FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended SeptemberJune 30, 20202021
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 001-14905
BERKSHIRE HATHAWAY INC.
(Exact name of registrant as specified in its charter)
Delaware | 47-0813844 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) |
3555 Farnam Street, Omaha, Nebraska 68131
(Address of principal executive office) (Zip Code)
(402) 346-1400
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
| Trading Symbols
| Name of each exchange on which registered
|
Class A Common Stock Class B Common Stock 0.750% Senior Notes due 2023 1.125% Senior Notes due 2027 1.625% Senior Notes due 2035 1.300% Senior Notes due 2024 2.150% Senior Notes due 2028
0.625% Senior Notes due 2023 0.000% Senior Notes due 2025 2.375% Senior Notes due 2039 0.500% Senior Notes due 2041 2.625% Senior Notes due 2059 | BRK.A BRK.B BRK23 BRK27 BRK35 BRK24 BRK28
BRK23A BRK25 BRK39 BRK41 BRK59 | New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange |
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☒ | Accelerated filer | ☐ |
Non-accelerated filer | ☐ | Smaller reporting company | ☐ |
|
| Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
Number of shares of common stock outstanding as of OctoberJuly 26, 2020:2021:
Class A — |
|
Class B — |
|
BERKSHIRE HATHAWAY INC.
| Page No. | |
|
| |
| ||
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| |
| ||
| Consolidated Balance Sheets— | 2-3 |
| 4 | |
| 5 | |
|
| |
| Consolidated Statements of Cash Flows—First |
|
|
| |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
|
Item 3. |
| |
Item 4. |
| |
|
| |
| ||
|
|
|
Item 1. |
| |
Item 1A. |
| |
Item 2. |
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Item 3. |
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Item 4. |
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Item 5. |
| |
Item 6. |
| |
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| |
|
Part I Financial Information
Item 1. Financial Statements
BERKSHIRE HATHAWAY INC.
and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(dollars in millions)
|
| September 30, 2020 |
|
| December 31, 2019 |
| June 30, 2021 |
|
| December 31, 2020 |
| ||||
|
| (Unaudited) |
|
|
|
|
| (Unaudited) |
|
|
|
|
| ||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance and Other: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents* |
| $ | 23,078 |
|
| $ | 61,151 |
| $ | 38,924 |
|
| $ | 44,714 |
|
Short-term investments in U.S. Treasury Bills |
|
| 118,906 |
|
|
| 63,822 |
|
| 101,760 |
|
|
| 90,300 |
|
Investments in fixed maturity securities |
|
| 19,435 |
|
|
| 18,685 |
|
| 20,460 |
|
|
| 20,410 |
|
Investments in equity securities |
|
| 245,317 |
|
|
| 248,027 |
|
| 307,942 |
|
|
| 281,170 |
|
Equity method investments |
|
| 17,152 |
|
|
| 17,505 |
|
| 16,542 |
|
|
| 17,303 |
|
Loans and finance receivables |
|
| 18,584 |
|
|
| 17,527 |
|
| 19,900 |
|
|
| 19,201 |
|
Other receivables |
|
| 34,389 |
|
|
| 32,418 |
|
| 36,044 |
|
|
| 32,310 |
|
Inventories |
|
| 19,361 |
|
|
| 19,852 |
|
| 19,393 |
|
|
| 19,208 |
|
Property, plant and equipment |
|
| 21,141 |
|
|
| 21,438 |
|
| 20,865 |
|
|
| 21,200 |
|
Equipment held for lease |
|
| 14,714 |
|
|
| 15,065 |
|
| 14,659 |
|
|
| 14,601 |
|
Goodwill |
|
| 47,091 |
|
|
| 57,052 |
|
| 47,080 |
|
|
| 47,121 |
|
Other intangible assets |
|
| 29,652 |
|
|
| 31,051 |
|
| 28,853 |
|
|
| 29,462 |
|
Deferred charges under retroactive reinsurance contracts |
|
| 13,012 |
|
|
| 13,747 |
|
| 11,968 |
|
|
| 12,441 |
|
Other |
|
| 14,121 |
|
|
| 13,232 |
|
| 15,638 |
|
|
| 14,580 |
|
|
|
| 635,953 |
|
|
| 630,572 |
|
| 700,028 |
|
|
| 664,021 |
|
Railroad, Utilities and Energy: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents* |
|
| 3,739 |
|
|
| 3,024 |
|
| 3,374 |
|
|
| 3,276 |
|
Receivables |
|
| 3,426 |
|
|
| 3,417 |
|
| 4,229 |
|
|
| 3,542 |
|
Property, plant and equipment |
|
| 140,398 |
|
|
| 137,838 |
|
| 152,787 |
|
|
| 151,216 |
|
Goodwill |
|
| 24,774 |
|
|
| 24,830 |
|
| 26,678 |
|
|
| 26,613 |
|
Regulatory assets |
|
| 2,933 |
|
|
| 2,881 |
|
| 3,610 |
|
|
| 3,440 |
|
Other |
|
| 18,723 |
|
|
| 15,167 |
|
| 21,787 |
|
|
| 21,621 |
|
|
|
| 193,993 |
|
|
| 187,157 |
|
| 212,465 |
|
|
| 209,708 |
|
|
| $ | 829,946 |
|
| $ | 817,729 |
| $ | 912,493 |
|
| $ | 873,729 |
|
* |
|
See accompanying Notes to Consolidated Financial Statements
BERKSHIRE HATHAWAY INC.
and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(dollars in millions)
|
| September 30, 2020 |
|
| December 31, 2019 |
| June 30 2021 |
|
| December 31, 2020 |
| ||||
|
| (Unaudited) |
|
|
|
|
| (Unaudited) |
|
|
|
|
| ||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance and Other: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unpaid losses and loss adjustment expenses |
| $ | 78,041 |
|
| $ | 73,019 |
| $ | 82,958 |
|
| $ | 79,854 |
|
Unpaid losses and loss adjustment expenses under retroactive reinsurance contracts |
|
| 41,786 |
|
|
| 42,441 |
|
| 40,237 |
|
|
| 40,966 |
|
Unearned premiums |
|
| 22,018 |
|
|
| 19,782 |
|
| 23,732 |
|
|
| 21,395 |
|
Life, annuity and health insurance benefits |
|
| 20,975 |
|
|
| 20,155 |
|
| 22,106 |
|
|
| 21,616 |
|
Other policyholder liabilities |
|
| 8,201 |
|
|
| 7,723 |
|
| 8,528 |
|
|
| 8,670 |
|
Accounts payable, accruals and other liabilities |
|
| 28,976 |
|
|
| 27,611 |
|
| 29,816 |
|
|
| 29,279 |
|
Payable for purchase of U.S. Treasury Bills |
|
| 6,795 |
|
|
| — |
| |||||||
Derivative contract liabilities |
|
| 1,547 |
|
|
| 968 |
|
| 355 |
|
|
| 1,065 |
|
Aircraft repurchase liabilities and unearned lease revenues |
|
| 5,390 |
|
|
| 5,281 |
|
| 5,819 |
|
|
| 5,856 |
|
Notes payable and other borrowings |
|
| 38,891 |
|
|
| 37,590 |
|
| 40,561 |
|
|
| 41,522 |
|
|
|
| 252,620 |
|
|
| 234,570 |
|
| 254,112 |
|
|
| 250,223 |
|
Railroad, Utilities and Energy: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable, accruals and other liabilities |
|
| 15,050 |
|
|
| 14,708 |
|
| 15,728 |
|
|
| 15,224 |
|
Regulatory liabilities |
|
| 6,921 |
|
|
| 7,311 |
|
| 7,614 |
|
|
| 7,475 |
|
Notes payable and other borrowings |
|
| 68,800 |
|
|
| 65,778 |
|
| 74,662 |
|
|
| 75,373 |
|
|
|
| 90,771 |
|
|
| 87,797 |
|
| 98,004 |
|
|
| 98,072 |
|
Income taxes, principally deferred |
|
| 67,340 |
|
|
| 66,799 |
|
| 81,577 |
|
|
| 74,098 |
|
Total liabilities |
|
| 410,731 |
|
|
| 389,166 |
|
| 433,693 |
|
|
| 422,393 |
|
Shareholders’ equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
| 8 |
|
|
| 8 |
|
| 8 |
|
|
| 8 |
|
Capital in excess of par value |
|
| 35,621 |
|
|
| 35,658 |
|
| 35,635 |
|
|
| 35,626 |
|
Accumulated other comprehensive income |
|
| (5,190 | ) |
|
| (5,243 | ) |
| (4,219 | ) |
|
| (4,243 | ) |
Retained earnings |
|
| 408,791 |
|
|
| 402,493 |
|
| 484,431 |
|
|
| 444,626 |
|
Treasury stock, at cost |
|
| (24,075 | ) |
|
| (8,125 | ) |
| (45,446 | ) |
|
| (32,853 | ) |
Berkshire Hathaway shareholders’ equity |
|
| 415,155 |
|
|
| 424,791 |
|
| 470,409 |
|
|
| 443,164 |
|
Noncontrolling interests |
|
| 4,060 |
|
|
| 3,772 |
|
| 8,391 |
|
|
| 8,172 |
|
Total shareholders’ equity |
|
| 419,215 |
|
|
| 428,563 |
|
| 478,800 |
|
|
| 451,336 |
|
|
| $ | 829,946 |
|
| $ | 817,729 |
| $ | 912,493 |
|
| $ | 873,729 |
|
See accompanying Notes to Consolidated Financial Statements
BERKSHIRE HATHAWAY INC.
and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
(dollars in millions except per share amounts)
|
| Third Quarter |
|
| First Nine Months |
| Second Quarter |
|
| First Six Months |
| ||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||||
|
| (Unaudited) |
|
| (Unaudited) |
| (Unaudited) |
|
| (Unaudited) |
| ||||||||||||||||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance and Other: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance premiums earned |
| $ | 15,913 |
|
| $ | 15,323 |
|
| $ | 47,256 |
|
| $ | 44,505 |
| $ | 17,163 |
|
| $ | 15,595 |
|
| $ | 33,587 |
|
| $ | 31,343 |
|
Sales and service revenues |
|
| 32,703 |
|
|
| 34,026 |
|
|
| 93,332 |
|
|
| 100,563 |
|
| 36,743 |
|
|
| 28,703 |
|
|
| 70,441 |
|
|
| 60,629 |
|
Leasing revenues |
|
| 1,316 |
|
|
| 1,438 |
|
|
| 3,905 |
|
|
| 4,365 |
|
| 1,447 |
|
|
| 1,161 |
|
|
| 2,771 |
|
|
| 2,589 |
|
Interest, dividend and other investment income |
|
| 1,717 |
|
|
| 2,483 |
|
|
| 6,143 |
|
|
| 6,895 |
|
| 1,898 |
|
|
| 2,150 |
|
|
| 3,749 |
|
|
| 4,426 |
|
|
|
| 51,649 |
|
|
| 53,270 |
|
|
| 150,636 |
|
|
| 156,328 |
|
| 57,251 |
|
|
| 47,609 |
|
|
| 110,548 |
|
|
| 98,987 |
|
Railroad, Utilities and Energy: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Freight rail transportation revenues |
|
| 5,148 |
|
|
| 5,982 |
|
|
| 15,101 |
|
|
| 17,558 |
|
| 5,778 |
|
|
| 4,573 |
|
|
| 11,156 |
|
|
| 9,953 |
|
Energy operating revenues |
|
| 4,451 |
|
|
| 4,338 |
|
|
| 11,504 |
|
|
| 11,729 |
|
| 4,302 |
|
|
| 3,419 |
|
|
| 9,150 |
|
|
| 7,053 |
|
Service revenues and other income |
|
| 1,776 |
|
|
| 1,382 |
|
|
| 3,888 |
|
|
| 3,633 |
|
| 1,783 |
|
|
| 1,239 |
|
|
| 2,859 |
|
|
| 2,112 |
|
|
|
| 11,375 |
|
|
| 11,702 |
|
|
| 30,493 |
|
|
| 32,920 |
|
| 11,863 |
|
|
| 9,231 |
|
|
| 23,165 |
|
|
| 19,118 |
|
Total revenues |
|
| 63,024 |
|
|
| 64,972 |
|
|
| 181,129 |
|
|
| 189,248 |
|
| 69,114 |
|
|
| 56,840 |
|
|
| 133,713 |
|
|
| 118,105 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment and derivative contract gains/losses |
|
| 31,582 |
|
|
| 10,926 |
|
|
| 1,392 |
|
|
| 41,296 |
| |||||||||||||||
Investment and derivative contract gains (losses) |
| 27,394 |
|
|
| 40,085 |
|
|
| 33,094 |
|
|
| (30,190 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance and Other: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance losses and loss adjustment expenses |
|
| 11,667 |
|
|
| 10,858 |
|
|
| 32,712 |
|
|
| 31,701 |
|
| 12,175 |
|
|
| 10,066 |
|
|
| 23,139 |
|
|
| 21,045 |
|
Life, annuity and health insurance benefits |
|
| 1,311 |
|
|
| 1,176 |
|
|
| 4,101 |
|
|
| 3,245 |
|
| 1,459 |
|
|
| 1,407 |
|
|
| 2,939 |
|
|
| 2,790 |
|
Insurance underwriting expenses |
|
| 3,228 |
|
|
| 2,708 |
|
|
| 9,219 |
|
|
| 8,033 |
|
| 3,065 |
|
|
| 3,067 |
|
|
| 6,079 |
|
|
| 5,991 |
|
Cost of sales and services |
|
| 25,957 |
|
|
| 26,950 |
|
|
| 74,565 |
|
|
| 79,764 |
|
| 28,761 |
|
|
| 23,216 |
|
|
| 55,291 |
|
|
| 48,608 |
|
Cost of leasing |
|
| 854 |
|
|
| 1,010 |
|
|
| 2,605 |
|
|
| 3,030 |
|
| 982 |
|
|
| 749 |
|
|
| 1,864 |
|
|
| 1,751 |
|
Selling, general and administrative expenses |
|
| 5,181 |
|
|
| 4,384 |
|
|
| 14,304 |
|
|
| 13,645 |
|
| 5,045 |
|
|
| 4,652 |
|
|
| 8,955 |
|
|
| 9,123 |
|
Goodwill and intangible asset impairments |
|
| 25 |
|
|
| — |
|
|
| 10,659 |
|
|
| — |
|
| — |
|
|
| 10,634 |
|
|
| — |
|
|
| 10,634 |
|
Interest expense |
|
| 263 |
|
|
| 261 |
|
|
| 817 |
|
|
| 790 |
|
| 298 |
|
|
| 258 |
|
|
| 574 |
|
|
| 554 |
|
|
|
| 48,486 |
|
|
| 47,347 |
|
|
| 148,982 |
|
|
| 140,208 |
|
| 51,785 |
|
|
| 54,049 |
|
|
| 98,841 |
|
|
| 100,496 |
|
Railroad, Utilities and Energy: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Freight rail transportation expenses |
|
| 3,161 |
|
|
| 3,839 |
|
|
| 9,625 |
|
|
| 11,706 |
|
| 3,588 |
|
|
| 2,871 |
|
|
| 7,098 |
|
|
| 6,464 |
|
Utilities and energy cost of sales and other expenses |
|
| 3,101 |
|
|
| 2,981 |
|
|
| 8,326 |
|
|
| 8,503 |
|
| 3,220 |
|
|
| 2,503 |
|
|
| 6,809 |
|
|
| 5,225 |
|
Other expenses |
|
| 1,481 |
|
|
| 1,162 |
|
|
| 3,422 |
|
|
| 2,990 |
|
| 1,563 |
|
|
| 1,092 |
|
|
| 2,656 |
|
|
| 1,941 |
|
Interest expense |
|
| 737 |
|
|
| 724 |
|
|
| 2,209 |
|
|
| 2,178 |
|
| 778 |
|
|
| 744 |
|
|
| 1,552 |
|
|
| 1,472 |
|
|
|
| 8,480 |
|
|
| 8,706 |
|
|
| 23,582 |
|
|
| 25,377 |
|
| 9,149 |
|
|
| 7,210 |
|
|
| 18,115 |
|
|
| 15,102 |
|
Total costs and expenses |
|
| 56,966 |
|
|
| 56,053 |
|
|
| 172,564 |
|
|
| 165,585 |
|
| 60,934 |
|
|
| 61,259 |
|
|
| 116,956 |
|
|
| 115,598 |
|
Earnings before income taxes and equity method earnings |
|
| 37,640 |
|
|
| 19,845 |
|
|
| 9,957 |
|
|
| 64,959 |
| |||||||||||||||
Equity method earnings |
|
| 290 |
|
|
| 644 |
|
|
| 333 |
|
|
| 936 |
| |||||||||||||||
Earnings before income taxes |
|
| 37,930 |
|
|
| 20,489 |
|
|
| 10,290 |
|
|
| 65,895 |
| |||||||||||||||
Income tax expense |
|
| 7,517 |
|
|
| 3,832 |
|
|
| 3,167 |
|
|
| 13,333 |
| |||||||||||||||
Net earnings |
|
| 30,413 |
|
|
| 16,657 |
|
|
| 7,123 |
|
|
| 52,562 |
| |||||||||||||||
Earnings (loss) before income taxes and equity method earnings |
| 35,574 |
|
|
| 35,666 |
|
|
| 49,851 |
|
|
| (27,683 | ) | ||||||||||||||||
Equity method earnings (loss) |
| 147 |
|
|
| (257 | ) |
|
| 398 |
|
|
| 43 |
| ||||||||||||||||
Earnings (loss) before income taxes |
| 35,721 |
|
|
| 35,409 |
|
|
| 50,249 |
|
|
| (27,640 | ) | ||||||||||||||||
Income tax expense (benefit) |
| 7,296 |
|
|
| 9,002 |
|
|
| 9,984 |
|
|
| (4,350 | ) | ||||||||||||||||
Net earnings (loss) |
| 28,425 |
|
|
| 26,407 |
|
|
| 40,265 |
|
|
| (23,290 | ) | ||||||||||||||||
Earnings attributable to noncontrolling interests |
|
| 276 |
|
|
| 133 |
|
|
| 437 |
|
|
| 304 |
|
| 331 |
|
|
| 112 |
|
|
| 460 |
|
|
| 161 |
|
Net earnings attributable to Berkshire Hathaway shareholders |
| $ | 30,137 |
|
| $ | 16,524 |
|
| $ | 6,686 |
|
| $ | 52,258 |
| |||||||||||||||
Net earnings per average equivalent Class A share |
| $ | 18,994 |
|
| $ | 10,119 |
|
| $ | 4,160 |
|
| $ | 31,944 |
| |||||||||||||||
Net earnings per average equivalent Class B share* |
| $ | 12.66 |
|
| $ | 6.75 |
|
| $ | 2.77 |
|
| $ | 21.30 |
| |||||||||||||||
Net earnings (loss) attributable to Berkshire Hathaway shareholders | $ | 28,094 |
|
| $ | 26,295 |
|
| $ | 39,805 |
|
| $ | (23,451 | ) | ||||||||||||||||
Net earnings (loss) per average equivalent Class A share | $ | 18,488 |
|
| $ | 16,314 |
|
| $ | 26,078 |
|
| $ | (14,500 | ) | ||||||||||||||||
Net earnings (loss) per average equivalent Class B share* | $ | 12.33 |
|
| $ | 10.88 |
|
| $ | 17.39 |
|
| $ | (9.67 | ) | ||||||||||||||||
Average equivalent Class A shares outstanding |
|
| 1,586,698 |
|
|
| 1,633,002 |
|
|
| 1,607,041 |
|
|
| 1,635,903 |
|
| 1,519,576 |
|
|
| 1,611,760 |
|
|
| 1,526,392 |
|
|
| 1,617,325 |
|
Average equivalent Class B shares outstanding |
|
| 2,380,046,304 |
|
|
| 2,449,502,430 |
|
|
| 2,410,561,550 |
|
|
| 2,453,854,768 |
|
| 2,279,363,382 |
|
|
| 2,417,640,311 |
|
|
| 2,289,587,640 |
|
|
| 2,425,986,839 |
|
* | Class B shares are economically equivalent to one-fifteen-hundredth of a Class A share. Accordingly, net earnings per average equivalent Class B share outstanding is equal to one-fifteen-hundredth of the equivalent Class A amount. See Note |
See accompanying Notes to Consolidated Financial Statements
BERKSHIRE HATHAWAY INC.
and Subsidiaries
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(dollars in millions)
|
| Third Quarter |
|
| First Nine Months |
|
| Second Quarter |
|
| First Six Months |
| ||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||||
|
| (Unaudited) |
|
| (Unaudited) |
|
| (Unaudited) |
|
| (Unaudited) |
| ||||||||||||||||||||
Net earnings |
| $ | 30,413 |
|
| $ | 16,657 |
|
| $ | 7,123 |
|
| $ | 52,562 |
| ||||||||||||||||
Net earnings (loss) |
| $ | 28,425 |
|
| $ | 26,407 |
|
| $ | 40,265 |
|
| $ | (23,290 | ) | ||||||||||||||||
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized appreciation of investments |
|
| 19 |
|
|
| (39 | ) |
|
| 42 |
|
|
| 179 |
|
|
| 12 |
|
|
| 203 |
|
|
| (75 | ) |
|
| 23 |
|
Applicable income taxes |
|
| (4 | ) |
|
| 10 |
|
|
| (13 | ) |
|
| (40 | ) |
|
| (2 | ) |
|
| (50 | ) |
|
| 18 |
|
|
| (9 | ) |
Foreign currency translation |
|
| 791 |
|
|
| (700 | ) |
|
| (77 | ) |
|
| (534 | ) |
|
| 312 |
|
|
| 586 |
|
|
| 27 |
|
|
| (868 | ) |
Applicable income taxes |
|
| (3 | ) |
|
| 6 |
|
|
| 34 |
|
|
| 3 |
|
|
| (11 | ) |
|
| (10 | ) |
|
| (14 | ) |
|
| 37 |
|
Defined benefit pension plans |
|
| (24 | ) |
|
| (45 | ) |
|
| 86 |
|
|
| 47 |
|
|
| 43 |
|
|
| 15 |
|
|
| 104 |
|
|
| 110 |
|
Applicable income taxes |
|
| 8 |
|
|
| 7 |
|
|
| (14 | ) |
|
| (16 | ) |
|
| (9 | ) |
|
| (1 | ) |
|
| (29 | ) |
|
| (22 | ) |
Other, net |
|
| 16 |
|
|
| 10 |
|
|
| (19 | ) |
|
| (35 | ) |
|
| 13 |
|
|
| 24 |
|
|
| 7 |
|
|
| (35 | ) |
Other comprehensive income, net |
|
| 803 |
|
|
| (751 | ) |
|
| 39 |
|
|
| (396 | ) |
|
| 358 |
|
|
| 767 |
|
|
| 38 |
|
|
| (764 | ) |
Comprehensive income |
|
| 31,216 |
|
|
| 15,906 |
|
|
| 7,162 |
|
|
| 52,166 |
|
|
| 28,783 |
|
|
| 27,174 |
|
|
| 40,303 |
|
|
| (24,054 | ) |
Comprehensive income attributable to noncontrolling interests |
|
| 302 |
|
|
| 112 |
|
|
| 423 |
|
|
| 301 |
|
|
| 202 |
|
|
| 125 |
|
|
| 338 |
|
|
| 121 |
|
Comprehensive income attributable to Berkshire Hathaway shareholders |
| $ | 30,914 |
|
| $ | 15,794 |
|
| $ | 6,739 |
|
| $ | 51,865 |
|
| $ | 28,581 |
|
| $ | 27,049 |
|
| $ | 39,965 |
|
| $ | (24,175 | ) |
See accompanying Notes to Consolidated Financial Statements
BERKSHIRE HATHAWAY INC.
and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(dollars in millions)
(Unaudited)
|
| Berkshire Hathaway shareholders’ equity |
|
|
|
|
|
|
|
|
| |||||||||||||
|
| Common stock and capital in excess of par value |
|
| Accumulated other comprehensive income |
|
| Retained earnings |
|
| Treasury stock |
|
| Non- controlling interests |
|
| Total |
| ||||||
For the third quarter and first nine months of 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2018 |
| $ | 35,715 |
|
| $ | (5,015 | ) |
| $ | 321,112 |
|
| $ | (3,109 | ) |
| $ | 3,797 |
|
| $ | 352,500 |
|
Net earnings |
|
| — |
|
|
| — |
|
|
| 21,661 |
|
|
| — |
|
|
| 71 |
|
|
| 21,732 |
|
Other comprehensive income, net |
|
| — |
|
|
| 288 |
|
|
| — |
|
|
| — |
|
|
| 22 |
|
|
| 310 |
|
Issuance (acquisition) of common stock |
|
| 13 |
|
|
| — |
|
|
| — |
|
|
| (1,690 | ) |
|
| — |
|
|
| (1,677 | ) |
Transactions with noncontrolling interests |
|
| (98 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (176 | ) |
|
| (274 | ) |
Balance at March 31, 2019 |
|
| 35,630 |
|
|
| (4,727 | ) |
|
| 342,773 |
|
|
| (4,799 | ) |
|
| 3,714 |
|
|
| 372,591 |
|
Net earnings |
|
| — |
|
|
| — |
|
|
| 14,073 |
|
|
| — |
|
|
| 100 |
|
|
| 14,173 |
|
Other comprehensive income, net |
|
| — |
|
|
| 49 |
|
|
| — |
|
|
| — |
|
|
| (4 | ) |
|
| 45 |
|
Issuance (acquisition) of common stock |
|
| 8 |
|
|
| — |
|
|
| — |
|
|
| (443 | ) |
|
| — |
|
|
| (435 | ) |
Transactions with noncontrolling interests |
|
| (20 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 37 |
|
|
| 17 |
|
Balance at June 30, 2019 |
|
| 35,618 |
|
|
| (4,678 | ) |
|
| 356,846 |
|
|
| (5,242 | ) |
|
| 3,847 |
|
|
| 386,391 |
|
Net earnings |
|
| — |
|
|
| — |
|
|
| 16,524 |
|
|
| — |
|
|
| 133 |
|
|
| 16,657 |
|
Other comprehensive income, net |
|
| — |
|
|
| (730 | ) |
|
| — |
|
|
| — |
|
|
| (21 | ) |
|
| (751 | ) |
Issuance (acquisition) of common stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (695 | ) |
|
| — |
|
|
| (695 | ) |
Transactions with noncontrolling interests and other |
|
| 2 |
|
|
| — |
|
|
| (36 | ) |
|
| — |
|
|
| (10 | ) |
|
| (44 | ) |
Balance at September 30, 2019 |
| $ | 35,620 |
|
| $ | (5,408 | ) |
| $ | 373,334 |
|
| $ | (5,937 | ) |
| $ | 3,949 |
|
| $ | 401,558 |
|
. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the third quarter and first nine months of 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2019 |
| $ | 35,666 |
|
| $ | (5,243 | ) |
| $ | 402,493 |
|
| $ | (8,125 | ) |
| $ | 3,772 |
|
| $ | 428,563 |
|
Net earnings |
|
| — |
|
|
| — |
|
|
| (49,746 | ) |
|
| — |
|
|
| 49 |
|
|
| (49,697 | ) |
Adoption of new accounting pronouncement |
|
| — |
|
|
| — |
|
|
| (388 | ) |
|
| — |
|
|
| — |
|
|
| (388 | ) |
Other comprehensive income, net |
|
| — |
|
|
| (1,478 | ) |
|
| — |
|
|
| — |
|
|
| (53 | ) |
|
| (1,531 | ) |
Issuance (acquisition) of common stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,575 | ) |
|
| — |
|
|
| (1,575 | ) |
Transactions with noncontrolling interests |
|
| (39 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (98 | ) |
|
| (137 | ) |
Balance at March 31, 2020 |
|
| 35,627 |
|
|
| (6,721 | ) |
|
| 352,359 |
|
|
| (9,700 | ) |
|
| 3,670 |
|
|
| 375,235 |
|
Net earnings |
|
| — |
|
|
| — |
|
|
| 26,295 |
|
|
| — |
|
|
| 112 |
|
|
| 26,407 |
|
Other comprehensive income, net |
|
| — |
|
|
| 754 |
|
|
| — |
|
|
| — |
|
|
| 13 |
|
|
| 767 |
|
Issuance (acquisition) of common stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (5,115 | ) |
|
| — |
|
|
| (5,115 | ) |
Transactions with noncontrolling interests |
|
| (4 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (37 | ) |
|
| (41 | ) |
Balance at June 30, 2020 |
|
| 35,623 |
|
|
| (5,967 | ) |
|
| 378,654 |
|
|
| (14,815 | ) |
|
| 3,758 |
|
|
| 397,253 |
|
Net earnings |
|
| — |
|
|
| — |
|
|
| 30,137 |
|
|
| — |
|
|
| 276 |
|
|
| 30,413 |
|
Other comprehensive income, net |
|
| — |
|
|
| 777 |
|
|
| — |
|
|
| — |
|
|
| 26 |
|
|
| 803 |
|
Issuance (acquisition) of common stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (9,260 | ) |
|
| — |
|
|
| (9,260 | ) |
Transactions with noncontrolling interests |
|
| 6 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6 |
|
Balance at September 30, 2020 |
| $ | 35,629 |
|
| $ | (5,190 | ) |
| $ | 408,791 |
|
| $ | (24,075 | ) |
| $ | 4,060 |
|
| $ | 419,215 |
|
|
| Berkshire Hathaway shareholders’ equity |
|
|
|
|
|
|
|
|
| |||||||||||||
|
| Common stock and capital in excess of par value |
|
| Accumulated other comprehensive income |
|
| Retained earnings |
|
| Treasury stock |
|
| Non- controlling interests |
|
| Total |
| ||||||
For the second quarter and first six months of 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2020 |
| $ | 35,634 |
|
| $ | (4,243 | ) |
| $ | 444,626 |
|
| $ | (32,853 | ) |
| $ | 8,172 |
|
| $ | 451,336 |
|
Net earnings (loss) |
|
| — |
|
|
| — |
|
|
| 11,711 |
|
|
| — |
|
|
| 129 |
|
|
| 11,840 |
|
Other comprehensive income, net |
|
| — |
|
|
| (327 | ) |
|
| — |
|
|
| — |
|
|
| 7 |
|
|
| (320 | ) |
Acquisition of common stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (6,565 | ) |
|
| — |
|
|
| (6,565 | ) |
Transactions with noncontrolling interests |
|
| 4 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (119 | ) |
|
| (115 | ) |
Balance at March 31, 2021 |
| $ | 35,638 |
|
| $ | (4,570 | ) |
| $ | 456,337 |
|
| $ | (39,418 | ) |
| $ | 8,189 |
|
| $ | 456,176 |
|
Net earnings (loss) |
|
| — |
|
|
| — |
|
|
| 28,094 |
|
|
| — |
|
|
| 331 |
|
|
| 28,425 |
|
Other comprehensive income, net |
|
| — |
|
|
| 351 |
|
|
| — |
|
|
| — |
|
|
| 7 |
|
|
| 358 |
|
Acquisition of common stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (6,028 | ) |
|
| — |
|
|
| (6,028 | ) |
Transactions with noncontrolling interests |
|
| 5 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (136 | ) |
|
| (131 | ) |
Balance at June 30, 2021 |
| $ | 35,643 |
|
| $ | (4,219 | ) |
| $ | 484,431 |
|
| $ | (45,446 | ) |
| $ | 8,391 |
|
| $ | 478,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the second quarter and first six months of 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2019 |
| $ | 35,666 |
|
| $ | (5,243 | ) |
| $ | 402,493 |
|
| $ | (8,125 | ) |
| $ | 3,772 |
|
| $ | 428,563 |
|
Net earnings (loss) |
|
| — |
|
|
| — |
|
|
| (49,746 | ) |
|
| — |
|
|
| 49 |
|
|
| (49,697 | ) |
Adoption of new accounting pronouncement |
|
| — |
|
|
| — |
|
|
| (388 | ) |
|
| — |
|
|
| — |
|
|
| (388 | ) |
Other comprehensive income, net |
|
| — |
|
|
| (1,478 | ) |
|
| — |
|
|
| — |
|
|
| (53 | ) |
|
| (1,531 | ) |
Acquisition of common stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,575 | ) |
|
| — |
|
|
| (1,575 | ) |
Transactions with noncontrolling interests |
|
| (39 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (98 | ) |
|
| (137 | ) |
Balance at March 31, 2020 |
| $ | 35,627 |
|
| $ | (6,721 | ) |
| $ | 352,359 |
|
| $ | (9,700 | ) |
| $ | 3,670 |
|
| $ | 375,235 |
|
Net earnings (loss) |
|
| — |
|
|
| — |
|
|
| 26,295 |
|
|
| — |
|
|
| 112 |
|
|
| 26,407 |
|
Other comprehensive income, net |
|
| — |
|
|
| 754 |
|
|
| — |
|
|
| — |
|
|
| 13 |
|
|
| 767 |
|
Acquisition of common stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (5,115 | ) |
|
| — |
|
|
| (5,115 | ) |
Transactions with noncontrolling interests |
|
| (4 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (37 | ) |
|
| (41 | ) |
Balance at June 30, 2020 |
| $ | 35,623 |
|
| $ | (5,967 | ) |
| $ | 378,654 |
|
| $ | (14,815 | ) |
| $ | 3,758 |
|
| $ | 397,253 |
|
See accompanying Notes to Consolidated Financial Statements
BERKSHIRE HATHAWAY INC.
and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in millions)
|
| First Nine Months |
|
| First Six Months |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
| ||||
|
| (Unaudited) |
|
| (Unaudited) |
| ||||||||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
| $ | 7,123 |
|
| $ | 52,562 |
| ||||||||
Net earnings (loss) |
| $ | 40,265 |
|
| $ | (23,290 | ) | ||||||||
Adjustments to reconcile net earnings to operating cash flows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment (gains) losses |
|
| (2,032 | ) |
|
| (40,079 | ) |
|
| (32,384 | ) |
|
| 29,593 |
|
Depreciation and amortization |
|
| 7,692 |
|
|
| 7,407 |
|
|
| 5,345 |
|
|
| 5,109 |
|
Other, including asset impairment charges |
|
| 10,934 |
|
|
| (1,740 | ) |
|
| 33 |
|
|
| 10,520 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses and loss adjustment expenses |
|
| 4,480 |
|
|
| 3,252 |
|
|
| 2,357 |
|
|
| 2,140 |
|
Deferred charges reinsurance assumed |
|
| 735 |
|
|
| 745 |
|
|
| 473 |
|
|
| 554 |
|
Unearned premiums |
|
| 2,544 |
|
|
| 2,663 |
|
|
| 2,375 |
|
|
| 1,268 |
|
Receivables and originated loans |
|
| (3,223 | ) |
|
| (3,618 | ) |
|
| (4,825 | ) |
|
| (1,885 | ) |
Other assets |
|
| (1,673 | ) |
|
| (2,419 | ) |
|
| (909 | ) |
|
| (760 | ) |
Other liabilities |
|
| 2,446 |
|
|
| (889 | ) |
|
| (664 | ) |
|
| (298 | ) |
Income taxes |
|
| 201 |
|
|
| 8,726 |
|
|
| 7,493 |
|
|
| (5,485 | ) |
Net cash flows from operating activities |
|
| 29,227 |
|
|
| 26,610 |
|
|
| 19,559 |
|
|
| 17,466 |
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of equity securities |
|
| (22,406 | ) |
|
| (15,090 | ) |
|
| (3,589 | ) |
|
| (4,800 | ) |
Sales of equity securities |
|
| 28,564 |
|
|
| 7,127 |
|
|
| 8,596 |
|
|
| 15,743 |
|
Purchases of U.S. Treasury Bills and fixed maturity securities |
|
| (153,897 | ) |
|
| (72,189 | ) |
|
| (99,731 | ) |
|
| (113,169 | ) |
Sales of U.S. Treasury Bills and fixed maturity securities |
|
| 23,744 |
|
|
| 13,602 |
|
|
| 10,814 |
|
|
| 12,689 |
|
Redemptions and maturities of U.S. Treasury Bills and fixed maturity securities |
|
| 81,252 |
|
|
| 94,742 |
|
|
| 77,541 |
|
|
| 54,422 |
|
Purchases of loans and finance receivables |
|
| (619 | ) |
|
| (57 | ) |
|
| (56 | ) |
|
| (608 | ) |
Collections of loans and finance receivables |
|
| 268 |
|
|
| 259 |
|
|
| 218 |
|
|
| 156 |
|
Acquisitions of businesses, net of cash acquired |
|
| (111 | ) |
|
| (732 | ) |
|
| (104 | ) |
|
| (82 | ) |
Purchases of property, plant and equipment and equipment held for lease |
|
| (9,516 | ) |
|
| (11,139 | ) |
|
| (5,663 | ) |
|
| (6,187 | ) |
Other |
|
| (1,685 | ) |
|
| (1,067 | ) |
|
| 541 |
|
|
| (715 | ) |
Net cash flows from investing activities |
|
| (54,406 | ) |
|
| 15,456 |
|
|
| (11,433 | ) |
|
| (42,551 | ) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from borrowings of insurance and other businesses |
|
| 3,435 |
|
|
| 8,141 |
|
|
| 2,949 |
|
|
| 3,428 |
|
Repayments of borrowings of insurance and other businesses |
|
| (2,116 | ) |
|
| (5,046 | ) |
|
| (2,481 | ) |
|
| (2,092 | ) |
Proceeds from borrowings of railroad, utilities and energy businesses |
|
| 6,424 |
|
|
| 4,163 |
|
|
| 1,464 |
|
|
| 6,254 |
|
Repayments of borrowings of railroad, utilities and energy businesses |
|
| (2,449 | ) |
|
| (1,766 | ) |
|
| (2,546 | ) |
|
| (2,291 | ) |
Changes in short term borrowings, net |
|
| (1,062 | ) |
|
| 165 |
|
|
| (65 | ) |
|
| (1,166 | ) |
Acquisition of treasury stock |
|
| (15,712 | ) |
|
| (2,807 | ) |
|
| (12,560 | ) |
|
| (6,739 | ) |
Other |
|
| (196 | ) |
|
| (341 | ) |
|
| (339 | ) |
|
| (214 | ) |
Net cash flows from financing activities |
|
| (11,676 | ) |
|
| 2,509 |
|
|
| (13,578 | ) |
|
| (2,820 | ) |
Effects of foreign currency exchange rate changes |
|
| (340 | ) |
|
| (95 | ) |
|
| (112 | ) |
|
| (140 | ) |
Increase (decrease) in cash and cash equivalents and restricted cash |
|
| (37,195 | ) |
|
| 44,480 |
|
|
| (5,564 | ) |
|
| (28,045 | ) |
Cash and cash equivalents and restricted cash at beginning of year |
|
| 64,632 |
|
|
| 30,811 |
| ||||||||
Cash and cash equivalents and restricted cash at end of third quarter * |
| $ | 27,437 |
|
| $ | 75,291 |
| ||||||||
* Cash and cash equivalents and restricted cash are comprised of the following: |
|
|
|
|
|
|
|
| ||||||||
Cash and cash equivalents and restricted cash at beginning of year* |
|
| 48,396 |
|
|
| 64,632 |
| ||||||||
Cash and cash equivalents and restricted cash at end of second quarter* |
| $ | 42,832 |
|
| $ | 36,587 |
| ||||||||
*Cash and cash equivalents and restricted cash are comprised of the following: |
|
|
|
|
|
|
|
| ||||||||
Beginning of year— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance and Other |
| $ | 61,151 |
|
| $ | 27,749 |
|
| $ | 44,714 |
|
| $ | 61,151 |
|
Railroad, Utilities and Energy |
|
| 3,024 |
|
|
| 2,612 |
|
|
| 3,276 |
|
|
| 3,024 |
|
Restricted cash, included in other assets |
|
| 457 |
|
|
| 450 |
| ||||||||
Restricted cash included in other assets |
|
| 406 |
|
|
| 457 |
| ||||||||
|
| $ | 64,632 |
|
| $ | 30,811 |
|
| $ | 48,396 |
|
| $ | 64,632 |
|
End of third quarter— |
|
|
|
|
|
|
|
| ||||||||
End of second quarter— |
|
|
|
|
|
|
|
| ||||||||
Insurance and Other |
| $ | 23,078 |
|
| $ | 71,064 |
|
| $ | 38,924 |
|
| $ | 32,318 |
|
Railroad, Utilities and Energy |
|
| 3,739 |
|
|
| 3,712 |
|
|
| 3,374 |
|
|
| 3,756 |
|
Restricted cash, included in other assets |
|
| 620 |
|
|
| 515 |
| ||||||||
Restricted cash included in other assets |
|
| 534 |
|
|
| 513 |
| ||||||||
|
| $ | 27,437 |
|
| $ | 75,291 |
|
| $ | 42,832 |
|
| $ | 36,587 |
|
See accompanying Notes to Consolidated Financial Statements
BERKSHIRE HATHAWAY INC.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SeptemberJune 30, 20202021
Note 1. General
The accompanying unaudited Consolidated Financial Statements include the accounts of Berkshire Hathaway Inc. (“Berkshire” or “Company”) consolidated with the accounts of all its subsidiaries and affiliates in which Berkshire holds controlling financial interests as of the financial statement date. In these notes, the terms “us,” “we” or “our” refer to Berkshire and its consolidated subsidiaries. Reference is made to Berkshire’s most recently issued Annual Report on Form 10-K (“Annual Report”), which includes information necessary or useful to understanding Berkshire’s businesses and financial statement presentations. Our significant accounting policies and practices were presented as Note 1 to the Consolidated Financial Statements included in the Annual Report. Changes to those policies due to the adoption of new accounting standards are described in Note 2.
