the same ~~periods~~period in ~~2016. These increases were primarily due to the effects~~2017, reflecting a comparative increase of ~~a decision in May 2016 by AltaLink’s regulator, which changed the timing of whenconstruction-in-progress~~ ~~expenditures included in rate base are billable to customers and earned in revenues. The decision resulted in aone-time~~ ~~net reduction in revenue in the second quarter of 2016, with an offsetting reduction in expenses. Otherwise, operating revenues~~12% from renewable energy ~~increased 18%~~and a comparative decline of 5% from the unregulated service business.Pre-tax earnings in the first ~~six months~~quarter of ~~2017 due to~~2018 increased assets in service and increased solar generation, while revenues from the unregulated retail services business declined 9%. EBIT in the second quarter and first six months of 2017 declined 8% and 14%, respectively,$5 million compared to ~~2016. The declines~~the same period in 2017, which reflected ~~higher other operating costs, partly offset by~~ increased earnings from renewable ~~energy.~~energy partly offset by higher other operating expenses.

Real estate brokerage

Revenues in the first ~~six months~~quarter of ~~2017~~2018 increased ~~$207 million (15%)~~30% as compared to ~~2016. The increase was primarily~~the same period in 2017 due to recent business ~~acquisitions, and modest increases in closed sales units and average transaction prices for existing businesses. EBIT~~acquisitions.Pre-tax earnings declined $13 million in the first ~~six months~~quarter of ~~2017 increased $18 million~~2018 as compared to ~~2016.~~2017, primarily due to higher operating and interest expenses, partially offset by higher net revenues.

Corporate interest ~~and income taxes~~

Corporate interest includes interest on unsecured debt issued by the BHE holding company and borrowings from ~~certain~~ Berkshire insurance ~~subsidiaries.~~subsidiaries in connection with certain of BHE’s ~~consolidated~~business acquisitions, which were fully repaid in the third quarter of 2017. Corporate interest declined 5% in the first three months of 2018 as compared to 2017, primarily due to lower average borrowings.

Income taxes

BHE’s effective income tax rates for the first ~~six months~~quarters of ~~2017~~2018 and ~~2016~~2017 were approximately ~~11%~~(34.3%) and ~~16%~~8.0%, respectively. BHE’s effective income tax rates regularly reflect significant production tax credits from wind-powered electricity generation placed in service by our domestic regulated utilities and other energy businesses. The effective tax rate in the first quarter of 2018 decreased primarily due to the reduction in the U.S. federal corporate income tax rate, as well as from lower state income tax expense, lower U.S. income taxes on foreign earnings, an increase in recognized production tax credits ~~recognized~~ and ~~lower consolidated deferred state income tax expenses due to changes in the tax status~~favorable impacts of ~~certain subsidiaries.~~rate making.

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

Manufacturing, Service and Retailing

A summary of revenues and earnings of our manufacturing, service and retailing businesses follows (in millions).


		Second Quarter								First Six Months								First Quarter
		Revenues				Earnings *				Revenues				Earnings *				Revenues				Earnings *
		2017		2016		2017		2016		2017		2016		2017		2016		2018		2017		2018		2017
Manufacturing		$	12,738	$	12,201	$	1,939	$	1,687	$	24,835	$	22,755	$	3,426	$	3,169	$	12,934	$	12,097	$	1,855	$	1,487
Service and retailing			19,131		18,434		624		586		37,325		36,126		1,105		1,046		18,776		18,194		575		481

		$	31,869	$	30,635					$	62,160	$	58,881					$	31,710	$	30,291

Pre-tax earnings							2,563		2,273						4,531		4,215						2,430		1,968
Income taxes and noncontrolling interests	Income taxes and noncontrolling interests						901		780						1,552		1,456						608		651

						$	1,662	$	1,493					$	2,979	$	2,759					$	1,822	$	1,317

Effective income tax rate																							24.4%		32.4%

Excludes certain acquisition accounting expenses, which were primarily from the amortization of identified intangible assets recorded in connection with our business acquisitions. Theafter-tax acquisition accounting expenses excluded from earnings ~~above for~~in the ~~second quarter~~preceding table were $209 million in 2018 and ~~first six months of 2017 were $169~~$132 million ~~and $301~~ ~~million, respectively, compared to $114~~ ~~million and $205~~ ~~million for the second quarter and first six months of 2016, respectively.~~in 2017. These expenses are included in ~~“other”~~“Other” in the summary of earnings on page 25 and in the ~~“other”~~“Other” earnings section on page 40.

Manufacturing

Our manufacturing group includes a variety of businesses that produce and distribute industrial, building and consumer products. Industrial products businesses include specialty chemicals (The Lubrizol Corporation (“Lubrizol”)), complex metal products for aerospace, power and general industrial markets (Precision Castparts Corp. (“PCC”)), metal cutting tools/systems (IMC International Metalworking Companies (“IMC”)), equipment and systems for the livestock and agricultural industries (CTB International (“CTB”)), and a variety of ~~industrial~~ products for diverse markets (Marmon, Scott Fetzer and LiquidPower Specialty Products (“LSPI”)). Beginning on January 29, 2016, our industrial products group also includes Precision Castparts Corp. (“PCC”), a leading manufacturer of complex metal products for aerospace, power and general industrial markets.

Our building products businesses include 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). Our consumer products businesses include leisure vehicles (Forest River), several apparel and footwear operations (including Fruit of the Loom, Garan, H.H. Brown Shoe Group and Brooks Sports), and ~~beginning on February 29, 2016,~~ the Duracell Company (“Duracell”), a leading manufacturer of high performance alkaline batteries. This group also includes custom picture framing products (Larson Juhl) and jewelry products (Richline). A summary of revenues andpre-tax earnings of our manufacturing operations follows (in millions).


	Second Quarter								First Six Months								First Quarter
	Revenues				Pre- tax earnings				Revenues				Pre- tax earnings				Revenues				Pre-tax earnings
	2017		2016		2017		2016		2017		2016		2017		2016		2018		2017		2018		2017
Industrial products	$	6,637	$	6,505	$	1,267	$	1,133	$	13,145	$	12,199	$	2,261	$	2,187	$	7,077	$	6,508	$	1,311	$	994
Building products		3,125		2,847		401		305		5,859		5,308		650		547		2,834		2,734		251		249
Consumer products		2,976		2,849		271		249		5,831		5,248		515		435		3,023		2,855		293		244

	$ 12,738		$12,201		$ 1,939		$ 1,687		$ 24,835		$ 22,755		$ 3,426		$ 3,169		$	12,934	$	12,097	$	1,855	$	1,487

Aggregate revenues ~~from~~of our manufacturing ~~increased $537 million (4%) in the second quarter and $2.1 billion (9%)~~businesses in the first ~~six months~~quarter of ~~2017~~2018 were $12.9 billion, an increase of $837 million (7%) compared to ~~the same periods in 2016.Pre-tax~~ earnings in the second quarter and first six months of 2017 were $1.9 billion and $3.4 billion, respectively, representing increases of $252 million (15%) and $257 million (8%), respectively, over earnings in the corresponding 2016 periods. In 2016, operating results of our industrial products and consumer products businesses included the results of PCC and Duracell from their respective acquisition dates.2017.Pre-tax earnings in the first ~~six months~~quarter of 2018 were approximately $1.85 billion, an increase of $368 million (25%) from 2017.Pre-tax earnings in the first quarter of 2017 ~~also~~ includedpre-tax losses of ~~$193~~$184 million in connection with the disposition of an underperformingbolt-on business acquired by Lubrizol in 2014. Excluding these losses,pre-tax earnings in 2018 increased 11% compared to 2017.

