a50258446.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the quarterly period ended March 31, 2012
OR
¨
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the transition period from to
Commission file number 001-14905
BERKSHIRE HATHAWAY INC.
(Exact name of registrant as specified in its charter)
Delaware
|
47-0813844
|
(State or other jurisdiction of
incorporation or organization)
|
(I.R.S. Employer Identification Number)
|
|
3555 Farnam Street, Omaha, Nebraska 68131
(Address of principal executive office)
(Zip Code)
(402) 346-1400
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer x
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Accelerated filer ¨
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Non-accelerated filer ¨
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Smaller reporting company ¨
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No x
Number of shares of common stock outstanding as of April 27, 2012:
Class A — 930,998
Class B — 1,080,368,809
BERKSHIRE HATHAWAY INC.
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Page No.
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2 |
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3 |
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4 |
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4 |
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5 |
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6-20 |
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21-35 |
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35 |
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35 |
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36 |
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36 |
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36 |
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36 |
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36 |
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36 |
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36 |
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36 |
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and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(dollars in millions)
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March 31,
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December 31,
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2012
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2011
|
ASSETS
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(Unaudited)
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Insurance and Other:
|
|
|
|
|
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Cash and cash equivalents
|
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$ |
33,594 |
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$ |
33,513 |
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Investments:
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Fixed maturity securities
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30,750 |
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31,222 |
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Equity securities
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87,993 |
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76,063 |
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Other
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14,986 |
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13,111 |
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Receivables
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21,366 |
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19,012 |
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Inventories
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9,055 |
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8,975 |
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Property, plant and equipment
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18,401 |
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18,177 |
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Goodwill
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32,036 |
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32,125 |
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Other
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17,906 |
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18,121 |
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266,087 |
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250,319 |
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Railroad, Utilities and Energy:
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|
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Cash and cash equivalents
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|
2,658 |
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|
|
2,246 |
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Property, plant and equipment
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|
83,326 |
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|
|
82,214 |
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Goodwill
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|
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20,098 |
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20,056 |
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Other
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13,689 |
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12,861 |
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119,771 |
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117,377 |
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Finance and Financial Products:
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Cash and cash equivalents
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1,574 |
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1,540 |
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Investments in fixed maturity securities
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948 |
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966 |
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Other investments
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4,425 |
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3,810 |
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Loans and finance receivables
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13,799 |
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13,934 |
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Goodwill
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1,032 |
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1,032 |
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Other
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3,726 |
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|
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3,669 |
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|
|
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25,504 |
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|
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24,951 |
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$ |
411,362 |
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$ |
392,647 |
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LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
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Insurance and Other:
|
|
|
|
|
|
|
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Losses and loss adjustment expenses
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$ |
63,712 |
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$ |
63,819 |
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Unearned premiums
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11,010 |
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8,910 |
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Life, annuity and health insurance benefits
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9,962 |
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9,924 |
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Accounts payable, accruals and other liabilities
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18,214 |
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|
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18,466 |
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Notes payable and other borrowings
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13,635 |
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13,768 |
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116,533 |
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114,887 |
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Railroad, Utilities and Energy:
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Accounts payable, accruals and other liabilities
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12,798 |
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13,016 |
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Notes payable and other borrowings
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34,523 |
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32,580 |
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47,321 |
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45,596 |
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Finance and Financial Products:
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|
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|
|
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Accounts payable, accruals and other liabilities
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1,269 |
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1,224 |
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Derivative contract liabilities
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9,055 |
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10,139 |
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Notes payable and other borrowings
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13,677 |
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14,036 |
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24,001 |
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25,399 |
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Income taxes, principally deferred
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43,238 |
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37,804 |
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Total liabilities
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231,093 |
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223,686 |
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Shareholders’ equity:
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Common stock
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8 |
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8 |
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Capital in excess of par value
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37,846 |
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37,807 |
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Accumulated other comprehensive income
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25,517 |
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17,654 |
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Retained earnings
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112,693 |
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109,448 |
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Treasury stock, at cost
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(67 |
) |
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(67 |
) |
Berkshire Hathaway shareholders’ equity
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175,997 |
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164,850 |
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Noncontrolling interests
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4,272 |
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4,111 |
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Total shareholders’ equity
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180,269 |
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168,961 |
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$ |
411,362 |
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$ |
392,647 |
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See accompanying Notes to Consolidated Financial Statements
and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
(dollars in millions except per share amounts)
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First Quarter
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2012
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2011
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(Unaudited)
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Revenues:
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Insurance and Other:
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Insurance premiums earned
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$ |
8,065 |
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$ |
7,482 |
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Sales and service revenues
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19,264 |
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16,772 |
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Interest, dividend and other investment income
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1,067 |
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1,277 |
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Investment gains/losses
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|
230 |
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|
86 |
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Other-than-temporary impairment losses on investments
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(337 |
) |
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(506 |
) |
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28,289 |
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25,111 |
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Railroad, Utilities and Energy:
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|
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|
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Operating revenues
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|
7,849 |
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|
7,377 |
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Other
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|
47 |
|
|
|
36 |
|
|
|
|
7,896 |
|
|
|
7,413 |
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|
|
|
|
|
|
|
|
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Finance and Financial Products:
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|
|
|
|
|
|
|
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Interest, dividend and other investment income
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|
|
375 |
|
|
|
398 |
|
Investment gains/losses
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1 |
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|
13 |
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Derivative gains/losses
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|
1,002 |
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|
271 |
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Other
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|
584 |
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|
514 |
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1,962 |
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|
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1,196 |
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38,147 |
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33,720 |
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Costs and expenses:
|
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Insurance and Other:
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|
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Insurance losses and loss adjustment expenses
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|
|
4,771 |
|
|
|
6,018 |
|
Life, annuity and health insurance benefits
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|
1,092 |
|
|
|
1,015 |
|
Insurance underwriting expenses
|
|
|
2,117 |
|
|
|
1,725 |
|
Cost of sales and services
|
|
|
15,596 |
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|
|
13,859 |
|
Selling, general and administrative expenses
|
|
|
2,428 |
|
|
|
2,035 |
|
Interest expense
|
|
|
103 |
|
|
|
67 |
|
|
|
|
26,107 |
|
|
|
24,719 |
|
|
|
|
|
|
|
|
|
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Railroad, Utilities and Energy:
|
|
|
|
|
|
|
|
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Cost of sales and operating expenses
|
|
|
5,870 |
|
|
|
5,572 |
|
Interest expense
|
|
|
428 |
|
|
|
425 |
|
|
|
|
6,298 |
|
|
|
5,997 |
|
|
|
|
|
|
|
|
|
|
Finance and Financial Products:
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
160 |
|
|
|
166 |
|
Other
|
|
|
651 |
|
|
|
604 |
|
|
|
|
811 |
|
|
|
770 |
|
|
|
|
33,216 |
|
|
|
31,486 |
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes
|
|
|
4,931 |
|
|
|
2,234 |
|
Income tax expense
|
|
|
1,565 |
|
|
|
629 |
|
Net earnings
|
|
|
3,366 |
|
|
|
1,605 |
|
Less: Earnings attributable to noncontrolling interests
|
|
|
121 |
|
|
|
94 |
|
Net earnings attributable to Berkshire Hathaway
|
|
$ |
3,245 |
|
|
$ |
1,511 |
|
Average common shares outstanding *
|
|
|
1,650,944 |
|
|
|
1,648,411 |
|
Net earnings per share attributable to Berkshire Hathaway shareholders *
|
|
$ |
1,966 |
|
|
$ |
917 |
|
*
|
Average shares outstanding include average Class A common shares and average Class B common shares determined on an equivalent Class A common stock basis. Net earnings per common share attributable to Berkshire Hathaway shown above represents net earnings per equivalent Class A common share. Net earnings per Class B common share is equal to one-fifteen-hundredth (1/1,500) of such amount.