Financial information in this Quarterly Report reflects all adjustments (consisting only of normal recurring adjustments) that are, in the opinion of management, necessary to a fair statement of results for the interim periods in accordance with accounting principles generally accepted in the United States (“GAAP”). For a number of reasons, our results for interim periods are not normally indicative of results to be expected for the year. The timing and magnitude of catastrophe losses incurred by insurance subsidiaries and the estimation error inherent to the process of determining liabilities for unpaid losses of insurance subsidiaries can be more significant to results of interim periods than to results for a full year. Given the size of our equity security investment portfolio, changes in market prices and the related changes in unrealized gains on equity securities will produce significant volatility in our interim and annual earnings. In addition, changes in the fair values of certain derivative contract liabilities, gains and losses from the periodic revaluation of certain assets and liabilities denominated in foreign currencies and the magnitude of asset impairment charges can cause significant variations in periodic net earnings.
The novel coronavirus (“COVID-19”) spread rapidly across the world in 2020 and was declared a pandemic by the World Health Organization. The government and private sector responses to contain its spread began to significantly affect our operating businesses in March.March of 2020. The COVID-19 has sincepandemic adversely affected nearly all of our operations during 2020 and in particular during the second quarter, although the effects are varyingvaried significantly. The duration and extent of the effects over longer terms cannot be reasonably estimated at this time. The risksRisks and uncertainties resulting from the pandemic that may affect our future earnings, cash flows and financial condition include the time necessaryability to developvaccinate a significant number of people in the U.S. and produce a safe and effective vaccine that can be widely distributed throughout the world andas well as the long-term effect from the pandemic on the demand for certain of our products and services. Accordingly, significant estimates used in the preparation of our financial statements, including those associated with evaluations of certain long-lived assets, goodwill and other intangible assets for impairment, expected credit losses on amounts owed to us and the estimations of certain losses assumed under insurance and reinsurance contracts, may be subject to significant adjustments in future periods. Additionally, GEICO’s underwriting results will likely be negatively affected over the remainder of the year and in the first quarter of 2021, as the remaining impact of the GEICO Giveback program (a program whereby all voluntary auto and motorcycle insurance policies renewed and newly issued during the period between April 8, 2020 and October 7, 2020 receive a 15% premium rate reduction) will be reflected in earned premiums during these periods.
Note 2. New accounting pronouncements
We adopted Accounting Standards Codification (“ASC”) 326 “Financial Instruments-Credit Losses” on January 1, 2020. ASC 326 provides for the measurement of expected credit losses on financial assets that are carried at amortized cost based on the net amounts expected to be collected. Measurements of expected credit losses therefore include provisions for non-collection, whether the risk is probable or remote. Prior to the adoption of ASC 326, credit losses were measured when non-collection was considered probable based on the prevailing facts and circumstances. We elected to not measure an allowance for expected credit losses on accrued interest and instead reverse uncollectible accrued interest through interest income on a timely basis.
Upon adoption of ASC 326, we recorded a charge to retained earnings of $388 million representing the cumulative after-tax increase in our allowances for credit losses, which was primarily related to our manufactured housing loans. Expected credit losses for such financial assets are based on the net present value of future principal payments less estimated expenses related to the charge-off and foreclosure of expected uncollectible loans and include provisions for loans that are not in foreclosure. Our principal credit quality indicator is whether the loans are performing. Expected credit loss estimates consider historical default rates, collateral recovery rates, historical runoff rates, interest rates, reductions of future cash flows for modified loans, the historical time elapsed from last payment until foreclosure, among other matters. In addition, our estimates consider current conditions and reasonable and supportable forecasts.
Notes to Consolidated Financial Statements (Continued)
Note 2. New accounting pronouncements (Continued)
Trade receivables, insurance premium receivables and other receivables are primarily short-term in duration with stated collection terms of less than one year from the date of origination. In establishing credit loss allowances for such receivables, we primarily utilize credit loss history. However, credit loss allowances may be adjusted as a result of current conditions and when we expect reasonable and supportable forecasts to deviate from historical experience. In evaluating expected credit losses of reinsurance recoverables, we review the credit quality of the counterparty and consider credit ratings, right-of-offset provisions within reinsurance contracts and other forms of credit enhancement including, collateral, funds held arrangements, guarantees, as well as other publicly available information.
We adopted ASU 2017-04 “Simplifying the Test for Goodwill Impairment” as of January 1, 2020. Under ASU 2017-04, the measurement of a goodwill impairment is represented by the excess of the carrying value over the fair value of the reporting unit and is limited to the carrying value of goodwill.
In August 2018, the FASB issued ASU 2018-12 “Targeted Improvements to the Accounting for Long-Duration Contracts.” ASU 2018-12 requires periodic reassessment of actuarial and discount rate assumptions used to value policyholder liabilities and deferred acquisition costs arising fromof long-duration insurance and reinsurance contracts, with the effects of changes in cash flow assumptions reflected in earnings and the effects of changes in discount rate assumptions reflected in other comprehensive income. Currently, the actuarial and discount rate assumptions are set at the contract inception date and not subsequently changed, except under limited circumstances. ASU 2018-12 requires new disclosures and is effective for fiscal years beginning after December 15, 2021,2022, with early adoption permitted. We are evaluating the effect this standard will have on our Consolidated Financial Statements.
Notes to Consolidated Financial Statements (Continued)
Note 3. Investments in fixed maturity securities
Investments in fixed maturity securities as of SeptemberJune 30, 20202021 and December 31, 20192020 are summarized by type below (in millions).
|
| Amortized Cost |
|
| Unrealized Gains |
|
| Unrealized Losses |
|
| Fair Value |
|
| Amortized Cost |
|
| Unrealized Gains |
|
| Unrealized Losses |
|
| Fair Value |
| ||||||||
September 30, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
June 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
U.S. Treasury, U.S. government corporations and agencies |
| $ | 3,311 |
|
| $ | 66 |
|
| $ | — |
|
| $ | 3,377 |
|
| $ | 3,435 |
|
| $ | 37 |
|
| $ | (1 | ) |
| $ | 3,471 |
|
Foreign governments |
|
| 9,898 |
|
|
| 82 |
|
|
| (11 | ) |
|
| 9,969 |
|
|
| 12,635 |
|
|
| 79 |
|
|
| (10 | ) |
|
| 12,704 |
|
Corporate bonds |
|
| 5,125 |
|
|
| 455 |
|
|
| (6 | ) |
|
| 5,574 |
|
|
| 3,426 |
|
|
| 452 |
|
|
| (1 | ) |
|
| 3,877 |
|
Other |
|
| 447 |
|
|
| 70 |
|
|
| (2 | ) |
|
| 515 |
|
|
| 352 |
|
|
| 57 |
|
|
| (1 | ) |
|
| 408 |
|
|
| $ | 18,781 |
|
| $ | 673 |
|
| $ | (19 | ) |
| $ | 19,435 |
|
| $ | 19,848 |
|
| $ | 625 |
|
| $ | (13 | ) |
| $ | 20,460 |
|
December 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
December 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
U.S. Treasury, U.S. government corporations and agencies |
| $ | 3,054 |
|
| $ | 37 |
|
| $ | (1 | ) |
| $ | 3,090 |
|
| $ | 3,348 |
|
| $ | 55 |
|
| $ | — |
|
| $ | 3,403 |
|
Foreign governments |
|
| 8,584 |
|
|
| 63 |
|
|
| (9 | ) |
|
| 8,638 |
|
|
| 11,233 |
|
|
| 110 |
|
|
| (5 | ) |
|
| 11,338 |
|
Corporate bonds |
|
| 5,896 |
|
|
| 459 |
|
|
| (3 | ) |
|
| 6,352 |
|
|
| 4,729 |
|
|
| 464 |
|
|
| (2 | ) |
|
| 5,191 |
|
Other |
|
| 539 |
|
|
| 67 |
|
|
| (1 | ) |
|
| 605 |
|
|
| 414 |
|
|
| 66 |
|
|
| (2 | ) |
|
| 478 |
|
|
| $ | 18,073 |
|
| $ | 626 |
|
| $ | (14 | ) |
| $ | 18,685 |
|
| $ | 19,724 |
|
| $ | 695 |
|
| $ | (9 | ) |
| $ | 20,410 |
|
Investments in foreign governments include securities issued by national and provincial government entities as well as instruments that are unconditionally guaranteed by such entities. As of SeptemberJune 30, 2020,2021, approximately 87%89% of our foreign government holdings were rated AA or higher by at least one of the major rating agencies.
The amortized cost and estimated fair value of fixed maturity securities as of SeptemberJune 30, 20202021 are summarized below by contractual maturity dates (in millions). Actual maturities may differ from contractual maturities due to early call or prepayment rights held by issuers.
|
| Due in one year or less |
|
| Due after one year through five years |
|
| Due after five years through ten years |
|
| Due after ten years |
|
| Mortgage- backed securities |
|
| Total |
|
| 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 |
| $ | 9,847 |
|
| $ | 7,885 |
|
| $ | 302 |
|
| $ | 405 |
|
| $ | 342 |
|
| $ | 18,781 |
|
| $ | 9,331 |
|
| $ | 9,561 |
|
| $ | 433 |
|
| $ | 257 |
|
| $ | 266 |
|
| $ | 19,848 |
|
Fair value |
|
| 9,887 |
|
|
| 8,030 |
|
|
| 349 |
|
|
| 764 |
|
|
| 405 |
|
|
| 19,435 |
|
|
| 9,383 |
|
|
| 9,645 |
|
|
| 657 |
|
|
| 458 |
|
|
| 317 |
|
|
| 20,460 |
|
Notes to Consolidated Financial Statements (Continued)
Note 4. Investments in equity securities
Investments in equity securities as of SeptemberJune 30, 20202021 and December 31, 20192020 are summarized in the tables below (in millions).
|
| Cost Basis |
|
| Net Unrealized Gains |
|
| Fair Value |
|
| Cost Basis |
|
| Net Unrealized Gains |
|
| Fair Value |
| ||||||
September 30, 2020* |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
June 30, 2021* |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Banks, insurance and finance |
| $ | 27,145 |
|
| $ | 29,065 |
|
| $ | 56,210 |
|
| $ | 27,384 |
|
| $ | 59,237 |
|
| $ | 86,621 |
|
Consumer products |
|
| 37,016 |
|
|
| 98,022 |
|
|
| 135,038 |
|
|
| 34,885 |
|
|
| 115,926 |
|
|
| 150,811 |
|
Commercial, industrial and other |
|
| 41,468 |
|
|
| 12,601 |
|
|
| 54,069 |
|
|
| 42,950 |
|
|
| 27,560 |
|
|
| 70,510 |
|
|
| $ | 105,629 |
|
| $ | 139,688 |
|
| $ | 245,317 |
|
| $ | 105,219 |
|
| $ | 202,723 |
|
| $ | 307,942 |
|
* | Approximately |
|
| Cost Basis |
|
| Net Unrealized Gains |
|
| Fair Value |
|
| Cost Basis |
|
| Net Unrealized Gains |
|
| Fair Value |
| ||||||
December 31, 2019* |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
December 31, 2020* |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Banks, insurance and finance |
| $ | 40,419 |
|
| $ | 61,976 |
|
| $ | 102,395 |
|
| $ | 26,312 |
|
| $ | 40,167 |
|
| $ | 66,479 |
|
Consumer products |
|
| 38,887 |
|
|
| 60,747 |
|
|
| 99,634 |
|
|
| 34,747 |
|
|
| 111,583 |
|
|
| 146,330 |
|
Commercial, industrial and other |
|
| 31,034 |
|
|
| 14,964 |
|
|
| 45,998 |
|
|
| 47,561 |
|
|
| 20,800 |
|
|
| 68,361 |
|
|
| $ | 110,340 |
|
| $ | 137,687 |
|
| $ | 248,027 |
|
| $ | 108,620 |
|
| $ | 172,550 |
|
| $ | 281,170 |
|
* | Approximately |
On August 8, 2019, Berkshire invested a total ofNotes to Consolidated Financial Statements (Continued)
Note 4. Investments in equity securities(Continued)
Our equity security investments include $10 billion in Occidental Corporation (“Occidental”) newly issued Occidental Cumulative Perpetual Preferred Stock with an aggregate liquidation value of $10 billion and warrants to purchase up to 8083.86 million shares of Occidental common stock at an exercise price of $62.50 per share. In accordance with the terms of the warrants, on August 3, 2020, the number of shares of common stock that can be purchased was increased to 83.86 million shares and the exercise price was reduced to $59.62 per share. The preferred stock accrues dividends at 8% per annum and is redeemable at the option of Occidental commencing in 2029 at a redemption price equal to 105% of the liquidation preference plus any accumulated and unpaid dividends or is mandatorily redeemable under certain specified capital return events. Dividends on the preferred stock may be paidare payable in cash or, at Occidental’s option, in shares of Occidental common stock. The warrants are exercisable in whole or in part until one year after the redemption of the preferred stock. Our investments in Occidental are included in the commercial, industrial and other category in the preceding tables.
Note 5. Equity method investments
Berkshire and its subsidiaries hold investments in certain businesses that are accounted for pursuant to the equity method. Currently, the most significant of these is our investment in the common stock of The Kraft Heinz Company (“Kraft Heinz”). Kraft Heinz is one of the world’s largest manufacturers and marketers of food and beverage products, including condiments and sauces, cheese and dairy, meals, meats, refreshment beverages, coffee and other grocery products. Berkshire currently owns 325,442,152 shares of Kraft Heinz common stock representing 26.6% of the outstanding shares.
Our investment in Kraft Heinz produced an equity method loss of $7 million in the second quarter and earnings of $143 million in the first six months of 2021. In 2020, we recorded losses attributable to Kraft Heinz of $440 million in the second quarter and $339 million in the first six months which included our proportionate share of the goodwill and intangible asset impairment charges recorded by Kraft Heinz of approximately $700 million for the second quarter and $750 million for the first six months. We received dividends on the common stock of $260 million in each of the first six months of 2021 and 2020, which were recorded as reductions to the carrying value of our investment.
Shares of Kraft Heinz common stock are publicly-traded and the fair value of our investment was approximately $9.7$13.3 billion at SeptemberJune 30, 20202021 and $10.5$11.3 billion at December 31, 2019.2020. The carrying value of our investment was approximately $13.1$13.3 billion at Septemberboth June 30, 20202021 and $13.8 billion at December 31, 2019.
Notes to Consolidated Financial Statements (Continued)
Note 5. Equity method investments (Continued)
Berkshire’s equity method earnings from Kraft Heinz were $159 million in the third quarter of 2020. Equity method losses from Kraft Heinz were $180 million in the first nine months of 2020, which included approximately $850 million for our proportionate share of goodwill and identifiable intangible asset impairment charges recorded by Kraft Heinz. As previously disclosed in Berkshire’s Form 10-Q for the third quarter of 2019, Kraft Heinz’s financial statements for the first and second quarters of 2019 were not available until August 13, 2019 when Kraft Heinz filed financial statements for those periods with the Securities and Exchange Commission. Thus, Berkshire did not record equity method earnings attributable to Kraft Heinz for each of those periods until the third quarter of 2019. Berkshire’s equity method earnings in the third quarter and first nine months of 2019 included $467 million with respect to Kraft Heinz’s results for the first nine months of 2019, of which $228 million was attributable to Kraft Heinz’s results for the first six months of 2019. Berkshire’s equity method share of the Kraft Heinz goodwill and identifiable intangible asset impairment charges for the first nine months of 2019 was $293 million. We received dividends on the common stock of $391 million in each of the first nine months of 2020 and 2019, which were recorded as reductions to the carrying value of our investment.
As of September 30, 2020, the carrying value of our investment in Kraft Heinz exceeded the fair value based on the quoted market price by $3.4 billion (26% of carrying value). In light of that fact, we evaluated our investment in Kraft Heinz for impairment. We utilize no bright-line tests in such evaluations. Based on the available facts and information regarding the operating results of Kraft Heinz, our ability and intent to hold the investment until recovery, the relative amount of the decline, and the length of time that fair value was less than carrying value, we concluded that recognition of an impairment loss in earnings was not required. However, we will continue to monitor this investment and it is possible that an impairment loss will be recorded in earnings in future periods based on changes in facts and circumstances or intentions.
Summarized consolidated financial information of Kraft Heinz follows (in millions).
|
| September 26, 2020 |
|
| December 28, 2019 |
| June 26, 2021 |
|
| December 26, 2020 |
| ||||
Assets |
| $ | 98,122 |
|
| $ | 101,450 |
| $ | 97,038 |
|
| $ | 99,830 |
|
Liabilities |
|
| 48,783 |
|
|
| 49,701 |
|
| 46,896 |
|
|
| 49,587 |
|
|
| Third Quarter |
|
| First Nine Months |
| Second Quarter |
|
| First Six Months |
|
| ||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
|
| ||||||||
Sales |
| $ | 6,441 |
|
| $ | 6,076 |
|
| $ | 19,246 |
|
| $ | 18,441 |
| $ | 6,615 |
|
| $ | 6,648 |
|
| $ | 13,009 |
|
| $ | 12,805 |
|
|
Net earnings (loss) attributable to Kraft Heinz common shareholders* |
|
| 597 |
|
|
| 899 |
|
|
| (676 | ) |
|
| 1,753 |
| ||||||||||||||||
Net earnings (loss) attributable to Kraft Heinz common shareholders |
| (27 | ) |
|
| (1,651 | ) | * |
| 536 |
|
|
| (1,273 | ) | * |
* | Includes goodwill and identifiable intangible asset impairment charges of approximately |
Other investments accountedthat we account for pursuant to the equity method include our investments in Berkadia Commercial Mortgage LLC (“Berkadia”), Pilot Travel Centers LLC (“Pilot”) and Electric Transmission Texas, LLC (“ETT”). The aggregate carrying value of ourthese investments in these entities was approximately $4.1$3.2 billion as of SeptemberJune 30, 20202021 and $3.7$4.0 billion as of December 31, 2019.2020. Our equity method earnings from these entities in the first ninesix months were $513$255 million in 20202021 and $491$382 million in 2019.2020. During the first six months of 2021, we received distributions from these other investees of $982 million, including a non-recurring distribution received from Pilot of $849 million in the first quarter. Additional information concerning these investments follows.
We own a 50% interest in Berkadia, with Jefferies Financial Group Inc. (“Jefferies”) owning the other 50% interest. Berkadia is a servicer ofprovides capital solutions, investments sales advisory and mortgage servicing for multifamily and commercial real estate loans in the U.S., performing primary, master and special servicing functions for U.S. government agency programs, commercial mortgage-backed securities transactions, banks, insurance companies and other financial institutions.estate. A source of funding for Berkadia’s operations is through its issuance of commercial paper, which was $1.47 billion at June 30, 2021 and is currently limited to $1.5 billion. On September 30, 2020, Berkadia’s commercial paper outstanding was $1.47 billion. The commercial paper is supported by a surety policy issued by a Berkshire insurance subsidiary. Jefferies is obligated to indemnify us for one-half of any losses incurred under the policy.
Notes to Consolidated Financial Statements (Continued)
Note 5. Equity method investments (Continued)
A Berkshire Hathaway Energy Company subsidiary owns a 50% interest in ETT, an owner and operator of electric transmission assets in the Electric Reliability Council of Texas footprint. American Electric Power owns the other 50% interest. In 2017, we acquired a 38.6% interest in Pilot, headquartered in Knoxville, Tennessee. Pilot is the largest operator of travel centers in North America supplyingthrough more than 11 billion gallons of fuel per year via more than 9501,000 retail locations across 44 U.S. states and 6 Canadian provinces and through wholesale distribution. The Haslam family currently owns a 50.1% interest in Pilot and a third party owns the remaining 11.3% interest. We also entered into an agreement to acquire an additional 41.4% interest in Pilot in 2023, with the Haslam family retaining a 20% interest. As a result, Berkshire will become the majority owner of Pilot in 2023.
Notes to Consolidated Financial Statements (Continued)
Note 6. Investment and derivative contract gains/losses
Investment and derivative contract gains/losses in the thirdsecond quarter and first ninesix months of 20202021 and 20192020 are summarized as follows (in millions).
|
| Third Quarter |
|
| First Nine Months |
|
| Second Quarter |
|
| First Six Months |
| ||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||||
Investment gains (losses): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Equity securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized investment gains during the period on securities held at the end of the period |
| $ | 30,837 |
|
| $ | 10,489 |
|
| $ | 16,458 |
|
| $ | 39,546 |
| ||||||||||||||||
Investment gains/losses on securities sold during the period |
|
| 1,330 |
|
|
| 135 |
|
|
| (13,901 | ) |
|
| 464 |
| ||||||||||||||||
Change in unrealized investment gains (losses) during the period on securities held at the end of the period |
| $ | 27,014 |
|
| $ | 39,369 |
|
| $ | 31,548 |
|
| $ | (18,377 | ) | ||||||||||||||||
Investment gains (losses) on securities sold during the period |
|
| 144 |
|
|
| (87 | ) |
|
| 670 |
|
|
| (11,233 | ) | ||||||||||||||||
|
|
| 32,167 |
|
|
| 10,624 |
|
|
| 2,557 |
|
|
| 40,010 |
|
|
| 27,158 |
|
|
| 39,282 |
|
|
| 32,218 |
|
|
| (29,610 | ) |
Fixed maturity securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross realized gains |
|
| 12 |
|
|
| 59 |
|
|
| 53 |
|
|
| 71 |
|
|
| 15 |
|
|
| 25 |
|
|
| 35 |
|
|
| 41 |
|
Gross realized losses |
|
| (2 | ) |
|
| (2 | ) |
|
| (22 | ) |
|
| (18 | ) |
|
| (12 | ) |
|
| (14 | ) |
|
| (13 | ) |
|
| (20 | ) |
Other |
|
| (552 | ) |
|
| 11 |
|
|
| (556 | ) |
|
| 16 |
|
|
| 12 |
|
|
| (4 | ) |
|
| 144 |
|
|
| (4 | ) |
Investment gains (losses) |
|
| 27,173 |
|
|
| 39,289 |
|
|
| 32,384 |
|
|
| (29,593 | ) | ||||||||||||||||
Derivative contract gains (losses) |
|
| 221 |
|
|
| 796 |
|
|
| 710 |
|
|
| (597 | ) | ||||||||||||||||
|
| $ | 31,625 |
|
| $ | 10,692 |
|
| $ | 2,032 |
|
| $ | 40,079 |
|
| $ | 27,394 |
|
| $ | 40,085 |
|
| $ | 33,094 |
|
| $ | (30,190 | ) |
Equity securities gains and losses include unrealized gains and losses from changes in fair values during the period on equity securities we still own, as well as gains and losses on securities we sold during the period. As reflected in the Consolidated Statements of Cash Flows, we received proceeds from sales of equity securities of approximately $28.6$8.6 billion in the first ninesix months of 20202021 and $7.1$15.7 billion in the first ninesix months of 2019.2020. In the preceding table, investment gains/gains and losses on equity securities sold during the period reflect the difference between the sales proceeds and the fair value of the equity securities sold at the beginning of the applicable quarterly or annual period or, if later, the purchase date. Our taxable gains/losses on equity securities sold are generally the difference between the proceeds from sales and original cost. Taxable gains in the second quarter and first six months of 2021 were $3.9$228 million and $2.0 billion, respectively, and taxable losses were $4.5 billion and $3.3 billion in the thirdsecond quarter and $666 million in first ninesix months of 2020. Taxable2020, respectively.
The derivative contract gains were $609 millionand losses derive from equity index put option contracts written prior to March 2008 on four major equity indexes. Information related to these contracts follows (dollars in millions).
|
| June 30, 2021 |
|
| December 31, 2020 |
| ||
Balance sheet liabilities - at fair value |
| $ | 355 |
|
| $ | 1,065 |
|
Notional value |
|
| 9,809 |
|
|
| 10,991 |
|
Intrinsic value |
|
| 72 |
|
|
| 727 |
|
Weighted average remaining life (in years) |
|
| 0.8 |
|
|
| 1.2 |
|
Notional value in the third quarterpreceding table represents the aggregate undiscounted amounts payable assuming the value of each index is zero at each contract’s expiration date. Intrinsic value is the undiscounted liability assuming the contracts are settled based on the index values and $1.96foreign currency exchange rates as of the balance sheet date. Substantially all open contracts as of June 30, 2021 will expire by February 2023. Future payments, if any, under any given contract will be required if the prevailing index value is below the contract strike price at the contract expiration date. We received aggregate premiums on the contract inception dates of $1.9 billion in first nine monthswith respect to unexpired contracts as of 2019.June 30, 2021 and we have no counterparty credit risk.
Notes to Consolidated Financial Statements (Continued)
Note 7. Loans and finance receivables
Loans and finance receivables are summarized as follows (in millions).
|
| September 30, 2020 |
|
| December 31, 2019 |
| June 30, 2021 |
|
| December 31, 2020 |
| ||||
Loans and finance receivables before allowances and discounts |
| $ | 19,832 |
|
| $ | 18,199 |
| $ | 21,281 |
|
| $ | 20,436 |
|
Allowances for credit losses |
|
| (731 | ) |
|
| (167 | ) | |||||||
Allowances for uncollectible loans |
| (739 | ) |
|
| (712 | ) | ||||||||
Unamortized acquisition discounts and points |
|
| (517 | ) |
|
| (505 | ) |
| (642 | ) |
|
| (523 | ) |
|
| $ | 18,584 |
|
| $ | 17,527 |
| $ | 19,900 |
|
| $ | 19,201 |
|
Loans and finance receivables are principally installmentmanufactured home loans, originated or acquired by our manufactured housing business.and to a lesser extent, commercial loans and site-built home loans. Reconciliations of the allowance for credit losses on loans and finance receivables for each of the first ninesix months of 20202021 and 20192020 follow (in millions).
|
| 2020 |
|
| 2019 |
| 2021 |
|
| 2020 |
| ||||
Balance at beginning of year |
| $ | 167 |
|
| $ | 177 |
| $ | 712 |
|
| $ | 167 |
|
Adoption of ASC 326 |
|
| 486 |
|
|
| — |
|
| — |
|
|
| 486 |
|
Provision for credit losses |
|
| 177 |
|
|
| 109 |
|
| 49 |
|
|
| 130 |
|
Charge-offs, net of recoveries |
|
| (99 | ) |
|
| (103 | ) |
| (22 | ) |
|
| (51 | ) |
Balance at September 30 |
| $ | 731 |
|
| $ | 183 |
| |||||||
Balance at June 30 | $ | 739 |
|
| $ | 732 |
|
Notes to Consolidated Financial Statements (Continued)
Note 7. Loans and finance receivables (Continued)
As of SeptemberJune 30, 2020,2021, approximately 99% of manufactured housinghome loan balances were evaluated collectively for impairment. As of SeptemberJune 30, 2020,2021, we considered approximately 97%98% of the loan balances to be current as to payment status. A summary of performing and non-performing manufactured housinghome loans before discounts and allowances by year of loan origination as of SeptemberJune 30, 20202021 follows (in millions).
|
| Loans and Financing Receivables by Origination Year |
|
|
|
|
| Origination Year |
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2018 |
|
| 2017 |
|
| 2016 |
|
| Prior |
|
| Total |
| 2021 |
|
| 2020 |
|
| 2019 |
|
| 2018 |
|
| 2017 |
|
| Prior |
|
| Total |
| ||||||||||||||
Performing |
| $ | 3,328 |
|
| $ | 2,603 |
|
| $ | 1,983 |
|
| $ | 1,471 |
|
| $ | 1,314 |
|
| $ | 6,918 |
|
| $ | 17,617 |
| $ | 2,815 |
|
| $ | 3,365 |
|
| $ | 2,381 |
|
| $ | 1,810 |
|
| $ | 1,343 |
|
| $ | 7,420 |
|
| $ | 19,134 |
|
Non-performing |
|
| 3 |
|
|
| 4 |
|
|
| 6 |
|
|
| 7 |
|
|
| 8 |
|
|
| 49 |
|
|
| 77 |
|
| 2 |
|
|
| 2 |
|
|
| 7 |
|
|
| 6 |
|
|
| 4 |
|
|
| 41 |
|
|
| 62 |
|
Total |
| $ | 3,331 |
|
| $ | 2,607 |
|
| $ | 1,989 |
|
| $ | 1,478 |
|
| $ | 1,322 |
|
| $ | 6,967 |
|
| $ | 17,694 |
| |||||||||||||||||||||||||||
| $ | 2,817 |
|
| $ | 3,367 |
|
| $ | 2,388 |
|
| $ | 1,816 |
|
| $ | 1,347 |
|
| $ | 7,461 |
|
| $ | 19,196 |
|
We are party to an agreement with Seritage Growth Properties to provide a $2.0 billion term loan facility, which expires on July 31, 2023. The outstanding loan under the facility was approximately $1.6 billion at SeptemberJune 30, 20202021 and December 31, 2019,2020, and is secured by mortgages on real estate properties. In the first quarter of 2020, we provided a loan to Lee Enterprises, Inc. in connection with its acquisition of our newspaper operations and the repayment of its then outstanding credit facilities. The loan balance was $485 million as of June 30, 2021 and $524 million at September 30, 2020 was $538 million.December 31, 2020. We are the sole lender to each of these entities and each of these loans is current as to payment status.
Note 8. Other receivables
Other receivables of insurance and other businesses are comprised of the following (in millions).
|
| September 30, 2020 |
|
| December 31, 2019 |
| June 30, 2021 |
|
| December 31, 2020 |
| ||||
Insurance and other: |
|
|
|
|
|
|
| ||||||||
Insurance premiums receivable |
| $ | 15,379 |
|
| $ | 13,379 |
| $ | 15,421 |
|
| $ | 14,025 |
|
Reinsurance recoverable on unpaid losses |
|
| 2,857 |
|
|
| 2,855 |
| |||||||
Reinsurance recoverables |
| 4,841 |
|
|
| 4,805 |
| ||||||||
Trade receivables |
|
| 11,840 |
|
|
| 12,275 |
|
| 13,182 |
|
|
| 11,521 |
|
Other |
|
| 4,916 |
|
|
| 4,327 |
|
| 3,279 |
|
|
| 2,637 |
|
Allowances for credit losses |
|
| (603 | ) |
|
| (418 | ) | |||||||
Allowances for uncollectible accounts |
| (679 | ) |
|
| (678 | ) | ||||||||
|
| $ | 34,389 |
|
| $ | 32,418 |
| $ | 36,044 |
|
| $ | 32,310 |
|
Railroad, utilities and energy: |
|
|
|
|
|
|
| ||||||||
Trade receivables | $ | 3,709 |
|
| $ | 3,235 |
| ||||||||
Other |
| 689 |
|
|
| 438 |
| ||||||||
Allowances for uncollectible accounts |
| (169 | ) |
|
| (131 | ) | ||||||||
| $ | 4,229 |
|
| $ | 3,542 |
|
Receivables of railroad and utilities and energy businesses are comprised of the following (in millions).
|
| September 30, 2020 |
|
| December 31, 2019 |
| ||
Trade receivables |
| $ | 3,245 |
|
| $ | 3,120 |
|
Other |
|
| 305 |
|
|
| 388 |
|
Allowances for credit losses |
|
| (124 | ) |
|
| (91 | ) |
|
| $ | 3,426 |
|
| $ | 3,417 |
|
Provisions for credit losses on receivables summarized in the preceding tables were $449 million in the first ninesix months with respect to receivables summarized above were $209 million in 2021 and $424 million in 2020. Charge-offs, net of recoveries, in the first six months were $171 million in 2021 and $139 million in 2020.