Industrial products

Revenues in the ~~second~~first quarter ~~and first six months~~ of ~~2017 increased $132~~2018 were approximately $7.1 billion, an increase of $569 million ~~(2%~~(9%) and $946 million (8%), respectively, compared to the corresponding 2016 periods. In the second quarter, revenues of the IMC group increased 9%, PCC and Marmon each increased 2% and LSPI increased 36%, while revenues of Lubrizol declined 2%. The increases from IMC and LSPI were primarily due to increased unit sales.versus 2017. PCC’s revenues ~~increased 17%~~ in the first ~~six months~~quarter of 2018 increased 6% over 2017, ~~compared to the five-month post-acquisition period~~reflecting increased demand in ~~2016. Comparatively higher unit sales droveyear-to-date~~ ~~revenue increases of LSPI (17%) and IMC (8%), while increases from business acquisitions,~~aerospace markets in connection with new aircraft programs, partly offset by lower ~~average selling~~industrial gas turbine demand. Lubrizol’s revenues in the first quarter of 2018 increased 6% compared to 2017, primarily due to higher prices, changes in product mix and ~~mix changes accounted for CTB’s 5%year-to-date~~ ~~revenue~~favorable foreign currency translation. Overall, Lubrizol’s unit sales declined slightly from 2017.

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

Manufacturing, Service and Retailing(Continued)

Industrial products(Continued)

~~increase.~~ Marmon’s revenues ~~increased 3%~~ in the first ~~six months~~quarter of ~~2017 versus 2016, reflecting a mixture of increases from~~2018 increased 9% compared to 2017. Revenues increased due to higher metals prices, business acquisitions, growth in transportation and ~~higher average metal prices, partly offset by lower demand at some of its business units, particularly those that provide products for the retail, industrial equipment, agricultural, wire products~~HVAC product lines and ~~grocery store markets. On a comparable fullyear-to-date~~ ~~basis, PCC’s revenues increased approximately 3% compared to 2016. In 2017, PCC experienced revenue~~favorable foreign currency translation. These increases ~~from structural castings, airfoils and industrial gas turbine products and from new business acquisitions, which~~ were partly offset by revenue decreases attributable to lower retail store and beverage products sales and lower steel distribution volume. IMC’s revenues increased 27% in the first quarter of 2018 compared to 2017 due to a combination of factors, including business acquisitions, translation effects from ~~airframe products.~~a weaker U.S. Dollar, increased unit sales and higher financial income. CTB’s revenues decreased 2% in the first quarter of 2018 versus 2017, primarily due to sluggish demand and selling price pressures for grain systems and lower processing equipment volume, which more than offset increased protein production equipment sales and favorable foreign currency translation.

Pre-tax earnings in the ~~second~~first quarter ~~and first six months~~ of ~~2017 increased $134~~2018 were approximately $1.3 billion, an increase of $317 million ~~(12%~~(32%) ~~and $74 million (3%), respectively,~~ compared to ~~the second quarter and first six months of 2016. In the second quarter and first six months of 2017, PCC, IMC and LSPI generated~~2017. The comparative increase in 2018 earnings ~~increases, while earnings from Lubrizol and CTB were lower. Lubrizol recognized~~was primarily attributable topre-tax losses of ~~$193~~$184 million ~~in the first six months of 2017, substantially all of which was~~recognized by Lubrizol in the first quarter ~~related to~~of 2017 in connection with the disposition of anthe underperformingbolt-on business and ~~related~~the recognition of intangible asset ~~impairment~~impairments and restructuring charges. ~~Over~~Excluding the ~~first six months~~effects of the losses in 2017, Lubrizol, CTB, as well as certain other businesses, experienced selling price pressures and higher manufacturing costs, driven by increased prices for petroleum-based materials and certain metals, which contributed to comparativepre-tax earnings ~~declines. We~~increased 11% compared to the first quarter of 2017.

Excluding the effects of the aforementioned losses, Lubrizol’spre-tax earnings increased 19% in the first quarter of 2018 compared to 2017, which was primarily due to lower interest expense and favorable foreign currency translation. Lubrizol’s results continue to ~~implement cost containment~~be adversely affected by significantly higher average raw material costs, including base oil feedstock and ~~other initiatives intended~~petrochemicals. IMC’spre-tax earnings increased significantly in the first quarter of 2018 versus 2017, reflecting a combination of increased sales, increased manufacturing efficiencies, the effects of business acquisitions and ongoing expense control efforts, partly offset by the effects of rising raw material costs. PCC’spre-tax earnings decreased 7.5% in the first quarter of 2018 compared to ~~improve productivity at several~~2017. Results in 2018 were negatively affected by costs and lost earnings from the unplanned temporary shut-down of ~~our businesses.~~certain manufacturing facilities in the first quarter of 2018. These plants have been restarted and are expected to become fully operational by the third quarter of 2018. In addition, the aforementioned new aerospace programs involve more complex manufacturing processes and manufacturing costs are initially higher, but are expected to decline as processes and efficiencies develop over time.

Building products

Revenues in the ~~second~~first quarter ~~and first six months~~ of ~~2017 increased $278~~2018 were approximately $2.8 billion, an increase of $100 million ~~(10%~~(4%) ~~and $551 million (10%), respectively,~~ compared to ~~2016. The increases~~2017. In the first quarter of 2018, we generated increased sales of flooring products, primarily from hard surface volumes, and slightly higher revenues from Johns Manville and MiTek’s residential products business. We also experienced comparative volume declines in 2018 for brick/masonry products, while volumes for paint/coatings were ~~primarily due to the effect ofbolt-on~~ ~~business acquisitions (Shaw and MiTek) and sales volume increases (MiTek and Johns Manville), partly offset by lower average sales prices and changes in product mix.~~relatively unchanged.

Pre-tax earnings in the ~~second~~first quarter ~~and first six months~~ of ~~2017 increased $96~~2018 were $251 million, ~~(31%~~a slight increase (1%) ~~and $103 million (19%), respectively, compared~~over 2017. Our operating margins(pre-tax earnings to ~~2016. These increases were attributable to asset impairment, pension settlement and environmental claim charges recorded~~revenues) in the ~~second~~first quarter were 8.9% in 2018 and 9.1% in 2017. Raw material and production costs continued to rise in the first quarter of ~~2016 by Shaw~~2018, which offset most of the increase in revenues. In particular, we experienced higher prices for steel, titanium dioxide, and ~~Benjamin Moore (aggregating about $90 million), and earnings from recentbolt-on~~ ~~acquisitions, partly offset by~~petrochemicals in 2018, which contributed to the comparative ~~declines~~decline in ~~the average gross margin rates. Over the first six months of 2017, a combination of lower average selling prices and higher average raw materials costs negatively affected the~~our operating ~~results of our building products businesses.~~margin.