|
See accompanying Notes to Consolidated Financial Statements
and Subsidiaries
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(dollars in millions)
|
|
First Quarter
|
|
|
2012
|
|
2011
|
Comprehensive income attributable to Berkshire Hathaway:
|
|
|
|
|
|
|
Net earnings
|
|
$ |
3,245 |
|
|
$ |
1,511 |
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
Net change in unrealized appreciation of investments
|
|
|
11,642 |
|
|
|
652 |
|
Applicable income taxes
|
|
|
(4,051 |
) |
|
|
(217 |
) |
Reclassification of investment appreciation in earnings
|
|
|
132 |
|
|
|
433 |
|
Applicable income taxes
|
|
|
(46 |
) |
|
|
(152 |
) |
Foreign currency translation
|
|
|
219 |
|
|
|
439 |
|
Applicable income taxes
|
|
|
1 |
|
|
|
(13 |
) |
Prior service cost and actuarial gains/losses of defined benefit plans
|
|
|
12 |
|
|
|
(4 |
) |
Applicable income taxes
|
|
|
(6 |
) |
|
|
— |
|
Other, net
|
|
|
(40 |
) |
|
|
47 |
|
Other comprehensive income, net
|
|
|
7,863 |
|
|
|
1,185 |
|
Comprehensive income attributable to Berkshire Hathaway
|
|
$ |
11,108 |
|
|
$ |
2,696 |
|
Comprehensive income of noncontrolling interests
|
|
$ |
141 |
|
|
$ |
99 |
|
(Unaudited)
(dollars in millions)
|
|
|
|
|
|
Berkshire Hathaway shareholders’ equity |
|
|
|
|
|
|
Common stock and capital in excess of par value |
|
Accumulated other comprehensive income |
|
Retained earnings |
|
Treasury stock |
|
Total |
|
Non-controlling interests |
Balance at December 31, 2010
|
|
$ |
37,541 |
|
|
$ |
20,583 |
|
|
$ |
99,194 |
|
|
$ |
— |
|
|
$ |
157,318 |
|
|
$ |
5,616 |
|
Net earnings
|
|
|
— |
|
|
|
— |
|
|
|
1,511 |
|
|
|
— |
|
|
|
1,511 |
|
|
|
94 |
|
Other comprehensive income, net
|
|
|
— |
|
|
|
1,185 |
|
|
|
— |
|
|
|
— |
|
|
|
1,185 |
|
|
|
5 |
|
Issuance of common stock and other transactions
|
|
|
58 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
58 |
|
|
|
— |
|
Changes in noncontrolling interests:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interests acquired and other transactions
|
|
|
(13 |
) |
|
|
(4 |
) |
|
|
— |
|
|
|
— |
|
|
|
(17 |
) |
|
|
(1,505 |
) |
Balance at March 31, 2011
|
|
$ |
37,586 |
|
|
$ |
21,764 |
|
|
$ |
100,705 |
|
|
$ |
— |
|
|
$ |
160,055 |
|
|
$ |
4,210 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2011
|
|
$ |
37,815 |
|
|
$ |
17,654 |
|
|
$ |
109,448 |
|
|
$ |
(67 |
) |
|
$ |
164,850 |
|
|
$ |
4,111 |
|
Net earnings
|
|
|
— |
|
|
|
— |
|
|
|
3,245 |
|
|
|
— |
|
|
|
3,245 |
|
|
|
121 |
|
Other comprehensive income, net
|
|
|
— |
|
|
|
7,863 |
|
|
|
— |
|
|
|
— |
|
|
|
7,863 |
|
|
|
20 |
|
Issuance of common stock and other transactions
|
|
|
39 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
39 |
|
|
|
— |
|
Changes in noncontrolling interests:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interests acquired and other transactions
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
20 |
|
Balance at March 31, 2012
|
|
$ |
37,854 |
|
|
$ |
25,517 |
|
|
$ |
112,693 |
|
|
$ |
(67 |
) |
|
$ |
175,997 |
|
|
$ |
4,272 |
|
See accompanying Notes to Consolidated Financial Statements
and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in millions)
|
|
First Quarter
|
|
|
2012
|
|
2011
|
|
|
(Unaudited)
|
Cash flows from operating activities:
|
|
|
|
|
|
|
Net earnings
|
|
$ |
3,366 |
|
|
$ |
1,605 |
|
Adjustments to reconcile net earnings to operating cash flows:
|
|
|
|
|
|
|
|
|
Investment (gains) losses and other-than-temporary impairment losses
|
|
|
106 |
|
|
|
407 |
|
Depreciation
|
|
|
1,253 |
|
|
|
1,135 |
|
Other
|
|
|
262 |
|
|
|
121 |
|
Changes in operating assets and liabilities before business acquisitions:
|
|
|
|
|
|
|
|
|
Losses and loss adjustment expenses
|
|
|
(299 |
) |
|
|
1,814 |
|
Deferred charges reinsurance assumed
|
|
|
103 |
|
|
|
50 |
|
Unearned premiums
|
|
|
2,078 |
|
|
|
1,669 |
|
Receivables and originated loans
|
|
|
(2,043 |
) |
|
|
(2,737 |
) |
Derivative contract assets and liabilities
|
|
|
(1,061 |
) |
|
|
(281 |
) |
Income taxes
|
|
|
1,048 |
|
|
|
182 |
|
Other assets
|
|
|
(228 |
) |
|
|
(1,123 |
) |
Other liabilities
|
|
|
65 |
|
|
|
660 |
|
Net cash flows from operating activities
|
|
|
4,650 |
|
|
|
3,502 |
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchases of fixed maturity securities
|
|
|
(2,080 |
) |
|
|
(1,452 |
) |
Purchases of equity securities
|
|
|
(3,424 |
) |
|
|
(834 |
) |
Sales of fixed maturity securities
|
|
|
1,068 |
|
|
|
867 |
|
Redemptions and maturities of fixed maturity securities
|
|
|
1,307 |
|
|
|
1,665 |
|
Sales of equity securities
|
|
|
820 |
|
|
|
9 |
|
Redemptions of other investments
|
|
|
— |
|
|
|
3,845 |
|
Purchases of loans and finance receivables
|
|
|
(231 |
) |
|
|
(1,037 |
) |
Principal collections on loans and finance receivables
|
|
|
151 |
|
|
|
1,289 |
|
Acquisitions of businesses, net of cash acquired
|
|
|
(339 |
) |
|
|
(131 |
) |
Purchases of property, plant and equipment
|
|
|
(2,160 |
) |
|
|
(1,482 |
) |
Other
|
|
|
(653 |
) |
|
|
122 |
|
Net cash flows from investing activities
|
|
|
(5,541 |
) |
|
|
2,861 |
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from borrowings of insurance and other businesses
|
|
|
1,736 |
|
|
|
37 |
|
Proceeds from borrowings of railroad, utilities and energy businesses
|
|
|
2,849 |
|
|
|
191 |
|
Proceeds from borrowings of finance businesses
|
|
|
1 |
|
|
|
1,525 |
|
Repayments of borrowings of insurance and other businesses
|
|
|
(1,791 |
) |
|
|
(2,143 |
) |
Repayments of borrowings of railroad, utilities and energy businesses
|
|
|
(160 |
) |
|
|
(276 |
) |
Repayments of borrowings of finance businesses
|
|
|
(333 |
) |
|
|
(1,590 |
) |
Change in short term borrowings, net
|
|
|
(904 |
) |
|
|
210 |
|
Acquisitions of noncontrolling interests and other
|
|
|
(55 |
) |
|
|
(1,513 |
) |
Net cash flows from financing activities
|
|
|
1,343 |
|
|
|
(3,559 |
) |
Effects of foreign currency exchange rate changes
|
|
|
75 |
|
|
|
147 |
|
Increase in cash and cash equivalents
|
|
|
527 |
|
|
|
2,951 |
|
Cash and cash equivalents at beginning of year *
|
|
|
37,299 |
|
|
|
38,227 |
|
Cash and cash equivalents at end of first quarter *
|
|
$ |
37,826 |
|
|
$ |
41,178 |
|
|
|
|
|
|
|
|
|
|
* Cash and cash equivalents are comprised of the following:
|
|
|
|
|
|
|
|
|
Beginning of year—
|
|
|
|
|
|
|
|
|
Insurance and Other
|
|
$ |
33,513 |