Notes to Consolidated Financial Statements (Continued)
Note 9. Inventories
Inventories are comprised of the following (in millions).
|
| September 30, 2020 |
|
| December 31, 2019 |
| June 30, 2021 |
|
| December 31, 2020 |
| ||||
Raw materials |
| $ | 4,705 |
|
| $ | 4,492 |
| $ | 5,016 |
|
| $ | 4,821 |
|
Work in process and other |
|
| 2,712 |
|
|
| 2,700 |
|
| 2,949 |
|
|
| 2,541 |
|
Finished manufactured goods |
|
| 4,645 |
|
|
| 4,821 |
|
| 4,502 |
|
|
| 4,412 |
|
Goods acquired for resale |
|
| 7,299 |
|
|
| 7,839 |
|
| 6,926 |
|
|
| 7,434 |
|
|
| $ | 19,361 |
|
| $ | 19,852 |
| $ | 19,393 |
|
| $ | 19,208 |
|
Notes to Consolidated Financial Statements (Continued)
Note 10. Property, plant and equipment
A summary of property, plant and equipment of our insurance and other businesses follows (in millions).
|
| September 30, 2020 |
|
| December 31, 2019 |
|
| June 30, 2021 |
|
| December 31, 2020 |
| ||||
Land, buildings and improvements |
| $ | 13,555 |
|
| $ | 13,259 |
|
| $ | 13,859 |
|
| $ | 13,799 |
|
Machinery and equipment |
|
| 24,765 |
|
|
| 24,285 |
|
|
| 25,665 |
|
|
| 25,488 |
|
Furniture, fixtures and other |
|
| 4,689 |
|
|
| 4,666 |
|
|
| 4,592 |
|
|
| 4,530 |
|
|
|
| 43,009 |
|
|
| 42,210 |
|
|
| 44,116 |
|
|
| 43,817 |
|
Accumulated depreciation |
|
| (21,868 | ) |
|
| (20,772 | ) |
|
| (23,251 | ) |
|
| (22,617 | ) |
|
| $ | 21,141 |
|
| $ | 21,438 |
|
| $ | 20,865 |
|
| $ | 21,200 |
|
A summary of property, plant and equipment of railroad and utilities and energy businesses follows (in millions). The utility generation, transmission and distribution systems and interstate natural gas pipeline assets are owned by regulated public utility and natural gas pipeline subsidiaries.
|
| September 30, 2020 |
|
| December 31, 2019 |
|
| June 30, 2021 |
|
| December 31, 2020 |
| ||||
Railroad: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land, track structure and other roadway |
| $ | 63,318 |
|
| $ | 62,404 |
|
| $ | 64,721 |
|
| $ | 63,824 |
|
Locomotives, freight cars and other equipment |
|
| 13,477 |
|
|
| 13,482 |
|
|
| 13,601 |
|
|
| 13,523 |
|
Construction in progress |
|
| 1,075 |
|
|
| 748 |
|
|
| 981 |
|
|
| 916 |
|
|
|
| 77,870 |
|
|
| 76,634 |
|
|
| 79,303 |
|
|
| 78,263 |
|
Accumulated depreciation |
|
| (12,724 | ) |
|
| (12,101 | ) |
|
| (14,138 | ) |
|
| (13,175 | ) |
|
|
| 65,146 |
|
|
| 64,533 |
|
|
| 65,165 |
|
|
| 65,088 |
|
Utilities and energy: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Utility generation, transmission and distribution systems |
|
| 82,743 |
|
|
| 81,127 |
|
|
| 88,748 |
|
|
| 86,730 |
|
Interstate natural gas pipeline assets |
|
| 8,281 |
|
|
| 8,165 |
|
|
| 16,772 |
|
|
| 16,667 |
|
Independent power plants and other assets |
|
| 8,952 |
|
|
| 8,817 |
|
|
| 12,969 |
|
|
| 12,671 |
|
Construction in progress |
|
| 5,132 |
|
|
| 3,732 |
|
|
| 3,887 |
|
|
| 3,308 |
|
|
|
| 105,108 |
|
|
| 101,841 |
|
|
| 122,376 |
|
|
| 119,376 |
|
Accumulated depreciation |
|
| (29,856 | ) |
|
| (28,536 | ) |
|
| (34,754 | ) |
|
| (33,248 | ) |
|
|
| 75,252 |
|
|
| 73,305 |
|
|
| 87,622 |
|
|
| 86,128 |
|
|
| $ | 140,398 |
|
| $ | 137,838 |
|
| $ | 152,787 |
|
| $ | 151,216 |
|
Depreciation expense for the first ninesix months of 20202021 and 20192020 is summarized below (in millions).
|
| First Nine Months |
|
| First Six Months |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
| ||||
Insurance and other |
| $ | 1,725 |
|
| $ | 1,660 |
|
| $ | 1,148 |
|
| $ | 1,147 |
|
Railroad, utilities and energy |
|
| 4,105 |
|
|
| 3,881 |
|
|
| 2,990 |
|
|
| 2,716 |
|
|
| $ | 5,830 |
|
| $ | 5,541 |
|
| $ | 4,138 |
|
| $ | 3,863 |
|
Notes to Consolidated Financial Statements (Continued)
Note 11. Equipment held for lease
Equipment held for lease includes railcars, aircraft, over-the-road trailers, intermodal tank containers, cranes, storage units and furniture. A summary of equipment held for lease follows (in millions).
|
| September 30, 2020 |
|
| December 31, 2019 |
| June 30, 2021 |
|
| December 31, 2020 |
| ||||
Railcars |
| $ | 9,396 |
|
| $ | 9,260 |
| $ | 9,525 |
|
| $ | 9,402 |
|
Aircraft |
|
| 8,061 |
|
|
| 8,093 |
|
| 8,560 |
|
|
| 8,204 |
|
Other |
|
| 4,887 |
|
|
| 4,862 |
|
| 4,952 |
|
|
| 4,868 |
|
|
|
| 22,344 |
|
|
| 22,215 |
|
| 23,037 |
|
|
| 22,474 |
|
Accumulated depreciation |
|
| (7,630 | ) |
|
| (7,150 | ) |
| (8,378 | ) |
|
| (7,873 | ) |
|
| $ | 14,714 |
|
| $ | 15,065 |
| $ | 14,659 |
|
| $ | 14,601 |
|
Depreciation expense for equipment held for lease in the first ninesix months was $900$570 million in 20202021 and $880$599 million in 2019. Operating2020. Fixed and variableoperating lease revenues by type for the thirdsecond quarter and first ninesix months of 2021 and 2020 and 2019 were as followsare summarized below (in millions).
|
| Third Quarter |
|
| First Nine Months |
| Second Quarter |
|
| First Six Months |
| ||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||||
Fixed lease revenue |
| $ | 1,047 |
|
| $ | 1,097 |
|
| $ | 3,205 |
|
| $ | 3,289 |
| $ | 1,105 |
|
| $ | 1,062 |
|
| $ | 2,167 |
|
| $ | 2,158 |
|
Variable lease revenue |
|
| 269 |
|
|
| 341 |
|
|
| 700 |
|
|
| 1,076 |
|
| 342 |
|
|
| 99 |
|
|
| 604 |
|
|
| 431 |
|
|
| $ | 1,316 |
|
| $ | 1,438 |
|
| $ | 3,905 |
|
| $ | 4,365 |
| $ | 1,447 |
|
| $ | 1,161 |
|
| $ | 2,771 |
|
| $ | 2,589 |
|
Note 12. Goodwill and other intangible assets
Reconciliations of the changes in the carrying value of goodwill for the first ninesix months of 20202021 and for the year ended December 31, 20192020 follow (in millions).
|
| September 30, 2020 |
|
| December 31, 2019 |
|
| June 30, 2021 |
|
| December 31, 2020 |
| ||||
Balance at beginning of year |
| $ | 81,882 |
|
| $ | 81,025 |
|
| $ | 73,734 |
|
| $ | 81,882 |
|
Acquisitions of businesses |
|
| 25 |
|
|
| 890 |
|
|
| 25 |
|
|
| 1,758 |
|
Impairment charges |
|
| (10,021 | ) |
|
| — |
|
|
| — |
|
|
| (10,033 | ) |
Other, including foreign currency translation |
|
| (21 | ) |
|
| (33 | ) |
|
| (1 | ) |
|
| 127 |
|
Balance at end of period |
| $ | 71,865 |
|
| $ | 81,882 |
| ||||||||
Balance at end of period* |
| $ | 73,758 |
|
| $ | 73,734 |
|
* | Net of accumulated goodwill impairments of $11.0 billion as of June 30, 2021 and December 31, 2020. |
Other intangible assets and related accumulated amortization are summarized as follows (in millions).
|
| September 30, 2020 |
|
| December 31, 2019 |
|
| June 30, 2021 |
|
| December 31, 2020 |
| ||||||||||||||||||||
|
| Gross carrying amount |
|
| Accumulated amortization |
|
| Gross carrying amount |
|
| Accumulated amortization |
|
| Gross carrying amount |
|
| Accumulated amortization |
|
| Gross carrying amount |
|
| Accumulated amortization |
| ||||||||
Insurance and other: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships |
| $ | 27,344 |
|
| $ | 5,548 |
|
| $ | 27,943 |
|
| $ | 5,025 |
|
| $ | 27,310 |
|
| $ | 6,113 |
|
| $ | 27,374 |
|
| $ | 5,756 |
|
Trademarks and trade names |
|
| 5,193 |
|
|
| 774 |
|
|
| 5,286 |
|
|
| 759 |
|
|
| 5,176 |
|
|
| 790 |
|
|
| 5,206 |
|
|
| 779 |
|
Patents and technology |
|
| 4,720 |
|
|
| 3,255 |
|
|
| 4,560 |
|
|
| 3,032 |
|
|
| 4,667 |
|
|
| 3,314 |
|
|
| 4,766 |
|
|
| 3,313 |
|
Other |
|
| 3,319 |
|
|
| 1,347 |
|
|
| 3,364 |
|
|
| 1,286 |
|
|
| 3,328 |
|
|
| 1,411 |
|
|
| 3,339 |
|
|
| 1,375 |
|
|
| $ | 40,576 |
|
| $ | 10,924 |
|
| $ | 41,153 |
|
| $ | 10,102 |
|
| $ | 40,481 |
|
| $ | 11,628 |
|
| $ | 40,685 |
|
| $ | 11,223 |
|
Railroad, utilities and energy: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships |
| $ | 678 |
|
| $ | 352 |
|
| $ | 678 |
|
| $ | 324 |
|
| $ | 678 |
|
| $ | 380 |
|
| $ | 678 |
|
| $ | 361 |
|
Trademarks, trade names and other |
|
| 325 |
|
|
| 91 |
|
|
| 325 |
|
|
| 84 |
|
|
| 1,003 |
|
|
| 121 |
|
|
| 1,003 |
|
|
| 98 |
|
|
| $ | 1,003 |
|
| $ | 443 |
|
| $ | 1,003 |
|
| $ | 408 |
|
| $ | 1,681 |
|
| $ | 501 |
|
| $ | 1,681 |
|
| $ | 459 |
|
Notes to Consolidated Financial Statements (Continued)
Note 12. Goodwill and other intangible assets (Continued)
Intangible asset amortization expense in the first ninesix months was $962$637 million in 20202021 and $986$647 million in 2019.2020. Intangible assets with indefinite lives were $18.3 billion as of SeptemberJune 30, 20202021 and $19.0 billion as of December 31, 20192020 and primarily related to certain customer relationships and trademarks and trade names.
During the second quarter of 2020, we concluded it was necessary to reevaluate goodwill and indefinite-lived intangible assets of certain of our reporting units for impairment due to the disruptions arising from the COVID-19 pandemic. We believed that the most significant of these disruptions related to the air travel and commercial aerospace and supporting industries. We recorded pre-tax goodwill impairment charges of approximately $10 billion and pre-tax indefinite-lived intangible asset impairment charges of $638 million in the second quarter of 2020. Approximately $10 billion of these charges related to Precision Castparts Corp. (“PCC”), the largest business within Berkshire's manufacturing segment. The carrying value of PCC-related goodwill and indefinite-lived intangible assets prior to the impairment charges was approximately $31 billion.
The amounts of the impairment charges were determined based on discounted cash flow methods and reflect our current assessments of the risks and uncertainties associated with the aerospace industry. Significant judgment is required in estimating the fair value of a reporting unit and in performing impairment tests. Due to the inherent uncertainty in forecasting cash flows and earnings, actual results in the future may vary significantly from the forecasts.
Disruptions arising from the COVID-19 pandemic will likely continue to evolve and the effects on our businesses may differ from what we currently estimate. If the effects prove to be worse than is reflected in our current estimates, additional goodwill or indefinite-lived intangible asset impairment charges could be required.
Note 13. Derivative contracts
We are party to derivative contracts through certain of our subsidiaries. The most significant derivative contracts consist of equity index put option contracts. The liabilities and related notional values of these contracts follow (in millions).
|
| Liabilities |
|
| Notional Value |
| ||
September 30, 2020 |
| $ | 1,547 |
|
| $ | 12,472 |
|
December 31, 2019 |
|
| 968 |
|
|
| 14,385 |
|
The equity index put option contracts are European style options written prior to March 2008 on four major equity indexes. Notional value in the preceding table represents the aggregate undiscounted amounts payable assuming the value of each index is zero at each contract’s expiration date. Certain contracts are denominated in foreign currencies and the related notional amounts are based on the foreign currency exchange rates as of the balance sheet date. These contracts produced pre-tax losses of $43 million in the third quarter and $640 million in the first nine months of 2020 and pre-tax gains of $234 million in the third quarter and $1,217 million in the first nine months of 2019.
Substantially all open contracts as of September 30, 2020 will expire by February 2023. The weighted average life of unexpired contracts at September 30, 2020 was approximately 1.25 years. Future payments, if any, under any given contract will be required if the prevailing index value is below the contract strike price at the contract expiration date. We received aggregate premiums of $2.1 billion on the contract inception dates with respect to unexpired contracts as of September 30, 2020 and we have 0 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 $1.2 billion at September 30, 2020 and $397 million at December 31, 2019. These contracts may not be unilaterally terminated or fully settled before the contract expiration dates and the ultimate amount of cash basis gains or losses will not be determined until the contract expiration dates.
Our regulated utility subsidiaries are exposed to variations in the prices of fuel required to generate electricity, wholesale electricity purchased and sold and natural gas supplied for customers. We may use forward purchases and sales, futures, swaps and options to manage a portion of these price risks. Most of the net derivative contract assets or liabilities of our regulated utilities are probable of recovery through rates and are offset by regulatory liabilities or assets.
Notes to Consolidated Financial Statements (Continued)
Note 14.13. Unpaid losses and loss adjustment expenses
Our liabilities for unpaid losses and loss adjustment expenses (also referred to as “claim liabilities”) under property and casualty insurance and reinsurance contracts are based upon estimates of the ultimate claim costs associated with claim occurrences as of the balance sheet date and include estimates for incurred-but-not-reported (“IBNR”) claims. A reconciliation of the changes in claim liabilities, excluding liabilities under retroactive reinsurance contracts (see Note 15)14), for each of the nine monthssix-month periods ending SeptemberJune 30, 20202021 and 20192020 follows (in millions).
|
| 2020 |
|
| 2019 |
| 2021 |
|
| 2020 |
| ||||
Balances at beginning of year: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross liabilities |
| $ | 73,019 |
|
| $ | 68,458 |
| $ | 79,854 |
|
| $ | 73,019 |
|
Reinsurance recoverable on unpaid losses |
|
| (2,855 | ) |
|
| (3,060 | ) |
| (2,912 | ) |
|
| (2,855 | ) |
Net liabilities |
|
| 70,164 |
|
|
| 65,398 |
|
| 76,942 |
|
|
| 70,164 |
|
Incurred losses and loss adjustment expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current accident year events |
|
| 31,777 |
|
|
| 31,179 |
|
| 23,651 |
|
|
| 20,278 |
|
Prior accident years’ events |
|
| 69 |
|
|
| (396 | ) |
| (1,064 | ) |
|
| 189 |
|
Total |
|
| 31,846 |
|
|
| 30,783 |
|
| 22,587 |
|
|
| 20,467 |
|
Paid losses and loss adjustment expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current accident year events |
|
| (11,691 | ) |
|
| (13,144 | ) |
| (8,406 | ) |
|
| (6,638 | ) |
Prior accident years’ events |
|
| (15,259 | ) |
|
| (13,967 | ) |
| (11,169 | ) |
|
| (11,155 | ) |
Total |
|
| (26,950 | ) |
|
| (27,111 | ) |
| (19,575 | ) |
|
| (17,793 | ) |
Foreign currency translation adjustment |
|
| 124 |
|
|
| (178 | ) |
| 31 |
|
|
| (78 | ) |
Balances at September 30: |
|
|
|
|
|
|
|
| |||||||
Balances at June 30: |
|
|
|
|
|
|
| ||||||||
Net liabilities |
|
| 75,184 |
|
|
| 68,892 |
|
| 79,985 |
|
|
| 72,760 |
|
Reinsurance recoverable on unpaid losses |
|
| 2,857 |
|
|
| 3,105 |
|
| 2,973 |
|
|
| 2,909 |
|
Gross liabilities |
| $ | 78,041 |
|
| $ | 71,997 |
| $ | 82,958 |
|
| $ | 75,669 |
|
Incurred losses and loss adjustment expenses shown in the preceding table were recorded in earnings and related to insured events occurring in the current year (“current accident year”) and events occurring in all prior years (“prior accident years”). We recorded a net increase inreduction of estimated ultimate liabilities for prior accident years of $69 million$1.1 billion in the first ninesix months of 2020 and2021 compared to a net decreaseincrease of $396$189 million in the first nine months of 2019,2020, which produced a corresponding decrease in 2021 and an increase and decreasein 2020 in incurred losses and loss adjustment expenses. These changesamounts represented 1.4% in the ultimate liability estimates as percentages2021 and 0.3% in 2020 of the net liabilities at the beginning of each year were relatively insignificant.year.
In the first nine months of 2020, we reduced estimatedEstimated ultimate liabilities for prior years’ loss events for primary insurance by $273 million and increased estimates for reinsurance liabilities by $342 million. The net decrease for primary insurance was primarily attributable to lower than anticipated private passenger automobile, medical professional liability and workers’ compensation claims. The net increase related to reinsurance included increased claims estimates for legacy casualty exposures. Inin the first ninesix months of 2019,were reduced $1.1 billion in 2021 and $250 million in 2020 with respect to primary insurance. In each period, the net decrease in estimated ultimate liabilities for prior accident years wasreductions were primarily attributable to private passenger automobile, medical professional liability and workers’ compensation claims, partly offset byclaims. Estimated ultimate liabilities for prior years’ loss events related to reinsurance assumed in the first six months increased liabilities$35 million in 2021 and $439 million in 2020, which included increased provisions for legacy casualty exposures and other commercial insurance business.exposures.
Notes to Consolidated Financial Statements (Continued)
Note 15.14. Retroactive reinsurance contracts
Retroactive reinsurance policies provide indemnification of losses and loss adjustment expenses of short-duration insurance contracts with respect to underlying loss events that occurred prior to the contract inception date. Claims payments may commence immediately after the contract inception date or, when applicable, once a contractual retention amount has been reached. Reconciliations of the changes in estimated liabilities for retroactive reinsurance unpaid losses and loss adjustment expenses (“claim liabilities”) and related deferred charge reinsurance assumed assets for each of the nine monthssix-month periods ending SeptemberJune 30, 20202021 and 20192020 follow (in millions).
|
| 2020 |
|
| 2019 |
| 2021 |
|
| 2020 |
| ||||||||||||||||||||
|
| Unpaid losses and loss adjustment expenses |
|
| Deferred charges reinsurance assumed |
|
| Unpaid losses and loss adjustment expenses |
|
| Deferred charges reinsurance assumed |
| Unpaid losses and loss adjustment expenses |
|
| Deferred charges reinsurance assumed |
|
| Unpaid losses and loss adjustment expenses |
|
| Deferred charges reinsurance assumed |
| ||||||||
Balances at beginning of year |
| $ | 42,441 |
|
| $ | (13,747 | ) |
| $ | 41,834 |
|
| $ | (14,104 | ) | $ | 40,966 |
|
| $ | (12,441 | ) |
| $ | 42,441 |
|
| $ | (13,747 | ) |
Incurred losses and loss adjustment expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year contracts |
|
| — |
|
|
| — |
|
|
| 175 |
|
|
| (82 | ) |
| 82 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Prior years’ contracts |
|
| 131 |
|
|
| 735 |
|
|
| (2 | ) |
|
| 827 |
|
| (3 | ) |
|
| 473 |
|
|
| 24 |
|
|
| 554 |
|
Total |
|
| 131 |
|
|
| 735 |
|
|
| 173 |
|
|
| 745 |
|
| 79 |
|
|
| 473 |
|
|
| 24 |
|
|
| 554 |
|
Paid losses and loss adjustment expenses |
|
| (786 | ) |
|
| — |
|
|
| (643 | ) |
|
| — |
|
| (808 | ) |
|
| — |
|
|
| (628 | ) |
|
| — |
|
Balances at September 30 |
| $ | 41,786 |
|
| $ | (13,012 | ) |
| $ | 41,364 |
|
| $ | (13,359 | ) | |||||||||||||||
Balances at June 30 | $ | 40,237 |
|
| $ | (11,968 | ) |
| $ | 41,837 |
|
| $ | (13,193 | ) | ||||||||||||||||
Incurred losses and loss adjustment expenses, net of deferred charges |
| $ | 866 |
|
|
|
|
|
| $ | 918 |
|
|
|
|
| $ | 552 |
|
|
|
|
|
| $ | 578 |
|
|
|
|
|
In the preceding table, classifications of incurred losses and loss adjustment expenses are based on the inception dates of the contracts.contracts, which reflects when our exposure to losses begins. Incurred losses and loss adjustment expenses for prior years’ contracts were $470 million in the first nine months related to contracts written in prior years were $8662021 and $578 million in 2020, and $825 million in 2019. Such losses reflected thewhich consisted of recurring amortization of deferred charges and the effects of changes in the estimatedexpected timing and amount of future loss payments.
Berkshire’s subsidiary, National Indemnity Company (“NICO”), is party to a contract with variouscertain subsidiaries of American International Group, Inc. (collectively, “AIG”), in which NICO’s ultimate liability is contractually limited to $20 billion. Our estimated ultimateunpaid claim liabilities with respectregard to the AIG contract were approximately $17.1 billion at both SeptemberJune 30, 20202021, reflecting paid claims of $549 million during the first six months of 2021, and $17.7 billion at December 31, 2019 were $18.2 billion.2020. Deferred charge assets related to the AIG contract were approximately $5.8$5.1 billion at SeptemberJune 30, 20202021 and $6.3$5.4 billion at December 31, 2019.2020.
Note 16.15. Notes payable and other borrowings
Notes payable and other borrowings are summarized below (dollars in(in millions). The weighted average interest rates and maturity date ranges shown in the following tables are based on borrowings as of SeptemberJune 30, 2020.2021.
|
| Weighted Average Interest Rate |
|
| September 30, 2020 |
|
| December 31, 2019 |
|
| Weighted Average Interest Rate |
|
| June 30, 2021 |
|
| December 31, 2020 |
| ||||||
Insurance and other: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Berkshire Hathaway Inc. (“Berkshire”): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Dollar denominated due 2020-2047 |
|
| 3.2 | % |
| $ | 8,320 |
|
| $ | 8,324 |
| ||||||||||||
Euro denominated due 2021-2035 |
|
| 1.0 | % |
|
| 7,986 |
|
|
| 7,641 |
| ||||||||||||
U.S. Dollar denominated due 2021-2047 |
|
| 3.3 | % |
| $ | 7,314 |
|
| $ | 8,308 |
| ||||||||||||
Euro denominated due 2023-2041 |
|
| 1.0 | % |
|
| 8,123 |
|
|
| 8,326 |
| ||||||||||||
Japanese Yen denominated due 2023-2060 |
|
| 0.6 | % |
|
| 5,902 |
|
|
| 3,938 |
|
|
| 0.6 | % |
|
| 7,038 |
|
|
| 6,031 |
|
Berkshire Hathaway Finance Corporation (“BHFC”): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Dollar denominated due 2020-2049 |
|
| 4.1 | % |
|
| 8,829 |
|
|
| 8,679 |
| ||||||||||||
U.S. Dollar denominated due 2022-2051 |
|
| 3.6 | % |
|
| 10,756 |
|
|
| 10,766 |
| ||||||||||||
Great Britain Pound denominated due 2039-2059 |
|
| 2.5 | % |
|
| 2,218 |
|
|
| 2,274 |
|
|
| 2.5 | % |
|
| 2,376 |
|
|
| 2,347 |
|
Other subsidiary borrowings due 2020-2045 |
|
| 4.2 | % |
|
| 4,676 |
|
|
| 5,262 |
| ||||||||||||
Other subsidiary borrowings due 2021-2045 |
|
| 4.1 | % |
|
| 4,568 |
|
|
| 4,682 |
| ||||||||||||
Subsidiary short-term borrowings |
|
| 2.7 | % |
|
| 960 |
|
|
| 1,472 |
|
|
| 2.5 | % |
|
| 386 |
|
|
| 1,062 |
|
|
|
|
|
|
| $ | 38,891 |
|
| $ | 37,590 |
|
|
|
|
|
| $ | 40,561 |
|
| $ | 41,522 |
|
Notes to Consolidated Financial Statements (Continued)
Note 16.15. Notes payable and other borrowings (Continued)
In March 2020,the first quarter of 2021, Berkshire repaid €1.0€550 million and $1.0 billion of maturing senior notes and issued €1.0 billion€600 million of 0.0%0.5% senior notes due in 2025.2041. In April 2020,2021, Berkshire issued ¥195.5¥160 billion (approximately $1.8$1.5 billion) of senior notes with maturity dates ranging from 20232026 to 20602041 and a weighted average interest rate of 1.07%0.5%.
Borrowings of BHFC, a wholly owned finance subsidiary of Berkshire, consist of senior unsecured notes used to fund manufactured housing loans originated or acquired and equipment held for lease of certain subsidiaries. BHFC borrowings are fully and unconditionally guaranteed by Berkshire. In the first nine months of 2020,January 2021, BHFC repaid $350$750 million of maturing senior notes and issued $500$750 million of 1.85%2.5% senior notes due in 2030. In October 2020, BHFC repaid $550 million of maturing senior notes and issued $2.5 billion of senior notes consisting of $750 million of 1.45% senior notes due in 2030 and $1.75 billion of 2.85% senior notes due in 2050.2051.
The carrying values of Berkshire and BHFC non-U.S. Dollar denominated senior notes (€6.856.9 billion, £1.75 billion and ¥625.5¥785.5 billion par)par at June 30, 2021) reflect the applicable foreign currency exchange rates as of the balance sheet dates. The effects of changes in foreign currency exchange rates during the period are recorded in earnings as a component of selling, general and administrative expenses. Changes in the exchange rates resulted in pre-tax lossesgains of $549 million in the third quarter and $447$675 million in the first ninesix months of 20202021 and pre-tax gains of $383 million in the third quarter and $447$102 million in the first ninesix months of 2019.2020.
In addition to BHFC borrowings, Berkshire guaranteed approximately $1.2$4.0 billion of other subsidiary borrowings at SeptemberJune 30, 2020.2021. Generally, Berkshire’s guarantee of a subsidiary’s debt obligation is an absolute, unconditional and irrevocable guarantee for the full and prompt payment when due of all payment obligations.
|
| Weighted Average Interest Rate |
|
| September 30, 2020 |
|
| December 31, 2019 |
|
| Weighted Average Interest Rate |
|
| June 30, 2021 |
|
| December 31, 2020 |
| |||||||
Railroad, utilities and energy: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Berkshire Hathaway Energy Company (“BHE”) and subsidiaries: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
BHE senior unsecured debt due 2021-2050 |
|
| 4.5 | % |
| $ | 11,462 |
|
| $ | 8,581 |
| |||||||||||||
Subsidiary and other debt due 2020-2064 |
|
| 4.3 | % |
|
| 31,693 |
|
|
| 30,772 |
| |||||||||||||
BHE senior unsecured debt due 2023-2051 |
|
| 4.3 | % |
| $ | 13,000 |
|
| $ | 13,447 |
| |||||||||||||
Subsidiary and other debt due 2021-2064 |
|
| 4.2 | % |
|
| 35,873 |
|
|
| 36,420 |
| |||||||||||||
Short-term borrowings |
|
| 1.8 | % |
|
| 2,400 |
|
|
| 3,214 |
|
|
| 1.5 | % |
|
| 2,536 |
|
|
| 2,286 |
| |
Burlington Northern Santa Fe and subsidiaries due 2020-2097 |
|
| 4.6 | % |
|
| 23,245 |
|
|
| 23,211 |
| |||||||||||||
Burlington Northern Santa Fe ("BNSF") and subsidiaries due 2021-2097 |
|
| 4.6 | % |
|
| 23,253 |
|
|
| 23,220 |
| |||||||||||||
|
|
|
|
|
| $ | 68,800 |
|
| $ | 65,778 |
|
|
|
|
|
| $ | 74,662 |
|
| $ | 75,373 |
|
BHE subsidiary debt represents amounts issued pursuant to separate financing agreements. Substantially all of the assets of certain BHE subsidiaries are, or may be, pledged or encumbered to support or otherwise secure such debt. These borrowing arrangements generally contain various covenants, which pertain to leverage ratios, interest coverage ratios and/or debt service coverage ratios. During the first nine months of 2020, BHE and its subsidiaries issued new term debt of approximately $5.5 billion with maturity dates ranging from 2025 to 2062 and a weighted average interest rate of 3.4%. In the first ninesix months of 2020,2021, BHE and its subsidiaries repaid $1.9$1.7 billion of debt and reduced short-term borrowings. On October 29, 2020,term debt. In April 2021, a BHE subsidiary issued $500$550 million of 1.65% senior notes3.4% term debt due in 2031 and $1.5 billion of 2.85% senior notes due in 2051.
BNSF’s borrowings are primarily senior unsecured debentures. During the first six months of 2021, BNSF repaid $886 million of debt. In April 2020,2021, BNSF issued $575$925 million of 3.05% senior unsecured debentures3.3% term debt due in 2051. During the first nine months of 2020, BNSF repaid $541 million of debt. As of SeptemberJune 30, 2020,2021, BNSF, BHE and their subsidiaries were in compliance with all applicable debt covenants. Berkshire does not guarantee any debt, borrowings or lines of credit of BNSF, BHE or their subsidiaries.
As of SeptemberJune 30, 2020,2021, our subsidiaries had unused lines of credit and commercial paper capacity aggregating approximately $9.5$9.9 billion to support short-term borrowing programs and provide additional liquidity. Such unused lines of credit included approximately $7.8$8.4 billion related to BHE and its subsidiaries.
Notes to Consolidated Financial Statements (Continued)
Note 17.16. Fair value measurements
Our financial assets and liabilities are summarized below as of SeptemberJune 30, 20202021 and December 31, 2019,2020, with fair values shown according to the fair value hierarchy (in millions). The carrying values of cash and cash equivalents, U.S. Treasury Bills, other receivables and accounts payable, accruals and other liabilities are considered to be reasonable estimates of 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) |
| ||||||||||
September 30, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
June 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Investments in fixed maturity securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury, U.S. government corporations and agencies |
| $ | 3,377 |
|
| $ | 3,377 |
|
| $ | 3,331 |
|
| $ | 46 |
|
| $ | — |
|
| $ | 3,471 |
|
| $ | 3,471 |
|
| $ | 3,428 |
|
| $ | 43 |
|
| $ | — |
|
Foreign governments |
|
| 9,969 |
|
|
| 9,969 |
|
|
| 6,890 |
|
|
| 3,079 |
|
|
| — |
|
|
| 12,704 |
|
|
| 12,704 |
|
|
| 10,355 |
|
|
| 2,349 |
|
|
| — |
|
Corporate bonds |
|
| 5,574 |
|
|
| 5,574 |
|
|
| — |
|
|
| 5,574 |
|
|
| — |
|
|
| 3,877 |
|
|
| 3,877 |
|
|
| — |
|
|
| 3,877 |
|
|
| — |
|
Other |
|
| 515 |
|
|
| 515 |
|
|
| — |
|
|
| 515 |
|
|
| — |
|
|
| 408 |
|
|
| 408 |
|
|
| — |
|
|
| 408 |
|
|
| — |
|
Investments in equity securities |
|
| 245,317 |
|
|
| 245,317 |
|
|
| 236,804 |
|
|
| 38 |
|
|
| 8,475 |
|
|
| 307,942 |
|
|
| 307,942 |
|
|
| 295,990 |
|
|
| 8 |
|
|
| 11,944 |
|
Investment in Kraft Heinz common stock |
|
| 13,101 |
|
|
| 9,747 |
|
|
| 9,747 |
|
|
| — |
|
|
| — |
|
|
| 13,300 |
|
|
| 13,272 |
|
|
| 13,272 |
|
|
| — |
|
|
| — |
|
Loans and finance receivables |
|
| 18,584 |
|
|
| 19,737 |
|
|
| — |
|
|
| 2,509 |
|
|
| 17,228 |
|
|
| 19,900 |
|
|
| 21,175 |
|
|
| — |
|
|
| 2,438 |
|
|
| 18,737 |
|
Derivative contract assets (1) |
|
| 261 |
|
|
| 261 |
|
|
| 2 |
|
|
| 64 |
|
|
| 195 |
|
|
| 414 |
|
|
| 414 |
|
|
| 5 |
|
|
| 209 |
|
|
| 200 |
|
Derivative contract liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Railroad, utilities and energy (1) |
|
| 109 |
|
|
| 109 |
|
|
| 5 |
|
|
| 93 |
|
|
| 11 |
|
|
| 141 |
|
|
| 141 |
|
|
| 4 |
|
|
| 83 |
|
|
| 54 |
|
Equity index put options |
|
| 1,547 |
|
|
| 1,547 |
|
|
| — |
|
|
| — |
|
|
| 1,547 |
|
|
| 355 |
|
|
| 355 |
|
|
| — |
|
|
| — |
|
|
| 355 |
|
Notes payable and other borrowings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance and other |
|
| 38,891 |
|
|
| 43,439 |
|
|
| — |
|
|
| 43,426 |
|
|
| 13 |
|
|
| 40,561 |
|
|
| 44,162 |
|
|
| — |
|
|
| 44,118 |
|
|
| 44 |
|
Railroad, utilities and energy |
|
| 68,800 |
|
|
| 84,315 |
|
|
| — |
|
|
| 84,315 |
|
|
| — |
|
|
| 74,662 |
|
|
| 87,965 |
|
|
| — |
|
|
| 87,965 |
|
|
| — |
|
December 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
December 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Investments in fixed maturity securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury, U.S. government corporations and agencies |
| $ | 3,090 |
|
| $ | 3,090 |
|
| $ | 3,046 |
|
| $ | 44 |
|
| $ | — |
|
| $ | 3,403 |
|
| $ | 3,403 |
|
| $ | 3,358 |
|
| $ | 45 |
|
| $ | — |
|
Foreign governments |
|
| 8,638 |
|
|
| 8,638 |
|
|
| 5,437 |
|
|
| 3,201 |
|
|
| — |
|
|
| 11,338 |
|
|
| 11,338 |
|
|
| 9,259 |
|
|
| 2,079 |
|
|
| — |
|
Corporate bonds |
|
| 6,352 |
|
|
| 6,352 |
|
|
| — |
|
|
| 6,350 |
|
|
| 2 |
|
|
| 5,191 |
|
|
| 5,191 |
|
|
| — |
|
|
| 5,191 |
|
|
| — |
|
Other |
|
| 605 |
|
|
| 605 |
|
|
| — |
|
|
| 605 |
|
|
| — |
|
|
| 478 |
|
|
| 478 |
|
|
| — |
|
|
| 478 |
|
|
| — |
|
Investments in equity securities |
|
| 248,027 |
|
|
| 248,027 |
|
|
| 237,271 |
|
|
| 46 |
|
|
| 10,710 |
|
|
| 281,170 |
|
|
| 281,170 |
|
|
| 271,848 |
|
|
| 38 |
|
|
| 9,284 |
|
Investment in Kraft Heinz common stock |
|
| 13,757 |
|
|
| 10,456 |
|
|
| 10,456 |
|
|
| — |
|
|
| — |
|
|
| 13,336 |
|
|
| 11,280 |
|
|
| 11,280 |
|
|
| — |
|
|
| — |
|
Loans and finance receivables |
|
| 17,527 |
|
|
| 17,861 |
|
|
| — |
|
|
| 1,809 |
|
|
| 16,052 |
|
|
| 19,201 |
|
|
| 20,554 |
|
|
| — |
|
|
| 2,692 |
|
|
| 17,862 |
|
Derivative contract assets (1) |
|
| 145 |
|
|
| 145 |
|
|
| — |
|
|
| 23 |
|
|
| 122 |
|
|
| 270 |
|
|
| 270 |
|
|
| 1 |
|
|
| 72 |
|
|
| 197 |
|
Derivative contract liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Railroad, utilities and energy (1) |
|
| 76 |
|
|
| 76 |
|
|
| 6 |
|
|
| 59 |
|
|
| 11 |
|
|
| 121 |
|
|
| 121 |
|
|
| 6 |
|
|
| 96 |
|
|
| 19 |
|
Equity index put options |
|
| 968 |
|
|
| 968 |
|
|
| — |
|
|
| — |
|
|
| 968 |
|
|
| 1,065 |
|
|
| 1,065 |
|
|
| — |
|
|
| — |
|
|
| 1,065 |
|
Notes payable and other borrowings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance and other |
|
| 37,590 |
|
|
| 40,589 |
|
|
| — |
|
|
| 40,569 |
|
|
| 20 |
|
|
| 41,522 |
|
|
| 46,676 |
|
|
| — |
|
|
| 46,665 |
|
|
| 11 |
|
Railroad, utilities and energy |
|
| 65,778 |
|
|
| 76,237 |
|
|
| — |
|
|
| 76,237 |
|
|
| — |
|
|
| 75,373 |
|
|
| 92,593 |
|
|
| — |
|
|
| 92,593 |
|
|
| — |
|
(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 17.16. Fair value measurements (Continued)
The fair values of substantially all of our financial instruments were measured using market or income approaches. The hierarchy for measuring fair value consists of Levels 1 through 3, which are described below.
Level 1 – Inputs represent unadjusted quoted prices for identical assets or liabilities exchanged in active markets.
Level 2 – Inputs include directly or indirectly observable inputs (other than Level 1 inputs) such as quoted prices for similar assets or liabilities exchanged in active or inactive markets; quoted prices for identical assets or liabilities exchanged in inactive markets; other inputs that may be considered in fair value determinations of the assets or liabilities, such as interest rates and yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates; and inputs that are derived principally from or corroborated by observable market data by correlation or other means. Pricing evaluations generally reflect discounted expected future cash flows, which incorporate yield curves for instruments with similar characteristics, such as credit ratings, estimated durations and yields for other instruments of the issuer or entities in the same industry sector.
Level 3 – Inputs include unobservable inputs used in the measurement of assets and liabilities. Management is required to use its own assumptions regarding unobservable inputs because there is little, if any, market activity in the assets or liabilities and it may be unable to corroborate the related observable inputs. Unobservable inputs require management to make certain projections and assumptions about the information that would be used by market participants in valuing assets or liabilities.