Consumer products

Revenues ~~increased $127 million (4%) in the second quarter and $583 million (11%)~~were approximately $3.0 billion in the first ~~six months~~quarter of ~~2017 compared to the corresponding 2016 periods. The second quarter revenue~~2018, an increase ~~included a 12% comparative increase at Forest River, attributable to an 11% increase in unit sales.~~of $168 million (6%) over 2017. The increase in revenues ~~for the first six months reflected a 74% increase in revenues of Duracell, which we acquired February 29, 2016, and a 9% increase in Forest River’s revenues,~~was primarily due to unit volume increases at Forest River, Brooks Sports and Garan and from the foreign currency translation effects of a ~~10% increase~~weaker U.S. Dollar in 2018, partly offset by lower unit ~~sales. Apparel revenues in~~sales at Fruit of the ~~first six months of 2017 declined slightly (1%) compared to 2016.~~Loom.

Pre-tax earnings were $293 million in the ~~second~~first quarter ~~and first six months~~ of ~~2017 increased $22~~2018, an increase of $49 million ~~(9%~~(20%) ~~and $80 million (18%), respectively,~~ compared to ~~2016.~~2017. The ~~increases~~increase reflected the changes in revenues described above and also included increased earnings from Duracell. Duracell’s results in the ~~second~~first quarter ~~and first six months~~ of ~~2017 were~~2018 increased primarily due to ~~increased earnings~~lower costs from ~~Duracell~~ongoing operational restructuring efforts and ~~Forest River, partly offset by~~comparatively lower ~~apparel earnings. Duracell’s comparative results~~restructuring charges in the 2017 periods reflected significant decreases in transition and integration costs arising from the acquisition in 2016 and otherwise improved operating results. The declines in apparel earnings were primarily attributable to Fruitfirst quarter of ~~the Loom, reflecting the impact of lower gross margins and higher operating expenses.~~

~~Service and retailing~~

~~Our service and retailing businesses are comprised of a large group of independently managed businesses engaged in a variety of activities. A summary of revenues andpre-tax~~ ~~earnings of these operations follows (in millions).~~2018.

   Second Quarter    First Six Months
   Revenues    Pre-tax earnings    Revenues Pre-tax earnings
   2017    2016    2017 2016    2017 2016 2017 2016
Service
     $ 2,792         $ 2,577      $   351   $   296        $ 5,409   $ 4,938   $      611   $      521
Retailing
   3,758       3,808    204   161      7,234 7,338 337 260
McLane Company
     12,581         12,049    69   129        24,682   23,850 157 265








     $   19,131         $   18,434      $   624   $   586        $   37,325   $   36,126   $   1,105   $   1,046

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

Manufacturing, Service and Retailing(Continued)

Service and retailing

A summary of revenues andpre-tax earnings of our service and retailing businesses follows (in millions).

   First Quarter
   Revenues Pre-tax earnings
   2018 2017 2018 2017
Service
     $ 2,945   $ 2,617   $ 357   $ 260
Retailing
   3,642 3,476 158 133
McLane Company
   12,189 12,101 60 88


     $ 18,776   $ 18,194   $   575   $ 481


Service
Our service businesses offer fractional ownership programs for general aviation aircraft (NetJets) and high technology training to operators of aircraft (FlightSafety). We also distribute electronic components (TTI) and franchise and service a network of quick service ~~restaurant franchises~~restaurants (Dairy Queen). Service businesses also include the electronic distribution of corporate news, multimedia and regulatory filings (Business Wire), publication of newspapers and other publications (Buffalo News and the BH Media Group) and operation of a television station in Miami, Florida (WPLG). We also offer third party logistics services that primarily serve the petroleum and chemical industries (Charter Brokerage).
Revenues in the ~~second~~first quarter ~~and first six months~~ of ~~2017 increased $215~~2018 were approximately $2.9 billion, an increase of $328 million ~~(8%~~(13%) ~~and 471 million (10%), respectively,~~ as compared to ~~2016. The increases were primarily~~2017. First quarter 2018 revenues of TTI increased 33% compared to 2017, reflecting an industry-wide increase in demand for electronic components in many geographic markets around the world, and from the effects of business acquisitions and foreign currency translation due to ~~increases from NetJets~~a weaker U.S. Dollar. In addition, FlightSafety and ~~TTI. The~~Charter Brokerage generated comparative revenue increases atin the first quarter of 2018. NetJets ~~reflected increases~~revenues in ~~aircraft sales and lease revenues and a 4% year-to-date increase in revenue flight hours. The increases in TTI’s revenues~~the first quarter of 2018 were ~~primarily due to unit volume increases in most of its markets.~~relatively unchanged from 2017.
Pre-tax earnings in the ~~second~~first quarter ~~and first six months~~ of ~~2017 increased $55~~2018 were $357 million, ~~(19%) and $90~~an increase of $97 million ~~(17%~~(37%)~~, respectively,~~ compared to ~~2016. The~~2017. With the exception of our media businesses, all of our service operations generated comparative increases in first quarter earnings, ~~were primarily attributable to~~driven by the aforementioned revenue based increases at TTI, FlightSafety and Charter Brokerage and increased earnings ~~of NetJets and TTI partly offset by lower earnings from media and logistics services businesses.~~at NetJets.
Retailing
Our retailers include Berkshire Hathaway Automotive (“BHA”). BHA includes over 80 auto dealerships that sell new andpre-owned automobiles, and offer repair services and related products. BHA also operates two insurance businesses, two auto auctions and an automotive fluid maintenance products distributor. Our retailing businesses also include four ~~distinct~~ home furnishings retailing businesses (Nebraska Furniture Mart, R.C. Willey, Star Furniture and Jordan’s), which sell furniture, appliances, flooring and electronics. ~~Our retailers also include Berkshire Hathaway Automotive (“BHA”). BHA includes 83 auto dealerships, which sell new andpre-owned~~ ~~automobiles and offer repair and other related services and products. BHA also includes two related insurance businesses, two auto auctions and a distributor of automotive fluid maintenance products.~~
Our other retailing businesses include three jewelry retailing businesses (Borsheims, Helzberg and Ben Bridge), See’s Candies (confectionary products), Pampered Chef (high quality kitchen tools), Oriental Trading Company (party supplies, school supplies and toys and novelties) and Detlev Louis Motorrad (“Louis”), a Germany-based retailer of motorcycle accessories.
~~Revenues~~Retailing business revenues in the first quarter of 2018 were $3.6 billion, an increase of $166 million (5%) compared to 2017. BHA’s revenues, which represent approximately 64% of our aggregate retailing ~~businesses~~revenues, increased 4.5% in the first quarter of 2018 compared to 2017. The increase was primarily from increasedpre-owned vehicle sales. In addition, See’s Candies revenues increased 23% in the first quarter of 2018 compared to 2017 due to the timing of the Easter holiday. The seasonal effects of the Easter holiday were in the first quarter of 2018 and primarily in the second quarter ~~and first six months~~ of ~~2017 decreased (1%) as compared to the same periods in 2016. These decreases were primarily due to lower revenues at BHA as a result of lower vehicle units sold, partly offset by increases in revenues~~2017. Revenues of our home furnishings ~~retailers, Pampered Chef~~businesses increased 4% in the first quarter of 2018 versus 2017, due to higher volumes in certain markets and ~~See’s Candies.~~the effect of a new store, which opened in 2018.
Pre-tax earnings in the ~~second~~first quarter ~~and first six months~~ of ~~2017~~2018 from retailing ~~increased $43~~were $158 million, ~~(27%) and $77~~an increase of $25 million ~~(30%~~(19%) over ~~2016. These increases reflected higher earnings from~~2017, which was primarily attributable to BHA ~~our home furnishings retailers, Pampered Chef~~ and See’s Candies. ~~The earnings increases~~Earnings of BHA ~~were~~increased primarily due to increased earnings from ~~service,~~ finance and insurance activities, partly offset by lower ~~auto sales~~vehicle gross margins. The increase inpre-taxearnings ~~increases from our home furnishings retailers were~~of See’s Candies was attributable to ~~overall increases in~~ the ~~gross margin rates~~timing of Easter.
37
Item 2. Management’s Discussion and ~~relatively lower operating expenses. The increases from Pampered Chef~~Analysis of Financial Condition and ~~See’s Candies were primarily attributable toyear-to-date~~ ~~revenue increases~~Results of ~~13%~~Operations(Continued)
Manufacturing, Service and ~~4%, respectively, and cost management efforts.~~Retailing(Continued)
McLane Company
McLane operates a wholesale distribution business that provides grocery andnon-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 units ~~are marked by~~generate high sales volumes and very low profit margins and have several significant customers, includingWal-Mart,7-Eleven and Yum! Brands. A curtailment of purchasing by any of its significant customers could have an adverse impact on McLane’s periodic revenues and earnings.
Revenues for the ~~second~~first quarter ~~and~~of 2018 were $12.2 billion, an increase of 0.7% over the first ~~six months~~quarter of 2017, ~~were $12.6 billion and $24.7 billion, respectively, increases of 4.4% and 3.5% over the second quarter and first six months of 2016, respectively. The~~reflecting a slight increase in ~~revenues for the first six months of 2017 was primarily due to~~grocery sales and a ~~4.6% increase~~slight decrease in ~~grocery~~foodservice sales.Pre-tax earnings in the ~~second~~first quarter ~~and first six months~~ of ~~2017~~2018 were ~~$69 million and $157 million, respectively, decreases of~~ $60 million, ~~(47%) and $108~~a decrease of $28 million ~~(41%~~(32%) compared to ~~corresponding 2016 periods. The earnings declines reflected a 59% decline~~2017. McLane continues to operate in~~year-to-date~~ ~~earnings of our grocery operations. In 2017, significant pricing pressures and~~ an ~~increasingly~~intensely competitive business environment, which is negatively ~~affected our~~affecting its current operating ~~results, particularly with respect to our grocery business.~~results. These conditions contributed to declining gross margin rates in the first quarter of 2018, which together with ~~increased~~increases in fuel, ~~trucking, insurance~~depreciation and ~~depreciation~~certain other operating expenses ~~contributed to~~produced a 4723 basis point decline in ~~our overall~~its operating margin rate (ratio ofpre-tax earnings to revenues) ~~for~~compared to 2017. Our grocery and foodservice businesses is expected to continue to be subject to intense competition over the ~~first six months~~remainder of ~~2017.~~
~~Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations~~~~(Continued)~~
2018.
Finance and Financial Products
Our finance and financial products businesses include manufactured and site built housing and finance (Clayton Homes), transportation equipment manufacturing and leasing businesses (UTLX and XTRA, and together, “transportation equipment leasing”), as well as other leasing and financing activities. A summary of earnings from our finance and financial products businesses follows (in millions).