|
|
$ |
34,767 |
|
Railroad, Utilities and Energy
|
|
|
2,246 |
|
|
|
2,557 |
|
Finance and Financial Products
|
|
|
1,540 |
|
|
|
903 |
|
|
|
$ |
37,299 |
|
|
$ |
38,227 |
|
End of first quarter—
|
|
|
|
|
|
|
|
|
Insurance and Other
|
|
$ |
33,594 |
|
|
$ |
38,401 |
|
Railroad, Utilities and Energy
|
|
|
2,658 |
|
|
|
2,157 |
|
Finance and Financial Products
|
|
|
1,574 |
|
|
|
620 |
|
|
|
$ |
37,826 |
|
|
$ |
41,178 |
|
See accompanying Notes to Consolidated Financial Statements
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012
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”) that included information necessary or useful to understanding Berkshire’s businesses and financial statement presentations. Our significant accounting policies and practices were presented as Note 1 to the Consolidated Financial Statements included in the Annual Report. Certain immaterial amounts in 2011 have been reclassified to conform to the current year presentation. Financial information in this Report reflects any adjustments (consisting only of normal recurring adjustments) that are, in the opinion of management, necessary to a fair statement of results for the interim periods in accordance with accounting principles generally accepted in the United States (“GAAP”).
For a number of reasons, our results for interim periods are not normally indicative of results to be expected for the year. The timing and magnitude of catastrophe losses incurred by insurance subsidiaries and the estimation error inherent to the process of determining liabilities for unpaid losses of insurance subsidiaries can be relatively more significant to results of interim periods than to results for a full year. Variations in the amount and timing of investment gains/losses can cause significant variations in periodic net earnings. Investment gains/losses are recorded when investments are disposed or are other-than-temporarily impaired. In addition, changes in the fair value of derivative assets/liabilities associated with derivative contracts that are not accounted for as hedging instruments can cause significant variations in periodic net earnings.
Note 2. New accounting pronouncements
As of January 1, 2012, we adopted FASB Accounting Standards Update (“ASU”) 2010-26, “Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts.” ASU 2010-26 specifies that only direct incremental costs associated with successful efforts in acquiring or renewing of insurance contracts should be capitalized and amortized over the policy term. All other costs are required to be expensed as incurred. Capitalized costs include certain advertising costs if the primary purpose of the advertising is to elicit sales to customers who could be shown to have responded directly to the advertising and the probable future revenues generated from the advertising are in excess of expected future costs to be incurred in realizing those revenues. Berkshire is adopting ASU 2010-26 on a prospective basis. The impact of the adoption of this new standard primarily relates to certain advertising costs of GEICO, which were capitalized prior to the adoption of ASU 2010-26, but are no longer eligible to be capitalized. The adoption of this new standard did not have a material effect on our Consolidated Financial Statements.
As of January 1, 2012, we also adopted ASU 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” As a result of adopting ASU 2011-04, we have expanded our fair value disclosures.
In December 2011, the FASB issued ASU 2011-11 “Disclosures about Offsetting Assets and Liabilities.” ASU 2011-11 enhances disclosures surrounding offsetting (netting) assets and liabilities. The standard applies to financial instruments and derivatives and requires companies to disclose both gross and net information about instruments and transactions eligible for offset in financial statements and instruments and transactions subject to a master netting arrangement. ASU 2011-11 is effective retrospectively for Berkshire beginning January 1, 2013. We are currently evaluating the effect this standard will have on our Consolidated Financial Statements.
Note 3. Significant business acquisitions
Our long-held acquisition strategy is to purchase businesses with consistent earning power, good returns on equity and able and honest management at sensible prices.
On September 16, 2011, Berkshire completed the acquisition of The Lubrizol Corporation (“Lubrizol”). The acquisition was pursuant to a merger agreement, whereby Berkshire agreed to acquire all of the outstanding shares of Lubrizol common stock for cash of $135 per share (approximately $8.7 billion in the aggregate). Lubrizol, based in Cleveland, Ohio, is an innovative specialty chemical company that produces and supplies technologies to customers in the global transportation, industrial and consumer markets. These technologies include additives for engine oils, other transportation-related fluids and industrial lubricants, as well as additives for gasoline and diesel fuel. In addition, Lubrizol makes ingredients and additives for personal care products and pharmaceuticals; specialty materials, including plastics; and performance coatings. Lubrizol’s industry-leading technologies in additives, ingredients and compounds enhance the quality, performance and value of customers’ products, while reducing their environmental impact. Lubrizol’s financial results were included in our Consolidated Financial Statements beginning as of September 16, 2011.
Notes To Consolidated Financial Statements (Continued)
Note 3. Significant business acquisitions (Continued)
We have owned a controlling interest in Marmon Holdings, Inc. (“Marmon”) since 2008. In the first quarter of 2011, we increased our ownership in Marmon to 80.2% as a result of acquiring 16.6% of Marmon’s outstanding common stock for approximately $1.5 billion. We will acquire substantially all of the remaining noncontrolling interests of Marmon in 2013 and/or 2014 for an amount that will be based on its future operating results. In June 2011, we acquired all of the then outstanding noncontrolling interests in Wesco Financial Corporation for aggregate consideration of $543 million consisting of cash of approximately $298 million and 3,253,472 shares of Berkshire Class B common stock.