Reconciliations of significant assets and liabilities measured and carried at fair value on a recurring basis with the use of significant unobservable inputs (Level 3) for the ninesix months ended SeptemberJune 30, 20202021 and 20192020 follow (in millions).
|
|
|
|
|
| Gains (losses) included in: |
|
|
|
|
|
|
|
|
| |||||
|
| Balance at beginning of year |
|
| Earnings |
|
| Regulatory assets and liabilities |
|
| Acquisitions, dispositions and settlements |
|
| Balance at September 30 |
| |||||
Investments in fixed maturity and equity securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020 |
| $ | 10,407 |
|
| $ | (2,235 | ) |
| $ | — |
|
| $ | (2 | ) |
| $ | 8,170 |
|
2019 |
|
| 7 |
|
|
| 499 |
|
|
| — |
|
|
| 10,002 |
|
|
| 10,508 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net derivative contract liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020 |
|
| (857 | ) |
|
| (72 | ) |
|
| (36 | ) |
|
| (398 | ) |
|
| (1,363 | ) |
2019 |
|
| (2,343 | ) |
|
| 1,528 |
|
|
| (41 | ) |
|
| (282 | ) |
|
| (1,138 | ) |
|
| Balance at beginning of year |
|
| Gains (losses) included in earnings |
|
| Acquisitions, dispositions and settlements |
|
| Balance at June 30 |
| ||||
Investments in equity securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021 |
| $ | 8,978 |
|
| $ | 1,559 |
|
| $ | 1,100 |
|
| $ | 11,637 |
|
2020 |
|
| 10,405 |
|
|
| (2,469 | ) |
|
| — |
|
|
| 7,936 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity index put option contract liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021 |
|
| (1,065 | ) |
|
| 710 |
|
|
| — |
|
|
| (355 | ) |
2020 |
|
| (968 | ) |
|
| (597 | ) |
|
| — |
|
|
| (1,565 | ) |
Quantitative information as of SeptemberJune 30, 20202021 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 (dollars in millions).
|
| Fair Value |
|
| Principal Valuation Techniques |
| Unobservable Inputs |
| Weighted Average |
|
| Fair Value |
|
| Principal Valuation Techniques |
| Unobservable Inputs |
| Weighted Average |
| ||||
Investments in equity securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock |
| $ | 8,159 |
|
| Discounted cash flow |
| Expected duration |
| 9 years |
|
| $ | 10,935 |
|
| Discounted cash flow |
| Expected duration |
| 8 years |
| ||
|
|
|
|
|
|
|
| Discount for transferability restrictions and subordination |
| 375 basis points |
|
|
|
|
|
|
|
| Discount for transferability restrictions and subordination |
| 355 basis points |
| ||
Common stock warrants |
|
| 10 |
|
| Warrant pricing model |
| Expected duration |
| 9 years |
|
|
| 702 |
|
| Warrant pricing model |
| Expected duration |
| 8 years |
| ||
|
|
|
|
|
|
|
| Volatility |
| 28% |
|
|
|
|
|
|
|
| Volatility |
| 36% |
| ||
Derivative contract liabilities |
|
| 1,547 |
|
| Option pricing model |
| Volatility |
| 20% |
| |||||||||||||
Equity index put option contract liabilities |
|
| 355 |
|
| Option pricing model |
| Volatility |
| 17% |
|
Investments in equity securities in the preceding table include our investments in Occidental Preferredcertain preferred stocks and Occidental common stock warrants. See Note 4 for information regarding these investments.warrants that do not have readily determinable market values as defined under GAAP. These investments are subject to contractual restrictions on transferability and may contain provisions that prevent us from economically hedging our investments. In applyingWe applied discounted cash flow techniques in valuing the Occidental Preferred,preferred stock and we made assumptions regarding the expected duration of the investment and the effects of subordination in liquidation. In valuing the Occidental common stock warrants, we used a warrant valuation model. While most of the inputs to the model are observable, we made assumptions regarding the expected duration and volatility of the warrants.
Notes to Consolidated Financial Statements (Continued)
Note 17.16. Fair value measurements (Continued)
Our equity index put option derivative contracts are illiquid and contain contract terms that are not standard in derivatives markets. For example, we are not required to post collateral under most of our contracts. We determine the fair value of the equity index put option contract liabilities based on the Black-Scholes option valuation model.
As described in Note 12, we recorded goodwill and indefinite-lived intangible asset impairment charges in the second quarter of 2020. These charges reflected our estimates of fair values of the related reporting units for goodwill and of the indefinite-lived intangible assets, and the related measurements are considered Level 3 measurements.
In estimating fair values of reporting units and indefinite-lived intangible assets, we consider the available facts and circumstances concerning the reporting unit and the industries in which it operates. The key assumptions and inputs we generally use in such determinations include forecasting revenues and expenses, cash flows and capital expenditures, as well as the selection of a discount rate and other inputs. These inputs also include our qualitative assessment of risks and uncertainties. We utilized discounted cash flow/earnings methods to develop our estimates of the fair values and we also considered other publicly available information.
Estimates of the fair value of reporting units can be significantly affected by expectations of the severity, duration or long-term effects of the COVID-19 pandemic on the reporting unit’s business, which we cannot reliably predict at this time. Consequently, fair value estimates in such instances may be subject to wide variations. We concluded it was appropriate to reflect the increased risks and uncertainties precipitated by the pandemic through a combination of increases in discount rates and reductions to operating and long-term growth assumptions. We also incorporated forecasted operating results that were reduced from what was used in estimating fair value in connection with the 2019 annual impairment test conducted during the fourth quarter.
Note 18.17. Common stock
Changes inin Berkshire’s issued, treasury and outstanding common stock during the first ninesix months of 20202021 are shown in the table below. In addition to our common stock, 1,000,000 shares of preferred stock are authorized, but NaN are issued.
|
| Class A, $5 Par Value (1,650,000 shares authorized) |
|
| Class B, $0.0033 Par Value (3,225,000,000 shares authorized) |
| ||||||||||||||||||
|
| Issued |
|
| Treasury |
|
| Outstanding |
|
| Issued |
|
| Treasury |
|
| Outstanding |
| ||||||
Balances at December 31, 2019 |
|
| 719,307 |
|
|
| (17,337 | ) |
|
| 701,970 |
|
|
| 1,408,183,852 |
|
|
| (23,702,319 | ) |
|
| 1,384,481,533 |
|
Conversions of Class A common stock to Class B common stock |
|
| (39,694 | ) |
|
| — |
|
|
| (39,694 | ) |
|
| 59,541,000 |
|
|
| — |
|
|
| 59,541,000 |
|
Treasury stock acquired |
|
| — |
|
|
| (11,330 | ) |
|
| (11,330 | ) |
|
| — |
|
|
| (64,487,462 | ) |
|
| (64,487,462 | ) |
Balances at September 30, 2020 |
|
| 679,613 |
|
|
| (28,667 | ) |
|
| 650,946 |
|
|
| 1,467,724,852 |
|
|
| (88,189,781 | ) |
|
| 1,379,535,071 |
|
| 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 |
| ||||||
Balances at December 31, 2020 |
| 678,523 |
|
|
| (34,592 | ) |
|
| 643,931 |
|
|
| 1,469,359,852 |
|
|
| (119,316,381 | ) |
|
| 1,350,043,471 |
|
Conversions of Class A to Class B common stock |
| (11,479 | ) |
|
| — |
|
|
| (11,479 | ) |
|
| 17,218,500 |
|
|
| — |
|
|
| 17,218,500 |
|
Treasury stock acquired |
| — |
|
|
| (8,156 | ) |
|
| (8,156 | ) |
|
| — |
|
|
| (36,862,234 | ) |
|
| (36,862,234 | ) |
Balances at June 30, 2021 |
| 667,044 |
|
|
| (42,748 | ) |
|
| 624,296 |
|
|
| 1,486,578,352 |
|
|
| (156,178,615 | ) |
|
| 1,330,399,737 |
|
Each Class A common share is entitled to 1 vote per share. Class B common stock possesses dividend and distribution rights equal to one-fifteen-hundredth (1/1,500) of such rights of Class A common stock. Each Class B common share possesses voting rights equivalent to one-ten-thousandth (1/10,000) of the voting rights of a Class A share. Unless otherwise required under Delaware General Corporation Law, Class A and Class B common shares vote as a single class. Each share of Class A common stock is convertible, at the option of the holder, into 1,500 shares of Class B common stock. Class B common stock is not convertible into Class A common stock. On an equivalent Class A common stock basis, there were 1,570,6361,511,229 shares outstanding as of SeptemberJune 30, 20202021 and 1,624,9581,543,960 shares outstanding as of December 31, 2019.2020.
Since we have two classes of common stock, we provide earnings per share data on the Consolidated Statements of Earnings for average equivalent Class A shares outstanding and average equivalent Class B shares outstanding. Class B shares are economically equivalent to one-fifteen-hundredth (1/1,500) of a Class A share. Average equivalent Class A shares outstanding represents average Class A shares outstanding plus one-fifteen-hundredth (1/1,500) of the average Class B shares outstanding. Average equivalent Class B shares outstanding represents average Class B shares outstanding plus 1,500 times the average Class A shares outstanding.
Berkshire’s common stock repurchase program permits Berkshire to repurchase its Class A and Class B shares any time that Warren Buffett, Berkshire’s Chairman of the Board and Chief Executive Officer, and Charlie Munger, Vice Chairman of the Board, believe that the repurchase price is below Berkshire’s intrinsic value, conservatively determined. The program continues to allow share repurchases in the open market or through privately negotiated transactions and does not specify a maximum number of shares to be repurchased. However, repurchases will not be made if they would reduce the total value of Berkshire’s consolidated cash, cash equivalents and U.S. Treasury Bills holdings below $20$30 billion. The repurchase program does not obligate Berkshire to repurchase any specific dollar amount or number of Class A or Class B shares and there is no expiration date to the program.
Notes to Consolidated Financial Statements (Continued)
Note 19.18. Income taxes
Our consolidated effective income tax rates were 19.8%20.4% for the thirdsecond quarter and 30.8%19.9% for the first ninesix months of 2020 and 18.7%2021 compared to 25.4% for the thirdsecond quarter and 20.2%15.7% for the first ninesix months of 2019.2020. Our effective income tax rate normally reflects recurring benefits from dividends-received deductions applicable to investments in equity securities and production tax credits related to wind-powered electricity generation placed in service in the U.S. Our periodic effective income tax rate will also vary due to the changes in mix of pre-tax earnings, the magnitude of gains or losses with respect to our investments in equity securities, andthe amount of non-deductible goodwill impairment charges and other expenses and the underlying income tax rates applicable in the various taxing jurisdictions.
Notes to Consolidated Financial Statements (Continued)
Note 20.19. Accumulated other comprehensive income
A summary of the net changes in after-tax accumulated other comprehensive income attributable to Berkshire Hathaway shareholders for the ninesix months ending SeptemberJune 30, 20202021 and 20192020 follows (in millions).
|
| Unrealized appreciation of investments, net |
|
| Foreign currency translation |
|
| Defined benefit pension plans |
|
| Other |
|
| Accumulated other comprehensive income |
|
| Unrealized appreciation of investments, net |
|
| Foreign currency translation |
|
| Defined benefit pension plans |
|
| Other |
|
| Accumulated other comprehensive income |
| ||||||||||
First nine months of 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
First six months of 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Balance at beginning of year |
| $ | 481 |
|
| $ | (4,346 | ) |
| $ | (1,369 | ) |
| $ | (9 | ) |
| $ | (5,243 | ) |
| $ | 536 |
|
| $ | (3,082 | ) |
| $ | (1,645 | ) |
| $ | (52 | ) |
| $ | (4,243 | ) |
Other comprehensive income, net |
|
| 29 |
|
|
| (28 | ) |
|
| 67 |
|
|
| (15 | ) |
|
| 53 |
|
|
| (58 | ) |
|
| (1 | ) |
|
| 73 |
|
|
| 10 |
|
|
| 24 |
|
Balance at end of period |
| $ | 510 |
|
| $ | (4,374 | ) |
| $ | (1,302 | ) |
| $ | (24 | ) |
| $ | (5,190 | ) |
| $ | 478 |
|
| $ | (3,083 | ) |
| $ | (1,572 | ) |
| $ | (42 | ) |
| $ | (4,219 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First nine months of 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
First six months of 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Balance at beginning of year |
| $ | 370 |
|
| $ | (4,603 | ) |
| $ | (816 | ) |
| $ | 34 |
|
| $ | (5,015 | ) |
| $ | 481 |
|
| $ | (4,346 | ) |
| $ | (1,369 | ) |
| $ | (9 | ) |
| $ | (5,243 | ) |
Other comprehensive income, net |
|
| 137 |
|
|
| (534 | ) |
|
| 33 |
|
|
| (29 | ) |
|
| (393 | ) |
|
| 14 |
|
|
| (794 | ) |
|
| 83 |
|
|
| (27 | ) |
|
| (724 | ) |
Balance at end of period |
| $ | 507 |
|
| $ | (5,137 | ) |
| $ | (783 | ) |
| $ | 5 |
|
| $ | (5,408 | ) |
| $ | 495 |
|
| $ | (5,140 | ) |
| $ | (1,286 | ) |
| $ | (36 | ) |
| $ | (5,967 | ) |
Note 21.20. Supplemental cash flow information
A summary of supplemental cash flow information is presented in the following table (in millions).
|
| First Nine Months |
|
| First Six Months |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
| ||||
Cash paid during the period for: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes |
| $ | 2,715 |
|
| $ | 4,395 |
|
| $ | 2,508 |
|
| $ | 980 |
|
Interest: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance and other |
|
| 892 |
|
|
| 879 |
|
|
| 699 |
|
|
| 591 |
|
Railroad, utilities and energy |
|
| 2,174 |
|
|
| 2,149 |
|
|
| 1,580 |
|
|
| 1,438 |
|
Non-cash investing and financing activities: |
|
|
|
|
|
|
|
| ||||||||
Non-cash acquisition of equity securities |
|
| 430 |
|
|
| — |
|
Note 22.21. 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 JulyOn November 1, 2020, Berkshire Hathaway Energy (“BHE”) reachedacquired a definitive agreement with Dominion Energy, Inc. (“Dominion”) to acquire substantially alllarge portion of Dominion’sthe natural gas transmission and storage business which includes more than 7,700 miles of natural gas transmission pipelines, about 900 billion cubic feet of operated natural gas storage capacity andDominion Energy, Inc. (“Dominion”) for approximately $2.5 billion. The acquisition included a partial ownership of a liquefied natural gas export, import and storage facility.facility (“Cove Point”), consisting of 100% of the general partnership interest and 25% of the limited partnership interests. We treat Cove Point as a consolidated subsidiary because we have the power to direct the activities that most significantly affect its economic performance and the obligation to absorb losses and the right to receive benefits which could be significant to Cove Point. The agreement provided for an aggregate acquisition pricepreliminary fair value of the assets acquired was $13.4 billion, including residual goodwill of $1.7 billion, and the fair value of the liabilities assumed was $7.0 billion, including the assumption of approximately $4.0 billion and that BHE would also assume approximately $5.7$5.6 billion of existing asset-related long-term debt. We also recorded noncontrolling interests of $3.9 billion attributable to limited partnership interests in Cove Point that are held by third parties. In addition, BHE previously agreed to acquire certain other of Dominion’s pipeline business for approximately $1.3 billion. Effective July 9, 2021, BHE and Dominion agreed to terminate this planned transaction due to ongoing uncertainty in obtaining the necessary regulatory approvals.
Notes to Consolidated Financial Statements (Continued)
Note 22. Contingencies and commitments (Continued)
On October 5, 2020, BHE and Dominion agreed, as permitted under the acquisition agreement, to provide for the acquisition of all originally agreed upon businesses, except for certain pipeline assets (the “Excluded Assets”), for approximately $2.7 billion in cash and BHE’s assumption of approximately $5.3 billion of debt. This acquisition was completed on November 1, 2020. In addition, on October 5, 2020, BHE and Dominion entered into a second acquisition agreement providing for BHE’s acquisition of the Excluded Assets for approximately $1.3 billion in cash and BHE’s assumption of approximately $0.4 billion of debt. The closing of this acquisition is subject to receiving necessary regulatory approvals and other customary closing conditions and is expected to occur in early 2021.
Note 23.22. Revenues from contracts with customers
We recognize revenue when a good or service is transferred to a customer. A good or service is transferred when or as the customer obtains control of that good or service. Revenues are based on the consideration we expect to receive in connection with our promises to deliver goods and services to our customers.
The following tables summarize customer contract revenues disaggregated by reportable segment and the source of the revenue for the thirdsecond quarter and first ninesix months of 20202021 and 20192020 (in millions). Other revenues included in consolidated revenues were primarily insurance premiums earned, interest, dividend and other investment income and leasing revenues, which are not considered to be revenues from contracts with customers under GAAP.
|
| Manufacturing |
|
| McLane Company |
|
| Service and Retail |
|
| BNSF |
|
| Berkshire Hathaway Energy |
|
| Insurance, Corporate and other |
|
| Total |
|
| Manufacturing |
|
| McLane Company |
|
| Service and Retailing |
|
| BNSF |
|
| Berkshire Hathaway Energy |
|
| Insurance, Corporate and other |
|
| Total |
| ||||||||||||||
Three months ending September 30, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||
Three months ending June 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||
Manufactured products: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial and commercial products |
| $ | 4,889 |
|
| $ | — |
|
| $ | 54 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 4,943 |
|
| $ | 5,586 |
|
| $ | — |
|
| $ | 49 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 5,635 |
|
Building products |
|
| 4,322 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,322 |
|
|
| 5,114 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5,114 |
|
Consumer products |
|
| 4,036 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,036 |
|
|
| 4,604 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,604 |
|
Grocery and convenience store distribution |
|
| — |
|
|
| 7,905 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 7,905 |
|
|
| — |
|
|
| 7,729 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 7,729 |
|
Food and beverage distribution |
|
| — |
|
|
| 3,968 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,968 |
|
|
| — |
|
|
| 4,356 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,356 |
|
Auto sales |
|
| — |
|
|
| — |
|
|
| 2,195 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,195 |
|
|
| — |
|
|
| — |
|
|
| 2,750 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,750 |
|
Other retail and wholesale distribution |
|
| 599 |
|
|
| — |
|
|
| 3,182 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,781 |
|
|
| 754 |
|
|
| — |
|
|
| 4,008 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,762 |
|
Service |
|
| 370 |
|
|
| 144 |
|
|
| 865 |
|
|
| 5,135 |
|
|
| 1,474 |
|
|
| — |
|
|
| 7,988 |
|
|
| 370 |
|
|
| 183 |
|
|
| 1,053 |
|
|
| 5,763 |
|
|
| 1,593 |
|
|
| — |
|
|
| 8,962 |
|
Electricity and natural gas |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,356 |
|
|
| — |
|
|
| 4,356 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,198 |
|
|
| — |
|
|
| 4,198 |
|
Total |
|
| 14,216 |
|
|
| 12,017 |
|
|
| 6,296 |
|
|
| 5,135 |
|
|
| 5,830 |
|
|
| — |
|
|
| 43,494 |
|
|
| 16,428 |
|
|
| 12,268 |
|
|
| 7,860 |
|
|
| 5,763 |
|
|
| 5,791 |
|
|
| — |
|
|
| 48,110 |
|
Other revenues |
|
| 929 |
|
|
| 23 |
|
|
| 966 |
|
|
| 14 |
|
|
| 396 |
|
|
| 17,202 |
|
|
| 19,530 |
|
|
| 947 |
|
|
| 27 |
|
|
| 1,094 |
|
|
| 15 |
|
|
| 294 |
|
|
| 18,627 |
|
|
| 21,004 |
|
|
| $ | 15,145 |
|
| $ | 12,040 |
|
| $ | 7,262 |
|
| $ | 5,149 |
|
| $ | 6,226 |
|
| $ | 17,202 |
|
| $ | 63,024 |
|
| $ | 17,375 |
|
| $ | 12,295 |
|
| $ | 8,954 |
|
| $ | 5,778 |
|
| $ | 6,085 |
|
| $ | 18,627 |
|
| $ | 69,114 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ending September 30, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||
Six months ending June 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||
Manufactured products: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial and commercial products |
| $ | 15,639 |
|
| $ | — |
|
| $ | 143 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 15,782 |
|
| $ | 10,949 |
|
| $ | — |
|
| $ | 99 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 11,048 |
|
Building products |
|
| 11,682 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 11,682 |
|
|
| 9,513 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 9,513 |
|
Consumer products |
|
| 10,373 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 10,373 |
|
|
| 8,767 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 8,767 |
|
Grocery and convenience store distribution |
|
| — |
|
|
| 23,051 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 23,051 |
|
|
| — |
|
|
| 15,171 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 15,171 |
|
Food and beverage distribution |
|
| — |
|
|
| 11,561 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 11,561 |
|
|
| — |
|
|
| 8,360 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 8,360 |
|
Auto sales |
|
| — |
|
|
| — |
|
|
| 5,999 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5,999 |
|
|
| — |
|
|
| — |
|
|
| 5,062 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5,062 |
|
Other retail and wholesale distribution |
|
| 1,691 |
|
|
| — |
|
|
| 8,735 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 10,426 |
|
|
| 1,457 |
|
|
| — |
|
|
| 7,664 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 9,121 |
|
Service |
|
| 1,105 |
|
|
| 398 |
|
|
| 2,460 |
|
|
| 15,059 |
|
|
| 3,238 |
|
|
| — |
|
|
| 22,260 |
|
|
| 699 |
|
|
| 334 |
|
|
| 1,987 |
|
|
| 11,128 |
|
|
| 2,633 |
|
|
| — |
|
|
| 16,781 |
|
Electricity and natural gas |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 11,190 |
|
|
| — |
|
|
| 11,190 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 8,910 |
|
|
| — |
|
|
| 8,910 |
|
Total |
|
| 40,490 |
|
|
| 35,010 |
|
|
| 17,337 |
|
|
| 15,059 |
|
|
| 14,428 |
|
|
| — |
|
|
| 122,324 |
|
|
| 31,385 |
|
|
| 23,865 |
|
|
| 14,812 |
|
|
| 11,128 |
|
|
| 11,543 |
|
|
| — |
|
|
| 92,733 |
|
Other revenues |
|
| 2,686 |
|
|
| 69 |
|
|
| 2,884 |
|
|
| 42 |
|
|
| 964 |
|
|
| 52,160 |
|
|
| 58,805 |
|
|
| 1,870 |
|
|
| 52 |
|
|
| 2,085 |
|
|
| 28 |
|
|
| 466 |
|
|
| 36,479 |
|
|
| 40,980 |
|
|
| $ | 43,176 |
|
| $ | 35,079 |
|
| $ | 20,221 |
|
| $ | 15,101 |
|
| $ | 15,392 |
|
| $ | 52,160 |
|
| $ | 181,129 |
|
| $ | 33,255 |
|
| $ | 23,917 |
|
| $ | 16,897 |
|
| $ | 11,156 |
|
| $ | 12,009 |
|
| $ | 36,479 |
|
| $ | 133,713 |
|
Notes to Consolidated Financial Statements (Continued)
Note 23.22. Revenues from contracts with customers (Continued)
|
| Manufacturing |
|
| McLane Company |
|
| Service and Retail |
|
| BNSF |
|
| Berkshire Hathaway Energy |
|
| Insurance, Corporate and other |
|
| Total |
|
| Manufacturing |
|
| McLane Company |
|
| Service and Retailing |
|
| BNSF |
|
| Berkshire Hathaway Energy |
|
| Insurance, Corporate and other |
|
| Total |
| ||||||||||||||
Three months ending September 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||
Three months ending June 30, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||
Manufactured products: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial and commercial products |
| $ | 6,346 |
|
| $ | — |
|
| $ | 44 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 6,390 |
|
| $ | 4,631 |
|
| $ | — |
|
| $ | 45 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 4,676 |
|
Building products |
|
| 4,101 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,101 |
|
|
| 3,665 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,665 |
|
Consumer products |
|
| 3,528 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,528 |
|
|
| 3,009 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,009 |
|
Grocery and convenience store distribution |
|
| — |
|
|
| 8,298 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 8,298 |
|
|
| — |
|
|
| 7,287 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 7,287 |
|
Food and beverage distribution |
|
| — |
|
|
| 4,202 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,202 |
|
|
| — |
|
|
| 3,787 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,787 |
|
Auto sales |
|
| — |
|
|
| — |
|
|
| 2,250 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,250 |
|
|
| — |
|
|
| — |
|
|
| 1,895 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,895 |
|
Other retail and wholesale distribution |
|
| 524 |
|
|
| — |
|
|
| 2,946 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,470 |
|
|
| 487 |
|
|
| — |
|
|
| 2,620 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,107 |
|
Service |
|
| 445 |
|
|
| 80 |
|
|
| 1,034 |
|
|
| 5,967 |
|
|
| 1,191 |
|
|
| — |
|
|
| 8,717 |
|
|
| 348 |
|
|
| 122 |
|
|
| 634 |
|
|
| 4,558 |
|
|
| 971 |
|
|
| — |
|
|
| 6,633 |
|
Electricity and natural gas |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,213 |
|
|
| — |
|
|
| 4,213 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,319 |
|
|
| — |
|
|
| 3,319 |
|
Total |
|
| 14,944 |
|
|
| 12,580 |
|
|
| 6,274 |
|
|
| 5,967 |
|
|
| 5,404 |
|
|
| — |
|
|
| 45,169 |
|
|
| 12,140 |
|
|
| 11,196 |
|
|
| 5,194 |
|
|
| 4,558 |
|
|
| 4,290 |
|
|
| — |
|
|
| 37,378 |
|
Other revenues |
|
| 937 |
|
|
| 24 |
|
|
| 1,080 |
|
|
| 15 |
|
|
| 316 |
|
|
| 17,431 |
|
|
| 19,803 |
|
|
| 877 |
|
|
| 22 |
|
|
| 827 |
|
|
| 14 |
|
|
| 369 |
|
|
| 17,353 |
|
|
| 19,462 |
|
|
| $ | 15,881 |
|
| $ | 12,604 |
|
| $ | 7,354 |
|
| $ | 5,982 |
|
| $ | 5,720 |
|
| $ | 17,431 |
|
| $ | 64,972 |
|
| $ | 13,017 |
|
| $ | 11,218 |
|
| $ | 6,021 |
|
| $ | 4,572 |
|
| $ | 4,659 |
|
| $ | 17,353 |
|
| $ | 56,840 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ending September 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||
Six months ending June 30, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||
Manufactured products: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial and commercial products |
| $ | 19,308 |
|
| $ | — |
|
| $ | 136 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 19,444 |
|
| $ | 10,750 |
|
| $ | — |
|
| $ | 89 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 10,839 |
|
Building products |
|
| 11,796 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 11,796 |
|
|
| 7,360 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 7,360 |
|
Consumer products |
|
| 10,487 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 10,487 |
|
|
| 6,337 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6,337 |
|
Grocery and convenience store distribution |
|
| — |
|
|
| 24,375 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 24,375 |
|
|
| — |
|
|
| 15,146 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 15,146 |
|
Food and beverage distribution |
|
| — |
|
|
| 12,648 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 12,648 |
|
|
| — |
|
|
| 7,593 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 7,593 |
|
Auto sales |
|
| — |
|
|
| — |
|
|
| 6,312 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6,312 |
|
|
| — |
|
|
| — |
|
|
| 3,804 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,804 |
|
Other retail and wholesale distribution |
|
| 1,602 |
|
|
| — |
|
|
| 8,959 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 10,561 |
|
|
| 1,092 |
|
|
| — |
|
|
| 5,553 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6,645 |
|
Service |
|
| 1,222 |
|
|
| 123 |
|
|
| 3,068 |
|
|
| 17,517 |
|
|
| 3,139 |
|
|
| — |
|
|
| 25,069 |
|
|
| 735 |
|
|
| 254 |
|
|
| 1,595 |
|
|
| 9,924 |
|
|
| 1,764 |
|
|
| — |
|
|
| 14,272 |
|
Electricity and natural gas |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 11,329 |
|
|
| — |
|
|
| 11,329 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6,834 |
|
|
| — |
|
|
| 6,834 |
|
Total |
|
| 44,415 |
|
|
| 37,146 |
|
|
| 18,475 |
|
|
| 17,517 |
|
|
| 14,468 |
|
|
| — |
|
|
| 132,021 |
|
|
| 26,274 |
|
|
| 22,993 |
|
|
| 11,041 |
|
|
| 9,924 |
|
|
| 8,598 |
|
|
| — |
|
|
| 78,830 |
|
Other revenues |
|
| 2,715 |
|
|
| 68 |
|
|
| 3,323 |
|
|
| 41 |
|
|
| 894 |
|
|
| 50,186 |
|
|
| 57,227 |
|
|
| 1,757 |
|
|
| 46 |
|
|
| 1,918 |
|
|
| 28 |
|
|
| 568 |
|
|
| 34,958 |
|
|
| 39,275 |
|
|
| $ | 47,130 |
|
| $ | 37,214 |
|
| $ | 21,798 |
|
| $ | 17,558 |
|
| $ | 15,362 |
|
| $ | 50,186 |
|
| $ | 189,248 |
|
| $ | 28,031 |
|
| $ | 23,039 |
|
| $ | 12,959 |
|
| $ | 9,952 |
|
| $ | 9,166 |
|
| $ | 34,958 |
|
| $ | 118,105 |
|
A summary of the transaction price allocated to the significant unsatisfied remaining performance obligations relating to contracts with expected durations in excess of one year as of SeptemberJune 30, 20202021 and the timing of when the performance obligations are expected to be satisfied follows (in millions).
|
| Performance obligations expected to be satisfied: |
|
|
|
|
| |||||||||||||||||
|
| Less than 12 months |
|
| Greater than 12 months |
|
| Total |
|
| Less than 12 months |
|
| Greater than 12 months |
|
| Total |
| ||||||
Electricity and natural gas |
| $ | 1,642 |
|
| $ | 5,379 |
|
| $ | 7,021 |
|
| $ | 2,912 |
|
| $ | 21,728 |
|
| $ | 24,640 |
|
Other sales and service contracts |
|
| 1,206 |
|
|
| 2,457 |
|
|
| 3,663 |
|
|
| 1,361 |
|
|
| 2,211 |
|
|
| 3,572 |
|
Notes to Consolidated Financial Statements (Continued)
Note 24.23. Business segment data
Our operating businesses include a large and diverse group of insurance, manufacturing, service and retailing businesses. We organize our reportable business segments in a manner that reflects how management views those business activities. Certain businesses are grouped together for segment reporting based upon similar products or product lines, marketing, selling and distribution characteristics, even though those business units are operated under separate local management. Revenues and earnings before income taxes by segment for the thirdsecond quarter and first ninesix months of 20202021 and 20192020 were as follows (in millions).
|
| Third Quarter |
|
| First Nine Months |
| Second Quarter |
|
| First Six Months |
| ||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||||
Revenues of Operating Businesses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GEICO |
| $ | 8,540 |
|
| $ | 8,996 |
|
| $ | 26,689 |
|
| $ | 26,487 |
| $ | 9,546 |
|
| $ | 9,040 |
|
| $ | 18,469 |
|
| $ | 18,149 |
|
Berkshire Hathaway Primary Group |
|
| 2,490 |
|
|
| 2,387 |
|
|
| 7,103 |
|
|
| 6,825 |
|
| 2,755 |
|
|
| 2,244 |
|
|
| 5,409 |
|
|
| 4,613 |
|
Berkshire Hathaway Reinsurance Group |
|
| 4,883 |
|
|
| 3,940 |
|
|
| 13,464 |
|
|
| 11,193 |
|
| 4,862 |
|
|
| 4,311 |
|
|
| 9,709 |
|
|
| 8,581 |
|
Investment income |
|
| 1,223 |
|
|
| 1,789 |
|
|
| 4,486 |
|
|
| 4,930 |
|
| 1,459 |
|
|
| 1,615 |
|
|
| 2,873 |
|
|
| 3,263 |
|
Total insurance |
|
| 17,136 |
|
|
| 17,112 |
|
|
| 51,742 |
|
|
| 49,435 |
|
| 18,622 |
|
|
| 17,210 |
|
|
| 36,460 |
|
|
| 34,606 |
|
BNSF |
|
| 5,176 |
|
|
| 6,021 |
|
|
| 15,195 |
|
|
| 17,676 |
|
| 5,809 |
|
|
| 4,602 |
|
|
| 11,210 |
|
|
| 10,019 |
|
Berkshire Hathaway Energy |
|
| 6,226 |
|
|
| 5,720 |
|
|
| 15,392 |
|
|
| 15,362 |
|
| 6,085 |
|
|
| 4,659 |
|
|
| 12,009 |
|
|
| 9,166 |
|
Manufacturing |
|
| 15,170 |
|
|
| 15,897 |
|
|
| 43,238 |
|
|
| 47,173 |
|
| 17,412 |
|
|
| 13,033 |
|
|
| 33,325 |
|
|
| 28,068 |
|
McLane Company |
|
| 12,040 |
|
|
| 12,604 |
|
|
| 35,079 |
|
|
| 37,214 |
|
| 12,295 |
|
|
| 11,218 |
|
|
| 23,917 |
|
|
| 23,039 |
|
Service and retailing |
|
| 7,279 |
|
|
| 7,378 |
|
|
| 20,272 |
|
|
| 21,865 |
|
| 8,977 |
|
|
| 6,037 |
|
|
| 16,935 |
|
|
| 12,993 |
|
|
|
| 63,027 |
|
|
| 64,732 |
|
|
| 180,918 |
|
|
| 188,725 |
|
| 69,200 |
|
|
| 56,759 |
|
|
| 133,856 |
|
|
| 117,891 |
|
Reconciliation of segments to consolidated amount |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate, eliminations and other |
|
| (3 | ) |
|
| 240 |
|
|
| 211 |
|
|
| 523 |
|
| (86 | ) |
|
| 81 |
|
|
| (143 | ) |
|
| 214 |
|
|
| $ | 63,024 |
|
| $ | 64,972 |
|
| $ | 181,129 |
|
| $ | 189,248 |
| $ | 69,114 |
|
| $ | 56,840 |
|
| $ | 133,713 |
|
| $ | 118,105 |
|
|
| Third Quarter |
|
| First Nine Months |
| Second Quarter |
|
| First Six Months |
| ||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||||
Earnings Before Income Taxes of Operating Businesses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Earnings (Loss) Before Income Taxes of Operating Businesses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Insurance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GEICO |
| $ | 276 |
|
| $ | 376 |
|
| $ | 3,320 |
|
| $ | 1,539 |
| $ | 626 |
|
| $ | 2,060 |
|
| $ | 1,649 |
|
| $ | 3,044 |
|
Berkshire Hathaway Primary Group |
|
| (126 | ) |
|
| 153 |
|
|
| (63 | ) |
|
| 290 |
|
| 166 |
|
|
| 96 |
|
|
| 372 |
|
|
| 63 |
|
Berkshire Hathaway Reinsurance Group |
|
| (441 | ) |
|
| 52 |
|
|
| (2,033 | ) |
|
| (305 | ) |
| (327 | ) |
|
| (1,103 | ) |
|
| (590 | ) |
|
| (1,592 | ) |
Investment income |
|
| 1,220 |
|
|
| 1,782 |
|
|
| 4,480 |
|
|
| 4,916 |
|
| 1,456 |
|
|
| 1,613 |
|
|
| 2,868 |
|
|
| 3,260 |
|
Total insurance |
|
| 929 |
|
|
| 2,363 |
|
|
| 5,704 |
|
|
| 6,440 |
|
| 1,921 |
|
|
| 2,666 |
|
|
| 4,299 |
|
|
| 4,775 |
|
BNSF |
|
| 1,777 |
|
|
| 1,941 |
|
|
| 4,855 |
|
|
| 5,379 |
|
| 1,979 |
|
|
| 1,494 |
|
|
| 3,638 |
|
|
| 3,078 |
|
Berkshire Hathaway Energy |
|
| 1,122 |
|
|
| 1,061 |
|
|
| 2,074 |
|
|
| 2,194 |
|
| 739 |
|
|
| 533 |
|
|
| 1,422 |
|
|
| 952 |
|
Manufacturing |
|
| 2,255 |
|
|
| 2,484 |
|
|
| 5,765 |
|
|
| 7,205 |
|
| 2,714 |
|
|
| 1,399 |
|
|
| 5,150 |
|
|
| 3,510 |
|
McLane Company |
|
| 96 |
|
|
| 50 |
|
|
| 205 |
|
|
| 220 |
|
| 84 |
|
|
| 44 |
|
|
| 187 |
|
|
| 109 |
|
Service and retailing |
|
| 779 |
|
|
| 639 |
|
|
| 1,745 |
|
|
| 2,005 |
|
| 1,186 |
|
|
| 408 |
|
|
| 2,124 |
|
|
| 966 |
|
|
|
| 6,958 |
|
|
| 8,538 |
|
|
| 20,348 |
|
|
| 23,443 |
|
| 8,623 |
|
|
| 6,544 |
|
|
| 16,820 |
|
|
| 13,390 |
|
Reconciliation of segments to consolidated amount |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment and derivative gains/losses |
|
| 31,582 |
|
|
| 10,926 |
|
|
| 1,392 |
|
|
| 41,296 |
| |||||||||||||||
Investment and derivative gains (losses) |
| 27,394 |
|
|
| 40,085 |
|
|
| 33,094 |
|
|
| (30,190 | ) | ||||||||||||||||
Interest expense, not allocated to segments |
|
| (116 | ) |
|
| (96 | ) |
|
| (363 | ) |
|
| (312 | ) |
| (144 | ) |
|
| (111 | ) |
|
| (258 | ) |
|
| (247 | ) |
Equity method investments |
|
| 290 |
|
|
| 644 |
|
|
| 333 |
|
|
| 936 |
|
| 147 |
|
|
| (257 | ) |
|
| 398 |
|
|
| 43 |
|
Goodwill and intangible asset impairments |
|
| (25 | ) |
|
| — |
|
|
| (10,659 | ) |
|
| — |
| |||||||||||||||
Goodwill and intangible impairments |
| — |
|
|
| (10,634 | ) |
|
| — |
|
|
| (10,634 | ) | ||||||||||||||||
Corporate, eliminations and other |
|
| (759 | ) |
|
| 477 |
|
|
| (761 | ) |
|
| 532 |
|
| (299 | ) |
|
| (218 | ) |
|
| 195 |
|
|
| (2 | ) |
|
| $ | 37,930 |
|
| $ | 20,489 |
|
| $ | 10,290 |
|
| $ | 65,895 |
| $ | 35,721 |
|
| $ | 35,409 |
|
| $ | 50,249 |
|
| $ | (27,640 | ) |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations
Net earningsearnings/loss attributable to Berkshire Hathaway shareholders are disaggregated in the table that follows. Amounts are after deducting income taxes and exclude earnings attributable to noncontrolling interests (in millions).
|
| Third Quarter |
|
| First Nine Months |
| Second Quarter |
|
| First Six Months |
|
| ||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
|
| ||||||||
Insurance – underwriting |
| $ | (213 | ) |
| $ | 440 |
|
| $ | 956 |
|
| $ | 1,182 |
| $ | 376 |
|
| $ | 806 |
|
| $ | 1,140 |
|
| $ | 1,169 |
|
|
Insurance – investment income |
|
| 1,015 |
|
|
| 1,484 |
|
|
| 3,769 |
|
|
| 4,087 |
|
| 1,219 |
|
|
| 1,368 |
|
|
| 2,427 |
|
|
| 2,754 |
|
|
Railroad |
|
| 1,347 |
|
|
| 1,466 |
|
|
| 3,668 |
|
|
| 4,057 |
|
| 1,516 |
|
|
| 1,131 |
|
|
| 2,767 |
|
|
| 2,321 |
|
|
Utilities and energy |
|
| 1,395 |
|
|
| 1,178 |
|
|
| 2,589 |
|
|
| 2,390 |
|
| 740 |
|
|
| 633 |
|
|
| 1,443 |
|
|
| 1,194 |
|
|
Manufacturing, service and retailing |
|
| 2,346 |
|
|
| 2,455 |
|
|
| 5,833 |
|
|
| 7,142 |
|
| 3,004 |
|
|
| 1,449 |
|
|
| 5,623 |
|
|
| 3,487 |
|
|
Investment and derivative gains/losses |
|
| 24,737 |
|
|
| 8,666 |
|
|
| 765 |
|
|
| 32,706 |
| ||||||||||||||||
Other* |
|
| (490 | ) |
|
| 835 |
|
|
| (10,894 | ) |
|
| 694 |
| ||||||||||||||||
Net earnings attributable to Berkshire Hathaway shareholders |
| $ | 30,137 |
|
| $ | 16,524 |
|
| $ | 6,686 |
|
| $ | 52,258 |
| ||||||||||||||||
Investment and derivative gains (losses) |
| 21,408 |
|
|
| 31,645 |
|
|
| 26,101 |
|
|
| (23,972 | ) |
| ||||||||||||||||
Other |
| (169 | ) |
|
| (10,737 | ) | * |
| 304 |
|
|
| (10,404 | ) | * | ||||||||||||||||
Net earnings (loss) attributable to Berkshire Hathaway shareholders | $ | 28,094 |
|
| $ | 26,295 |
|
| $ | 39,805 |
|
| $ | (23,451 | ) |
|
*Includes goodwill and indefinite-lived asset impairment charges of $10.9 billion. |
|
Through our subsidiaries, we engage in a number ofnumerous diverse business activities. We manage our operating businesses on an unusually decentralized basis. There are essentially nofew centralized or integrated business functions and there is minimal involvement by our corporate headquarters in the day-to-day business activities of the operating businesses.functions. Our senior corporate management team participates in and is ultimately responsible for significant capital allocation decisions, investment activities and the selection of the Chief Executive to head each of the operating businesses. The business segment data (Note 2423 to the accompanying Consolidated Financial Statements) should be read in conjunction with this discussion.