   Second Quarter    First Six Months    First Quarter
   Revenues    Earnings    Revenues    Earnings    Revenues    Earnings
   2017    2016    2017    2016    2017    2016    2017    2016    2018    2017    2018    2017
Manufactured housing and finance
     $   1,199        $   1,065        $ 197        $ 179        $ 2,273      $ 1,958      $ 373      $ 349      $ 1,247    $ 1,074      $ 195    $ 176
Transportation equipment leasing
   652      671      221      245      1,276    1,354    430    496    651    624    205    209
Other
   182      253      90      159      349    403    171    216    165    151    94    65
























     $   2,033        $   1,989        $   508        $   583        $   3,898      $   3,715      $   974      $   1,061      $ 2,063    $ 1,849













Pre-tax earnings
         494    450
Income taxes and noncontrolling interests
         176      187            339    354          120    159












           $   332        $   396              $   635      $   707            $   374    $ 291












Effective income tax rate
         24.3%    35.5%




Manufactured housing and finance
Clayton Homes’ revenues in the ~~second~~first quarter ~~and first six months~~ of ~~2017 increased $134 million (13%) and $315~~2018 were approximately $1.25 billion, an increase of $173 million (16%)~~, respectively,~~ compared to ~~the second quarter~~2017. The increase reflected a 25% increase in home sales and ~~first six months of 2016. These increases were~~a 4% increase in financial services revenue. The increase in home sales was primarily due to ~~higher home~~increased sales ~~attributable a 14%year-to-date~~ ~~increase in unit sales and higher average prices, which were primarily due to sales mix changes. In 2017, home sales included a higher mix~~ of site built homes, ~~which have~~and to a ~~higher land content and therefore~~lesser extent, manufactured homes. Average unit prices ~~tend~~of site built homes are considerably higher than our traditional manufactured homes. The increase in financial services revenue was primarily attributable to ~~be higher. Site built gross sales margin rates, however, are typically lower than manufactured homes.~~increased interest income from a 3% increase in average loan balances. As of March 31, 2018, Clayton Homes’ loan balances were approximately $13.8 billion.
Pre-tax earnings ~~increased $18 million (10%) in the second quarter and $24 million (7%)~~ in the first ~~six months~~quarter of ~~2017~~2018 were $195 million, an increase of $19 million (11%) compared to ~~the corresponding 2016 periods. Earnings in the first six months of~~ 2017, ~~included a gain of $11 million from a legal settlement. The earnings increases in 2017 also reflected~~which was primarily attributable to increased earnings from ~~manufacturing~~increased sales of site built homes, financial services and ~~retailing activities, comparatively~~ lower ~~servicing asset impairment charges and increased~~corporate overhead costs. The increase inpre-tax earnings from ~~insurance~~financial services reflected increased interest income and lower credit losses, partly offset by increased ~~employee healthcare, technology, marketing~~interest expense, which reflected increased average balances and ~~legal expenses.~~borrowing rates.
Transportation equipment leasing
Transportation equipment leasing revenues increased $27 million (4%) in the ~~second~~first quarter ~~and first six months~~ of ~~2017 decreased $19 million (3%) and $78 million (6%), respectively,~~2018 compared to ~~2016. The declines were~~2017, primarily due to ~~comparative declines in leasing revenues, attributable to lower railcar~~increased crane services,over-the-road trailer units on lease, increased equipment sales and ~~trailer fleet utilization rates, lower railcar rental renewal rates, and lower volume for crane services,~~favorable foreign currency translation effects, partly offset by ~~increases in repair revenues~~decreased railcar lease income. Excess railcar capacity for lease continues to contribute to fewer units on lease and relatively low lease ~~termination fees. In the first six months of 2017, we also experienced lower tank car sales to third parties, although demand increased during the second quarter.~~rates.
~~Pre-tax~~ earnings in the second quarter and first six months of 2017 declined $24 million (10%) and $66 million (13%), respectively, compared to 2016. These decreases reflected the aforementioned revenue declines and higher railcar repair and storage costs. In 2017, interest expense also increased due to increased borrowings from a Berkshire financing subsidiary, partly offset by lower interest expense on third party borrowings. Significant components of our operating costs, such as depreciation expense, do not vary proportionately to revenue changes. Therefore, changes in revenues can disproportionately impact earnings.
~~Other~~38
Earnings from other finance activities include CORT furniture leasing, our share of the earnings of a commercial mortgage servicing business (“Berkadia”) in which we own a 50% joint venture interest, and interest and dividends from a portfolio of investments.~~Pre-tax~~ earnings in the first six months of 2017 declined $45 million compared to 2016, reflecting lower interest and dividend income from investments and lower earnings from CORT. Other earnings also includes income from interest rate spreads charged on borrowings by a Berkshire financing subsidiary that are used to finance loans and assets held for lease. The corresponding expenses are included in the results of our manufactured housing and finance and transportation equipment business groups. Pre-tax interest rate spreads charged to these businesses were $39 million in the first six months of 2017 and $35 million in 2016.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations(Continued)