Note 4. Investments in fixed maturity securities
Investments in securities with fixed maturities as of March 31, 2012 and December 31, 2011 are summarized by type below (in millions).
|
|
Amortized
Cost
|
|
Unrealized
Gains
|
|
Unrealized
Losses
|
|
Fair
Value
|
March 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury, U.S. government corporations and agencies
|
|
$ |
2,621 |
|
|
$ |
34 |
|
|
$ |
(3 |
) |
|
$ |
2,652 |
|
States, municipalities and political subdivisions
|
|
|
2,749 |
|
|
|
202 |
|
|
|
— |
|
|
|
2,951 |
|
Foreign governments
|
|
|
10,738 |
|
|
|
281 |
|
|
|
(28 |
) |
|
|
10,991 |
|
Corporate bonds
|
|
|
10,772 |
|
|
|
1,713 |
|
|
|
(188 |
) |
|
|
12,297 |
|
Mortgage-backed securities
|
|
|
2,479 |
|
|
|
340 |
|
|
|
(12 |
) |
|
|
2,807 |
|
|
|
$ |
29,359 |
|
|
$ |
2,570 |
|
|
$ |
(231 |
) |
|
$ |
31,698 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury, U.S. government corporations and agencies
|
|
$ |
2,894 |
|
|
$ |
41 |
|
|
$ |
— |
|
|
$ |
2,935 |
|
States, municipalities and political subdivisions
|
|
|
2,862 |
|
|
|
208 |
|
|
|
— |
|
|
|
3,070 |
|
Foreign governments
|
|
|
10,608 |
|
|
|
283 |
|
|
|
(48 |
) |
|
|
10,843 |
|
Corporate bonds
|
|
|
11,120 |
|
|
|
1,483 |
|
|
|
(155 |
) |
|
|
12,448 |
|
Mortgage-backed securities
|
|
|
2,564 |
|
|
|
343 |
|
|
|
(15 |
) |
|
|
2,892 |
|
|
|
$ |
30,048 |
|
|
$ |
2,358 |
|
|
$ |
(218 |
) |
|
$ |
32,188 |
|
Investments in fixed maturity securities are reflected in our Consolidated Balance Sheets as follows (in millions).
|
|
March 31,
|
|
December 31,
|
|
|
2012
|
|
2011
|
Insurance and other
|
|
$ |
30,750 |
|
|
$ |
31,222 |
|
Finance and financial products
|
|
|
948 |
|
|
|
966 |
|
|
|
$ |
31,698 |
|
|
$ |
32,188 |
|
Investments in foreign government securities include securities issued by national and provincial government entities as well as instruments that are unconditionally guaranteed by such entities. As of March 31, 2012, approximately 95% of foreign government holdings were rated AA or higher by at least one of the major rating agencies. Investments in obligations issued or guaranteed by Germany, the United Kingdom, Canada, Australia and the Netherlands represent approximately 80% of the investments in foreign government obligations. Unrealized losses on fixed maturity investments in a continuous unrealized loss position for more than twelve consecutive months were $15 million as of March 31, 2012 and $20 million as of December 31, 2011.
The amortized cost and estimated fair value of securities with fixed maturities at March 31, 2012 are summarized below by contractual maturity dates. Actual maturities will differ from contractual maturities because issuers of certain of the securities retain early call or prepayment rights. Amounts are in millions.
|
|
Due in one
year or less
|
|
Due after one
year through
five years
|
|
Due after five
years through
ten years
|
|
Due after
ten years
|
|
Mortgage-backed
securities
|
|
Total
|
Amortized cost
|
|
$ |
6,795 |
|
|
$ |
13,800 |
|
|
$ |
3,982 |
|
|
$ |
2,303 |
|
|
$ |
2,479 |
|
|
$ |
29,359 |
|
Fair value
|
|
|
6,952 |
|
|
|
14,536 |
|
|
|
4,633 |
|
|
|
2,770 |
|
|
|
2,807 |
|
|
|
31,698 |
|
Notes To Consolidated Financial Statements (Continued)
Note 5. Investments in equity securities
Investments in equity securities as of March 31, 2012 and December 31, 2011 are summarized based on the primary industry of the investee in the table below (in millions).
|
|
Cost Basis
|
|
Unrealized
Gains
|
|
Unrealized
Losses
|
|
Fair
Value
|
March 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
Banks, insurance and finance
|
|
$ |
17,085 |
|
|
$ |
13,892 |
|
|
$ |
(47 |
) |
|
$ |
30,930 |
|
Consumer products
|
|
|
12,296 |
|
|
|
15,316 |
|
|
|
(8 |
) |
|
|
27,604 |
|
Commercial, industrial and other
|
|
|
23,276 |
|
|
|
7,524 |
|
|
|
(219 |
) |
|
|
30,581 |
|
|
|
$ |
52,657 |
|
|
$ |
36,732 |
|
|
$ |
(274 |
) |
|
$ |
89,115 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Banks, insurance and finance
|
|
$ |
16,697 |
|
|
$ |
9,480 |
|
|
$ |
(1,269 |
) |
|
$ |
24,908 |
|
Consumer products
|
|
|
12,390 |
|
|
|
14,320 |
|
|
|
— |
|
|
|
26,710 |
|
Commercial, industrial and other
|
|
|
20,523 |
|
|
|
4,973 |
|
|
|
(123 |
) |
|
|
25,373 |
|
|
|
$ |
49,610 |
|
|
$ |
28,773 |
|
|
$ |
(1,392 |
) |
|
$ |
76,991 |
|
Investments in equity securities are reflected in our Consolidated Balance Sheets as follows (in millions).
|
|
March 31,
|
|
December 31,
|
|
|
2012
|
|
2011
|
Insurance and other
|
|
$ |
87,993 |
|
|
$ |
76,063 |
|
Railroad, utilities and energy *
|
|
|
629 |
|
|
|
488 |
|
Finance and financial products *
|
|
|
493 |
|
|
|
440 |
|
|
|
$ |
89,115 |
|
|
$ |
76,991 |
|
* Included in other assets.
As of March 31, 2012 and December 31, 2011, there were no equity securities in a continuous unrealized loss position for more than twelve consecutive months. As of March 31, 2012 and December 31, 2011, we concluded that the unrealized losses were temporary. Our conclusions were based on: (a) our ability and intent to hold the securities to recovery; (b) our assessment that the underlying business and financial condition of each of these issuers was favorable; (c) our opinion that the relative price declines were not significant; and (d) our belief that it was reasonably possible that market prices will increase to and exceed our cost in a relatively short period of time.
Notes To Consolidated Financial Statements (Continued)
Note 6. Other investments
Other investments include fixed maturity and equity securities of The Goldman Sachs Group, Inc. (“GS”), General Electric Company (“GE”), Wm. Wrigley Jr. Company (“Wrigley”), The Dow Chemical Company (“Dow”) and Bank of America Corporation (“BAC”). A summary of other investments follows (in millions).
|
|
Cost
|
|
Net
Unrealized
Gains
|
|
Fair
Value
|
|
Carrying
Value
|
March 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
Other fixed maturity and equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance and other
|
|
$ |
13,052 |
|
|
$ |
2,939 |
|
|
$ |
15,991 |
|
|
$ |
14,986 |
|
Finance and financial products
|
|
|
3,198 |
|
|
|
1,237 |
|
|
|
4,435 |
|
|
|
4,425 |
|
|
|
$ |
16,250 |
|
|
$ |
4,176 |
|
|
$ |
20,426 |
|
|
$ |
19,411 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other fixed maturity and equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance and other
|
|
$ |
13,051 |
|
|
$ |
1,055 |
|
|
$ |
14,106 |
|
|
$ |
13,111 |
|
Finance and financial products
|
|
|
3,198 |
|
|
|
623 |
|
|
|
3,821 |
|
|
|
3,810 |
|
|
|
$ |
16,249 |
|
|
$ |
1,678 |
|
|
$ |
17,927 |
|
|
$ |
16,921 |
|
In 2008, we acquired 50,000 shares of 10% Cumulative Perpetual Preferred Stock of GS (“GS Preferred”) and warrants to purchase 43,478,260 shares of common stock of GS (“GS Warrants”) for a combined cost of $5 billion. The GS Preferred was redeemable at any time by GS at a price of $110,000 per share ($5.5 billion in aggregate). On April 18, 2011, GS fully redeemed our GS Preferred investment. The GS Warrants remain outstanding and expire on October 1, 2013. The GS Warrants are exercisable for an aggregate cost of $5 billion ($115/share).