As theThe COVID-19 pandemic accelerated beginning in the second half of March,negatively affected most of our operating businesses were negatively affected,beginning in March of 2020, with the initial effects to date ranging from relatively minor to severe. Revenues and earningsEarnings of most of our manufacturing, service and retailing businesses declined considerably, and in certain instances severely, in the second quarter due to closures of facilities where crowds gather, such as retail stores, restaurants and entertainment venues, public travel restrictions and from closures of certain of our businesses. In2020. Over the third quartersecond half of 2020 severaland continuing in 2021, many of these businesses experienced significant increasesrecoveries in revenues and earnings, as compared toin some instances exceeding pre-pandemic levels. Consequently, earnings over the second quarter.
Ourfirst six months of 2021 for these businesses that are deemed essential have continued to operate throughwere considerably higher than in the pandemic, including our railroad, utilitiesfirst half of 2020, although earnings in 2021 were negatively affected by major winter storms in North America during February 2021, ongoing supply chain disruptions and energy, insurance and certain of our manufacturing, wholesale distribution and service businesses. In response to the effects of the pandemic, our businesses have implemented various business continuity plans to protect our employees and customers. Such plans include a variety of actions, such as temporarily closing certain retail stores, manufacturing facilities and service centers of businesses that were not subject to government mandated closure. Our businesses have also implemented practices to protect employees while at work. Such practices have included work-from-home, staggered or reduced work schedules, increased cleaning and sanitation of work spaces, providing employee health screenings, eliminating non-essential travel and face-to-face meetings and providing general health reminders intended to lower the risk of spreading COVID-19.
We have taken actions in response to the economic losses from reductions in consumer demand for products and services we offer and our inability to produce goods and provide services at certain of our businesses. These actions have included employee furloughs, wage and salary reductions, capital spending reductions and other actions intended to help mitigate the economic losses and preserve capital and liquidity. Certain of our businesses are undertaking and will likely continue to undertake restructuring activities that will resize their operations to better fit expected customer demand.higher input costs. We cannot reliably predict future economic effects of the pandemic or when business activities at our numerous and diverse operations will completely normalize. Nor can we predict how these events will alter the future consumption patterns of consumers and businesses we serve.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations (Continued)
Insurance underwriting produced after-tax lossesearnings of $213$376 million in the thirdsecond quarter and after-tax earnings of $956 million$1.1 billion in the first ninesix months of 2020. The effects of the2021. In 2021, our primary insurance operations generated underwriting earnings, while our reinsurance operations produced underwriting losses. Underwriting results in 2021 reflected earned premium rate reductions from the GEICO Giveback program, contributed to a significant decline in underwriting earningshigher private passenger auto claims frequencies and higher losses in the third quarter of 2020 as compared to the first two quarters of the year. The effects of the rate reductions under the program will continue over the remainder of 2020 and through the first quarter of 2021 as the reduced levels of premiums written are earned and included in our reported revenues. To the extent claims frequencies over this period revert to historical levels, GEICO may incur underwriting losses. Insurance underwriting results in 2020 also included after-tax losses from other primary insurance and fromlife reinsurance activities.business. After-tax earnings from insurance investment income in 2020 were lowerdeclined $149 million (10.9%) in the thirdsecond quarter and $327 million (11.9%) in the first ninesix months of 2021 as compared to 2019, reflecting2020. The declines were primarily due to lower interest income primarily attributable to declines in interest ratesearned on our substantial holdings of cash and short-term investments in U.S. Treasury Bills.
After-tax earnings of our railroad business decreased 8.1%increased 34.0% in the thirdsecond quarter and 9.6%19.2% in the first ninesix months of 2020 as2021 compared to 2019. Earnings in 20202020. The increases reflected overall higher freight volumes and lower railroad operating revenues from lower shipping volumes, attributablecosts due to the negative effects of COVID-19, partly offset by lower operating costs and the effects of productivity improvements.improved productivity. After-tax earnings of our utilities and energy business increased 18.4% in the third quarter and 8.3%20.9% in the first nine monthshalf of 20202021 compared to 2019.2020. The increasesincrease reflected increased tax benefitsearnings from renewable energythe natural gas pipelines, including the effects of a business acquisition, and increased earnings from the real estate brokerage business.businesses. Earnings from our manufacturing, service and retailing businesses declined 4.4%increased $1.6 billion in the thirdsecond quarter and 18.3%$2.1 billion in the first ninesix months of 2021 versus 2020. Many of our businesses generated significantly higher earnings over the first half of 2021 compared to 2020, versus 2019. The economicwhich included significant adverse effects from the pandemic. Earnings of COVID-19 are varying among our manufacturing, businesses.service and retail businesses in 2021 benefitted from higher customer demand in many of our businesses and exceeded earnings in 2019 as well.
Investment and derivative gains/losses in 2020 and 2019 included significant gains and losses onin 2021 and 2020 predominantly derived from our investments in equity securities includingand included significant unrealized gains and losses from market price changes. We believe that investment and derivative gains/losses, whether realized from dispositions or unrealized from changes in market prices of equity securities, are generally meaningless in understanding our reported results or evaluating the economic performance of our businesses. These gains and losses have caused and will continue to cause significant volatility in our periodic earnings.
Other earnings in the first nine monthsItem 2. Management’s Discussion and Analysis of 2020 included after-tax goodwillFinancial Condition and indefinite-lived intangible asset impairment chargesResults of $11.0 billion, including our equity method share of impairment charges recorded by Kraft Heinz. Substantially all of these charges were recorded in the second quarter. Approximately $9.8 billion of these charges are attributable to impairments of goodwill and identifiable intangible assets that were recorded in connection with Berkshire’s acquisition of Precision Castparts in 2016.Operations
Insurance—Underwriting
Our management views our insurance businesses as possessing two distinct activities – underwriting and investing. Underwriting decisions are the responsibility of the unit managers, while investing decisions are the responsibility of Berkshire’s Chairman and CEO, Warren E. Buffett and Berkshire’s corporate investment managers. Accordingly, we evaluate performance of underwriting operations without any allocation of investment income or investment gains/gains and losses. We consider investment income as an integral component of our aggregate insurance operating results. However, we consider investment gains and losses, whether realized or unrealized as non-operating, based on our long-held strategy of acquiring securities and holding those securities for long periods.non-operating. We believe that such gains and losses are not 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. Generally, we consider pre-taxincurred losses in excess of $100 million from a current year catastrophic event to be significant.
Changes in estimates for unpaid losses and loss adjustment expenses, including amounts established for occurrences in prior years, can also significantly affect our periodic underwriting results. Unpaid loss estimates, including estimates under retroactive reinsurance contracts, were approximately $120$123.2 billion as of SeptemberJune 30, 2020.2021. Our periodic underwriting results may also include significant foreign currency transaction gains and losses arising from the changes in the valuation of non-U.S. Dollar denominated liabilities of our U.S. basedU.S.-based insurance subsidiaries due to foreign currency exchange rate fluctuations.
Underwriting results in 2020for certain of our commercial insurance and reinsurance businesses were negatively affected in 2021 and 2020 by estimated losses and costs associated with the COVID-19 pandemic, including estimated provisions for claims and uncollectible premiums and incremental operating costs to maintain customer service levels at certain underwriting units.levels. The potential effects of the pandemic in future periods may be further affected by future judicial rulings and regulatory and legislative actions pertaining to insurance coverage and claims thatand by its effects on general economic activity, which we cannot reasonably estimate at this time. Our underwriting results for the remainder of 2020 and the first quarter of 2021 for certain business may be adversely affected from lower premiums attributable to credits granted to policyholders and where premiums are a function of the insured’s payroll.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Insurance—Underwriting (Continued)
Underwriting results of our insurance businesses are summarized below (dollars in millions).
|
| Third Quarter |
|
| First Nine Months |
| Second Quarter |
|
| First Six Months |
| ||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||||
Pre-tax underwriting earnings (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GEICO |
| $ | 276 |
|
| $ | 376 |
|
| $ | 3,320 |
|
| $ | 1,539 |
| $ | 626 |
|
| $ | 2,060 |
|
| $ | 1,649 |
|
| $ | 3,044 |
|
Berkshire Hathaway Primary Group |
|
| (126 | ) |
|
| 153 |
|
|
| (63 | ) |
|
| 290 |
|
| 166 |
|
|
| 96 |
|
|
| 372 |
|
|
| 63 |
|
Berkshire Hathaway Reinsurance Group |
|
| (441 | ) |
|
| 52 |
|
|
| (2,033 | ) |
|
| (305 | ) |
| (327 | ) |
|
| (1,103 | ) |
|
| (590 | ) |
|
| (1,592 | ) |
Pre-tax underwriting earnings (loss) |
|
| (291 | ) |
|
| 581 |
|
|
| 1,224 |
|
|
| 1,524 |
| |||||||||||||||
Pre-tax underwriting earnings |
| 465 |
|
|
| 1,053 |
|
|
| 1,431 |
|
|
| 1,515 |
| ||||||||||||||||
Income taxes and noncontrolling interests |
|
| (78 | ) |
|
| 141 |
|
|
| 268 |
|
|
| 342 |
|
| 89 |
|
|
| 247 |
|
|
| 291 |
|
|
| 346 |
|
Net underwriting earnings (loss) |
| $ | (213 | ) |
| $ | 440 |
|
| $ | 956 |
|
| $ | 1,182 |
| |||||||||||||||
Net underwriting earnings | $ | 376 |
|
| $ | 806 |
|
| $ | 1,140 |
|
| $ | 1,169 |
| ||||||||||||||||
Effective income tax rate |
|
| 26.6 | % |
|
| 24.1 | % |
|
| 21.9 | % |
|
| 23.0 | % |
| 19.0 | % |
|
| 23.4 | % |
|
| 20.3 | % |
|
| 22.8 | % |
GEICO
GEICO writes private passenger automobile insurance, offering coverages to insureds in all 50 states and the District of Columbia. GEICO markets its policies mainly by direct response methods where most customers apply for coverage directly to the company via the Internet or over the telephone. A summary of GEICO’s underwriting results follows (dollars in millions).
|
| Third Quarter |
|
| First Nine Months |
| Second Quarter |
|
| First Six Months |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||||||||||||||||||||||||||||||||||||
|
| Amount |
|
| % |
|
| Amount |
|
| % |
|
| Amount |
|
| % |
|
| Amount |
|
| % |
| Amount |
|
| % |
|
| Amount |
|
| % |
|
| Amount |
|
| % |
|
| Amount |
|
| % |
| ||||||||||||||||
Premiums written |
| $ | 8,446 |
|
|
|
|
|
| $ | 9,412 |
|
|
|
|
|
| $ | 26,217 |
|
|
|
|
|
| $ | 27,378 |
|
|
|
|
| $ | 9,230 |
|
|
|
|
|
| $ | 8,090 |
|
|
|
|
|
| $ | 19,236 |
|
|
|
|
|
| $ | 17,771 |
|
|
|
|
|
Premiums earned |
| $ | 8,540 |
|
|
| 100.0 |
|
| $ | 8,996 |
|
|
| 100.0 |
|
| $ | 26,689 |
|
|
| 100.0 |
|
| $ | 26,487 |
|
|
| 100.0 |
| $ | 9,546 |
|
|
| 100.0 |
|
| $ | 9,040 |
|
|
| 100.0 |
|
| $ | 18,469 |
|
|
| 100.0 |
|
| $ | 18,149 |
|
|
| 100.0 |
|
Losses and loss adjustment expenses |
|
| 6,858 |
|
|
| 80.3 |
|
|
| 7,344 |
|
|
| 81.6 |
|
|
| 19,238 |
|
|
| 72.1 |
|
|
| 21,176 |
|
|
| 80.0 |
|
| 7,617 |
|
|
| 79.8 |
|
|
| 5,614 |
|
|
| 62.1 |
|
|
| 14,080 |
|
|
| 76.2 |
|
|
| 12,380 |
|
|
| 68.2 |
|
Underwriting expenses |
|
| 1,406 |
|
|
| 16.5 |
|
|
| 1,276 |
|
|
| 14.2 |
|
|
| 4,131 |
|
|
| 15.5 |
|
|
| 3,772 |
|
|
| 14.2 |
|
| 1,303 |
|
|
| 13.6 |
|
|
| 1,366 |
|
|
| 15.1 |
|
|
| 2,740 |
|
|
| 14.9 |
|
|
| 2,725 |
|
|
| 15.0 |
|
Total losses and expenses |
|
| 8,264 |
|
|
| 96.8 |
|
|
| 8,620 |
|
|
| 95.8 |
|
|
| 23,369 |
|
|
| 87.6 |
|
|
| 24,948 |
|
|
| 94.2 |
|
| 8,920 |
|
|
| 93.4 |
|
|
| 6,980 |
|
|
| 77.2 |
|
|
| 16,820 |
|
|
| 91.1 |
|
|
| 15,105 |
|
|
| 83.2 |
|
Pre-tax underwriting earnings |
| $ | 276 |
|
|
|
|
|
| $ | 376 |
|
|
|
|
|
| $ | 3,320 |
|
|
|
|
|
| $ | 1,539 |
|
|
|
|
| $ | 626 |
|
|
|
|
|
| $ | 2,060 |
|
|
|
|
|
| $ | 1,649 |
|
|
|
|
|
| $ | 3,044 |
|
|
|
|
|
GEICO’s pre-tax underwriting earnings in 2021 and 2020 were significantly affected by changes in average claims frequencies. Beginning in the first nine monthsquarter of 2020 reflected significant declines in losses and loss adjustment expenses attributable to lowercontinuing through the first quarter of 2021, average claims frequencies were significantly below historical levels from the effects of less driving by policyholders during the COVID-19 pandemic. As theThese effects ofwere partially offset by lower premiums earned from the GEICO Giveback program (see following paragraph) on earned premiums will continue throughand higher average claims severities. In the fourthsecond quarter GEICO could experience pre-tax underwriting losses ifof 2021, average claims frequencies began to increase over the same period, offsetting a portion of the pre-tax underwriting earnings generated in the first nine months of 2020.
Premiums written decreased 10.3% in the third quarter and 4.2% in the first nine months of 2020 compared to 2019. The GEICO Giveback program provides for a 15% premium credit to all voluntary auto and motorcycle policies renewing between April 8, 2020 and October 7, 2020, as well as to any new policies written during the same period. The GEICO Giveback program reduced premiums written in the first nine months of 2020driving by approximately $2.8 billion. Premiums earned decreased 5.1% in the third quarter and were relatively unchanged in the first nine months of 2020 compared to 2019, which included reductions of approximately $1.0 billion in the third quarter and $1.3 billion in the first nine months attributable to the GEICO Giveback program. Premiums earned will very likely decline in the fourth quarter even if policies-in-force and exposures increase.
Voluntary auto policies-in-force grew 5.4% in the first nine months of 2020 compared to 2019. The increase resulted from a 9.1% decrease in lost policies and a 3.4% decrease in new business sales. In response to the COVID-19 pandemic, GEICO paused cancellations of insurance policies for non-payment through the end of May 2020. During the third quarter, policy cancellations for non-payment resumed leading to an 18.3% increase in lost policies for the third quarter as compared to 2019.
Losses and loss adjustment expenses decreased $486 million (6.6%) in the third quarter and $1.9 billion (9.2%) in the first nine months of 2020 compared to 2019. GEICO’s ratio of losses and loss adjustment expenses to premiums earned (the “loss ratio”) decreased 1.3 percentage points in the third quarter and 7.9 percentage points in the first nine months of 2020 compared to 2019. The decreases in the loss ratio reflected declines in claims frequencies, partly offset by increases in claims severities and the impact of lower premiums earned attributable to the GEICO Giveback program.policyholders increased.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Insurance—Underwriting(Continued)
GEICO (Continued)
Premiums written increased $1.1 billion (14.1%) in the second quarter and $1.5 billion (8.2%) in the first six months of 2021 compared to 2020. The premium increases were primarily attributable to the $1.3 billion reduction in premiums written during the second quarter of 2020 from the GEICO Giveback Program and also by a 4.9% increase in average premiums per auto policy over the past twelve months. The GEICO Giveback program provided a 15% premium credit to all new and renewal voluntary auto and motorcycle policies written between April 8, 2020 and October 7, 2020. Over that six-month period, the GEICO Giveback program reduced premiums written by approximately $2.9 billion. Voluntary auto policies-in-force increased approximately 183,000 during the first six months of 2021.
Premiums earned increased $506 million (5.6%) in the second quarter and $320 million (1.8%) in the first six months of 2021 compared to 2020. Premiums earned in the first six months of 2021 included reductions of approximately $460 million attributable to the remaining impact of the GEICO Giveback premium credit.
Losses and loss adjustment expenses increased $2.0 billion (35.7%) in the second quarter and $1.7 billion (13.7%) in the first six months of 2021 compared to 2020. GEICO’s ratio of losses and loss adjustment expenses to premiums earned increased 17.7 percentage points in the second quarter and 8.0 percentage points in the first six months of 2021 compared to the same periods in 2020. The increases reflected overall increases in average claims frequencies and severities, partially offset by increased reductions of claim loss estimates for prior years’ loss events.
Claims frequencies in the first ninesix months of 20202021 were lowerhigher for all coverages, including property damage (eleven to twelve percent range), bodily injury and(thirteen to fourteen percent range), personal injury protection coverages (twenty-nine(sixteen to thirty-oneseventeen percent range) and collision coverage (twenty-four(twenty-one to twenty-sixtwenty-two percent range) compared to 2019.. Average claims severities in the first ninesix months of 20202021 were higher for property damage coverage (ten(two to twelvethree percent range), collision coverage (seven(ten to nineeleven percent range) and bodily injury coverage (ten to twelvethirteen percent range). GEICO’s lossLosses and loss adjustment expenses in the first nine months of 2020 and 2019 included relatively insignificant reductions in the ultimate claim loss estimates for prior year’syears’ loss events.events of $846 million in the first six months of 2021 compared to $166 million in 2020.
Underwriting expenses were relatively flat in the first ninesix months of 2020 increased $359 million (9.5%)2021 compared to 2019.2020, reflecting higher advertising and technology costs, offset by lower travel and employee-related expenses and provisions for uncollectible premiums. GEICO’s expense ratio (underwriting expense to premiums earned) in the first ninesix months of 2020 (underwriting expenses to premiums earned) increased 1.3 percentage points2021 was relatively unchanged compared to 2019, of which 0.7 percentage points was attributable to the decline in earned premiums from the GEICO Giveback program. The increase in underwriting expenses reflected higher employee-related and technology costs partly offset by lower premium and state taxes.2020.
Berkshire Hathaway Primary Group
The Berkshire Hathaway Primary Group (“BH Primary”) provides a variety of commercial insurance solutions, including healthcare malpractice, workers’ compensation, automobile, general liability, property and various specialty coverages for small, medium and large clients. The largest of theseBH Primary insurers areinclude Berkshire Hathaway Specialty Insurance (“BH Specialty”), 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 (“USLI”), Central States Indemnity Company and MLMIC Insurance Company. A summary of BH Primary underwriting results follows (dollars in millions).
|
| Third Quarter |
|
| First Nine Months |
| Second Quarter |
|
| First Six Months |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||||||||||||||||||||||||||||||||||||
|
| Amount |
|
| % |
|
| Amount |
|
| % |
|
| Amount |
|
| % |
|
| Amount |
|
| % |
| Amount |
|
| % |
|
| Amount |
|
| % |
|
| Amount |
|
| % |
|
| Amount |
|
| % |
| ||||||||||||||||
Premiums written |
| $ | 3,003 |
|
|
|
|
|
| $ | 2,824 |
|
|
|
|
|
| $ | 7,607 |
|
|
|
|
|
| $ | 7,535 |
|
|
|
|
| $ | 2,943 |
|
|
|
|
|
| $ | 2,149 |
|
|
|
|
|
| $ | 5,851 |
|
|
|
|
|
| $ | 4,604 |
|
|
|
|
|
Premiums earned |
| $ | 2,490 |
|
|
| 100.0 |
|
| $ | 2,387 |
|
|
| 100.0 |
|
| $ | 7,103 |
|
|
| 100.0 |
|
| $ | 6,825 |
|
|
| 100.0 |
| $ | 2,755 |
|
|
| 100.0 |
|
| $ | 2,244 |
|
|
| 100.0 |
|
| $ | 5,409 |
|
|
| 100.0 |
|
| $ | 4,613 |
|
|
| 100.0 |
|
Losses and loss adjustment expenses |
|
| 1,976 |
|
|
| 79.4 |
|
|
| 1,583 |
|
|
| 66.3 |
|
|
| 5,369 |
|
|
| 75.6 |
|
|
| 4,721 |
|
|
| 69.2 |
|
| 1,955 |
|
|
| 71.0 |
|
|
| 1,582 |
|
|
| 70.5 |
|
|
| 3,804 |
|
|
| 70.3 |
|
|
| 3,393 |
|
|
| 73.6 |
|
Underwriting expenses |
|
| 640 |
|
|
| 25.7 |
|
|
| 651 |
|
|
| 27.3 |
|
|
| 1,797 |
|
|
| 25.3 |
|
|
| 1,814 |
|
|
| 26.6 |
|
| 634 |
|
|
| 23.0 |
|
|
| 566 |
|
|
| 25.2 |
|
|
| 1,233 |
|
|
| 22.8 |
|
|
| 1,157 |
|
|
| 25.0 |
|
Total losses and expenses |
|
| 2,616 |
|
|
| 105.1 |
|
|
| 2,234 |
|
|
| 93.6 |
|
|
| 7,166 |
|
|
| 100.9 |
|
|
| 6,535 |
|
|
| 95.8 |
|
| 2,589 |
|
|
| 94.0 |
|
|
| 2,148 |
|
|
| 95.7 |
|
|
| 5,037 |
|
|
| 93.1 |
|
|
| 4,550 |
|
|
| 98.6 |
|
Pre-tax underwriting earnings (loss) |
| $ | (126 | ) |
|
|
|
|
| $ | 153 |
|
|
|
|
|
| $ | (63 | ) |
|
|
|
|
| $ | 290 |
|
|
|
|
| |||||||||||||||||||||||||||||||
Pre-tax underwriting earnings | $ | 166 |
|
|
|
|
|
| $ | 96 |
|
|
|
|
|
| $ | 372 |
|
|
|
|
|
| $ | 63 |
|
|
|
|
|
Premiums written increased $179 million (6.3%)36.9% in the thirdsecond quarter and $72 million (1.0%)27.1% in the first ninesix months of 20202021 compared to the same periods in 2019. The2020, driven by increases reflected volume increases fromat BH Specialty and MedPro Group. BH Specialty premiums written increased 44% for the second quarter and 43% for the first six months, primarily attributable to increases in non-U.S. property andprofessional liability, casualty and U.S. casualty business and fromproperty lines of business. MedPro Group premiums increased 45% for the second quarter and 31% for the first six months of 2021, attributable to increased volume across severalits product categories. TheseCommercial auto volumes at NICO Primary and BHHC also increased during the second quarter of 2021 compared to 2020, which was adversely impacted by the COVID-19 pandemic. USLI premiums written increased 27% in the second quarter and 20% in the first six months, attributable to increases were partly offset by lowerin its retail and wholesale customer bases. BH Primary’s workers’ compensation business (BHHC and GUARD) in the third quarter and first nine months and by lower commercial auto business (BHHC and NICO Primary) over the first half of the year. The declines in workers’ compensation and commercial auto business written reflected the effects of reduced exposures and premium refunds relatedcontinues to the COVID-19 pandemic, volume reductions attributable toexperience increased price competition in the marketmarket.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Insurance—Underwriting (Continued)
Berkshire Hathaway Primary Group (Continued)
BH Primary’s loss ratio was relatively unchanged in the effect of the divestiture of Applied Underwriters in 2019.
Lossessecond quarter and loss adjustment expenses in 2020 included an increase in estimated losses of approximately $400 million attributable to the pandemic (primarilydeclined 3.3 percentage points in the first six months) and to Hurricanes Laura and Sally in the third quarter. In addition, losses and loss adjustment expenses in the first nine months were reduced $190 million in 2020 and $274 million in 2019 for changesof 2021 versus 2020. The year-to-date decline reflected net reductions in estimated ultimate liabilities for prior years’ loss events.
events of $253 million in the first six months of 2021 compared to $84 million in the first six months of 2020. Estimated losses and loss adjustment expenses incurred in the first six months of 2021 from the major winter storm in North America (“Winter Storm Uri”) were $156 million. Incurred losses attributable to the pandemic were approximately $180 million in the first six months of 2020. BH Primary insurers write significant levels of commercial and professional liability insurance and workers’ compensation insurancebusiness and the related claim costs are generallymay be subject to longerhigh severity and long claim-tails. Accordingly, we could experience significant increases in claims liabilities in the future, attributable to higher than expectedhigher-than-expected claim settlements, adverse litigation outcomes or judicial rulings regulatory actions and other factors not currently anticipated.
Underwriting expenses in the second quarter and first six months of 2021 increased 12.0% and 6.6%, respectively, compared to 2020. The expense ratio declined 2.2 percentage points in the first six months of 2021, reflecting changes in business mix, improved leverage on internal underwriting expenses at BH Specialty and the impact of pandemic-related allowances for expected credit losses recorded in the first six months of 2020.
Berkshire Hathaway Reinsurance Group
We offerThe Berkshire Hathaway Reinsurance Group (“BHRG”) offers excess-of-loss and quota-share reinsurance coverages on property and casualty risks and life and health reinsurance to insurers and reinsurers worldwide through several subsidiaries, led by National Indemnity Company (“NICO”), General Reinsurance Corporation and General Reinsurance AG. We also offer life and health reinsurance coverages through General Re Life Corporation, General Reinsurance AG and Berkshire Hathaway Life Insurance Company of Nebraska (“BHLN”) and General Reinsurance Corporation, General Reinsurance AG and General Re Life Corporation (“General Re”). We also periodically assume property and casualty risks under retroactive reinsurance contracts written through NICO. In addition, we write periodic payment annuity contracts predominantly through BHLN.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Insurance—Underwriting (Continued)
Berkshire Hathaway Reinsurance Group (Continued)
Generally, we strive to generate underwriting profits. However, time-value-of-money concepts are important elements in establishing prices for retroactive reinsurance and periodic payment annuity businesses due to the expected long durations of the liabilities. We expect to incur pre-tax underwriting losses from such businesses, primarily through deferred charge amortization and discount accretion charges. We receive premiums at the inception of these contracts, which are then available for investment. A summary of Berkshire Hathaway Reinsurance Group’s premiums and pre-tax underwriting results follows (in millions).
|
| Third Quarter |
|
| First Nine Months |
| Second Quarter |
|
| First Six Months |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||
|
| Premiums earned |
|
| Pre-tax underwriting earnings (loss) |
|
| Premiums earned |
|
| Pre-tax underwriting earnings (loss) |
| Premiums earned |
|
| Pre-tax underwriting earnings (loss) |
|
| Premiums earned |
|
| Pre-tax underwriting earnings (loss) |
| ||||||||||||||||||||||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||||||||||||
Property/casualty |
| $ | 3,428 |
|
| $ | 2,614 |
|
| $ | 99 |
|
| $ | 314 |
|
| $ | 8,859 |
|
| $ | 7,237 |
|
| $ | (706 | ) |
| $ | 472 |
| $ | 3,354 |
|
| $ | 2,708 |
|
| $ | 202 |
|
| $ | (643 | ) |
| $ | 6,748 |
|
| $ | 5,431 |
|
| $ | 368 |
|
| $ | (805 | ) |
Life/health |
|
| 1,378 |
|
|
| 1,093 |
|
|
| 17 |
|
|
| 37 |
|
|
| 4,147 |
|
|
| 3,199 |
|
|
| 63 |
|
|
| 227 |
|
| 1,299 |
|
|
| 1,418 |
|
|
| (169 | ) |
|
| 41 |
|
|
| 2,604 |
|
|
| 2,769 |
|
|
| (341 | ) |
|
| 46 |
|
Retroactive reinsurance |
|
| 5 |
|
|
| — |
|
|
| (394 | ) |
|
| (190 | ) |
|
| 39 |
|
|
| 94 |
|
|
| (896 | ) |
|
| (751 | ) |
| 82 |
|
|
| — |
|
|
| (220 | ) |
|
| (460 | ) |
|
| 82 |
|
|
| 34 |
|
|
| (462 | ) |
|
| (502 | ) |
Periodic payment annuity |
|
| 68 |
|
|
| 229 |
|
|
| (209 | ) |
|
| (91 | ) |
|
| 409 |
|
|
| 652 |
|
|
| (411 | ) |
|
| (336 | ) |
| 123 |
|
|
| 182 |
|
|
| (144 | ) |
|
| (146 | ) |
|
| 267 |
|
|
| 341 |
|
|
| (280 | ) |
|
| (202 | ) |
Variable annuity |
|
| 4 |
|
|
| 4 |
|
|
| 46 |
|
|
| (18 | ) |
|
| 10 |
|
|
| 11 |
|
|
| (83 | ) |
|
| 83 |
|
| 4 |
|
|
| 3 |
|
|
| 4 |
|
|
| 105 |
|
|
| 8 |
|
|
| 6 |
|
|
| 125 |
|
|
| (129 | ) |
|
| $ | 4,883 |
|
| $ | 3,940 |
|
| $ | (441 | ) |
| $ | 52 |
|
| $ | 13,464 |
|
| $ | 11,193 |
|
| $ | (2,033 | ) |
| $ | (305 | ) | $ | 4,862 |
|
| $ | 4,311 |
|
| $ | (327 | ) |
| $ | (1,103 | ) |
| $ | 9,709 |
|
| $ | 8,581 |
|
| $ | (590 | ) |
| $ | (1,592 | ) |
Property/casualty
A summary of property/casualty reinsurance underwriting results follows (dollars in millions).
|
| Third Quarter |
|
| First Nine Months |
| Second Quarter |
|
| First Six Months |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||||||||||||||||||||||||||||||||||||
|
| Amount |
|
| % |
|
| Amount |
|
| % |
|
| Amount |
|
| % |
|
| Amount |
|
| % |
| Amount |
|
| % |
|
| Amount |
|
| % |
|
| Amount |
|
| % |
|
| Amount |
|
| % |
| ||||||||||||||||
Premiums written |
| $ | 3,960 |
|
|
|
|
|
| $ | 2,435 |
|
|
|
|
|
| $ | 11,011 |
|
|
|
|
|
| $ | 8,304 |
|
|
|
|
| $ | 3,426 |
|
|
|
|
|
| $ | 2,995 |
|
|
|
|
|
| $ | 7,809 |
|
|
|
|
|
| $ | 7,051 |
|
|
|
|
|
Premiums earned |
| $ | 3,428 |
|
|
| 100.0 |
|
| $ | 2,614 |
|
|
| 100.0 |
|
| $ | 8,859 |
|
|
| 100.0 |
|
| $ | 7,237 |
|
|
| 100.0 |
| $ | 3,354 |
|
|
| 100.0 |
|
| $ | 2,708 |
|
|
| 100.0 |
|
| $ | 6,748 |
|
|
| 100.0 |
|
| $ | 5,431 |
|
|
| 100.0 |
|
Losses and loss adjustment expenses |
|
| 2,544 |
|
|
| 74.2 |
|
|
| 1,659 |
|
|
| 63.5 |
|
|
| 7,241 |
|
|
| 81.7 |
|
|
| 4,888 |
|
|
| 67.5 |
|
| 2,296 |
|
|
| 68.5 |
|
|
| 2,577 |
|
|
| 95.2 |
|
|
| 4,703 |
|
|
| 69.7 |
|
|
| 4,697 |
|
|
| 86.5 |
|
Underwriting expenses |
|
| 785 |
|
|
| 22.9 |
|
|
| 641 |
|
|
| 24.5 |
|
|
| 2,324 |
|
|
| 26.3 |
|
|
| 1,877 |
|
|
| 26.0 |
|
| 856 |
|
|
| 25.5 |
|
|
| 774 |
|
|
| 28.5 |
|
|
| 1,677 |
|
|
| 24.8 |
|
|
| 1,539 |
|
|
| 28.3 |
|
Total losses and expenses |
|
| 3,329 |
|
|
| 97.1 |
|
|
| 2,300 |
|
|
| 88.0 |
|
|
| 9,565 |
|
|
| 108.0 |
|
|
| 6,765 |
|
|
| 93.5 |
|
| 3,152 |
|
|
| 94.0 |
|
|
| 3,351 |
|
|
| 123.7 |
|
|
| 6,380 |
|
|
| 94.5 |
|
|
| 6,236 |
|
|
| 114.8 |
|
Pre-tax underwriting earnings (loss) |
| $ | 99 |
|
|
|
|
|
| $ | 314 |
|
|
|
|
|
| $ | (706 | ) |
|
|
|
|
| $ | 472 |
|
|
|
|
| $ | 202 |
|
|
|
|
|
| $ | (643 | ) |
|
|
|
|
| $ | 368 |
|
|
|
|
|
| $ | (805 | ) |
|
|
|
|
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Insurance—Underwriting (Continued)
Property/casualty premiums(Continued)
Premiums written increased $1.5 billion (62.6%)14.4% in the thirdsecond quarter and $2.7 billion (32.6%)10.8% in the first ninesix months of 2020 as2021 compared to the same periods in 2019.2020. The increases were primarily attributable to a fewreflected net new property and liability contracts andbusiness, increased participations on renewals.renewals, improved pricing and favorable foreign currency translation effects.
Losses and loss adjustment expenses increased $885 million (53.3%)decreased 10.9% in the thirdsecond quarter and $2.4 billion (48.1%)were relatively unchanged in the first ninesix months of 2020 over2021 compared to 2020. In 2021, the same periods in 2019. Losses and loss adjustment expenses in 2020 included estimated losses of $113 millionratio decreased 26.7 percentage points in the thirdsecond quarter and $688 million16.8 percentage points in the first ninesix months attributablecompared to the COVID-19 pandemic and $308 million from Hurricanes Laura and Sally in the third quarter. Losses incurred in the third quarter of 2019 included $281 million from Typhoon Faxai. 2020. Losses and loss adjustment expenses in the first ninesix months alsoof 2021 included estimated losses from Winter Storm Uri of $418 million and a net increase in estimated ultimate liabilities for prior years’ loss events of $35 million. Losses and loss adjustment expenses in the first six months of 2020 included a net increase in estimated ultimate liabilities for prior years’ loss events of $342$439 million, in 2020 compared to a net decrease of $75 million in 2019. The increase in 2020 was primarily attributable to an increase in legacy environmental, asbestos and other latent injury claims. Underwritingliabilities recorded in the second quarter. In 2020, losses and loss adjustment expenses also included approximately $350 million in the second quarter and $575 million in the first ninesix months attributable to the COVID-19 pandemic.
Underwriting expenses are primarily commissions and brokerage costs. The expense ratio in 2021 decreased 3.0 percentage points in the second quarter and 3.5 percentage points in the first six months compared to the same periods in 2020, attributable to changes in business mix and the impact of pandemic-related charges in the 2020 periods.