Finance and Financial Products(Continued)
Transportation equipment leasing (Continued)
Pre-tax earnings were $205 million in the first quarter of 2018, a decrease of $4 million (2%) compared to 2017. The decrease was due to lower earnings from the railcar leasing business, attributable to the decline in lease revenues and higher repair costs, partly offset by increased earnings from theover-the road-trailer and crane services businesses. Significant components of the operating costs of our leasing businesses, such as depreciation expense and financing costs, do not vary proportionately to revenue changes. Thus, changes in revenues can produce a disproportionate effect on earnings.
Other
Other earnings from our finance activities include CORT furniture leasing and interest and dividends from investment securities. In 2018, other earnings increased $29 million compared to 2017, reflecting increased interest and dividend income and earnings from CORT. Other earnings in 2018 included increased interest income on loans by a Berkshire financing subsidiary to Clayton Homes and UTLX and from other intercompany loans, which are used to finance loans and assets held for lease. Corresponding interest expense is reflected in the earnings of those businesses.
Investment and Derivative Gains/Losses
A summary of investment and derivative gains and losses follows (in millions).

   Second Quarter    First Six Months    First Quarter
   2017    2016    2017    2016    2018 2017
Investment gains/losses
   $ 290         $ 643        $    605        $ 2,493         $ (7,809 )     $ 315
Derivative gains/losses
   (65)      20      395      (790)      (206 ) 460










Gains/losses before income taxes and noncontrolling interests
   225       663      1,000      1,703       (8,015 ) 775
Income taxes and noncontrolling interests
   82       269      353      (543)      (1,589 ) 271










Net gains/losses
   $   143         $   394        $    647        $   2,246         $   (6,426 )     $ 504










Effective income tax rate
   19.8% 35.0%


Investment gains/losses
~~Investment gains/losses arise primarily from~~As discussed in Note 2 to the ~~sale, redemption or exchange~~accompanying Consolidated Financial Statements, we adopted a new accounting pronouncement as of ~~investments. The timing of gains or losses can have a material effect on periodic earnings. Investment~~January 1, 2018 (“ASU2016-01”), which requires that unrealized gains and losses ~~included~~arising from changes in ~~earnings usually have minimal impact on~~market values of our investments in equity securities be recorded in the ~~periodic changes in~~Consolidated Statements of Earnings. Prior to 2018, investment gains/losses related to equity securities were generally recorded when we sold, redeemed or exchanged investments. While ASU2016-01 does not affect our consolidated shareholders’ equity ~~since most of our investments are recorded at fair value with the unrealized gains and losses included in shareholders’ equity as a component of accumulated other comprehensive income.~~
~~We believe the amount of investment gains/losses included in earnings in any given period typically has little analytical~~ or predictive value. Our decisions to sell securities are not motivated by the impact that the resulting gains or losses will have on our reported earnings. Although we do not consider investment gains and losses as necessarily meaningful or useful in evaluating our periodic results, we are providing information to explain the nature of such gains and losses when reflected in our earnings.
~~Pre-tax~~ ~~investment gains in the first six months of 2017 and 2016 were $605 million and $2.5 billion, respectively.Pre-tax~~ ~~investment gains in the first quarter of 2016 included $1.1 billion realized in connection with thetax-free~~ exchange of shares of P&G common stock for 100% of the common stock of Duracell. Income tax expense allocated to investment gains included a benefit from the reduction of certain deferred income tax liabilities in connection with the exchange of P&G common stock for Duracell. Our~~after-tax~~ gain from this transaction was approximately $1.9 billion. In addition, investment gains in the second quarter and first six months of 2016 included a pre-tax gain of $610 million from the redemption of our Kraft Heinz Preferred Stock investment for cash of $8.32 billion.
As of January 1, 2018, we will adopt a new accounting standard that changes the reporting of unrealized gains and losses on investments in equity securities and certain other investments. Upon adoption of this accounting standard, we will reclassify the net unrealized gains from such investments, which are presently reflected in accumulated othertotal comprehensive income, ~~to retained earnings. The amount of the reclassification will be based on our equity investments at December 31, 2017. As of June 30, 2017, accumulatedafter-tax~~ net unrealized appreciation related to our equity securities and other investments was approximately $50.6 billion. After December 31, 2017, the unrealized gains and losses on equity securities currently reported in other comprehensive income, as well as gains and losses realized from sales and dispositions, will be included in our periodic Consolidated Statements of Earnings. We do not expect the adoption of this standard will affect our total consolidated shareholders’ equity. However, it ~~will likely~~is expected to produce a very significant increase in the volatility of our periodic net earnings given the magnitude of our existing equity securities portfolio and the inherent volatility of equity securities prices. ~~In the first six months~~Investment gains and losses have caused and will continue to cause significant volatility in earnings reported in our Consolidated Statements of ~~2017, our other comprehensive income included after-tax unrealized gains from equity securities and other investments of approximately $8.2 billion, compared to after-tax unrealized~~Earnings.
Pre-tax investment losses ~~of approximately $3.4 billion~~recorded in earnings in the first ~~six months~~quarter of ~~2016. These amounts would be~~2018 included unrealized losses on investments in equity securities still held at March 31, 2018 of $7.8 billion. Prior to the adoption of ASU2016-01, such unrealized gains and losses were included in other comprehensive income. ASU2016-01 did not permit the restatement of prior years’ statements of earnings.
We believe that investment and derivative gains/losses, whether realized from sales or unrealized from changes in market prices, are often meaningless in terms of understanding our reported results or evaluating our periodic economic performance. We continue to believe the amount of investment gains/losses included in earnings ~~under the new accounting standard.~~in any given period typically has little analytical or predictive value. The effects of changes in market prices for equity securities that are now reported in earnings are unpredictable, particularly over quarterly and annual periods.
39
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations(Continued)