In 2008, we acquired 30,000 shares of 10% Cumulative Perpetual Preferred Stock of GE (“GE Preferred”) and warrants to purchase 134,831,460 shares of common stock of GE (“GE Warrants”) for a combined cost of $3 billion. The GE Preferred was redeemable by GE beginning in October 2011 at a price of $110,000 per share ($3.3 billion in aggregate). On October 17, 2011, GE fully redeemed our GE Preferred investment. The GE Warrants remain outstanding and expire on October 16, 2013. The GE Warrants are exercisable for an aggregate cost of $3 billion ($22.25/share).
In 2008, we acquired $4.4 billion par amount of 11.45% Wrigley subordinated notes due in 2018 and $2.1 billion of 5% Wrigley preferred stock. In 2009, we also acquired $1.0 billion par amount of Wrigley senior notes due in 2013 and 2014. We currently own $800 million and an unconsolidated joint venture in which we hold a 50% economic interest owns $200 million of the Wrigley senior notes. The Wrigley subordinated and senior notes are classified as held-to-maturity and we carry these investments at cost, adjusted for foreign currency exchange rate changes that apply to certain of the senior notes. The Wrigley preferred stock is classified as available-for-sale and recorded in our financial statements at fair value.
In 2009, we acquired 3,000,000 shares of Series A Cumulative Convertible Perpetual Preferred Stock of Dow (“Dow Preferred”) for a cost of $3 billion. Under certain conditions, we can convert each share of the Dow Preferred into 24.201 shares of Dow common stock (equivalent to a conversion price of $41.32 per share). Beginning in April 2014, if Dow’s common stock price exceeds $53.72 per share for any 20 trading days in a consecutive 30-day window, Dow, at its option, at any time, in whole or in part, may convert the Dow Preferred into Dow common stock at the then applicable conversion rate. The Dow Preferred is entitled to dividends at a rate of 8.5% per annum.
On September 1, 2011, we acquired 50,000 shares of 6% Cumulative Perpetual Preferred Stock of BAC (“BAC Preferred”) and warrants to purchase 700,000,000 shares of common stock of BAC (“BAC Warrants”) for a combined cost of $5 billion. The BAC Preferred is redeemable at any time by BAC at a price of $105,000 per share ($5.25 billion in aggregate). The BAC Warrants expire in 2021 and are exercisable for an additional aggregate cost of $5 billion ($7.142857/share).
Notes To Consolidated Financial Statements (Continued)
Note 7. Investment gains/losses and other-than-temporary impairment losses on investments
Investment gains/losses are summarized below (in millions).
|
|
First Quarter
|
|
|
2012
|
|
2011
|
Fixed maturity securities —
|
|
|
|
|
|
|
Gross gains from sales and other disposals
|
|
$ |
33 |
|
|
$ |
82 |
|
Gross losses from sales and other disposals
|
|
|
(16 |
) |
|
|
— |
|
Equity securities —
|
|
|
|
|
|
|
|
|
Gross gains from sales and other disposals
|
|
|
188 |
|
|
|
1 |
|
Gross losses from sales and other disposals
|
|
|
— |
|
|
|
(10 |
) |
Other
|
|
|
26 |
|
|
|
26 |
|
|
|
$ |
231 |
|
|
$ |
99 |
|
Net investment gains/losses are reflected in the Consolidated Statements of Earnings as follows.
Insurance and other
|
|
$ |
230 |
|
|
$ |
86 |
|
Finance and financial products
|
|
|
1 |
|
|
|
13 |
|
|
|
$ |
231 |
|
|
$ |
99 |
|
Other-than-temporary impairment (“OTTI”) losses were as follows (in millions).
|
|
First Quarter
|
|
|
2012
|
|
2011
|
Equity securities
|
|
$ |
— |
|
|
$ |
506 |
|
Fixed maturity securities
|
|
|
337 |
|
|
|
— |
|
|
|
$ |
337 |
|
|
$ |
506 |
|
We reflect investments in equity and fixed maturity securities classified as available-for-sale at fair value with the difference between fair value and cost included in other comprehensive income. OTTI losses recognized in earnings represent reductions in the cost basis of the investment, but not the fair value. Accordingly, such losses that are included in earnings are generally offset by a corresponding credit to other comprehensive income and therefore have no net effect on shareholders’ equity.
In the first quarter of 2012, we recorded OTTI losses of $337 million on certain fixed maturity investments where we concluded that we were unlikely to receive all of the remaining contractual interest and principal amounts when due. All of these losses were attributable to a single issuer. In the first quarter of 2011, we recorded OTTI losses of $506 million related to certain of our investments in equity securities. The OTTI losses included $337 million with respect to 103.6 million shares of our investment in Wells Fargo & Company (“Wells Fargo”) common stock. These shares had an aggregate original cost of $3,621 million. At that time, we also held an additional 255.4 million shares of Wells Fargo which were acquired at an aggregate cost of $4,394 million and had unrealized gains of $3,704 million as of March 31, 2011. Due to the length of time that certain of our Wells Fargo shares were in a continuous unrealized loss position and because we account for gains and losses on a specific identification basis, accounting regulations required us to record the unrealized losses in earnings. However, the unrealized gains were not reflected in earnings but were instead recorded directly in shareholders’ equity as a component of accumulated other comprehensive income.
Receivables of insurance and other businesses are comprised of the following (in millions).
|
|
March 31,
|
|
December 31,
|
|
|
2012
|
|
2011
|
Insurance premiums receivable
|
|
$ |
8,354 |
|
|
$ |
6,663 |
|
Reinsurance recoverable on unpaid losses
|
|
|
2,899 |
|
|
|
2,953 |
|
Trade and other receivables
|
|
|
10,486 |
|
|
|
9,772 |
|
Allowances for uncollectible accounts
|
|
|
(373 |
) |
|
|
(376 |
) |
|
|
$ |
21,366 |
|
|
$ |
19,012 |
|
Notes To Consolidated Financial Statements (Continued)
Note 8. Receivables (Continued)
Loans and finance receivables of finance and financial products businesses are comprised of the following (in millions).
|
|
March 31,
|
|
December 31,
|
|
|
2012
|
|
2011
|
Consumer installment loans and finance receivables
|
|
$ |
13,240 |
|
|
$ |
13,463 |
|
Commercial loans and finance receivables
|
|
|
945 |
|
|
|
860 |
|
Allowances for uncollectible loans
|
|
|
(386 |
) |
|
|
(389 |
) |
|
|
$ |
13,799 |
|
|
$ |
13,934 |
|
Allowances for uncollectible loans primarily relate to consumer installment loans. Provisions for consumer loan losses for the first quarter were $80 million in 2012 and $82 million in 2011. Loan charge-offs, net of recoveries, for the first quarter were $83 million in 2012 and $81 million in 2011. Consumer loan amounts are net of unamortized acquisition discounts of $512 million at March 31, 2012 and $500 million at December 31, 2011. At March 31, 2012, approximately 96% of consumer installment loan balances were evaluated collectively for impairment whereas about 85% of commercial loan balances were evaluated individually for impairment. As a part of the evaluation process, credit quality indicators are reviewed and loans are designated as performing or non-performing. At March 31, 2012, approximately 98% of consumer installment and commercial loan balances were determined to be performing and approximately 94% of those balances were current as to payment status.