Life/health
A summary of our life/health reinsurance underwriting results follows (dollars in millions).
| Second Quarter |
|
| First Six Months |
| ||||||||||||||||||||||||||
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||||||||||||||||
| Amount |
|
| % |
|
| Amount |
|
| % |
|
| Amount |
|
| % |
|
| Amount |
|
| % |
| ||||||||
Premiums written | $ | 1,296 |
|
|
|
|
|
| $ | 1,418 |
|
|
|
|
|
| $ | 2,597 |
|
|
|
|
|
| $ | 2,770 |
|
|
|
|
|
Premiums earned | $ | 1,299 |
|
|
| 100.0 |
|
| $ | 1,418 |
|
|
| 100.0 |
|
| $ | 2,604 |
|
|
| 100.0 |
|
| $ | 2,769 |
|
|
| 100.0 |
|
Life and health insurance benefits |
| 1,235 |
|
|
| 95.1 |
|
|
| 1,132 |
|
|
| 79.8 |
|
|
| 2,486 |
|
|
| 95.5 |
|
|
| 2,186 |
|
|
| 78.9 |
|
Underwriting expenses |
| 233 |
|
|
| 17.9 |
|
|
| 245 |
|
|
| 17.3 |
|
|
| 459 |
|
|
| 17.6 |
|
|
| 537 |
|
|
| 19.4 |
|
Total benefits and expenses |
| 1,468 |
|
|
| 113.0 |
|
|
| 1,377 |
|
|
| 97.1 |
|
|
| 2,945 |
|
|
| 113.1 |
|
|
| 2,723 |
|
|
| 98.3 |
|
Pre-tax underwriting earnings (loss) | $ | (169 | ) |
|
|
|
|
| $ | 41 |
|
|
|
|
|
| $ | (341 | ) |
|
|
|
|
| $ | 46 |
|
|
|
|
|
Life/health premiums written decreased 8.6% in the second quarter and 6.2% in the first six months of 2021 compared to 2020. The decreases reflected the non-renewal in 2021 of a policy that covered U.S. health insurance risks ($198 million in the second quarter and $366 million in the first six months), partially offset by favorable foreign currency translation effects. Underwriting earnings in the first six months of 2021 were negatively affected by significant increases in mortality in the U.S., South Africa, India and Latin America, which were partially offset by lower underwriting expenses, due mainly to lower average commission rates in the international life business. Underwriting results in the first six months of 2020 increased 23.8% over 2019,included pre-tax earnings from international life business, partially offset by pre-tax losses from U.S. life business, the run-off of long-term care business and unfavorable foreign currency translation effects.
Retroactive reinsurance
Pre-tax underwriting losses in each period derived from deferred charge amortization and changes in the estimated timing and amounts of future claim payments. Underwriting results also include foreign currency exchange gains and losses from the effects of changes in foreign currency exchange rates on non-U.S. Dollar denominated liabilities of our U.S. subsidiaries. Before foreign currency exchange effects, pre-tax underwriting losses were $220 million in the second quarter and $463 million in the first six months of 2021. In 2020, before foreign currency exchange effects, pre-tax underwriting losses were $345 million in the second quarter and $592 million in the first six months. Foreign currency exchange gains and losses were insignificant in 2021 compared to losses of $115 million in the second quarter and gains of $90 million in the first six months of 2020.
Gross unpaid losses assumed under retroactive reinsurance contracts were $40.2 billion at June 30, 2021, declining $729 million since December 31, 2020, primarily due to increased commissions expense onloss payments. Unamortized deferred charge assets related to such reinsurance contracts were $12.0 billion at June 30, 2021, a decline of $473 million since December 31, 2020, primarily attributable to amortization. Deferred charge assets will be charged to earnings over the increased premium volume.expected remaining claims settlement periods through periodic amortization.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Insurance—Underwriting (Continued)
Life/health
A summary of our life/health reinsurance underwriting results follows (dollars in millions).
|
| Third Quarter |
|
| First Nine Months |
| ||||||||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||||||||||||||
|
| Amount |
|
| % |
|
| Amount |
|
| % |
|
| Amount |
|
| % |
|
| Amount |
|
| % |
| ||||||||
Premiums written |
| $ | 1,383 |
|
|
|
|
|
| $ | 1,095 |
|
|
|
|
|
| $ | 4,153 |
|
|
|
|
|
| $ | 3,207 |
|
|
|
|
|
Premiums earned |
| $ | 1,378 |
|
|
| 100.0 |
|
| $ | 1,093 |
|
|
| 100.0 |
|
| $ | 4,147 |
|
|
| 100.0 |
|
| $ | 3,199 |
|
|
| 100.0 |
|
Life and health insurance benefits |
|
| 1,142 |
|
|
| 82.9 |
|
|
| 836 |
|
|
| 76.5 |
|
|
| 3,328 |
|
|
| 80.3 |
|
|
| 2,345 |
|
|
| 73.3 |
|
Underwriting expenses |
|
| 219 |
|
|
| 15.9 |
|
|
| 220 |
|
|
| 20.1 |
|
|
| 756 |
|
|
| 18.2 |
|
|
| 627 |
|
|
| 19.6 |
|
Total benefits and expenses |
|
| 1,361 |
|
|
| 98.8 |
|
|
| 1,056 |
|
|
| 96.6 |
|
|
| 4,084 |
|
|
| 98.5 |
|
|
| 2,972 |
|
|
| 92.9 |
|
Pre-tax underwriting earnings |
| $ | 17 |
|
|
|
|
|
| $ | 37 |
|
|
|
|
|
| $ | 63 |
|
|
|
|
|
| $ | 227 |
|
|
|
|
|
Life/health premiums written increased $288 million (26.3%) in the third quarter and $946 million (29.5%) in the first nine months of 2020 compared to the corresponding 2019 periods. The increases were primarily attributable to a new reinsurance contract covering U.S. health insurance risks (approximately $500 million for the first nine months) and from volume growth in the Asian and European life reinsurance markets. The increase in the first nine months was partially offset by unfavorable foreign currency translation effects.
Life/health underwriting results in the third quarter and first nine months of 2020 were negatively affected by increased life benefits from COVID-19-related claim estimates ($68 million in the third quarter and $172 million in the first nine months) and increases in liabilities from changes in underlying assumptions in estimating disability benefit liabilities in Australia. Underwriting results in the first nine months of 2019 included a one-time pre-tax gain of $163 million attributable to a yearly-renewable-term life reinsurance contract amendment, partially offset by an increase in estimated disability benefit liabilities in Australia.
Retroactive reinsurance
There were no significant retroactive reinsurance contracts written in the first nine months of 2020 and 2019. Pre-tax underwriting losses in 2020 and 2019 derived from deferred charge amortization and changes in the estimated timing and amounts of future claim payments, as well as from foreign currency gains/losses arising from the periodic remeasurement of non-U.S. Dollar denominated liabilities related to contracts written by our U.S. subsidiaries. In the first nine months, these contracts had pre-tax foreign currency remeasurement losses of $22 million in 2020 compared to pre-tax gains of $73 million in 2019. Before foreign currency gains/losses, these contracts produced pre-tax underwriting losses of $874 million in the first nine months of 2020 compared to $824 million in the first nine months of 2019.
Unpaid losses assumed under retroactive reinsurance contracts were $41.8 billion as of September 30, 2020 and $42.4 billion as of December 31, 2019. Unamortized deferred charge assets related to such reinsurance contracts were $13.0 billion as of September 30, 2020 and $13.7 billion as of December 31, 2019. Deferred charge assets will be charged to earnings over the expected remaining claims settlement periods through periodic amortization.
Periodic payment annuity
Periodic payment annuity premiums earned decreased $243 million (37.3%)declined 32.4% in the second quarter and 21.7% in the first ninesix months of 20202021 compared to 2019. The2020. Periodic payment annuity business is both price and demand sensitive. Estimates of periodic payment annuity industry volumes for the first six months of 2021 suggest that overall market volume is price sensitive.down roughly 30% compared to the same period in 2020 due to a decline in claim settlements this year attributed to the impact of pandemic conditions on the court systems. The volume of businessvolumes written canalso change rapidly due to changes in prices, which are affected by prevailing interest rates, the perceived risks and durations associated with the expected annuity payments, andas well as the level of competition.
Periodic payment annuity contracts normally produce pre-tax underwriting losses deriving from the recurring discount accretion onof annuity liabilities. Underwriting results also include the effects of mortality, and interest rate changes that may affect expected settlements under certain contracts and remeasurement gains andor losses related tofrom changes in foreign currency exchange rates on non-U.S. Dollar denominated liabilities of certain contracts written by our U.S. subsidiaries. Pre-tax underwriting results included foreign currency remeasurement gainsexchange losses of $10 million in the second quarter and $20 million in the first ninesix months were $38of 2021 compared to gains of $6 million in 2020the second quarter and $70$111 million in 2019. the first six months of 2020.
Excluding foreign currency remeasurementexchange gains/losses, pre-tax underwriting losses were $449$134 million in the second quarter and $260 million in the first ninesix months of 20202021 compared to $406$152 million in the second quarter and $313 million in the first ninesix months of 2019.2020, which primarily derived from the recurring discount accretion of annuity liabilities. Pre-tax losses in the first six months of 2021 were partially offset by the effects of higher mortality and interest rates. Discounted periodic payment annuity liabilities were $14.0$14.6 billion as of Septemberat June 30, 2020 and $13.5 billion as of December 31, 2019. The2021, reflecting a weighted average discount rate of these liabilities wasapproximately 4.0% as of September 30, 2020.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Insurance—Underwriting (Continued).
Variable annuity
Variable annuity guarantee reinsurance contracts produced pre-tax earnings of $46$4 million in the thirdsecond quarter and pre-tax losses of $83$125 million in the first ninesix months of 2020 and pre-tax losses2021 compared to earnings of $18$105 million in the thirdsecond quarter and pre-tax earningslosses of $83$129 million in the first ninesix months of 2019. Periodic underwriting2020. The results from this businessthese contracts reflect changes in remainingour estimated liabilities for underlying guaranteed benefits, reinsured, which are affected by changes in securities markets and interest rates and from the periodic amortization of expected profit margins. Underwriting results from these contracts can beare volatile, reflecting the volatility of securities markets, interest rates and foreign currency exchange rates. Our recorded liabilities associated with these contractsUnderwriting earnings in the first six months of 2021 were approximately $1.6 billion at September 30, 2020.primarily attributable to the net effects of interest rate changes and, to a lesser extent, changes in securities markets.
Insurance—Investment Income
A summary of net investment income attributable to our insurance operations follows (dollars in millions).
|
| Third Quarter |
|
| First Nine Months |
| Second Quarter |
|
| First Six Months |
| Percentage Change |
| |||||||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| Second Quarter |
|
| First Six Months |
| ||||||||||
Interest and other investment income |
| $ | 196 |
|
| $ | 556 |
|
| $ | 870 |
|
| $ | 1,646 |
| $ | 158 |
|
| $ | 270 |
|
| $ | 317 |
|
| $ | 674 |
|
| (41.5 | )% |
|
| (53.0 | )% |
Dividend income |
|
| 1,024 |
|
|
| 1,226 |
|
|
| 3,610 |
|
|
| 3,270 |
|
| 1,298 |
|
|
| 1,343 |
|
|
| 2,551 |
|
|
| 2,586 |
| (3.4 | ) |
|
| (1.4 | ) | |
Investment income before income taxes and noncontrolling interests |
|
| 1,220 |
|
|
| 1,782 |
|
|
| 4,480 |
|
|
| 4,916 |
| ||||||||||||||||||||||
Pre-tax net investment income |
| 1,456 |
|
|
| 1,613 |
|
|
| 2,868 |
|
|
| 3,260 |
| (9.7 | ) |
|
| (12.0 | ) | |||||||||||||||||
Income taxes and noncontrolling interests |
|
| 205 |
|
|
| 298 |
|
|
| 711 |
|
|
| 829 |
|
| 237 |
|
|
| 245 |
|
|
| 441 |
|
|
| 506 |
|
|
|
|
|
|
| |
Net investment income |
| $ | 1,015 |
|
| $ | 1,484 |
|
| $ | 3,769 |
|
| $ | 4,087 |
| $ | 1,219 |
|
| $ | 1,368 |
|
| $ | 2,427 |
|
| $ | 2,754 |
|
|
|
|
|
|
| |
Effective income tax rate |
|
| 16.9 | % |
|
| 16.6 | % |
|
| 15.9 | % |
|
| 16.7 | % |
| 16.3 | % |
|
| 15.1 | % |
|
| 15.4 | % |
|
| 15.5 | % |
|
|
|
|
|
|
|
Interest and other investment income declined $360 million (64.7%)41.5% in the thirdsecond quarter and $776 million (47.1%)53.0% in the first ninesix months of 20202021 compared to 2019. The declines weresame periods in 2020, primarily due to lower income from short-term investments. We continue to hold substantial balances of cash, cash equivalents and short-term U.S. Treasury Bills. Short-termWe expect that the current historically low short-term interest rates declined over the second half of 2019 and continued to decline through the first half of 2020. The decline in rates resulted in significantly lower interest income in the third quarter of 2020. We expect such rates, which are historically low, to remain low and thatwill negatively affect our comparative earnings from such investments infor the fourth quarterremainder of 2020 will be substantially lower than in 2019.2021. Nevertheless, we believe that maintaining ample liquidity is paramount and we insist on safety over yield with respect to short-term investments.
Dividend income decreased $202 million (16.5%) in the third quarter and increased $340 million (10.4%) in the first nine months of 2020 compared to 2019. The increase in the first nine months was primarily attributable to the investment in $10 billion liquidation value of 8% cumulative preferred stock of Occidental on August 8, 2019, partly offset by lower dividends from common stock investments.
Invested assets of our insurance businesses derive from shareholder capital including reinvested earnings, and from net liabilities under insurance and reinsurance contracts or “float.” The major components of float are unpaid losses and loss adjustment expenses, including liabilities under retroactive reinsurance contracts, life, annuity and health insurance benefit liabilities, unearned premiums and other liabilities due to policyholders, lesswhich are reduced by insurance premiums andreceivable, reinsurance receivables, deferred charges assumed under retroactive reinsurance contracts and deferred policy acquisition costs. Float was approximately $135approximated $142 billion on Septemberat June 30, 2021 and $138 billion at December 31, 2020. Our combined insurance operations generated pre-tax underwriting earnings in the first six months of 2021 and 2020, and $129 billion on December 31, 2019. Ourconsequently, the average cost of float for each period was negative for the first nine months of 2020 as our underwriting operations generated pre-tax earnings of $1.2 billion.negative.
A summary of cash and investments held in our insurance businesses as of September 30, 2020 and December 31, 2019 follows (in millions).
|
| September 30, 2020 |
|
| December 31, 2019 |
| ||
Cash, cash equivalents and U.S. Treasury Bills |
| $ | 82,525 |
|
| $ | 64,908 |
|
Equity securities |
|
| 228,803 |
|
|
| 240,126 |
|
Fixed maturity securities |
|
| 19,330 |
|
|
| 18,537 |
|
Other |
|
| 2,440 |
|
|
| 2,481 |
|
|
| $ | 333,098 |
|
| $ | 326,052 |
|
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Insurance—Investment Income (Continued)
A summary of cash and investments held in our insurance businesses as of June 30, 2021 and December 31, 2020 follows (in millions).
|
| June 30, 2021 |
|
| December 31, 2020 |
| ||
Cash, cash equivalents and short-term investments in U.S. Treasury Bills |
| $ | 79,816 |
|
| $ | 67,082 |
|
Equity securities |
|
| 293,759 |
|
|
| 269,498 |
|
Fixed maturity securities |
|
| 20,400 |
|
|
| 20,317 |
|
Other |
|
| 6,179 |
|
|
| 6,220 |
|
|
| $ | 400,154 |
|
| $ | 363,117 |
|
Fixed maturity securities as of SeptemberJune 30, 20202021 were as follows (in millions).
|
| Amortized cost |
|
| Unrealized gains |
|
| Carrying value |
|
| Amortized Cost |
|
| Unrealized Gains |
|
| Carrying Value |
| ||||||
U.S. Treasury, U.S. government corporations and agencies |
| $ | 3,303 |
|
| $ | 66 |
|
| $ | 3,369 |
|
| $ | 3,427 |
|
| $ | 36 |
|
| $ | 3,463 |
|
Foreign governments |
|
| 9,897 |
|
|
| 70 |
|
|
| 9,967 |
|
|
| 12,634 |
|
|
| 69 |
|
|
| 12,703 |
|
Corporate bonds |
|
| 5,064 |
|
|
| 449 |
|
|
| 5,513 |
|
|
| 3,402 |
|
|
| 450 |
|
|
| 3,852 |
|
Other |
|
| 412 |
|
|
| 69 |
|
|
| 481 |
|
|
| 326 |
|
|
| 56 |
|
|
| 382 |
|
|
| $ | 18,676 |
|
| $ | 654 |
|
| $ | 19,330 |
|
| $ | 19,789 |
|
| $ | 611 |
|
| $ | 20,400 |
|
U.S. government obligations are rated AA+ or Aaa by the major rating agencies. Approximately 87%89% of all foreign government obligations were rated AA or higher by at least one of the major rating agencies. Foreign government securities include obligations issued or unconditionally guaranteed by national or provincial government entities. Approximately 98% of corporate bond investments were considered investment-grade by the major rating agencies.
Railroad (“Burlington Northern Santa Fe”)
Burlington Northern Santa Fe, LLC (“BNSF”) operates one of the largest railroad systems in North America, with approximately 32,500 route miles of track in 28 states. BNSF also operates in three Canadian provinces. BNSF classifies its major railroad business groups by type of product shipped which includes consumer products, coal, industrial products, agricultural products and agricultural products.coal. A summary of BNSF’s earnings follows (dollars in millions).
|
| Third Quarter |
|
| First Nine Months |
|
| Second Quarter |
|
| First Six Months |
| ||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||||
Railroad operating revenues |
| $ | 5,001 |
|
| $ | 5,822 |
|
| $ | 14,698 |
|
| $ | 17,081 |
|
| $ | 5,609 |
|
| $ | 4,453 |
|
| $ | 10,830 |
|
| $ | 9,697 |
|
Railroad operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and benefits |
|
| 1,105 |
|
|
| 1,318 |
|
|
| 3,306 |
|
|
| 4,011 |
|
|
| 1,145 |
|
|
| 976 |
|
|
| 2,309 |
|
|
| 2,201 |
|
Fuel |
|
| 394 |
|
|
| 725 |
|
|
| 1,335 |
|
|
| 2,211 |
|
|
| 693 |
|
|
| 327 |
|
|
| 1,243 |
|
|
| 941 |
|
Purchased services |
|
| 479 |
|
|
| 518 |
|
|
| 1,429 |
|
|
| 1,586 |
|
|
| 510 |
|
|
| 433 |
|
|
| 1,015 |
|
|
| 950 |
|
Depreciation and amortization |
|
| 616 |
|
|
| 598 |
|
|
| 1,836 |
|
|
| 1,778 |
|
|
| 608 |
|
|
| 609 |
|
|
| 1,224 |
|
|
| 1,220 |
|
Equipment rents, materials and other |
|
| 393 |
|
|
| 485 |
|
|
| 1,219 |
|
|
| 1,537 |
|
|
| 433 |
|
|
| 376 |
|
|
| 924 |
|
|
| 826 |
|
Total |
|
| 2,987 |
|
|
| 3,644 |
|
|
| 9,125 |
|
|
| 11,123 |
|
|
| 3,389 |
|
|
| 2,721 |
|
|
| 6,715 |
|
|
| 6,138 |
|
Railroad operating earnings |
|
| 2,014 |
|
|
| 2,178 |
|
|
| 5,573 |
|
|
| 5,958 |
|
|
| 2,220 |
|
|
| 1,732 |
|
|
| 4,115 |
|
|
| 3,559 |
|
Other revenues (expenses): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other revenues |
|
| 175 |
|
|
| 199 |
|
|
| 497 |
|
|
| 595 |
|
|
| 200 |
|
|
| 149 |
|
|
| 380 |
|
|
| 322 |
|
Other expenses, net |
|
| (155 | ) |
|
| (165 | ) |
|
| (436 | ) |
|
| (368 | ) |
|
| (180 | ) |
|
| (127 | ) |
|
| (338 | ) |
|
| (281 | ) |
Interest expense |
|
| (257 | ) |
|
| (271 | ) |
|
| (779 | ) |
|
| (806 | ) |
|
| (261 | ) |
|
| (260 | ) |
|
| (519 | ) |
|
| (522 | ) |
Pre-tax earnings |
|
| 1,777 |
|
|
| 1,941 |
|
|
| 4,855 |
|
|
| 5,379 |
|
|
| 1,979 |
|
|
| 1,494 |
|
|
| 3,638 |
|
|
| 3,078 |
|
Income taxes |
|
| 430 |
|
|
| 475 |
|
|
| 1,187 |
|
|
| 1,322 |
|
|
| 463 |
|
|
| 363 |
|
|
| 871 |
|
|
| 757 |
|
Net earnings |
| $ | 1,347 |
|
| $ | 1,466 |
|
| $ | 3,668 |
|
| $ | 4,057 |
|
| $ | 1,516 |
|
| $ | 1,131 |
|
| $ | 2,767 |
|
| $ | 2,321 |
|
Effective income tax rate |
|
| 24.2 | % |
|
| 24.5 | % |
|
| 24.5 | % |
|
| 24.6 | % |
|
| 23.4 | % |
|
| 24.3 | % |
|
| 23.9 | % |
|
| 24.6 | % |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Railroad (“Burlington Northern Santa Fe”) (Continued)
The following table summarizes BNSF’s railroad freight volumes by business group (cars/units in thousands).
|
| Cars/Units |
|
|
|
|
|
|
|
|
| |||||||||||||
|
| Second Quarter |
|
| First Six Months |
|
| Percentage Change |
| |||||||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
|
| Second Quarter |
|
| First Six Months |
| ||||||
Consumer products |
|
| 1,489 |
|
|
| 1,169 |
|
|
| 2,882 |
|
|
| 2,376 |
|
|
| 27.4 | % |
|
| 21.3 | % |
Industrial products |
|
| 438 |
|
|
| 370 |
|
|
| 837 |
|
|
| 830 |
|
|
| 18.4 |
|
|
| 0.8 |
|
Agricultural products |
|
| 313 |
|
|
| 277 |
|
|
| 631 |
|
|
| 562 |
|
|
| 13.0 |
|
|
| 12.3 |
|
Coal |
|
| 384 |
|
|
| 292 |
|
|
| 723 |
|
|
| 676 |
|
|
| 31.5 |
|
|
| 7.0 |
|
|
|
| 2,624 |
|
|
| 2,108 |
|
|
| 5,073 |
|
|
| 4,444 |
|
|
| 24.5 |
|
|
| 14.2 |
|
Railroad operating revenues were $5.0 billionincreased 26.0% in the thirdsecond quarter and $14.7 billion11.7% in the first ninesix months of 2020, representing decreases of approximately $0.8 billion (14.1%) and $2.4 billion (14.0%), respectively, versus the corresponding periods in 2019.2021 compared to 2020. Railroad operating revenues in 20202021 reflected lowerhigher volumes of 8.3%24.5% in the thirdsecond quarter and 10.5%14.2% in the first ninesix months, as well aspartially offset by a 4.0%2.2% year-to-date decrease in average revenue per car/unit resulting from business mix changeschanges. Pre-tax earnings were $2.0 billion and $3.6 billion in the second quarter and first six months of 2021, increases of 32.5% and 18.2%, respectively, compared to the corresponding 2020 periods. The increases were attributable to the increased volumes and improved productivity. The COVID-19 pandemic caused a significant economic slowdown that adversely affected our volumes in 2020.
Operating revenues from consumer products were $2.1 billion in the second quarter and $4.0 billion in the first six months of 2021, increases of 32.6% and 19.1%, respectively, from 2020. Volumes increased 27.4% in the second quarter and 21.3% in the first six months of 2021, with a higher average revenue per car/unit in the second quarter and a lower average revenue per car/unit in the first six months of 2021. The volume increases resulted from growth in intermodal in both international and domestic shipments driven by increased retail sales, inventory replenishments by retailers and increased e-commerce activity, as well as from growth in automotive shipments.
Operating revenues from industrial products increased 16.6% in the second quarter to $1.4 billion and decreased 1.8% to $2.6 billion in the first six months of 2021 compared to the same periods in 2020. The decrease for the first six months was attributable to lower average revenue per car/unit due to commodity mix and lower fuel surcharge revenue. Average revenue driven byper car/unit was also lower fuel prices. Volumein the second quarter. Volumes increased 18.4% in the second quarter and 0.8% in the first ninesix months, of 2020 was 6.88 million cars/units compared to 7.68 million cars/units in 2019. The overall volume decrease was primarily due to continued recovery in the COVID-19 pandemic, which severely impactedU.S. industrial economy, driving higher volumes throughin the construction and building sectors, partially offset by lower petroleum volumes due to reduced production and demand in the energy sector.
Operating revenues from agricultural products were $1.3 billion in the second quarter and $2.6 billion in the first halfsix months of the year. While monthly volumes improved sequentially2021, increases of 18.7% and 16.4%, respectively, from 2020. Volumes increased 13.0% in the thirdsecond quarter and 12.3% in the first six months of 2021 as compared to 2020. The volume increases were primarily due to higher grain exports, as well as higher volumes of ethanol and related commodities. Revenue per car/unit also increased for both periods of 2021.
Operating revenues from coal were $767 million in the second quarter and $1.5 billion in the first six months of 2021, increases of 41.8% and 11.2%, respectively, from 2020, attributable to higher volumes continuedof 31.5% in the second quarter and 7.0% in the first six months, as well as from higher average revenue per car/unit. Volume increases in 2021 were attributable to be negatively affectedincreased electricity generation and higher natural gas prices and from utilities rebuilding inventory in the second quarter after draw-downs earlier in the year.
Railroad operating expenses were $3.4 billion in the second quarter and $6.7 billion in the first six months of 2021, increases of $668 million (24.5%) and $577 million (9.4%), respectively, compared to the same periods in 2020. The ratio of railroad operating expenses to railroad operating revenues decreased 0.7 percentage points to 60.4% in the second quarter and 1.3 percentage points to 62.0% in the first six months of 2021 versus the 2020 periods. The increases in railroad operating expenses reflected higher volumes and higher average fuel prices, partially offset by the pandemic.productivity improvements.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Railroad (“Burlington Northern Santa Fe”) (Continued)
Pre-tax earnings were $1.8 billion and $4.9 billion in the third quarter and first nine months of 2020, respectively, decreases of 8.4% and 9.7%, respectively, compared to 2019. The decreases principally resulted from the negative impacts of the COVID-19 pandemic on volumes. In addition, pre-tax earnings in the first nine months of 2019 included an operating revenue increase related to the favorable outcome of an arbitration hearing and a retirement plan curtailment gain that is included in other expenses, net in the preceding table. These effects were partially offset by significant improvements in 2020 in service, velocity and cost performance compared to 2019, along with lower costs related to severe winter weather and flooding on parts of the network which negatively affected expenses and service levels in 2019.
Operating revenues from consumer products were $1.9 billion in the third quarter and $5.2 billion in the first nine months of 2020, decreases of 4.5% and 11.2%, respectively, from 2019. The decreases reflected lower average revenue per car/unit for both periods. Volumes increased 0.5% in the third quarter and decreased 6.2% in the first nine months of 2020. Increased retail sales and inventory replenishments by retailers, along with increased e-commerce activity in the third quarter resulted in higher domestic intermodal volumes for the first nine months of 2020. International intermodal volumes and automotive shipments remained low primarily attributable to the COVID-19 pandemic.
Operating revenues from industrial products were $1.2 billion in the third quarter and $3.8 billion in the first nine months of 2020, decreases of 25.1% and 17.7%, respectively, from 2019. The decreases were attributable to lower volumes of 23.0% in the third quarter and 17.4% in the first nine months of 2020, along with lower average revenue per car/unit in both periods. The volume decreases were primarily driven by a decline in U.S. industrial production due to the COVID-19 pandemic and reduced demand in the energy sector, which drove lower sand and petroleum products volume.
Operating revenues from agricultural products were $1.2 billion in the third quarter and $3.4 billion in the first nine months of 2020, an increase of 1.7% and decrease of 2.8%, respectively, from 2019. The revenue changes reflected a volume increase of 3.9% in the third quarter and about equal volume in the first nine months of 2020 as compared to 2019, along with lower revenue per car/unit for both periods. The adverse impacts of the COVID-19 pandemic on volumes, primarily for ethanol and sweeteners shipments, along with lower soybean exports, were substantially offset by higher grain and meal exports.
Operating revenues from coal were $651 million in the third quarter and $2.0 billion in the first nine months of 2020, decreases of 34.6% and 28.7%, respectively, compared to 2019. The decreases reflected lower average revenue per car/unit and lower volume of 25.3% in the third quarter and 22.6% in the first nine months. The volume declines were primarily attributable to lower electricity demand driven by impacts of the COVID-19 pandemic and mild winter weather in the first quarter, low natural gas prices and utility coal plant retirements.
Railroad operating expenses in the third quarter and first nine months of 2020 were $3.0 billion and $9.1 billion, respectively, decreases of $0.7 billion (18.0%) and $2.0 billion (18.0%), respectively, compared to the same periods in 2019. The ratio of railroad operating expenses to railroad operating revenues decreased 2.9 percentage points to 59.7% in the third quarter and 3.0 percentage points to 62.1% in the first nine months of 2020 versus the 2019 periods. Railroad operating expenses in 2020 reflected lower volume-related costs, productivity improvements, the effects of cost control initiatives and the effects of improved weather conditions compared to 2019.
Compensation and benefits expenses decreased $213increased $169 million (16.2%(17.3%) in the thirdsecond quarter and $705$108 million (17.6%(4.9%) in the first ninesix months of 20202021 compared to 2019.2020. The decreasesincreases were primarily due to lower employee counts associated with lower volume and improved workforce productivity.increased volumes, partially offset by productivity improvements. Fuel expenses decreased $331increased $366 million (45.7%(111.9%) in the thirdsecond quarter and $876$302 million (39.6%(32.1%) in the first ninesix months of 20202021 compared to 2019.2020. The decreasesincreases were primarily due to lowerhigher average fuel prices lowerand higher volumes, and improvedpartially offset by better fuel efficiency. Purchased service expenses decreased $39increased $77 million (7.5%(17.8%) in the thirdsecond quarter and $157$65 million (9.9%(6.8%) in the first ninesix months of 20202021 compared to 2019,2020, primarily due to lower volume, improved productivityhigher volumes and the effects of insurance recoveries in the first half of 2020 related to the network2019 flooding, in 2019.partially offset by improved productivity. Equipment rents, materials and other expenses decreased $92increased $57 million (19.0%(15.2%) in the thirdsecond quarter and $318$98 million (20.7%(11.9%) in the first ninesix months of 20202021 compared to 2019, as a result of lower volume-related2020, due to higher volume related costs the effects of cost controls and lower personal injury expense.
BNSF is an important component of the nationalincreased property and global supply chain and, as an essential business, has continued to operate throughout the duration of the COVID-19 pandemic. However, the COVID-19 pandemic caused significant economic disruptions that adversely affected the demand for transportation services. The COVID-19 pandemic continues to evolve, and the full extent to which it may impact BNSF's business, operating results, financial condition, or liquidity will depend on future developments which are highly uncertain and cannot be predicted with confidence. We believe BNSF's fundamental business remains strong and it has ample liquidity to continue business operations during this volatile period.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operationsmiscellaneous taxes.
Utilities and Energy (“Berkshire Hathaway Energy Company”)
We currently own 91.1% 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 twoBHE’s natural gas pipelines consist of five domestic regulated interstate natural gas pipeline companies.systems and a 25% interest in a liquefied natural gas export, import and storage facility which BHE operates and consolidates for financial reporting purposes. Three of the natural gas pipeline systems were acquired on November 1, 2020 from Dominion Energy, Inc. (“BHE GT&S acquisition”). Other energy businesses include a regulated electricity transmission-only business in Alberta, Canada (“AltaLink, L.P.”) and a diversified portfolio of mostly renewable independent power projects. BHE also operates the largest residential real estate brokerage firm and one of the largest residential real estate brokerage franchise networks in the United States. On November 1, 2020, BHE acquired certain natural gas transmission and storage businesses of Dominion Energy, Inc. See Note 22 to accompanying Consolidated Financial Statements.
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 such costs are not allowed in the approved rates, operating results will be adversely affected. A summary of BHE’s net earnings follows (dollars in millions).
|
| Third Quarter |
|
| First Nine Months |
|
| Second Quarter |
|
| First Six Months |
| ||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy operating revenue |
| $ | 4,451 |
|
| $ | 4,337 |
|
| $ | 11,504 |
|
| $ | 11,729 |
|
| $ | 4,301 |
|
| $ | 3,419 |
|
| $ | 9,150 |
|
| $ | 7,053 |
|
Real estate operating revenue |
|
| 1,742 |
|
|
| 1,307 |
|
|
| 3,828 |
|
|
| 3,419 |
|
|
| 1,763 |
|
|
| 1,193 |
|
|
| 2,995 |
|
|
| 2,086 |
|
Other income (loss) |
|
| 33 |
|
|
| 76 |
|
|
| 60 |
|
|
| 214 |
|
|
| 21 |
|
|
| 47 |
|
|
| (136 | ) |
|
| 27 |
|
Total revenue |
|
| 6,226 |
|
|
| 5,720 |
|
|
| 15,392 |
|
|
| 15,362 |
|
|
| 6,085 |
|
|
| 4,659 |
|
|
| 12,009 |
|
|
| 9,166 |
|
Costs and expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy cost of sales |
|
| 1,169 |
|
|
| 1,230 |
|
|
| 3,095 |
|
|
| 3,471 |
|
|
| 1,110 |
|
|
| 888 |
|
|
| 2,679 |
|
|
| 1,926 |
|
Energy operating expense |
|
| 1,952 |
|
|
| 1,783 |
|
|
| 5,301 |
|
|
| 5,115 |
|
|
| 2,134 |
|
|
| 1,638 |
|
|
| 4,170 |
|
|
| 3,349 |
|
Real estate operating costs and expense |
|
| 1,503 |
|
|
| 1,194 |
|
|
| 3,492 |
|
|
| 3,210 |
|
|
| 1,584 |
|
|
| 1,116 |
|
|
| 2,704 |
|
|
| 1,989 |
|
Interest expense |
|
| 480 |
|
|
| 452 |
|
|
| 1,430 |
|
|
| 1,372 |
|
|
| 518 |
|
|
| 484 |
|
|
| 1,034 |
|
|
| 950 |
|
Total costs and expense |
|
| 5,104 |
|
|
| 4,659 |
|
|
| 13,318 |
|
|
| 13,168 |
|
|
| 5,346 |
|
|
| 4,126 |
|
|
| 10,587 |
|
|
| 8,214 |
|
Pre-tax earnings |
|
| 1,122 |
|
|
| 1,061 |
|
|
| 2,074 |
|
|
| 2,194 |
|
|
| 739 |
|
|
| 533 |
|
|
| 1,422 |
|
|
| 952 |
|
Income tax expense (benefit)* |
|
| (412 | ) |
|
| (241 | ) |
|
| (778 | ) |
|
| (451 | ) |
|
| (212 | ) |
|
| (165 | ) |
|
| (444 | ) |
|
| (366 | ) |
Net earnings after income taxes |
|
| 1,534 |
|
|
| 1,302 |
|
|
| 2,852 |
|
|
| 2,645 |
|
|
| 951 |
|
|
| 698 |
|
|
| 1,866 |
|
|
| 1,318 |
|
Noncontrolling interests |
|
| 4 |
|
|
| 8 |
|
|
| 11 |
|
|
| 15 |
|
|
| 102 |
|
|
| 4 |
|
|
| 208 |
|
|
| 7 |
|
Net earnings attributable to Berkshire Hathaway Energy |
|
| 1,530 |
|
|
| 1,294 |
|
|
| 2,841 |
|
|
| 2,630 |
| ||||||||||||||||
Noncontrolling interests |
|
| 135 |
|
|
| 116 |
|
|
| 252 |
|
|
| 240 |
| ||||||||||||||||
Net earnings attributable to BHE |
|
| 849 |
|
|
| 694 |
|
|
| 1,658 |
|
|
| 1,311 |
| ||||||||||||||||
Noncontrolling interests and preferred stock dividends |
|
| 109 |
|
|
| 61 |
|
|
| 215 |
|
|
| 117 |
| ||||||||||||||||
Net earnings attributable to Berkshire Hathaway shareholders |
| $ | 1,395 |
|
| $ | 1,178 |
|
| $ | 2,589 |
|
| $ | 2,390 |
|
| $ | 740 |
|
| $ | 633 |
|
| $ | 1,443 |
|
| $ | 1,194 |
|
Effective income tax rate |
|
| (36.7 | )% |
|
| (22.7 | )% |
|
| (37.5 | )% |
|
| (20.6 | )% |
|
| (28.7 | )% |
|
| (31.0 | )% |
|
| (31.2 | )% |
|
| (38.4 | )% |
* | Includes significant production tax credits from wind-powered electricity generation. |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Utilities and Energy (“Berkshire Hathaway Energy Company”) (Continued)
The discussion of BHE’s operating results that follows is based on after-tax earnings, reflecting how the energy businesses are managed and evaluated. A summary of net earnings attributable to BHE follows (in millions).
|
| Third Quarter |
|
| First Nine Months |
|
| Second Quarter |
|
| First Six Months |
|
| Percentage Change |
| |||||||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
|
| Second Quarter |
|
| First Six Months |
| ||||||||||
PacifiCorp |
| $ | 286 |
|
| $ | 278 |
|
| $ | 629 |
|
| $ | 626 |
|
| $ | 226 |
|
| $ | 167 |
|
| $ | 395 |
|
| $ | 343 |
|
|
| 35.3 | % |
|
| 15.2 | % |
MidAmerican Energy Company |
|
| 337 |
|
|
| 279 |
|
|
| 695 |
|
|
| 622 |
|
|
| 211 |
|
|
| 208 |
|
|
| 355 |
|
|
| 358 |
|
|
| 1.4 |
|
|
| (0.8 | ) |
NV Energy |
|
| 249 |
|
|
| 206 |
|
|
| 367 |
|
|
| 316 |
|
|
| 100 |
|
|
| 98 |
|
|
| 134 |
|
|
| 118 |
|
|
| 2.0 |
|
|
| 13.6 |
|
Northern Powergrid |
|
| 26 |
|
|
| 37 |
|
|
| 172 |
|
|
| 181 |
|
|
| (25 | ) |
|
| 59 |
|
|
| 79 |
|
|
| 146 |
|
|
| (142.4 | ) |
|
| (45.9 | ) |
Natural gas pipelines |
|
| 78 |
|
|
| 66 |
|
|
| 321 |
|
|
| 295 |
|
|
| 100 |
|
|
| 64 |
|
|
| 483 |
|
|
| 243 |
|
|
| 56.3 |
|
|
| 98.8 |
|
Other energy businesses |
|
| 207 |
|
|
| 219 |
|
|
| 527 |
|
|
| 468 |
|
|
| 229 |
|
|
| 184 |
|
|
| 291 |
|
|
| 320 |
|
|
| 24.5 |
|
|
| (9.1 | ) |
Real estate brokerage |
|
| 177 |
|
|
| 82 |
|
|
| 246 |
|
|
| 150 |
|
|
| 135 |
|
|
| 59 |
|
|
| 219 |
|
|
| 69 |
|
|
| 128.8 |
|
|
| 217.4 |
|
Corporate interest and other |
|
| 170 |
|
|
| 127 |
|
|
| (116 | ) |
|
| (28 | ) |
|
| (127 | ) |
|
| (145 | ) |
|
| (298 | ) |
|
| (286 | ) |
|
| (12.4 | ) |
|
| 4.2 |
|
|
| $ | 1,530 |
|
| $ | 1,294 |
|
| $ | 2,841 |
|
| $ | 2,630 |
|
| $ | 849 |
|
| $ | 694 |
|
| $ | 1,658 |
|
| $ | 1,311 |
|
|
| 22.3 |
|
|
| 26.5 |
|
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Utilities and Energy (“Berkshire Hathaway Energy Company”) (Continued)
PacifiCorp
PacifiCorp operates a regulated electric utility in portions of several Western states, including Utah, Oregon and Wyoming. After-taxPacifiCorp after-tax earnings increased $8$59 million (2.9%) in the thirdsecond quarter and $3$52 million (0.5%) in the first ninesix months of 20202021 as compared to the same periods in 2019. The2020. These increases reflected higher utility margin (operating revenue less cost of sales), and increased income tax benefits from the impacts of ratemaking as well as higher production tax credit benefits drivencredits recognized on new wind-powered generating facilities placed in-service. The earnings increases were partially offset by repowered wind projects placed in-servicehigher operating expenses, including increased depreciation expense from the impacts of a deprecation study effective January 1, 2021, and higherlower allowances for equity and borrowed funds used during construction,construction.