Investment and Derivative Gains/Losses(Continued)

Derivative gains/losses
Derivative contract gains/losses currently represent the changes in fair value of our equity index put option contract liabilities. The liabilities relate to contracts entered into before March 2008 and expire between June 2018 and January 2026. The periodic changes in the fair values of these contracts are recorded in earnings and can be significant, reflecting the volatility of underlying equity markets and the changes in the inputs used to measure such liabilities.
~~Derivative contracts producedpre-tax~~ ~~gains of $395 million in the first six months of 2017 andpre-tax~~ losses of $790 million in 2016. In July 2016, our last remaining credit default contract was terminated and thereafter, all of our derivative contract gains and losses derived from our equity index put option contracts. The gains in the first six months of 2017 were primarily attributable to increased index values and shorter contract durations, partly offset by unfavorable foreign currency exchange rate changes. The losses in 2016 were driven by lower index values and interest rates. As of ~~June 30, 2017,~~March 31, 2018, equity index put option intrinsic values were ~~$842 million~~approximately $1.0 billion and our recorded liabilities at fair value were approximately ~~$2.5~~$2.4 billion. Our ultimate payment obligations, if any, under our equity index put option contracts will be determined as of the contract expiration dates ~~(beginning in 2018),~~ and will be based on the intrinsic value as defined under the contracts. Derivative contracts producedpre-tax losses in the first quarter of 2018 of $206 million, primarily due to lower equity index values and changes in foreign currency exchange rates, partly offset by the effects of shorter average contract durations. In the first quarter of 2017, these contracts producedpre-tax gains of $460 million, primarily attributable to increased index values and shorter average contract durations.
Other
A summary ofafter-tax other earnings (losses) follows (in millions).

   Second Quarter    First Six Months    First Quarter
   2017    2016    2017    2016    2018 2017
Kraft Heinz earnings
   $ 288    $ 247    $ 510    $ 406
Equity method earnings
   $     340 $ 255
Acquisition accounting expenses
     (180)      (126)    (322)      (260)    (218 ) (142 )
Corporate interest expense
   (407)    32    (531)    (181)
Corporate interest expense, before foreign currency effects
   (77 ) (67 )
Corporate interest expense, Euro note foreign exchange rate effects
   (163 ) (57 )
Other
   7    (4)    7    (13)    61 —










Net earnings (losses) attributable to Berkshire Hathaway shareholders
   $     (292)    $ 149    $     (336)    $ (48)    $ (57 ) $ (11 )