Note 9. Inventories
Inventories are comprised of the following (in millions).
|
|
March 31,
|
|
December 31,
|
|
|
2012
|
|
2011
|
Raw materials
|
|
$ |
1,687 |
|
|
$ |
1,598 |
|
Work in process and other
|
|
|
916 |
|
|
|
897 |
|
Finished manufactured goods
|
|
|
3,234 |
|
|
|
3,114 |
|
Goods acquired for resale
|
|
|
3,218 |
|
|
|
3,366 |
|
|
|
$ |
9,055 |
|
|
$ |
8,975 |
|
Note 10. Goodwill and other intangible assets
A reconciliation of the change in the carrying value of goodwill is as follows (in millions).
|
|
March 31,
|
|
December 31,
|
|
|
2012
|
|
2011
|
Balance at beginning of year
|
|
$ |
53,213 |
|
|
$ |
49,006 |
|
Acquisitions of businesses
|
|
|
77 |
|
|
|
4,179 |
|
Other
|
|
|
(124 |
) |
|
|
28 |
|
Balance at end of period
|
|
$ |
53,166 |
|
|
$ |
53,213 |
|
Intangible assets other than goodwill are included in other assets in our Consolidated Balance Sheets and are summarized by type as follows (in millions).
|
|
March 31, 2012
|
|
December 31, 2011
|
|
|
Gross carrying
amount
|
|
Accumulated
amortization
|
|
Gross carrying
amount
|
|
Accumulated
amortization
|
Insurance and other
|
|
$ |
11,111 |
|
|
$ |
2,494 |
|
|
$ |
11,016 |
|
|
$ |
2,319 |
|
Railroad, utilities and energy
|
|
|
2,096 |
|
|
|
705 |
|
|
|
2,088 |
|
|
|
623 |
|
|
|
$ |
13,207 |
|
|
$ |
3,199 |
|
|
$ |
13,104 |
|
|
$ |
2,942 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks and trade names
|
|
$ |
2,676 |
|
|
$ |
234 |
|
|
$ |
2,655 |
|
|
$ |
219 |
|
Patents and technology
|
|
|
4,934 |
|
|
|
1,641 |
|
|
|
4,900 |
|
|
|
1,496 |
|
Customer relationships
|
|
|
4,113 |
|
|
|
915 |
|
|
|
4,060 |
|
|
|
840 |
|
Other
|
|
|
1,484 |
|
|
|
409 |
|
|
|
1,489 |
|
|
|
387 |
|
|
|
$ |
13,207 |
|
|
$ |
3,199 |
|
|
$ |
13,104 |
|
|
$ |
2,942 |
|
Notes To Consolidated Financial Statements (Continued)
Note 10. Goodwill and other intangible assets (Continued)
Amortization expense was $254 million for the first quarter of 2012 and $183 million for the first quarter of 2011. Intangible assets with indefinite lives as of March 31, 2012 and December 31, 2011 were $2,267 million and $2,250 million, respectively.
Note 11. Property, plant and equipment
Property, plant and equipment of our insurance and other businesses is comprised of the following (in millions).
|
|
Ranges of
estimated useful life
|
|
March 31,
2012
|
|
December 31,
2011
|
Land
|
|
— |
|
|
$ |
942 |
|
|
$ |
940 |
|
Buildings and improvements
|
|
3 – 40 years
|
|
|
|
5,442 |
|
|
|
5,429 |
|
Machinery and equipment
|
|
3 – 25 years
|
|
|
|
13,794 |
|
|
|
13,589 |
|
Furniture, fixtures and other
|
|
2 – 20 years
|
|
|
|
2,562 |
|
|
|
2,397 |
|
Assets held for lease
|
|
12 – 30 years
|
|
|
|
6,256 |
|
|
|
5,997 |
|
|
|
|
|
|
|
|
28,996 |
|
|
|
28,352 |
|
Accumulated depreciation
|
|
|
|
|
|
|
(10,595 |
) |
|
|
(10,175 |
) |
|
|
|
|
|
|
$ |
18,401 |
|
|
$ |
18,177 |
|
Depreciation expense of insurance and other businesses for the first quarter of 2012 and 2011 was $477 million and $426 million, respectively.
Property, plant and equipment of our railroad, utilities and energy businesses is comprised of the following (in millions).
|
|
Ranges of
estimated useful life
|
|
March 31,
2012
|
|
December 31,
2011
|
Railroad:
|
|
|
|
|
|
|
|
|
|
Land
|
|
— |
|
|
$ |
5,929 |
|
|
$ |
5,925 |
|
Track structure and other roadway
|
|
5 – 100 years
|
|
|
|
37,043 |
|
|
|
36,760 |
|
Locomotives, freight cars and other equipment
|
|
5 – 37 years
|
|
|
|
5,820 |
|
|
|
5,533 |
|
Construction in progress
|
|
— |
|
|
|
941 |
|
|
|
885 |
|
Utilities and energy:
|
|
|
|
|
|
|
|
|
|
|
|
|
Utility generation, distribution and transmission system
|
|
5 – 80 years
|
|
|
|
40,608 |
|
|
|
40,180 |
|
Interstate pipeline assets
|
|
3 – 80 years
|
|
|
|
6,253 |
|
|
|
6,245 |
|
Independent power plants and other assets
|
|
3 – 30 years
|
|
|
|
1,114 |
|
|
|
1,106 |
|
Construction in progress
|
|
— |
|
|
|
2,045 |
|
|
|
1,559 |
|
|
|
|
|
|
|
|
99,753 |
|
|
|
98,193 |
|
Accumulated depreciation
|
|
|
|
|
|
|
(16,427 |
) |
|
|
(15,979 |
) |
|
|
|
|
|
|
$ |
83,326 |
|
|
$ |
82,214 |
|
Railroad property, plant and equipment includes the land, other roadway, track structure and rolling stock (primarily locomotives and freight cars) of BNSF. The utility generation, distribution and transmission system and interstate pipeline assets are the regulated assets of public utility and natural gas pipeline subsidiaries. Depreciation expense of the railroad, utilities and energy businesses for the first quarter of 2012 and 2011 was $732 million and $696 million, respectively.