PacifiCorp’s utility margin was $857 million in the second quarter and $1.7 billion in the first six months of 2021, increases of $96 million and $125 million, respectively, from the comparable periods in 2020. These increases reflected higher retail revenue from a 5.7% year-to-date increase in customer volumes and higher wholesale and other revenue, partially offset by higher operating expensesthermal generation and interest expense. The increases in operating expenses were largelypurchased power costs. Retail customer volumes increased due to costs associated with a settlement agreement and wildfires.
Utility margin was $980 million inhigher customer usage, the third quarter and $2.5 billion in the first nine months of 2020, increases of $77 million and $50 million, respectively, compared to 2019. The increases reflected higher wholesale revenue and lower coal-fueled and natural gas-fueled generation costs, partially offset by lower retail revenue derived from a 1.8% year-to-date decline in customer volumes due to thefavorable impacts of COVID-19, partly offset byweather and an increase in the average number of customers and the favorable impacts of weather.
MidAmerican Energy Companycustomers.
MEC operates a regulated electric and natural gas utility primarily in Iowa and Illinois. After-tax earnings increased $58$3 million (20.8%) in the thirdsecond quarter and $73decreased $3 million (11.7%) in the first ninesix months of 20202021 compared to 2019. The increases2020. These changes reflected higher electric utility margin and increased income tax benefits, primarily fromas well as higher operating expenses. The increases in operating expenses included incremental costs associated with additional wind-powered generating facilities placed in-service, as well as higher electric and natural gas distribution costs. The income tax benefit increases were mainly due to higher production tax credits recognized from higher wind-powered generation, driven primarily by repowered and new wind projects placed in-service, and from higherpartially offset by the impacts of ratemaking.
MEC’s electric utility margin partially offset by higher operating expenses, excluding energy efficiency program costs (substantially offset in revenues), and lower allowances for equity and borrowed funds used during construction. The increases in operating expenses were largely due to increased storm restoration costs in 2020 and wind projects placed in-service in 2019.
Electric utility margin, excluding energy efficiency program revenue, increased $11 million to $603was $483 million in the thirdsecond quarter and $7$877 million to $1.4 billion in the first ninesix months of 2020 compared to 2019. The year-to-date electric utility margin increase was2021, increases of 8% and 5%, respectively, versus 2020. These increases were attributable to higher operating revenue from a 1.1% increase inwholesale and retail customer volumes, and lowerpartially offset by higher thermal generation and purchased power costs, partially offset by lower wholesale revenue and price impacts from changes in sales mix. The increase in year-to-date electriccosts. Electric retail customer volumes wasincreased 9.2% in the second quarter and 7.0% in the first six months of 2021 as compared to 2020, primarily due to increased usage by certain industrial customers partially offset byand the favorable impacts of COVID-19.
NV Energyweather.
NV Energy operates regulated electric and natural gas utilities in Nevada. After-tax earnings increased $43$2 million (20.9%) in the thirdsecond quarter and $51$16 million (16.1%) in the first ninesix months of 20202021 compared to the corresponding 2019 periods. The2020. These increases reflected higher electric utility margin, higher other income (year-to-date only)lower interest expense and lower income tax expense from the favorable impacts of ratemaking, partially offset by lower electric utility margin and higher operating expenses. The increases in operating expenses were mainly due to higher earnings sharing accruals at Nevada Power Company and higher depreciation expense from additional plant placed in-service.in-service, partially offset by lower plant operations and maintenance costs.
ElectricNV Energy’s electric utility margin increased $68 million to $660was $402 million in the thirdsecond quarter and $80$707 million to $1.4 billion in the first ninesix months of 20202021, decreases of 1% and 3%, respectively, compared to 2019.2020. These increasesdecreases were primarily due to higherlower operating revenue from lower base tariff general rates at Nevada Power Company, partially offset by a 0.4% year-to-date4.4% increase in electric retail customer volumes including distribution-only service customers, andfor the first six months of 2021, price impacts from changes in sales mix.mix and an increase in the average number of customers. The increase in year-to-date electric retail customer volumes was primarily due to the impacts from COVID-19 recovery and the favorable impacts of weather, partially offset by the impacts of COVID-19.
Northern Powergrid
After-tax earnings decreased $11 million (29.7%) in the third quarter and $9 million (5.0%) in the first nine months of 2020 as compared to 2019. The earnings decreases reflected higher income tax expense, in large part from a change in the United Kingdom corporate income tax rate, and higher distribution-related operating expenses, partially offset by higher other income. The year-to-date decrease was also partially offset by lower interest expense.
Natural gas pipelines
After-tax earnings increased $12 million (18.2%) in the third quarter and $26 million (8.8%) in the first nine months of 2020 compared to the same periods in 2019. These increases were primarily due to higher transportation revenue and the favorable impact of a rate case settlement at Northern Natural Gas, partially offset by higher operating expenses. The increase in the first nine months was further offset by increased depreciation, lower storage revenue and higher interest expense.weather.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Utilities and Energy (“Berkshire Hathaway Energy Company”) (Continued)
Other energy businesses
After-taxNorthern Powergrid after-tax earnings decreased $84 million in the thirdsecond quarter and $67 million in the first six months of 2021 as compared to 2020. Earnings in each period of 2021 included deferred income tax expense of $109 million related to the enactment in the second quarter of 2020 declined $12 million (5.5%) comparedan increase in the United Kingdom corporate income tax rate from 19% to 2019.25%, effective April 1, 2023. The decrease reflected the effects of favorable regulatory decisions received in 2019 at AltaLink, L.P. as well as lower operating revenue and higher operating expenses from renewable energy projects in 2020. Theearnings decreases were partially offset by higher distribution revenue, mainly from increased tariff rates and units distributed and from favorable foreign currency exchange rate movements in 2021.
Natural gas pipelines after-tax earnings increased $36 million in the second quarter and $240 million in the first six months of 2021 compared to 2020. Earnings in 2021 from BHE GT&S were $66 million in the second quarter and $173 million in the first six months. In addition, year-to-date earnings increased from the effects of higher margins on natural gas sales and higher transportation revenue at Northern Natural Gas, largely due to the favorable impacts on demand from the February 2021 winter storms.
Other energy businesses after-tax earnings increased $45 million in the second quarter and decreased $29 million in the first six months of 2021 compared to 2020. The second quarter earnings increase was primarily due to income tax benefits from renewable wind tax equity investments, largely from projects reaching commercial operation.
After-taxoperation, and higher operating revenue from owned solar projects. The decrease in year-to-date earnings in the first nine months of 2020 increased $59 million (12.6%) compared to 2019. The increase was primarily due to a decline in wind tax equity investment earnings of $58 million, partially offset by higher operating revenue from owned renewable energy projects. The decrease in wind tax equity investment earnings was primarily due to increased losses from preexisting tax equity investments of $134 million, largely attributable to the aforementionedFebruary 2021 winter storms, partially offset by increased income tax benefits from renewable wind tax equity investments, partially offset by lower operating revenue and higher operating expenses from renewable energy projects.projects reaching commercial operation over the past twelve months.
Real estate brokerage
After-tax after-tax earnings increased $95$76 million in the thirdsecond quarter and $96$150 million in the first ninesix months of 20202021 compared to 2019.2020. The increases reflected significantly higher earnings from brokerage and mortgage services and brokerage services in the third quarter of 2020 as compared to 2019.services. The increaseincreases in earnings from mortgage services was attributable to higher refinance activity from the favorable interest rate environment and the earnings increase from brokerage services waswere due to a comparative increase in closed units of 12.9%transaction volumes in 2021 and the third quarter. The year-to-date earnings increase was partially offset byincreases from mortgage services were attributable to an unfavorable 2020 contingent earn-out remeasurement on a previous business acquisition.and higher year-to-date funded mortgage volume in 2021.
Corporate interest and other
After-tax earnings increased $43 after-tax losses decreased $18 million (33.9%) in the thirdsecond quarter and increased $12 million in the first six months of 20202021 compared to 2019, primarily due to2020, reflecting increased operating expenses and higher interest expense from corporate debt issued in 2020, as well as higher federal income tax credits recognized partially offset byand higher operating expenses and interest expense. After-tax earnings decreased $88 million in the first nine months of 2020 compared to 2019, primarily due to state income tax benefits recognized in 2019, higher interest expense, higher operating expenses and lower cash surrender value of corporate-owned life insurance policies, partially offset by higher federal income tax credits recognized.from non-regulated energy services.
Manufacturing, Service and Retailing
A summary of revenues and earnings of our manufacturing, service and retailing businesses follows (dollars in millions).
|
| Third Quarter |
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| First Nine Months |
| Second Quarter |
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| First Six Months |
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| Percentage Change |
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| Revenues |
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| Earnings * |
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| Revenues |
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| Earnings * |
| 2021 |
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| 2020 |
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| 2021 |
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| 2020 |
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| Second Quarter |
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| First Six Months |
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| 2020 |
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| 2019 |
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| 2020 |
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| 2019 |
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| 2020 |
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| 2019 |
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| 2020 |
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| 2019 |
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Revenues |
|
|
|
|
|
|
|
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|
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|
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Manufacturing |
| $ | 15,170 |
|
| $ | 15,897 |
|
| $ | 2,255 |
|
| $ | 2,484 |
|
| $ | 43,238 |
|
| $ | 47,173 |
|
| $ | 5,765 |
|
| $ | 7,205 |
| $ | 17,412 |
|
| $ | 13,033 |
|
| $ | 33,325 |
|
| $ | 28,068 |
|
|
| 33.6 | % |
|
| 18.7 | % |
Service and retailing |
|
| 19,319 |
|
|
| 19,982 |
|
|
| 875 |
|
|
| 689 |
|
|
| 55,351 |
|
|
| 59,079 |
|
|
| 1,950 |
|
|
| 2,225 |
|
| 21,272 |
|
|
| 17,255 |
|
|
| 40,852 |
|
|
| 36,032 |
|
|
| 23.3 |
|
|
| 13.4 |
|
|
| $ | 34,489 |
|
| $ | 35,879 |
|
|
|
|
|
|
|
|
|
| $ | 98,589 |
|
| $ | 106,252 |
|
|
|
|
|
|
|
|
| $ | 38,684 |
|
| $ | 30,288 |
|
| $ | 74,177 |
|
| $ | 64,100 |
|
|
|
|
|
|
|
|
|
Pre-tax earnings |
|
|
|
|
|
|
|
|
|
| 3,130 |
|
|
| 3,173 |
|
|
|
|
|
|
|
|
|
|
| 7,715 |
|
|
| 9,430 |
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Pre-tax earnings* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Manufacturing | $ | 2,714 |
|
| $ | 1,399 |
|
| $ | 5,150 |
|
| $ | 3,510 |
|
|
| 94.0 | % |
|
| 46.7 | % | ||||||||||||||||||||||||||||||||
Service and retailing |
| 1,270 |
|
|
| 452 |
|
|
| 2,311 |
|
|
| 1,075 |
|
|
| 181.0 |
|
|
| 115.0 |
| ||||||||||||||||||||||||||||||||
|
| 3,984 |
|
|
| 1,851 |
|
|
| 7,461 |
|
|
| 4,585 |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
Income taxes and noncontrolling interests |
|
|
|
|
|
|
|
|
|
| 784 |
|
|
| 718 |
|
|
|
|
|
|
|
|
|
|
| 1,882 |
|
|
| 2,288 |
|
| 980 |
|
|
| 402 |
|
|
| 1,838 |
|
|
| 1,098 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 2,346 |
|
| $ | 2,455 |
|
|
|
|
|
|
|
|
|
| $ | 5,833 |
|
| $ | 7,142 |
| $ | 3,004 |
|
| $ | 1,449 |
|
| $ | 5,623 |
|
| $ | 3,487 |
|
|
|
|
|
|
|
|
|
Effective income tax rate |
|
|
|
|
|
|
|
|
|
| 24.4 | % |
|
| 22.1 | % |
|
|
|
|
|
|
|
|
|
| 24.0 | % |
|
| 23.7 | % |
| 24.1 | % |
|
| 21.5 | % |
|
| 24.1 | % |
|
| 23.6 | % |
|
|
|
|
|
|
|
|
Pre-tax earnings as a percentage of revenues |
| 10.3 | % |
|
| 6.1 | % |
|
| 10.1 | % |
|
| 7.2 | % |
|
|
|
|
|
|
|
|
* | Excludes certain acquisition accounting expenses, which were primarily from the amortization of identifiable intangible assets recorded in connection with our business acquisitions. The after-tax acquisition accounting expenses excluded from earnings in the preceding table were |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Manufacturing, Service and Retailing (Continued)
Manufacturing
Our manufacturing group includes a variety of industrial, building and consumer products businesses. A summary of revenues and pre-tax earnings of our manufacturing operations follows (dollars in millions).
| Second Quarter |
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| First Six Months |
| ||||||||||
| 2021 |
|
| 2020 |
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| 2021 |
|
| 2020 |
| ||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial products | $ | 7,186 |
|
| $ | 5,789 |
|
| $ | 13,858 |
|
| $ | 13,147 |
|
Building products |
| 6,402 |
|
|
| 4,968 |
|
|
| 12,030 |
|
|
| 9,825 |
|
Consumer products |
| 3,824 |
|
|
| 2,276 |
|
|
| 7,437 |
|
|
| 5,096 |
|
| $ | 17,412 |
|
| $ | 13,033 |
|
| $ | 33,325 |
|
| $ | 28,068 |
|
Pre-tax earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial products | $ | 1,242 |
|
| $ | 535 |
|
| $ | 2,384 |
|
| $ | 1,841 |
|
Building products |
| 973 |
|
|
| 696 |
|
|
| 1,743 |
|
|
| 1,263 |
|
Consumer products |
| 499 |
|
|
| 168 |
|
|
| 1,023 |
|
|
| 406 |
|
| $ | 2,714 |
|
| $ | 1,399 |
|
| $ | 5,150 |
|
| $ | 3,510 |
|
Pre-tax earnings as a percentage of revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial products |
| 17.3 | % |
|
| 9.2 | % |
|
| 17.2 | % |
|
| 14.0 | % |
Building products |
| 15.2 | % |
|
| 14.0 | % |
|
| 14.5 | % |
|
| 12.9 | % |
Consumer products |
| 13.0 | % |
|
| 7.4 | % |
|
| 13.8 | % |
|
| 8.0 | % |
Industrial products
The industrial products group includes 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”)), Marmon, which consists of more than 100 autonomous manufacturing and service businesses, including equipment leasing for the rail, intermodal tank container and mobile crane industries, which are internally aggregated into sectors (or “groups”). The industrial products group also includes equipment and systems for the livestock and agricultural industries (CTB International (“CTB”))International), and a variety of industrial products for diverse markets (Marmon, Scott(Scott Fetzer and LiquidPower Specialty Products (“LSPI”))Products). Marmon includes UTLX Company (“UTLX”), which provides various
Revenues of the industrial products group in 2021 increased $1.4 billion (24.1%) from the second quarter and services (including equipment leasing)$711 million (5.4%) over the first six months of 2020. Pre-tax earnings in 2021 increased $707 million (132%) from the second quarter and $543 million (29.5%) from the first six months of 2020. Pre-tax earnings as a percentage of revenues for the railgroup were 17.2% for the first six months of 2021 compared to 14.0% in 2020. Results in 2020 were more significantly affected by the COVID-19 pandemic.
PCC’s revenues were $1.6 billion in the second quarter and mobile crane industries.$3.2 billion in the first six months of 2021, decreases of $156 million (8.8%) and $1.0 billion (24.7%), respectively, compared to 2020. Historically, PCC has derived significant revenues and earnings from aerospace products. The COVID-19 pandemic contributed to material declines in commercial air travel and aircraft production in 2020. While air travel in the U.S. is increasing in 2021, we do not expect significant increases in PCC’s aerospace demand to occur in the near term due to the inventory levels currently within the industry supply chain. Consequently, we anticipate PCC’s revenues and earnings in 2021 will be below pre-pandemic levels.
PCC’s pre-tax earnings increased $361 million in the second quarter and $228 million in the first six months of 2021 compared to 2020. The increases reflect the aggressive actions taken by management to resize and restructure operations.
Lubrizol’s revenues were approximately $1.7 billion in the second quarter and $3.35 billion in the first six months of 2021, increases of 28.0% in the second quarter and 15.3% in the first six months compared to 2020. The increases were attributable to higher volumes and favorable foreign currency translation effects. Despite an increase in sales and volume compared to the prior year, the Additives product line was affected by severe winter storms in February 2021, which caused the temporary shut-down of several U.S. facilities and negatively impacted sales.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Manufacturing, Service and Retailing (Continued)
ManufacturingIndustrial products (Continued)
Lubrizol’s pre-tax earnings decreased 17.4% in the second quarter and 15.0% in the first six months of 2021 compared to 2020. Earnings in the second quarter of 2021 included property losses, asset impairment charges and containment and response costs of approximately $160 million in connection with a fire at its Chemtool facility in Rockton, Illinois in June 2021. Earnings in 2021 were also negatively impacted by the weather-related temporary shut-down of Additives facilities in the U.S. in the first quarter due to lost sales and various incremental and non-recurring manufacturing and other operating costs. The comparative decline for the first six months was partially offset by increased earnings from the Advanced Materials business group.
Marmon’s revenues were $2.5 billion in the second quarter and $4.6 billion in the first six months of 2021, increases of $809 million (47.6%) and $899 million (24.3%), respectively, compared to 2020. The revenue increases were primarily due to higher metal prices in the Electrical, Metal Services and Plumbing & Refrigeration groups, higher volumes in most of Marmon’s business groups, particularly those serving the construction, automotive, heavy duty truck and trailer OEM markets and restaurant markets, and from favorable foreign currency translation effects. These increases were partially offset by lower revenues in the Rail & Leasing group from lower railcar repair volumes, leased fleet utilization, and lease renewal rates and from the impact of divestitures and business closures in the Water Technologies and Retail Solutions groups.
Marmon’s pre-tax earnings in 2021 increased $179 million (80.0%) in the second quarter and $162 million (30.9%) in the first six months compared to 2020. Earnings in the first six months of 2021 reflected higher earnings across most business groups, favorable currency translation effects and lower restructuring costs, partially offset by lower earnings from the Rail & Leasing and Water Technologies groups.
IMC’s revenues were $915 million in the second quarter and $1.8 billion in the first six months of 2021, increases of 43.6% in the second quarter and 21.7% in the first six months compared to 2020. Revenues in the first six months of 2021 reflected improving business conditions in most geographic regions and favorable foreign currency translation effects. IMC’s pre-tax earnings increased 136.6% in the second quarter and 65.6% in the first six months of 2021 versus 2020, primarily attributable to the favorable effects of higher customer demand, which improved manufacturing efficiencies, and also from the effects of other operating cost management saving initiatives and foreign currency translation.
Building products
The building products group includes homebuildingmanufactured and manufactured housing financesite-built construction and related lending and financial services (Clayton Homes), flooring (Shaw), insulation, roofing and engineered products (Johns Manville), bricks and masonry products (Acme Building Brands), paint and coatings (Benjamin Moore) and residential and commercial construction and engineering products and systems (MiTek).
Revenues of the building products group increased $1.4 billion (28.9%) in the second quarter and $2.2 billion (22.4%) in the first six months of 2021 compared to 2020. Pre-tax earnings increased $277 million (39.8%) in the second quarter and $480 million (38.0%) in the first six months over 2020. Pre-tax earnings as a percentage of revenues were 14.5% in the first six months of 2021, an increase of 1.6 percentage points over 2020. Residential housing construction in the U.S. was strong during 2020 and these conditions continued through the first six months of 2021. However, the effects of strong demand and supply chain disruptions contributed to significant cost increases for key materials and products used by our businesses, including lumber, steel, copper, petrochemical-based materials, energy, freight and fixtures, necessitating higher sales prices.
Clayton Homes’ revenues were approximately $2.7 billion in the second quarter and $5.0 billion in the first six months of 2021, increases of $639 million (31.2%) and $1.2 billion (31.1%), respectively, compared to 2020. Revenues from home sales increased $1.1 billion (37%) in the first six months of 2021, reflecting a net increase in units sold, increased revenue per home sold and changes in sales mix. Unit sales of site-built homes increased 38% in the first six months of 2021, while factory-built manufactured home unit sales increased 5%. Financial services revenues, which include mortgage origination and services, insurance and interest income from lending activities, increased 13% in the first six months of 2021 compared to 2020. Loan balances, net of allowances for credit losses, were approximately $17.8 billion as of June 30, 2021, an increase of $738 million compared to December 31, 2020.
Pre-tax earnings of Clayton Homes were $456 million in the second quarter and $848 million in the first six months of 2021, increases of $138 million (43.1%) and $328 million (63.0%), respectively, compared to 2020. Earnings in the first six months of 2021 reflected higher earnings from home sales, mortgage originations, net interest income and a decline of $85 million in provisions for expected credit losses. The provisions for expected credit losses in the first six months of 2020 were unusually high and included provisions for the expected impact of the COVID-19 pandemic.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Manufacturing, Service and Retailing (Continued)
Building products (Continued)
Aggregate revenues of our other building products businesses were approximately $3.7 billion in the second quarter and $7.0 billion in the first six months of 2021, increases of 27.2% and 17.0%, respectively, versus 2020. The increases were primarily due to higher volumes for paint and coatings, residential flooring, engineered products and other building systems and favorable foreign currency translation effects.
Pre-tax earnings of the other building products businesses were $517 million in the second quarter and $895 million in the first six months of 2021, increases of 37.2% and 20.5%, respectively, over 2020. The increases were primarily attributable to the increases in revenues and ongoing operating cost control efforts, partly offset by cost increases related to the constrained supply and availability of certain products and materials and shipping and freight services, attributable to the ongoing effects of supply chain disruptions and the impact of severe winter storms in 2021.
Consumer products
The consumer products group includes leisure vehicles (Forest River), several apparel and footwear operations (including Fruit of the Loom, Garan, Fechheimer, H.H. Brown Shoe Group and Brooks Sports) and high-performance alkaline batteries (Duracell). This group also includes custom picture framing products (Larson Juhl) and jewelry products (Richline). A summary of
Consumer products revenues and pre-tax earnings of our manufacturing operations follows (in millions).
|
| Third Quarter |
|
| First Nine Months |
| ||||||||||||||||||||||||||
|
| Revenues |
|
| Pre-tax earnings |
|
| Revenues |
|
| Pre-tax earnings |
| ||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
Industrial products |
| $ | 6,173 |
|
| $ | 7,716 |
|
| $ | 940 |
|
| $ | 1,458 |
|
| $ | 19,320 |
|
| $ | 23,280 |
|
| $ | 2,781 |
|
| $ | 4,441 |
|
Building products |
|
| 5,672 |
|
|
| 5,281 |
|
|
| 825 |
|
|
| 696 |
|
|
| 15,497 |
|
|
| 15,212 |
|
|
| 2,088 |
|
|
| 1,904 |
|
Consumer products |
|
| 3,325 |
|
|
| 2,900 |
|
|
| 490 |
|
|
| 330 |
|
|
| 8,421 |
|
|
| 8,681 |
|
|
| 896 |
|
|
| 860 |
|
|
| $ | 15,170 |
|
| $ | 15,897 |
|
| $ | 2,255 |
|
| $ | 2,484 |
|
| $ | 43,238 |
|
| $ | 47,173 |
|
| $ | 5,765 |
|
| $ | 7,205 |
|
Industrial products
Revenues of the industrial products group were $6.2increased approximately $1.5 billion (68.0%) in the thirdsecond quarter and $19.3$2.3 billion (45.9%) in the first ninesix months of 2020, decreases of 20.0%2021 compared to 2020. Pre-tax earnings increased $331 million (197%) in the thirdsecond quarter and 17.0%$617 million (152%) in the first nine months from comparable 2019 periods. Pre-tax earnings of the group were $940 million in the third quarter and $2.8 billion in the first ninesix months of 2020, declines of 35.6% in the third quarter and 37.4% in the first nine months compared to 2019.2021 versus 2020. Pre-tax earnings as a percentage of revenues for the group were 14.4%increased 5.8 percentage points to 13.8% in the first ninesix months of 20202021 compared to 19.1% in 2019.2020. Revenues and earnings were generally lower across each of our industrial products businesses.
PCC’s revenues were $1.5 billion in the third quarter and $5.7 billion in the first ninesix months of 2020, decreases2021 increased significantly at several of 41.4% from the third quarter and 26.7% from the first nine months of 2019. Since March of 2020, the COVID-19 pandemic contributed to material declines in commercial air travel and aircraft production. Airlines responded to the pandemic by delaying delivery of aircraft orders or, in some cases, cancelling aircraft orders, resulting in significant reductions in build rates by aircraft manufacturers and significant inventory reduction initiatives being implemented by PCC’s customers. Further, Boeing’s ongoing 737 MAX aircraft production issues have contributed to the declines in aerospace product sales in 2020. These factors resulted in significant declines in demand for PCC’s aerospace products in 2020.
PCC’s pre-tax earnings in 2020 declined 80% in the third quarter and 70% in the first nine months as compared to 2019. These decreases reflected the declines in aerospace products sales, which contributed to reduced manufacturing efficiencies. PCC management continues to undertake aggressive restructuring actions to resize operations in response to reduced expected volumes in aerospace markets. During the first nine months of 2020, PCC significantly reduced its worldwide workforce and expectsour businesses that by the end of 2020, its workforce will be about 40% lower than at the end of 2019. PCC recorded charges for restructuring and inventory and fixed asset write-downs of approximately $300 million in the first nine months of 2020. Although earnings as a percentage of revenues are expected to continue to be negatively impacted through 2020 due to inefficiencies associated with aligning operations to reduced aircraft build rates, management expects the actions being taken will ultimately improve operations and increase operating margins from the current depressed levels.
Lubrizol’s revenues were $1.5 billion in the third quarter and $4.4 billion in the first nine months of 2020, decreases of 8.7% from the third quarter and 12.5% from the first nine months of 2019. The declines were primarily attributable to lower volumes resulting from the worldwide economic impacts of COVID-19 and the effects of a fire at an additives manufacturing, blending and storage facility in Rouen, France at the end of the third quarter of 2019. While the Rouen operations were well below historical levels through the first nine months of 2020, production capacities are now substantially restored. Lubrizol’s consolidated volume declined 8.3% in the third quarter and 13.0% in the first nine months of 2020 compared to 2019, reflecting declines in the Additives and Engineered Materials product lines, partly offset by higher volumes in Life Science products.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Manufacturing, Service and Retailing (Continued)
Industrial products (Continued)
Lubrizol’s pre-tax earnings increased 11.2% in the third quarter and decreased 14.7% in the first nine months of 2020 compared to the same periods in 2019. The comparative increase in the third quarter reflected the effects of lower raw material costs and operating expenses more than offsetting lower sales volumes and average selling prices, as the negative effects from the Rouen fire were largely offset by insurance recoveries. The decline for the first nine months was primarily attributable to lower sales volumes, the impact of the Rouen fire, lower average selling prices and effects from foreign currency translation. These negative impacts were partially offset by lower average raw material costs and lower operating expenses.
Marmon’s revenues were $2.0 billion in the third quarter and $5.7 billion in the first nine months of 2020, decreases of 6.2% from the third quarter and 9.4% from the first nine months of 2019. In the third quarter of 2020, excluding acquisitions, revenues decreased in almost all of Marmon’s sectors due to lower volumes, primarily attributable to the economic effects of the COVID-19 pandemic, with the largest effects experienced in the Transportation Products and Foodservice Technologies sectors. Additionally, revenues in the first nine months of 2020 decreased due to lower metal prices in the Electrical, Metals Services and Plumbing & Refrigeration sectors and the effect of 2019 divestitures. The drastic declines in oil prices in 2020 also adversely affected volumes and revenues in the Crane, Electrical, Water and Rail & Leasing sectors.
Marmon’s pre-tax earnings decreased 19.3% in the third quarter and 18.1% in the first nine months of 2020 compared to the same periods in 2019. The decreases reflected the declines in revenues, increased restructuring charges and lower interest income. We expect additional restructuring initiatives through the end of 2020 in response to the lower product demand, particularly in the sectors mostseverely impacted by the COVID-19 pandemic.
IMC’s revenues were $699 million in the third quarter and $2.2 billion in the first nine months of 2020, decreases of 17.8% from the third quarter and 16.3% from the first nine months of 2019. The revenue declines were attributable to the negative economic effects from the COVID-19 pandemic and unfavorable foreign currency translation effects in the first half of 2020, partly offset by the effects of business acquisitions over the past year. IMC’s pre-tax earnings declined 32.3% in the third quarter and 35.9%2020.
Revenues from Forest River increased $1.3 billion (59%) in the first ninesix months of 20202021 compared to the same periods in 2019. The earnings declines were primarily due to the declines in2020, driven by increased unit sales for recreational vehicles. Apparel and changes in sales mix.
Building products
Revenues of the building products group were $5.7 billion in the third quarter and $15.5 billionfootwear revenues increased 46.6% in the first ninesix months of 2020, increases of $391 million (7.4%) from the third quarter and $285 million (1.9%) from the first nine months of 2019. Pre-tax earnings of the group were $825 million in the third quarter and $2.1 billion in the first nine months of 2020, increases of 18.5% from the third quarter and 9.7% from the first nine months of 2019. Pre-tax earnings as percentages of revenues were 13.5% in the first nine months of 20202021 compared to 12.5%2020, reflecting significant increases in the first nine months of 2019.
Clayton Homes’ revenues were $2.3 billionunit sales, attributable in the third quarter and $6.1 billion in the first nine months of 2020, increases of 22.4% over the third quarter and 14.7% over the first nine months of 2019.part to inventory restocking by certain customers, as well as from increased consumer demand. The comparative increases were primarily due to increases in home sales of 24.6% in the third quarter and 15.5% in the first nine months, reflecting a net increase in units sold and changes in sales mix. Unit sales of site-built homes increased 29% in the first nine months of 2020, while manufactured home unit sales increased 1%. Financial services revenues, which include mortgage services, insurance and interest income from lending activities, increased 15.7% in the third quarter and 12.5% in the first nine months of 2020 compared to 2019. Loan balances, net of allowances for credit losses, were $16.4 billion as of September 30, 2020 compared to $15.9 billion as of December 31, 2019.
Pre-tax earnings of Clayton Homes were $339 million in the third quarter and $859 million in the first nine months of 2020, increases of 24.7% in the third quarter and 11.7% in the first nine months compared to the same periods in 2019. The earnings increases reflected higher earnings from home building, increased interest income, lower interest expense and higher earnings from mortgage services, partly offset by increased provisions for credit losses and insurance losses. Although loan delinquency rates at the end of September 2020 were below those at the end of September 2019, the credit loss provisions in 2020 reflect expected credit losses, including the estimated impacts on the economy and unemployment rates arising from the COVID-19 pandemic.
Aggregate revenues of our other building products businesses were $3.4 billion in the third quarter and $9.4 billion in the first nine months of 2020, decreases of 1.0% in the third quarter and 5.1% in the first nine months compared to the same periods in 2019. The revenue decreases reflected lower volumes in certain commercial and industrial markets attributable to the negative effects of the COVID-19 pandemic, partly offset by increased paint and coatings volumes from a new agreement with Ace Hardware Stores and increased volumes in the residential markets.
Pre-tax earnings of the other building products businesses were $486 million in the third quarter and $1.2 billion in the first nine months of 2020, increases of 14.8% from the third quarter and 8.3% from the first nine months of 2019. The earnings increases reflected the effects of lower average input costs, operating cost containment efforts and lower facilities closure costs.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Manufacturing, Service and Retailing (Continued)
Consumer products
Consumer products revenues were $3.3 billion in the third quarter and $8.4 billion in the first nine months of 2020, an increase of 14.7% in the third quarter and a decrease of 3.0% in the first nine months compared to the same periods in 2019. Forest River sales increased 38.5% in the third quarter and 2.4% in the first nine months of 2020 as compared to the same periods in 2019. The increase in the third quarter was attributable to a significant increase in recreational vehicle unit sales and changes in sales mix.
Apparel and footwear sales in the third quarter of 2020 were relatively unchanged from the third quarter of 2019 and decreased 10.9% in the first nine months as compared to 2019. Sales volumes in the first half of 2020, particularly in the second quarter, reflected the negative effects of the COVID-19 pandemic, which included retail store closures, reduced or cancelled orders and pandemic-related disruptions at certain of our manufacturing facilities. Apparel and footwear sales in the third quarter of 2020 exceeded the second quarter of 2020 by 59%, attributable to a higher consumer demand and from retail customers restocking their inventories. Brooks Sports year-to-date revenues in 2020 were higher, partly attributable to the effect of lower sales in the first nine months of 2019 caused by product shipping delays at a new distribution facility. Revenues from Duracell in the first nine months of 2020 also increased over 2019.
Consumer products pre-tax earnings were $490 million indriven by the third quarter and $896 million in the first nine months of 2020,revenue increases of 48.5% in the third quarter and 4.2% in the first nine months compared to 2019. Pre-tax earnings as a percentage of revenues for the first nine months were 10.6% in 2020 and 9.9% in 2019. The increase in pre-tax earnings for the third quarter was primarily attributable to Forest River and Duracell, and to a lesser extent from apparel and footwear. Earnings in the first nine months of 2020 included lower earnings from apparel and footwear products and increased earnings from Duracell. Earnings from Forest River, were relatively unchanged inBrooks Sports, Duracell and the first nine months of 2020 comparedapparel businesses, as well as lower inventory obsolescence allowances. Our consumer products businesses are also experiencing cost increases attributable to 2019.supply chain disruptions.
Service and retailing
A summary of revenues and pre-tax earnings of our service and retailing businesses follows (in(dollars in millions).
|
| Third Quarter |
|
| First Nine Months |
| Second Quarter |
|
| First Six Months |
| ||||||||||||||||||||||||||||||||||||
|
| Revenues |
|
| Pre-tax earnings |
|
| Revenues |
|
| Pre-tax earnings |
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| |||||||||||||||||||||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
Service |
| $ | 3,068 |
|
| $ | 3,341 |
|
| $ | 470 |
|
| $ | 451 |
|
| $ | 9,093 |
|
| $ | 10,195 |
|
| $ | 1,155 |
|
| $ | 1,425 |
| $ | 3,982 |
|
| $ | 2,667 |
|
| $ | 7,587 |
|
| $ | 6,025 |
|
Retailing |
|
| 4,211 |
|
|
| 4,037 |
|
|
| 309 |
|
|
| 188 |
|
|
| 11,179 |
|
|
| 11,670 |
|
|
| 590 |
|
|
| 580 |
|
| 4,995 |
|
|
| 3,370 |
|
|
| 9,348 |
|
|
| 6,968 |
|
McLane Company |
|
| 12,040 |
|
|
| 12,604 |
|
|
| 96 |
|
|
| 50 |
|
|
| 35,079 |
|
|
| 37,214 |
|
|
| 205 |
|
|
| 220 |
|
| 12,295 |
|
|
| 11,218 |
|
|
| 23,917 |
|
|
| 23,039 |
|
|
| $ | 19,319 |
|
| $ | 19,982 |
|
| $ | 875 |
|
| $ | 689 |
|
| $ | 55,351 |
|
| $ | 59,079 |
|
| $ | 1,950 |
|
| $ | 2,225 |
| $ | 21,272 |
|
| $ | 17,255 |
|
| $ | 40,852 |
|
| $ | 36,032 |
|
Pre-tax earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
Service | $ | 727 |
|
| $ | 260 |
|
| $ | 1,317 |
|
| $ | 685 |
| ||||||||||||||||||||||||||||||||
Retailing |
| 459 |
|
|
| 148 |
|
|
| 807 |
|
|
| 281 |
| ||||||||||||||||||||||||||||||||
McLane Company |
| 84 |
|
|
| 44 |
|
|
| 187 |
|
|
| 109 |
| ||||||||||||||||||||||||||||||||
| $ | 1,270 |
|
| $ | 452 |
|
| $ | 2,311 |
|
| $ | 1,075 |
| ||||||||||||||||||||||||||||||||
Pre-tax earnings as a percentage of revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
Service |
| 18.3 | % |
|
| 9.7 | % |
|
| 17.4 | % |
|
| 11.4 | % | ||||||||||||||||||||||||||||||||
Retailing |
| 9.2 | % |
|
| 4.4 | % |
|
| 8.6 | % |
|
| 4.0 | % | ||||||||||||||||||||||||||||||||
McLane Company |
| 0.7 | % |
|
| 0.4 | % |
|
| 0.8 | % |
|
| 0.5 | % |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Manufacturing, Service and Retailing (Continued)
Service
Our service business group offers fractionalshared ownership programs for general aviation aircraft (NetJets) and professional aviationhigh technology training products and services and flight simulation productsto operators of aircraft (FlightSafety). We also distribute electronic components (TTI), franchise and service a network of quick service restaurants (Dairy Queen) and offer third party logistics services that primarily serve the petroleum and chemical industries (Charter Brokerage). Other service businesses include transportation equipment leasing (XTRA) and furniture leasing (CORT), electronic news distribution, multimedia and regulatory filings (Business Wire), and the operation of a television station in Miami, Florida (WPLG) and until the time of their sale on March 16, 2020, the publishing of newspapers..