~~Our after-tax Kraft Heinz~~After-tax equity method earnings includes Berkshire’s share of ~~Kraft Heinz’s~~ earnings attributable to ~~common shareholders determined pursuant to the equity method. In the second quarter and first six months of 2016,~~ Kraft Heinz, ~~earnings also included $180 million in pre-tax dividend income from our Preferred Stock investment, which was redeemed in June 2016.~~ Pilot Flying J, Berkadia and Electric Transmission of Texas.After-tax other earnings (losses) also include charges arising from the application of the acquisition method in connection with Berkshire’s past business acquisitions. Such charges were primarily from the amortization of intangible assets recorded in connection with those business acquisitions.
~~In each of the last three years,~~ Berkshire issued Euro-denominated debt during 2015, 2016 and 2017 and at ~~June 30, 2017,~~March 31, 2018, the aggregate par amount outstanding was €6.85 billion. Changes in foreign currency exchange rates can produce sizablenon-cash gains and losses from the periodic revaluation of these liabilities into U.S. Dollars. After-tax corporate interest expense included foreign currency exchange rate losses in the second quarter and first six months of 2017 of $342 million and $399 million, respectively, with respect to the revaluation of the Euro denominated debt. In 2016, after-tax corporate interest included foreign currency exchange rate gains of $101 million in the second quarter and losses of $60 million in the first six months. Excluding these foreign currency gains and losses,~~after-tax~~ ~~corporate interest expense in the first six months of 2017 and 2016 was $131 million and $121 million, respectively. The increase was attributable to increased average outstanding borrowings.~~
Financial Condition
Our consolidated balance sheet ~~reflects~~continues to reflect significant liquidity and a strong capital base. Our consolidated shareholders’ equity at ~~June 30, 2017~~March 31, 2018 was ~~approximately $300.7~~$347.4 billion, ~~an increase~~a decrease of ~~about $17.7 billion~~$895 million since December 31, ~~2016.~~2017. Net ~~earnings~~losses attributable to Berkshire shareholders in ~~the first six months~~2018 were $1.1 billion, which includedafter-tax losses on our investments in equity securities of ~~2017 were $8.3~~approximately $6.4 billion. Net unrealized appreciation of investments and foreign currency translation gains included in other comprehensive income in the first six months of 2017 were approximately $8.2 billion and $1.2 billion, respectively.
At ~~June 30, 2017,~~March 31, 2018, our insurance and other businesses held cash, cash equivalents and U.S. Treasury Bills of approximately ~~$86.1~~$98.6 billion and aggregate investments in securities (excluding our investment in Kraft Heinz) of ~~$175.6~~$186.6 billion. ~~In January~~Berkshire parent company debt outstanding at March 31, 2018 was approximately $18.2 billion, a decrease of $580 million from December 31, 2017, ~~Berkshire issued new senior notes aggregating €1.1~~which was net of a $217 million increase attributable to foreign currency exchange rate changes applicable to the €6.85 billion ~~and repaid $1.1 billion~~par amount of ~~maturing~~Euro-denominated senior notes. Berkshire term debt of $800 million matured in February 2018 and an additional $750 million will mature in ~~February~~August 2018. Berkshire’s debt outstanding at June 30, 2017 was $18.4 billion, an increase of $678 million from December 31, 2016, which was primarily due to foreign currency exchange rate changes applicable to €6.85 billion par of Euro-denominated senior notes.
~~Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations~~ ~~(Continued)~~
~~Financial Condition~~ ~~(Continued)~~
Our railroad, utilities and energy businesses (conducted by 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. ~~In the first six months of 2017, capital expenditures were $1.8 billion by BHE and $1.5 billion by BNSF.~~ We forecast ~~the aggregate~~ capital expenditures of these ~~businesses for the remainder of 2017~~two operations will approximate ~~$4.8 billion and we currently expect to fund such future capital expenditures with cash flows from operations and debt issuances. In July 2017, BHE agreed to acquire approximately 80% of Oncor for $9~~$10 billion in ~~cash and intends to acquire~~2018, of which approximately $1.6 billion was made in the ~~remaining 20% in separate transactions. See Note 21 to the accompanying Consolidated Financial Statements.~~first quarter.
BNSF’s outstanding debt approximated $22.6 billion as of ~~June 30, 2017,~~March 31, 2018, an increase of ~~$508~~$62 million since December 31, ~~2016.~~2017. In March ~~2017,~~2018, BNSF issued ~~$1.25 billion~~$750 million of senior unsecured debentures ~~with $500 million~~ due in ~~2027~~2048 and ~~$750 million due in 2047. Approximately~~repaid debentures of $650 ~~million of BNSF debentures matured in May 2017 and another $650 million mature in March 2018.~~million. Outstanding borrowings of BHE and its subsidiaries ~~excluding its borrowings from Berkshire insurance subsidiaries,~~ were approximately ~~$38.1~~$40.1 billion at ~~June 30, 2017,~~March 31, 2018, an increase of ~~$1.1 billion~~$427 million since December 31, ~~2016.~~2017. In January 2018, BHE issued senior unsecured debt of $2.2 billion with maturities ranging from 2021 to 2048. The proceeds from these borrowings were used to repay certain short-term borrowings and for other general corporate purposes. During the ~~first six months~~remainder of ~~2017,~~2018, approximately $2.9 billion of BHE and ~~its subsidiaries issued approximately $1.275 billion of~~subsidiary term debt ~~with maturity dates ranging from 2027 to 2057.~~will mature. Berkshire does not guarantee the repayment of debt issued by BNSF, BHE or any of their subsidiaries and is not committed to provide capital to support BNSF, BHE or any of their subsidiaries.
40
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Financial Condition (Continued)
Finance and financial products assets were approximately ~~$40.9~~$39.5 billion as of ~~June 30, 2017,~~March 31, 2018, a decrease of ~~$830 million~~$2.4 billion from December 31, ~~2016.~~2017. Finance assets consist primarily of loans and finance receivables, various types of property held for lease, cash, cash equivalents and U.S. Treasury ~~Bills and other investments.~~Bills. Finance and financial products liabilities ~~decreased approximately $1.9~~declined $2.0 billion in the first quarter of 2018 to approximately ~~$17.8~~$14.7 billion ~~as of June 30, 2017.~~at March 31, 2018. The decrease ~~was primarily due~~reflected $2.4 billion related to ~~a reduction in borrowings of approximately $1.6 billion, reflecting repayments and~~debt maturities of ~~$2.9 billion, partly offset by $1.3 billion of senior unsecured notes issued in January by~~ a wholly-owned financing subsidiary, Berkshire Hathaway Finance Corporation (“BHFC”). ~~The new BHFC notes mature in 2019 and 2020. BHFC’s outstanding borrowings were $13.2~~An additional $2.25 billion ~~at June 30, 2017. Over the remainder of 2017, $400 million~~ of BHFC senior notes will mature ~~and an additional $4.1 billion will mature in~~over the ~~first six months~~remainder of 2018. BHFC’s senior note borrowings are used to fund loans originated and acquired by Clayton Homes and a portion of assets held for lease by our UTLX railcar leasing business. Berkshire guarantees the full and timely payment of principal and interest with respect to BHFC’s senior notes.
Berkshire’s Board of Directors has authorized Berkshire management to repurchase, at its discretion, Berkshire Class A and Class B common stock at prices no higher than a 20% premium over book ~~value. There is no obligation to repurchase any stock and the program is expected to continue indefinitely.~~value per share. 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 $20 billion. There is no obligation to repurchase any stock and the program is expected to continue indefinitely. Financial strength and redundant liquidity will always be of paramount importance at Berkshire. There were no share repurchases in ~~2017.~~2018.
Contractual Obligations
We are party to contracts associated with ongoing business and financing activities, which will result in cash payments to counterparties in future periods. Certain obligations are included in our Consolidated Balance Sheets, such as notes payable, which require future payments on contractually specified dates and in fixed and determinable amounts. Other obligations pertain to the acquisition of goods or services in the future, such as minimum rentals under operating leases and certain purchase obligations, and are not currently reflected in the financial statements, but will be recognized in future periods as the goods are delivered or services are provided.
The timing and amount of the payments under certain contracts, such as insurance and reinsurance contracts, are contingent upon the outcome of future events and claim settlements. Actual payments will likely vary, perhaps materially, from the estimated liabilities currently recorded in our Consolidated Balance Sheet. As previously discussed, we entered into a retroactive reinsurance agreement with AIG, which became effective in February 2017. In connection with this agreement, we recorded liabilities of $16.4 billion for unpaid losses and loss adjustment expenses, representing our current estimate of the claims we ultimately expect to pay under the agreement. We estimate future payments under this agreement as follows: 2020-2021 – $3.6 billion and thereafter – $12.8 billion; however, as generally noted above, actual payments under this agreement will likely vary, perhaps materially, from these estimates.
Except as otherwise disclosed in this Quarterly Report, our contractual obligations as of ~~June 30, 2017~~March 31, 2018 were, in the aggregate, not materially different from those disclosed in the “Contractual Obligations” section of “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in Berkshire’s Annual Report on Form10-K for the year ended December 31, ~~2016.~~
~~Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations~~~~(Continued)~~
2017.
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 currently 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 Form10-K for the year ended December 31, ~~2016.~~2017.
Our Consolidated Balance Sheet as of ~~June 30, 2017~~March 31, 2018 includes estimated liabilities for unpaid losses and loss adjustment expenses from property and casualty insurance and reinsurance contracts of approximately ~~$95~~$104 billion. Due to the inherent uncertainties in the process of establishing loss reserve amounts, the actual ultimate claim amounts will likely differ from the currently recorded amounts. A very small percentage change in estimates of this magnitude will 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 ~~June 30, 2017~~March 31, 2018 includes goodwill of acquired businesses of approximately ~~$80~~$81 billion. We evaluate goodwill for impairment at least annually and we conducted our most recent annual review during the fourth quarter of ~~2016.~~2017. Although we believe that the goodwill reflected in the Consolidated Balance Sheet is not impaired, goodwill may subsequently become impaired as a result of changes in facts and circumstances affecting the valuation of the reporting unit. A goodwill impairment charge could have a material effect on periodic earnings.
Our Consolidated Balance Sheets include significant derivative contract liabilities with respect to our ~~long-duration~~ equity index put option contracts. The fair values recorded for these liabilities are based on valuation models that utilize various inputs and assumptions that we believe are used by market participants. We further believe that fair values based on such models are inherently subjective and the values in an actual transaction may differ significantly from the model values. Changes in the assumptions utilized within the valuation models may have a significant effect on recorded fair values and periodic earnings.
Information concerning new accounting pronouncements is included in Note 2 to the accompanying Consolidated Financial Statements.
41
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations(Continued)
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, 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 important 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, 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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Reference is made to Berkshire’s most recently issued Annual Report and in particular the “Market Risk Disclosures” included in “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” As of ~~June 30, 2017,~~March 31, 2018, there were no material changes in the market risks described in Berkshire’s Annual Report on Form10-K for the year ended December 31, ~~2016.~~2017.
Item 4. Controls and Procedures
As of the end of the period covered by this Quarterly Report on Form10-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 Rule13a-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.
42
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 financial condition or results of operations. Berkshire and certain of its subsidiaries are also involved in other kinds of legal actions, some of which assert or may assert claims or seek to impose fines and penalties. We believe that any liability that may arise 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 Form10-K for the year ended December 31, ~~2016~~2017 to which reference is made herein.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds and Issuer Repurchases of Equity Securities
Berkshire’s Board of Directors ~~(“Berkshire’s Board”)~~ has approved a common stock repurchase program ~~under which~~permitting Berkshire ~~may~~to repurchase its Class A and Class B shares at prices no higher than a 20% premium over the book value of the shares. ~~Berkshire may repurchase shares~~The program allows share repurchases in the open market or through privately negotiated ~~transactions. Berkshire’s Board authorization~~transactions and does not specify a maximum number of shares to be repurchased. However, repurchases will not be made if they would reduce the total value of Berkshire’s consolidated cash, cash equivalents and U.S. Treasury Bills holdings below $20 billion. The repurchase program is expected to continue indefinitely and the amount of repurchases will depend entirely upon the level of cash available, the attractiveness of investment and business opportunities either at hand or on the horizon, and the degree of discount of the market price relative to management’s estimate of intrinsic value. The repurchase program does not obligate Berkshire to repurchase any dollar amount or number of Class A or Class B shares and there is no expiration date to the program. There were no share repurchases under the program in ~~the first six months of 2017.~~2018.
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 Form10-Q.
Item 5. Other Information
None
43
Item 6. Exhibits