Notes To Consolidated Financial Statements (Continued)
Note 12. Derivative contracts
As of March 31, 2012, derivative contracts are used primarily by our finance and financial products and energy businesses. Substantially all of the derivative contracts of our finance and financial products businesses are not designated as hedges for financial reporting purposes. We entered into these contracts with the expectation that the premiums received would exceed the amounts ultimately paid to counterparties. Changes in the fair values of such contracts are reported in earnings as derivative gains/losses. A summary of derivative contracts of our finance and financial products businesses follows (in millions).
|
|
March 31, 2012
|
|
December 31, 2011
|
|
|
Assets (3)
|
|
Liabilities
|
|
Notional
Value
|
|
Assets (3)
|
|
Liabilities
|
|
Notional
Value
|
Equity index put options
|
|
$ |
— |
|
|
$ |
7,810 |
|
|
$ |
33,806 |
(1) |
|
$ |
— |
|
|
$ |
8,499 |
|
|
$ |
34,014 |
(1) |
Credit default contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High yield indexes
|
|
|
— |
|
|
|
107 |
|
|
|
4,512 |
(2) |
|
|
— |
|
|
|
198 |
|
|
|
4,568 |
(2) |
States/municipalities
|
|
|
— |
|
|
|
1,025 |
|
|
|
16,042 |
(2) |
|
|
— |
|
|
|
1,297 |
|
|
|
16,042 |
(2) |
Individual corporate
|
|
|
46 |
|
|
|
— |
|
|
|
3,565 |
(2) |
|
|
55 |
|
|
|
32 |
|
|
|
3,565 |
(2) |
Other
|
|
|
240 |
|
|
|
149 |
|
|
|
|
|
|
|
268 |
|
|
|
156 |
|
|
|
|
|
Counterparty netting
|
|
|
(54 |
) |
|
|
(36 |
) |
|
|
|
|
|
|
(67 |
) |
|
|
(43 |
) |
|
|
|
|
|
|
$ |
232 |
|
|
$ |
9,055 |
|
|
|
|
|
|
$ |
256 |
|
|
$ |
10,139 |
|
|
|
|
|
(1)
|
Represents the aggregate undiscounted amount payable at the contract expiration dates assuming that the value of each index is zero at the contract expiration date.
|
(2)
|
Represents the maximum undiscounted future value of losses payable under the contracts. The number of losses required to exhaust contract limits under substantially all of the contracts is dependent on the loss recovery rate related to the specific obligor at the time of a default.
|
(3)
|
Included in other assets of finance and financial products businesses.
|
Derivative gains/losses of our finance and financial products businesses included in our Consolidated Statements of Earnings for the first quarter of 2012 and 2011 were as follows (in millions).
|
|
First Quarter |
|
|
2012 |
|
2011 |
Equity index put options
|
|
$ |
689 |
|
|
$ |
223 |
|
Credit default obligations
|
|
|
340 |
|
|
|
70 |
|
Other
|
|
|
(27 |
) |
|
|
(22 |
) |
|
|
$ |
1,002 |
|
|
$ |
271 |
|
The equity index put option contracts are European style options written on four major equity indexes. Future payments, if any, under these contracts will be required if the underlying index value is below the strike price at the contract expiration dates, which occur between June 2018 and January 2026. We received the premiums on these contracts in full at the contract inception dates and therefore have no counterparty credit risk. We entered into no new contracts in 2011 or 2012.
At March 31, 2012, the aggregate intrinsic value (the undiscounted liability assuming the contracts are settled on their future expiration dates based on the March 31, 2012 index values and foreign currency exchange rates) was approximately $4.5 billion. However, these contracts may not be unilaterally terminated or fully settled before the expiration dates and therefore the ultimate amount of cash basis gains or losses on these contracts will not be determined for many years. The remaining weighted average life of all contracts was approximately 8.75 years at March 31, 2012.
Our credit default contracts pertain to various indexes of non-investment grade (or “high yield”) corporate issuers, as well as investment grade state/municipal and individual corporate debt issuers. These contracts cover the loss in value of specified debt obligations of the issuers arising from default events, which are usually from their failure to make payments or bankruptcy. Loss amounts are subject to aggregate contract limits. We entered into no new contracts in 2011 or 2012.
Notes To Consolidated Financial Statements (Continued)
Note 12. Derivative contracts (Continued)
The high yield index contracts are comprised of specified North American corporate issuers (usually 100 in number at inception) whose obligations are rated below investment grade. High yield contracts in-force at March 31, 2012 expire in 2012 and 2013. State and municipality contracts are comprised of over 500 state and municipality issuers and had a remaining weighted average contract life at March 31, 2012 of approximately 9.0 years. Loss payments, if any, related to approximately 50% of the notional value of the state and municipality contracts cannot be settled before the maturity dates of the underlying municipality obligation, which range from 2019 to 2054.
Premiums on the high yield index and state/municipality contracts were received in full at the inception dates of the contracts and, as a result, we have no counterparty credit risk. Our payment obligations under certain of these contracts are on a first loss basis. Losses under other contracts are subject to aggregate deductibles that must be satisfied before we have any payment obligations.
Individual corporate credit default contracts primarily relate to issuers of investment grade obligations. In most instances, premiums are due from counterparties on a quarterly basis over the terms of the contracts. As of March 31, 2012, all of the remaining contracts in-force will expire in 2013.
With limited exceptions, our equity index put option and credit default contracts contain no collateral posting requirements with respect to changes in either the fair value or intrinsic value of the contracts and/or a downgrade of Berkshire’s credit ratings. As of March 31, 2012, our collateral posting requirement under contracts with collateral provisions was $45 million compared to $238 million at December 31, 2011. If Berkshire’s credit ratings (currently AA+ from Standard & Poor’s and Aa2 from Moody’s) are downgraded below either A- by Standard & Poor’s or A3 by Moody’s, additional collateral of up to $1.1 billion could be required to be posted.
Our regulated utility subsidiaries are exposed to variations in the market prices in the purchases and sales of natural gas and electricity and in the purchases of fuel. Derivative instruments, including forward purchases and sales, futures, swaps and options, are used to manage these price risks. Unrealized gains and losses under the contracts of our regulated utilities that are probable of recovery through rates are recorded as regulatory assets or liabilities. Unrealized gains or losses on contracts accounted for as cash flow or fair value hedges are recorded in accumulated other comprehensive income or in net earnings, as appropriate. Derivative contract assets included in other assets of railroad, utilities and energy businesses were $61 million and $71 million as of March 31, 2012 and December 31, 2011, respectively. Derivative contract liabilities included in accounts payable, accruals and other liabilities of railroad, utilities and energy businesses were $472 million as of March 31, 2012 and $336 million as of December 31, 2011.