Service group revenues were $3.1 billionincreased 49.3% in the thirdsecond quarter and $9.1 billion25.9% in the first ninesix months of 2020, decreases of 8.2% in the third quarter and 10.8% in the first nine months as2021 compared to 2019. The aggregate revenues of NetJets and FlightSafety declined 10.8% in the third quarter and 14.3% for the first nine months of 2020, reflecting lower demand for aviation services as a consequence of the COVID-19 pandemic. In addition, TTI’s revenues increased 2.4% in the third quarter and decreased 1.2% in the first nine months of 2020 as compared with 2019. The comparative revenue declines in 2020 also included a year-to-date decline of 29.2% at CORT, as well as the effects of the disposition of the newspaper operations in March.
2020. Pre-tax earnings of the service group were $470increased $467 million in the third quarter and $1.2 billion in the first nine months of 2020, an increase of $19 million (4.2%(179.6%) in the thirdsecond quarter and a decrease of $270$632 million (18.9%(92.3%) in the first ninesix months compared to 2019.of 2021 versus 2020. Pre-tax earnings of the group as a percentage of revenues were 12.7%17.4% in the first ninesix months of 20202021, an increase of 6.0 percentage points compared to 14.0% in 2019. The decline in earnings for the first ninesix months of 2020.
Revenues from TTI increased 52.4% in the second quarter and 38.7% in the first six months of 2021 versus 2020. The increases reflected accelerating demand across all significant markets within the electronic components industry as industry participants attempt to maintain adequate inventories in response to high demand for components in end products and supply chain disruptions. Revenues from aviation services (NetJets and FlightSafety) increased 56.0% in the second quarter and 22.4% in the first six months of 2021 over low 2020 waslevels, primarily due to higher training hours and significantly higher customer flight hours.
Earnings at most of our service businesses increased significantly in the second quarter and first six months of 2021 compared to 2020, with the largest increases from TTI and the aviation services businesses. The increases in the aggregate earnings from NetJets and FlightSafety were primarily attributable to FlightSafety, NetJets, TTIimproved operating margins from changes in business mix, increased operating efficiencies and CORT.the effects of past restructuring efforts. TTI’s earnings decline reflected lower average gross margin rates,increases were primarily attributable to sluggishthe increases in sales volumes in certain markets and sales price pressures deriving from ample inventory availability within the industry. The declines at NetJets, FlightSafety and CORT were due to lower customer demand for services and increased asset impairment and restructuring charges in the aviation services businesses.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Manufacturing, Service and Retailing (Continued)improved operating cost leverage.
Retailing
Our largest retailing business is Berkshire Hathaway Automotive (“BHA”), which consists of over 80 auto dealerships that sell new and pre-owned automobiles and offer repair services and related products, and representedproducts. BHA represents about 65%64% of our combined retailing revenues in 2020.2021. BHA also operates two insurance businesses, two auto auctions and an automotive fluid maintenance products distributor. OtherOur retailing businesses also include four home furnishings retailing businesses (Nebraska Furniture Mart, R.C. Willey, Star Furniture and Jordan’s), which sell furniture, appliances, flooring and electronics and representedrepresent about 20% of the combined retailing revenues in 2020.2021. Other retailing businesses also include three jewelry 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.
Retailing group revenues were $4.2increased approximately $1.6 billion (48.2%) in the thirdsecond quarter and $11.2$2.4 billion (34.2%) in the first ninesix months of 2020, an increase of 4.3%2021 compared to 2020. Pre-tax earnings increased $311 million (210%) in the thirdsecond quarter and a decrease of 4.2%$526 million (187%) in the first ninesix months compared to 2019. The spread of COVID-19 throughout the U.S. resulted in the temporary closures or restricted operations at some2020. Operating results of our retail store operations duringretailing businesses were severely impacted by the pandemic beginning in March of 2020 and significantly lower salescontinuing through the second quarter of 2020. Over the second half of 2020 and continuing through the first six months of 2021, revenues and pre-tax earnings of these businesses increased, and in certain instances increased to levels exceeding those in pre-pandemic periods, despite ongoing supply chain disruptions.
BHA’s revenues in the first half of the year. The severity and duration of the effects on our operations from the pandemic have varied widely. Sales volumes increased and operating results improved beginning in the latter part of the second quarter as our operations slowly reopened.
BHA’s revenues decreased 2.5% in the third quarter and 4.9% in the first ninesix months of 2021 increased 29.4% from 2020, comparedprimarily due to the same periods in 2019. BHA’s revenues in 2020 reflected decreasesa 30% increase in new and pre-owned vehicle sales, mainly attributable to higher volumes of 2.4% in the third quarter and 5.0% in the first nine months as well as lower vehicle service and repair revenues.
new auto sales. Home furnishings group revenues in 2020 increased 8.5% in the third quarter versus 2019, reflecting stronger consumer demand. Home furnishings revenues decreased 4.9%$523 million (38.0%) in the first ninesix months of 2021 over 2020, as compared to 2019.while aggregate revenues of our other retailing operations increased 51.2% versus 2020.
Pre-taxBHA’s pre-tax earnings of the retail group were $309 million in the third quarter and $590increased $143 million in the first ninesix months of 2020, increases of 64.4% in the third quarter and 1.7% in the first nine months from 2019. BHA’s pre-tax earnings increased 50.3% in the third quarter and 30.8% in the first nine months of2021 compared to 2020, primarily due to lower selling, generalincreases in vehicle gross sales margins, higher service margins and administrative expenses,earnings from finance and service contract activities as well as from lower floorplan interest expense, primarily attributable to lower inventory levels, and from higher gross margin rates.
operating cost control efforts. Aggregate pre-tax earnings for the remainder of our retailing group increased $66 million in the third quarter and decreased $82$383 million in the first ninesix months of 2020 as2021 compared to 2019. Certain2020, due to the restricted operations at many of our smaller operations, including Pampered Chef and Louis experienced significant earnings increases in 2020, while others, including See’s Candy and Oriental Trading Company, experienced significant declines. Also, we incurred charges inthose businesses during the first nine monthssecond quarter of 2020 attributable to asset impairments, restructuringsarising from the initial effects of the pandemic. Results in 2021 also benefitted from strong consumer demand and credit losses.the effects of restructuring efforts.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Manufacturing, Service and Retailing (Continued)
McLane Company
McLane operates a wholesale distribution business that provides grocery and non-food consumer products to retailers and convenience stores (“grocery”) and to restaurants (“foodservice”). McLane also operates businesses that are wholesale distributors of distilled spirits, wine and beer (“beverage”). The grocery and foodservice businesses generate high sales and very low profit margins. These businesses have several significant customers, including Walmart, 7-Eleven, Yum! Brands and others. Grocery sales comprisedtypically comprise about 2/3two-thirds of McLane’s consolidated sales in the first nine months of 2020 with foodservice comprising mostmuch of the remainder. A curtailment of purchasing by any of its significant customers could have an adverse impact on periodic revenues and earnings.
Revenues were $12.0 billion in the third quarter The grocery and $35.1 billion in the first nine months of 2020, decreases of 4.5% in the third quarter and 5.7% in the first nine months compared to 2019. Revenues in the third quarter of 2020 decreased 4.7% in the grocery business (5.4% year-to-date) and 5.2% in the foodservice business (7.7% year-to-date) as compared to 2019. The declines were attributable to COVID-19 related restaurant closures (particularly in the casual dining category) in the foodservice business and lower sales in certain product categories within the grocery business.
Pre-tax earnings increased $46 million (92.0%) in the third quarter and decreased $15 million (6.8%) in the first nine months of 2020 as compared to 2019. The earnings increase in the third quarter reflected ongoing operating expense management efforts and a slight increase in the overall gross margin rate, partly offset by the effects of lower sales. The earnings decrease in the first nine months of 2020 included charges of $23 million for credit and inventory losses in the foodservice operations and the impact of lower sales. McLane continuesbusinesses continue to operate in an intensely competitive business environment, which isenvironment.
Revenues increased $1.1 billion (9.6%) in the second quarter and $878 million (3.8%) in the first six months of 2021 compared to 2020. Revenues from the grocery business were relatively unchanged in the first six months of 2021, while revenues from the foodservice and beverage businesses increased 9.9% and 21.7%, respectively, compared to the first six months of 2020. The foodservice business was negatively affecting its current operating results.
Item 2. Management’s Discussionimpacted by pandemic-related restaurant closures in 2020. Pre-tax earnings increased $40 million (90.9%) in the second quarter and Analysis$78 million (71.6%) in the first six months of Financial Condition2021 versus 2020. The increases in earnings primarily reflected higher earnings from the foodservice and Resultsbeverage businesses, ongoing cost management efforts and the effects of Operationsexpected credit losses and inventory valuation losses of $23 million recorded in the first six months of 2020.
Investment and Derivative Gains/Losses
A summary of investment and derivative gains/losses follows (dollars in millions).
|
| Third Quarter |
|
| First Nine Months |
|
| Second Quarter |
|
| First Six Months |
| ||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||||
Investment gains/losses |
| $ | 31,625 |
|
| $ | 10,692 |
|
| $ | 2,032 |
|
| $ | 40,079 |
|
| $ | 27,173 |
|
| $ | 39,289 |
|
| $ | 32,384 |
|
| $ | (29,593 | ) |
Derivative gains/losses |
|
| (43 | ) |
|
| 234 |
|
|
| (640 | ) |
|
| 1,217 |
|
|
| 221 |
|
|
| 796 |
|
|
| 710 |
|
|
| (597 | ) |
Gains/losses before income taxes and noncontrolling interests |
|
| 31,582 |
|
|
| 10,926 |
|
|
| 1,392 |
|
|
| 41,296 |
|
|
| 27,394 |
|
|
| 40,085 |
|
|
| 33,094 |
|
|
| (30,190 | ) |
Income taxes and noncontrolling interests |
|
| 6,845 |
|
|
| 2,260 |
|
|
| 627 |
|
|
| 8,590 |
|
|
| 5,986 |
|
|
| 8,440 |
|
|
| 6,993 |
|
|
| (6,218 | ) |
Net gains/losses |
| $ | 24,737 |
|
| $ | 8,666 |
|
| $ | 765 |
|
| $ | 32,706 |
|
| $ | 21,408 |
|
| $ | 31,645 |
|
| $ | 26,101 |
|
| $ | (23,972 | ) |
Effective income tax rate |
|
| 21.3 | % |
|
| 20.8 | % |
|
| 35.1 | % |
|
| 20.8 | % |
|
| 21.4 | % |
|
| 21.0 | % |
|
| 20.9 | % |
|
| 20.7 | % |
Investment gains/losses
We are required to include the unrealizedUnrealized gains and losses arising from changes in market prices of investments in equity securities are included in our reported earnings, which significantly increases the volatility of our periodic net earnings due to the magnitude of our equity securities portfolio and the inherent volatility of equity securities prices. Pre-tax investment gains/losses in 2020 included net unrealized gains of $30.8$27.0 billion in the thirdsecond quarter and $16.5$31.5 billion in the first ninesix months on securities we owned on September 30. Netof 2021 compared to net unrealized gains in 2019 on securities owned on September 30, 2019 were $10.5of $39.4 billion in the thirdsecond quarter and $39.5net unrealized losses of $18.4 billion in the first nine months.six months of 2020 on securities we held at the end of the applicable period. Investment losses on equity securities sold in the first six months of 2020 were $11.2 billion, which included losses of $10.7 billion from market value changes in the first nine months of 2020quarter on equity securities that were sold in 2020 were $13.9 billion. In 2020, taxablethe second quarter.
Taxable investment gains on equity securities sold, which is generally the difference between sales proceeds and the original cost basis of the securities sold, were $3.9 billion$228 million in the third quarter and $0.7 billion in the first nine months. In 2019, taxable investment gains on equity securities sold were $0.6 billion in the thirdsecond quarter and $2.0 billion in the first nine months.six months of 2021. Taxable investment losses on equity securities were $4.5 billion in the second quarter and $3.3 billion in the first six months of 2020.
Investment gains/losses from periodic changes in securities prices will continue to cause significant volatility in our consolidated earnings. We believe that investment gains/losses, whether realized from sales or unrealized from changes in market prices, are often meaningless in terms of understanding our reported consolidated earnings or evaluating our periodic economic performance. We continue to believe that the amount of investment gains/losses includedrecorded in earnings in any given period has little analytical or predictive value.
Derivative gains/losses
Derivative contract gains/losses include the changes in fair value of our equity index put option contract liabilities, which relate to contracts that were originated prior to March 2008. Substantially all remaining contracts will expire by February 2023. The periodic changes in the fair values of these liabilities are recorded in earnings and can be significant due to the volatility of market prices in the underlying equity markets. As of SeptemberJune 30, 2020,2021, the intrinsic value of our equity index put option contracts was approximately $1.2 billion$72 million and our recorded liability at fair value was $1.5 billion.$355 million. Our ultimate payment obligations, if any, under ourthese contracts will be determined as of the contract expiration dates based on the intrinsic value as defined under the contracts.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Other
A summary of after-tax other earnings/losses follows (in millions).
|
| Third Quarter |
|
| First Nine Months |
| Second Quarter |
|
| First Six Months |
| ||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||||
Equity method earnings |
| $ | 244 |
|
| $ | 515 |
|
| $ | 346 |
|
| $ | 812 |
| $ | 141 |
|
| $ | (154 | ) |
| $ | 355 |
|
| $ | 102 |
|
Acquisition accounting expenses |
|
| (195 | ) |
|
| (201 | ) |
|
| (593 | ) |
|
| (581 | ) |
| (183 | ) |
|
| (196 | ) |
|
| (363 | ) |
|
| (398 | ) |
Goodwill and intangible asset impairments |
|
| (19 | ) |
|
| — |
|
|
| (10,369 | ) |
|
| — |
|
| — |
|
|
| (10,350 | ) |
|
| — |
|
|
| (10,350 | ) |
Corporate interest expense, before foreign currency effects |
|
| (80 | ) |
|
| (63 | ) |
|
| (252 | ) |
|
| (209 | ) |
| (77 | ) |
|
| (76 | ) |
|
| (157 | ) |
|
| (172 | ) |
Foreign currency exchange rate gains (losses) on Berkshire and BHFC non-U.S. Dollar senior notes |
|
| (412 | ) |
|
| 308 |
|
|
| (329 | ) |
|
| 355 |
|
| (45 | ) |
|
| (92 | ) |
|
| 480 |
|
|
| 83 |
|
Income tax expense adjustments |
|
| (60 | ) |
|
| — |
|
|
| (60 | ) |
|
| (377 | ) | |||||||||||||||
Other, principally corporate investment income |
|
| 32 |
|
|
| 276 |
|
|
| 363 |
|
|
| 694 |
| |||||||||||||||
Net earnings (loss) attributable to Berkshire Hathaway shareholders |
| $ | (490 | ) |
| $ | 835 |
|
| $ | (10,894 | ) |
| $ | 694 |
| |||||||||||||||
Other |
| (5 | ) |
|
| 131 |
|
|
| (11 | ) |
|
| 331 |
| ||||||||||||||||
| $ | (169 | ) |
| $ | (10,737 | ) |
| $ | 304 |
|
| $ | (10,404 | ) |
After-tax equity method earnings include Berkshire’sour proportionate share of earnings attributable to our investments in Kraft Heinz, Pilot, Berkadia and Electric Transmission of Texas. Our after-tax earnings from Kraft Heinz were $20 million for the second quarter and $155 million for the first six months of 2021. Our Kraft Heinz investment produced after-tax earningslosses of $142$297 million for the thirdsecond quarter and an after-tax loss of $56$198 million for the first ninesix months of 2020. The2020, which included after-tax losslosses of $513 million in the second quarter and $552 million in the first ninesix months included $611 million attributable to goodwill and intangible asset impairment charges recorded by Kraft Heinz (primarily in the second quarter). As discussed in Note 5 to the accompanying Consolidated Financial Statements, financial results of Kraft Heinz for the first and second quarters of 2019 were not available to us until the third quarter. Accordingly, our consolidated statements of earnings for the third quarter of 2019 included our share of Kraft Heinz’s earnings for the first nine months, or $377 million, which included $214 million attributable toassociated with goodwill and intangible asset impairment charges recorded by Kraft Heinz.
After-tax acquisition accounting expenses include charges arising from the application of the acquisition method in connection with certain of Berkshire’s past business acquisitions. Such charges arise primarily from the amortization of intangible assets recorded in connection with those business acquisitions. Goodwill and intangible asset impairments in the second quarter and first ninesix months of 2020 included charges of $9.8 billion attributable to impairments of goodwill and certain identifiable intangible assets that were recorded in connection with our acquisition of PCC in 2016. See Critical Accounting Policies on page 46 for additional details.
Foreign currency exchange rate gains and losses pertain to non-U.S. DollarBerkshire’s Euro and Japanese Yen denominated debt issued by Berkshire and BHFC. As of September 30, 2020, outstanding borrowings included senior notes of €6.85 billion par, ¥625.5 billion par and £1.75 billion par.BHFC’s Great Britain Pound denominated debt. Changes in foreign currency exchange rates produce non-cash unrealized gains and losses from the periodic revaluation of these liabilities into U.S. Dollars. The gains and losses recorded in any given period can be significant due to the magnitude of the borrowings and the inherent volatility in foreign currency exchange rates.
The income tax expense adjustments relate to investments that we made between 2015 and 2018 in certain tax equity investment funds, which aggregated approximately $340 million. In December 2018 and during the first quarter of 2019, we learned of allegations by federal authorities of fraudulent income conduct by the sponsor of these funds and in January 2020, the principals involved in creating the investment funds plead guilty to criminal charges related to the sale of the investments. In the first quarter of 2019, we concluded it was more likely than not that the income tax benefits that we recognized prior to 2019 were not valid.
Financial Condition
Our consolidated balance sheet continues to reflect very significant liquidity and a very strong capital base. Consolidated shareholders’ equity at SeptemberJune 30, 20202021 was $415.2$470 billion, a decreasean increase of $9.6$27.2 billion since December 31, 2019 and an increase of $21.7 billion since June 30, 2020. Net earnings attributable to Berkshire shareholders were $30.1 billion in the third quarter and $6.7$39.8 billion in the first ninesix months of 2020. Earnings2021 and included after-tax gains on our investments of approximately $24.8 billion in the third quarter and $1.3 billion in the first nine months of 2020.$25.5 billion. Changes in the market prices forof our investments in equity securities since December 31, 2019 have produced exceptionalcan produce significant volatility in our earnings. Our results in 2020 also included after-tax goodwill and other intangible asset impairment charges of $11.0 billion.
At SeptemberJune 30, 2020,2021, our insurance and other businesses held cash, cash equivalents and U.S. Treasury Bills (net of amounts payable as of September 30 for purchases that were settled in October) of $135.2$140.7 billion, which included $114.1$118.1 billion in U.S. Treasury Bills. Investments in equity and fixed maturity securities (excluding our investment in Kraft Heinz) were $264.8$328.4 billion.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Financial Condition(Continued)
Berkshire parent company outstanding debt outstanding at SeptemberJune 30, 20202021 was $22.2$22.5 billion, an increasea decrease of $2.3 billion$190 million since December 31, 2019.2020. In the first nine monthsquarter of 2020,2021, Berkshire repaid €550 million and $1.0 billion of maturing senior notes of €1.0 billion and issued €1.0 billion€600 million of 0.0%0.5% senior notes due in 2025 and ¥195.52041. In April 2021, Berkshire issued ¥160 billion (approximately $1.5 billion) of senior notes (approximately $1.8 billion), which haswith maturity dates ranging from 2026 to 2041 and a weighted average interest rate of 1.07% and maturity dates ranging from 2023 to 2060. In0.5%. Berkshire parent company debt maturing over the first quarter of 2021, senior notes of $1.6 billion will mature.next twelve months is $1.1 billion.
Berkshire’s insurance and other subsidiary outstanding borrowings were $16.7$18.1 billion at SeptemberJune 30, 2020,2021, which included senior note borrowings of BHFC, a wholly-owned financing subsidiary, of approximately $11.0$13.1 billion. BHFC’s borrowings are used to fund a portion of loans originated and acquired by Clayton Homes and equipment held for lease by our UTLX railcar leasing business. In the first nine months of 2020,January 2021, BHFC repaid $350$750 million of maturing senior notes and issued $500$750 million of 1.85%2.5% senior notes due in 2030. In October 2020,2051. BHFC repaid $550 million ofdebt maturing over the next twelve months is $775 million. Berkshire guarantees BHFC’s senior notes and issued $2.5 billion of senior notes, consisting of $750 million of 1.45% senior notes due in 2030 and $1.75 billion of 2.85% senior notes due in 2050. Berkshire guaranteesfor the full and timely payment of principal and interest with respect to BHFC’s senior notes. In the first quarterinterest.
Item 2. Management’s Discussion and Analysis of 2021, approximately $750 millionFinancial Condition and Results of BHFC senior notes will mature.Operations
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. Capital expenditures of these two operations in the first ninesix months of 20202021 were $7.1$4.1 billion and we currently forecast additional capital expenditures of approximately $3$6.2 billion over the remainder of 2020.2021.
BNSF’s outstanding debt was $23.2 billion as of September 30, 2020, relatively unchanged from December 31, 2019. In April 2020, BNSF issued $575 million of 3.05% senior unsecured debentures due in 2051. Outstanding borrowings of BHE and its subsidiaries were $45.6 billion at September 30, 2020, an increase of approximately $3.0 billion since December 31, 2019. In the first nine months of 2020, BHE and its subsidiaries issued new term debt aggregating $5.5 billion with maturity dates ranging from 2025 to 2062, repaid approximately $1.9 billion of debt and reduced short-term borrowings. Over the remainder of 2020, BHE and its subsidiaries will repay debt of approximately $640 million. On October 29, 2020, BHE issued $500 million of 1.65% senior notes due in 2031 and $1.5 billion of 2.85% senior notes due in 2051. 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.
BNSF’s outstanding debt was $23.3 billion as of June 30, 2021, relatively unchanged from December 31, 2020. During the first six months of 2021, BNSF repaid $886 million of debt and issued $925 million of 3.3% debentures due in 2051. Outstanding borrowings of BHE and its subsidiaries were $51.4 billion at June 30, 2021, a decrease of $744 million since December 31, 2020. During the first six months of 2021, BHE and its subsidiaries repaid $1.7 billion of term debt, issued $550 million of 3.4% term debt due in 2051 and increased short-term borrowings by $250 million. In July 2020,2021, BHE reached a definitive agreement with Dominion Energy, Inc. (“Dominion”) to acquire substantially all of Dominion’s natural gas transmission and storage businesses. As discussed in Note 22 to the accompanying Consolidated Financial Statements, on November 1, 2020, BHE acquired certain of the Dominion businesses for $2.7 billion in cash and assumed $5.3subsidiaries issued $1.5 billion of Dominion debt. The acquisition ofterm debt due in 2052 with interest rates ranging from 2.7% to 2.9%. Aggregate debt maturities for BHE and BNSF over the remainder of the Dominion businesses is expected to close in early 2021.next twelve months approximate $1.5 billion.
Berkshire’s common stock repurchase program, wasas amended, on July 17, 2018, permittingpermits Berkshire to repurchase its Class A and Class B shares at prices below Berkshire’s intrinsic value, as conservatively determined by Warren Buffett, Berkshire’s Chairman of the Board and Chief Executive Officer, and Charlie Munger, Vice Chairman of the Board. The program allows share repurchases in the open market or through privately negotiated transactions and does not specify a maximum number of shares to be repurchased. The program is expected to continue indefinitely. We will not repurchase our stock if it reduces the total amount of Berkshire’s consolidated cash, cash equivalents and U.S. Treasury BillBills holdings below $20$30 billion. Financial strength and redundant liquidity will always be of paramount importance at Berkshire. In the first nine months of 2020, Berkshire paid $15.7 billion, including $9.0$12.6 billion in the third quarter,first six months of 2021 to repurchase shares of its Class A and B common stock.
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 pertaining to the acquisition of goods or services in the future are not currently reflected in the financial statements, which 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. Actualevents and the actual payments will likely vary, perhaps materially, from the estimated liabilities currently recorded in our Consolidated Balance Sheet.
In the first ninesix months of 2020,2021, Berkshire and certain of its subsidiaries issued new term debt.debt of approximately $4.4 billion in the aggregate. Principal and interest payments associated with these new term borrowings are expected as follows: in 20202021 – $82$38 million; in 2021 and 2022 through 2025 – $472 million; in 2023 and 2024 – $1.0 billion;$79 million per annum; and thereafter – $12.2$6.2 billion. In October 2020, Berkshire subsidiaries issued new term debt aggregating $4.5 billion with maturities ranging from 2030 to 2051.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Contractual Obligations (Continued)
Except as otherwise disclosed in this Quarterly Report, our contractual obligations as of SeptemberJune 30, 20202021 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 Form 10-K for the year ended December 31, 2019.2020.
Critical Accounting Policies
Certain accounting policies require us to make estimates and judgments that affect the amounts reflected in the Consolidated Financial Statements. Such estimates and judgments necessarily involve varying, and possibly significant, degrees of uncertainty. Accordingly, certain amounts recorded in the financial statements will likely be adjusted in the future based on new available information and changes in other facts and circumstances. Reference is made to “Critical Accounting Policies” discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Berkshire’s Annual Report on Form 10-K for the year ended December 31, 2019.2020.
Our Consolidated Balance Sheet as of SeptemberJune 30, 20202021 includes estimated liabilities of $123.2 billion for unpaid losses and loss adjustment expenses from property and casualty insurance and reinsurance contracts of $119.8 billion.contracts. Due to the inherent uncertainties in the processes of establishing these liabilities, the actual ultimate claim amounts will likely differ from the currently recorded amounts. A very small percentage change in estimates of this magnitude can result in a material effect on periodic earnings. The effects from changes in these estimates are recorded as a component of insurance losses and loss adjustment expenses in the period of the change.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Critical Accounting Policies(Continued)
Our Consolidated Balance Sheet as of SeptemberJune 30, 20202021 included goodwill of acquired businesses of $71.9$73.8 billion and indefinite-lived intangible assets of $18.3 billion. We evaluate these assets for impairment at least annually and we conducted our most recent annual review during the fourth quarter of 2019.2020.
Goodwill and indefinite-lived intangible asset impairment reviews include determining the estimated fair values of our reporting units and assets. The key assumptions and inputs used in such determinations may include forecasting revenues and expenses, cash flows and capital expenditures, as well as an appropriate discount rate and other inputs. Significant judgment by management is required in estimating the fair value of a reporting unit and in performing impairment tests. Due to the inherent subjectivity and uncertainty in forecasting future cash flows and earnings over long periods of time, actual results may vary materially from the forecasts.
In response to the adverse effects of the COVID-19 pandemic, we considered whether goodwill needed to be reevaluated for impairment. As of June 30, 2020, we determined it was necessary to quantitively reevaluate goodwill for impairment for certain reporting units, and most significantly for PCC. As a result of our reviews, we recorded pre-tax goodwill impairment charges of $10.0 billion and indefinite-lived intangible asset impairment charges of $638 million in the second quarter of 2020, of which approximately $10 billion related to PCC.
Prior to the reevaluation, the carrying value of our goodwill in PCC was approximately $17 billion. Additionally, the carrying value of indefinite-lived intangible assets in PCC was approximately $14 billion. Substantially all of these amounts were recorded in connection with Berkshire’s acquisition of PCC in 2016. We believe the effects of the COVID-19 pandemic on commercial airlines and aircraft manufacturers is particularly severe. We considered a number of factors in our reevaluation, including but not limited to the announcements by airlines concerning potential future demand, employment levels and aircraft orders, announcements by manufactures on reduced aircraft production, and the actions we are taking or may take to restructure our operations to fit lower expected demand. In our judgment, the timing and extent of the recovery in the commercial airline and aerospace industries may be dependent on the development and wide-scale distribution of medicines or vaccines that effectively treat the virus. Consequently, we deemed it prudent under the prevailing circumstances to increase the discount rates and reduce our prior long-term forecasts of future cash flows for purposes of reviewing for impairments. The amounts of these adjustments were based on qualitative assessments by Berkshire.
As of September 30, 2020,2021, we concluded it is more likely than not that goodwill recorded in our Consolidated Balance Sheet was not impaired. The long-term adverse effects of the COVID-19 pandemic on certain of our reporting units may prove to be worse than we currently anticipate, and we may need to record goodwill or indefinite-lived asset impairment charges in future periods. Making estimates of the fair value of reporting units and judgments on goodwill impairments at this time are and will likely be significantly affected by assumptions on the severity, duration or long-term effects of the pandemic on thea reporting unit’s business, which we cannot reliably predict. Consequently, any fair value estimates in such instances can be subject to wide variations. The effects
As of the COVID-19 pandemic could prove to be worse than we currently estimate for our reporting units, including reporting units where we recordedmost recent annual goodwill impairment chargesreview conducted during the first nine months of 2020, and could lead us to record additional goodwill or indefinite-lived asset impairment charges in the fourth quarter of 2020.
Item 2. Management’s Discussion and Analysis2020, the estimated fair values of Financial Condition and Resultscertain reporting units did not exceed our carrying values by at least 20%. The most significant of Operations
Critical Accounting Policies (Continued)these reporting units was Precision Castparts Corp. (“PCC”). The estimated fair value of PCC was approximately $35.5 billion, exceeding our carrying value of approximately $32.1 billion by 10.6%. Our carrying value of PCC included goodwill of approximately $7.5 billion. For the four other reporting units where estimated fair value did not exceed carrying value by at least 20%, their aggregate estimated fair value of approximately $1.5 billion exceeded our aggregate carrying value of approximately $1.4 billion by 10.0%. Our carrying value of these units included goodwill of approximately $600 million.
Information concerning new accounting pronouncements is included in Note 2 to the accompanying Consolidated Financial Statements.
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 principal risk factors that could cause our actual performance and future events and actions to differ materially from such forward-looking statements include, but are not limited to, changes in market prices of our investments in fixed maturity and equity securities,securities; losses realized from derivative contracts,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,operations; the frequency and severity of epidemics, pandemics or other outbreaks, including COVID-19, that negatively affect our operating results and restrict our access to borrowed funds through the capital markets at reasonable rates,rates; changes in laws or regulations affecting our insurance, railroad, utilities and energy and finance subsidiaries,subsidiaries; changes in federal income tax laws,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 SeptemberJune 30, 2020,2021, there were no material changes in the market risks described in Berkshire’s Annual Report on Form 10-K for the year ended December 31, 2019.2020.
Item 4. Controls and Procedures
As of the end of the period covered by this Quarterly Report on Form 10-Q, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Chairman (Chief Executive Officer) and the Senior Vice President (Chief Financial Officer), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, the Chairman (Chief Executive Officer) and the Senior Vice President (Chief Financial Officer) concluded that the Company’s disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company’s periodic SEC filings. During the quarter, there have been no significant changes in the Company’s internal control over financial reporting or in other factors that could significantly affect internal control over financial reporting.
Part II Other Information
Item 1. Legal Proceedings
Berkshire and its subsidiaries are parties in a variety of legal actions that routinely arise out of the normal course of business, including legal actions seeking to establish liability directly through insurance contracts or indirectly through reinsurance contracts issued by Berkshire subsidiaries. Plaintiffs occasionally seek punitive or exemplary damages. We do not believe that such normal and routine litigation will have a material effect on our consolidated financial condition or results of operations. Berkshire and certain of its subsidiaries are also involved in other kinds of legal actions, some of which assert or may assert claims or seek to impose fines and penalties. We 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.
Part II Other Information
Item 1A. Risk Factors
Our significant business risks are described in Item 1A to Form 10-K for the year ended December 31, 20192020, to which reference is made herein. These risk factors are supplemented for the items described below. The risks and uncertainties we describe are not the only ones facing us. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business or operations. Any adverse effect on our business, financial condition or operating results could result in a decline in the value of our securities and the loss of all or part of your investment.
Epidemics, pandemics or other outbreaks, including COVID-19, could hurt our operating businesses.Part II Other Information
The outbreak of COVID-19 has adversely affected, and in the future it or other epidemics, pandemics or outbreaks may adversely affect, our operations, including our equity securities portfolio. This is or may be due to closures or restrictions requested or mandated by governmental authorities, disruption to supply chains and workforce, reduction of demand for our products and services, credit losses when customers and other counterparties fail to satisfy their obligations to us, and volatility in global equity securities markets, among other factors. We share most of these risks with all businesses.
Unfavorable general economic conditions may significantly reduce our operating earnings and impair our ability to access capital markets at a reasonable cost.
Our operating businesses are subject to economic conditions affecting the general economy or the specific industries in which they operate. To the extent that economic conditions in the U.S. and worldwide are depressed by the effects of COVID-19 or otherwise, one or more of our significant operations could be materially harmed. In addition, our utilities and energy businesses and our railroad business regularly utilize debt as a component of their capital structures, and depend on having access to borrowed funds through the capital markets at reasonable rates. To the extent that access to the capital markets is restricted or the cost of funding increases, these operations could be adversely affected.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds and Issuer Repurchases of Equity Securities
Berkshire’s common stock repurchase program permits Berkshire to repurchase its Class A and Class B shares any time that Warren Buffett, Berkshire’s Chairman of the Board and Chief Executive Officer, and Charles Munger, Vice Chairman of the Board, believe that the repurchase price is below Berkshire’s intrinsic value, conservatively determined. Repurchases may be in the open market or through privately negotiated transactions. Information with respect to Berkshire’s Class A and Class B common stock repurchased during the thirdsecond quarter of 20202021 follows.
Period |
| Total number of shares purchased |
|
| Average price paid per share |
|
| Total number of shares purchased as part of publicly announced program |
|
| Maximum number or value of shares that yet may be repurchased under the program | Total number of shares purchased |
|
| Average price paid per share |
|
| Total number of shares purchased as part of publicly announced program |
|
| Maximum number or value of shares that yet may be repurchased under the program | ||||||
July |
|
|
|
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| |||||||||||||
April |
|
|
|
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|
|
|
|
|
|
|
| ||||||||||||||
Class A common stock |
|
| 1,965 |
|
| $ | 280,778.84 |
|
|
| 1,965 |
|
| * |
| 611 |
|
| $ | 408,470.13 |
|
|
| 611 |
|
| * |
Class B common stock |
|
| 10,521,719 |
|
| $ | 187.93 |
|
|
| 10,521,719 |
|
| * |
| 5,795,788 |
|
| $ | 267.75 |
|
|
| 5,795,788 |
|
| * |
|
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August |
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May |
|
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| ||||||||||||||
Class A common stock |
|
| 2,531 |
|
| $ | 316,766.16 |
|
|
| 2,531 |
|
| * |
| 689 |
|
| $ | 432,536.24 |
|
|
| 689 |
|
| * |
Class B common stock |
|
| 10,846,595 |
|
| $ | 209.96 |
|
|
| 10,846,595 |
|
| * |
| 1,872,026 |
|
| $ | 286.10 |
|
|
| 1,872,026 |
|
| * |
|
|
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September |
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June |
|
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|
|
| ||||||||||||||
Class A common stock |
|
| 3,670 |
|
| $ | 325,251.28 |
|
|
| 3,670 |
|
| * |
| 2,250 |
|
| $ | 432,132.04 |
|
|
| 2,250 |
|
| * |
Class B common stock |
|
| 11,387,889 |
|
| $ | 215.80 |
|
|
| 11,387,889 |
|
| * |
| 8,646,680 |
|
| $ | 279.94 |
|
|
| 8,646,680 |
|
| * |
* | The program does not specify a maximum number of shares to be repurchased or obligate Berkshire to repurchase any specific dollar amount or number of Class A or Class B shares and there is no expiration date to the repurchase program. Berkshire will not repurchase its common stock if the repurchases reduce the total value of Berkshire’s consolidated cash, cash equivalents and U.S. Treasury Bills holdings to less than |
Part II Other Information
Item 3. Defaults Upon Senior Securities
None
Item 4. Mine Safety Disclosures
Information regarding the Company’s mine safety violations and other legal matters disclosed in accordance with Section 1503(a) of the Dodd-Frank Reform Act is included in Exhibit 95 to this Form 10-Q.
Item 5. Other Information
None
Item 6. Exhibits
| a. Exhibits |
|
|
3(i) | Restated Certificate of Incorporation Incorporated by reference to Exhibit 3(i) to Form 10-K filed on March 2, 2015. |
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3(ii) | By-Laws Incorporated by reference to Exhibit 3(ii) to Form 8-K filed on August 4, 2016. |
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31.1 | |
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31.2 | |
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32.1 | |
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32.2 | |
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95 | |
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101 | The following financial information from Berkshire Hathaway Inc.’s Quarterly Report on Form 10-Q for the quarter ended |
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104 | Cover Page Interactive Data File (formatted as iXBRL and contained in Exhibit 101) |
SIGNATURE
Pursuant to the requirement of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.
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| BERKSHIRE HATHAWAY INC. |
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| (Registrant) |
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Date: |
| /S/ MARC D. HAMBURG
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| (Signature) |
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| Marc D. Hamburg, |
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| Senior Vice President and |
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| Principal Financial Officer |
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