a. Exhibits
3(i)
Restated Certificate of Incorporation
Incorporated by reference to Exhibit 3(i) to Form10-K filed on March 2, 2015.
3(ii)
By-Laws
Incorporated by reference to Exhibit 3(ii) to Form8-K filed on May 4, 2016.
12

Calculation of Ratio of Consolidated Earnings to Consolidated Fixed Charges
31.1

Rule13a-14(a)/15d-14(a) Certifications
31.2

Rule13a-14(a)/15d-14(a) Certifications
32.1

Section 1350 Certifications
32.2

Section 1350 Certifications
95

Mine Safety Disclosures
101

The following financial information from Berkshire Hathaway Inc.’s Quarterly Report on Form10-Q for the quarter ended ~~June 30, 2017,~~March 31, 2018, formatted in XBRL (Extensible Business Reporting Language) includes: (i) the Consolidated Balance Sheets as of ~~June 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, (ii) the Consolidated Statements of Earnings for ~~each of~~ the three-month ~~andsix-month~~periods ended ~~June 30,~~March 31, 2018 and 2017, ~~and 2016,~~ (iii) the Consolidated Statements of Comprehensive Income for each of the three-month ~~andsix-month~~periods ended ~~June 30,~~March 31, 2018 and 2017, ~~and 2016,~~ (iv) the Consolidated Statements of Changes in Shareholders’ Equity for ~~each of~~ the~~six-month~~ three-month periods ended ~~June 30,~~March 31, 2018 and 2017, ~~and 2016,~~ (v) the Consolidated Statements of Cash Flows for ~~each of~~ the~~six-month~~ three-month periods ended ~~June 30,~~March 31, 2018 and 2017, ~~and 2016,~~ and (vi) the Notes to Consolidated Financial Statements, tagged in summary and detail.
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: ~~August 4, 2017~~May 5, 2018

/S/S/ MARC D. HAMBURG
   (Signature)
   Marc D. Hamburg,
   Senior Vice President and
   Principal Financial Officer

44


	PCC		Duracell
Cash and cash equivalents	$	250	$	1,807
Inventories		3,430		319
Property, plant and equipment		2,765		359
Goodwill		16,011		866
Other intangible assets		23,527		1,550
Other assets		1,916		242

Assets acquired	$	47,899	$	5,143


Accounts payable, accruals and other liabilities	$	2,442	$	410
Notes payable and other borrowings		5,251		—
Income taxes, principally deferred		7,548		494

Liabilities assumed	$	15,241	$	904

Net assets	$	32,658	$	4,239


	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
June 30, 2017
U.S. Treasury, U.S. government corporations and agencies	$	4,800	$	6	$	(14	)	$	4,792
States, municipalities and political subdivisions		1,050		54		(1	)		1,103
Foreign governments		8,726		223		(27	)		8,922
Corporate bonds		6,897		668		(6	)		7,559
Mortgage-backed securities		924		115		(4	)		1,035

	$	22,397	$	1,066	$	(52	)	$	23,411

December 31, 2016
U.S. Treasury, U.S. government corporations and agencies	$	4,519	$	16	$	(8	)	$	4,527
States, municipalities and political subdivisions		1,159		58		(1	)		1,216
Foreign governments		8,860		207		(66	)		9,001
Corporate bonds		6,899		714		(9	)		7,604
Mortgage-backed securities		997		126		(6	)		1,117

	$	22,434	$	1,121	$	(90	)	$	23,465


	July 1, 2017		December 31, 2016
Assets		$119,416		$120,480
Liabilities		60,870		62,906


	Cost				Fair Value
	June 30, 2017		December 31, 2016		June 30, 2017		December 31, 2016
Insurance and other	$	6,720	$	6,720	$	16,838	$	14,364
Finance and financial products		1,000		1,000		3,396		2,892

	$	7,720	$	7,720	$	20,234	$	17,256


		a. Exhibits

3(i)		Restated Certificate of Incorporation Incorporated by reference to Exhibit 3(i) to Form10-K filed on March 2, 2015.

3(ii)		By-Laws Incorporated by reference to Exhibit 3(ii) to Form8-K filed on May 4, 2016.

12		Calculation of Ratio of Consolidated Earnings to Consolidated Fixed Charges

31.1		Rule13a-14(a)/15d-14(a) Certifications

31.2		Rule13a-14(a)/15d-14(a) Certifications

32.1		Section 1350 Certifications

32.2		Section 1350 Certifications

95		Mine Safety Disclosures

101		The following financial information from Berkshire Hathaway Inc.’s Quarterly Report on Form10-Q for the quarter ended ~~June 30, 2017,~~March 31, 2018, formatted in XBRL (Extensible Business Reporting Language) includes: (i) the Consolidated Balance Sheets as of ~~June 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, (ii) the Consolidated Statements of Earnings for ~~each of~~ the three-month ~~andsix-month~~periods ended ~~June 30,~~March 31, 2018 and 2017, ~~and 2016,~~ (iii) the Consolidated Statements of Comprehensive Income for each of the three-month ~~andsix-month~~periods ended ~~June 30,~~March 31, 2018 and 2017, ~~and 2016,~~ (iv) the Consolidated Statements of Changes in Shareholders’ Equity for ~~each of~~ the~~six-month~~ three-month periods ended ~~June 30,~~March 31, 2018 and 2017, ~~and 2016,~~ (v) the Consolidated Statements of Cash Flows for ~~each of~~ the~~six-month~~ three-month periods ended ~~June 30,~~March 31, 2018 and 2017, ~~and 2016,~~ and (vi) the Notes to Consolidated Financial Statements, tagged in summary and detail.


		BERKSHIRE HATHAWAY INC.
		(Registrant)

Date: ~~August 4, 2017~~May 5, 2018		/S/S/ MARC D. HAMBURG
		(Signature)
		Marc D. Hamburg,
		Senior Vice President and
		Principal Financial Officer

Class AB —

~~755,437~~

1,346,076,963

~~Class B —~~

~~1,333,772,187~~