Note 13. Supplemental cash flow information
A summary of supplemental cash flow information for the first quarter of 2012 and 2011 is presented in the following table (in millions).
|
|
First Quarter
|
|
|
2012
|
|
2011
|
Cash paid during the period for:
|
|
|
|
|
|
|
Income taxes
|
|
$ |
199 |
|
|
$ |
231 |
|
Interest:
|
|
|
|
|
|
|
|
|
Interest of insurance and other businesses
|
|
|
138 |
|
|
|
79 |
|
Interest of railroad, utilities and energy businesses
|
|
|
465 |
|
|
|
482 |
|
Interest of finance and financial products businesses
|
|
|
158 |
|
|
|
174 |
|
|
|
|
|
|
|
|
|
|
Non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
Liabilities assumed in connection with acquisitions
|
|
|
54 |
|
|
|
78 |
|
Notes To Consolidated Financial Statements (Continued)
Note 14. Notes payable and other borrowings
Notes payable and other borrowings are summarized below (in millions). The weighted average interest rates shown in the following tables are as of March 31, 2012. Maturity date ranges are based on borrowings as of March 31, 2012.
|
|
Weighted
Average
Interest Rate
|
|
March 31,
2012
|
|
December 31,
2011
|
Insurance and other:
|
|
|
|
|
|
|
|
|
|
Issued by Berkshire parent company due 2012-2047
|
|
|
2.3 |
% |
|
$ |
8,320 |
|
|
$ |
8,287 |
|
Short-term subsidiary borrowings
|
|
|
0.2 |
% |
|
|
1,404 |
|
|
|
1,490 |
|
Other subsidiary borrowings due 2012-2035
|
|
|
5.9 |
% |
|
|
3,911 |
|
|
|
3,991 |
|
|
|
|
|
|
|
$ |
13,635 |
|
|
$ |
13,768 |
|
In connection with the BNSF acquisition, the Berkshire parent company issued $8.0 billion aggregate par amount of senior unsecured notes, including $1.7 billion par amount of floating rate and 1.4% notes that matured in February 2012. In January 2012, the Berkshire parent company issued $1.1 billion of 1.9% senior notes due in 2017 and $600 million of 3.4% senior notes due in 2022.
|
|
Weighted
Average
Interest Rate
|
|
March 31,
2012
|
|
December 31,
2011
|
Railroad, utilities and energy:
|
|
|
|
|
|
|
|
|
|
Issued by MidAmerican Energy Holdings Company (“MidAmerican”) and its subsidiaries:
|
|
|
|
|
|
|
|
|
|
MidAmerican senior unsecured debt due 2012-2037
|
|
|
6.1 |
% |
|
$ |
5,363 |
|
|
$ |
5,363 |
|
Subsidiary and other debt due 2012-2042
|
|
|
5.4 |
% |
|
|
15,335 |
|
|
|
14,552 |
|
Issued by BNSF due 2012-2097
|
|
|
5.7 |
% |
|
|
13,825 |
|
|
|
12,665 |
|
|
|
|
|
|
|
$ |
34,523 |
|
|
$ |
32,580 |
|
MidAmerican subsidiary debt represents amounts issued pursuant to separate financing agreements. All or substantially all of the assets of certain MidAmerican subsidiaries are or may be pledged or encumbered to support or otherwise secure the debt. These borrowing arrangements generally contain various covenants including, but not limited to, leverage ratios, interest coverage ratios and debt service coverage ratios. BNSF’s borrowings are primarily unsecured. In the first quarter of 2012, MidAmerican subsidiaries issued $1.6 billion of debt with interest rates from 2.95% to 5.75% and maturities ranging from 2015 to 2042. In the third and fourth quarters of 2012, MidAmerican and subsidiary debt of approximately $1.0 billion will mature. In March 2012, BNSF issued $1.25 billion in debentures comprised of $625 million of 3.05% debentures due in March 2022 and $625 million of 4.40% debentures due in March 2042. As of March 31, 2012, BNSF and MidAmerican and their subsidiaries were in compliance with all applicable covenants. Berkshire does not guarantee any debt or other borrowings of BNSF, MidAmerican or their subsidiaries.
|
|
Weighted
Average
Interest Rate
|
|
March 31,
2012
|
|
December 31,
2011
|
Finance and financial products:
|
|
|
|
|
|
|
|
|
|
Issued by Berkshire Hathaway Finance Corporation (“BHFC”) due 2012-2040
|
|
|
4.5 |
% |
|
$ |
11,281 |
|
|
$ |
11,531 |
|
Issued by other subsidiaries due 2012-2036
|
|
|
4.8 |
% |
|
|
2,396 |
|
|
|
2,505 |
|
|
|
|
|
|
|
$ |
13,677 |
|
|
$ |
14,036 |
|
BHFC is a 100% owned finance subsidiary of Berkshire, which has fully and unconditionally guaranteed its securities. In January 2012, $250 million par amount of BHFC notes matured. In the second and third quarters of 2012, an additional $2.45 billion of BHFC notes will mature.
Our subsidiaries in the aggregate have approximately $4.5 billion of available unused lines of credit and commercial paper capacity at March 31, 2012, to support our short-term borrowing programs and provide additional liquidity. 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 present and future payment obligations.
Notes To Consolidated Financial Statements (Continued)
Changes in Berkshire’s issued and outstanding common stock during the first quarter of 2012 are shown in the table below.
|
|
Class A, $5 Par Value
(1,650,000 shares authorized)
|
|
|
Class B, $0.0033 Par Value
(3,225,000,000 shares authorized)
|
|
|
|
Issued
|
|
|
Treasury
|
|
|
Outstanding
|
|
|
Issued
|
|
|
Treasury
|
|
|
Outstanding
|
|
Balance at December 31, 2011
|
|
|
938,342 |
|
|
|
(98 |
) |
|
|
938,244 |
|
|
|
1,069,645,361 |
|
|
|
(801,985 |
) |
|
|
1,068,843,376 |
|
Conversions of Class A common stock to Class B common stock and exercises of replacement stock options issued in a business acquisition
|
|
|
(5,630 |
) |
|
|
— |
|
|
|
(5,630 |
) |
|
|
9,029,871 |
|
|
|
— |
|
|
|
9,029,871 |
|
Balance at March 31, 2012
|
|
|
932,712 |
|
|
|
(98 |
) |
|
|
932,614 |
|
|
|
1,078,675,232 |
|
|
|
(801,985 |
) |
|
|
1,077,873,247 |
|
Each Class A common share is entitled to one vote per share. Class B common stock possesses dividend and distribution rights equal to one-fifteen-hundredth (1/1,500) of such rights of Class A common stock. Each Class B common share possesses voting rights 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 1,651,196 shares outstanding as of March 31, 2012 and 1,650,806 shares outstanding as of December 31, 2011. In addition to our common stock, 1,000,000 shares of preferred stock are authorized, but none of which are issued and outstanding.
In September 2011, our Board of Directors approved a common stock repurchase program whereby it authorized Berkshire to repurchase its Class A and Class B shares at prices no higher than a 10% premium over the book value of the shares. Berkshire may repurchase shares in the open market or through privately negotiated transactions, at management’s discretion. Berkshire’s Board of Directors’ authorization does not specify a maximum number of shares to be repurchased. However, repurchases will not be made if they would reduce Berkshire’s consolidated cash equivalent holdings below $20 billion. The repurchase program is expected to continue indefinitely and the amount of repurchases will depend entirely upon the level of cash available, the attractiveness of investment and business opportunities either at hand or on the horizon and the degree of discount of the market price relative to management’s estimate of intrinsic value. The repurchase program does not obligate Berkshire to repurchase any dollar amount or number of Class A or Class B shares.
Note 16. Fair value measurements
The estimated fair values of our financial instruments are shown in the following table (in millions). The carrying values of cash and cash equivalents, accounts receivable and accounts payable, accruals and other liabilities are deemed to be reasonable estimates of their fair values.
|
|
Carrying Value
|
|
|
Fair Value
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
Investments in fixed maturity securities
|
|
$ |
31,698 |
|
|
$ |
32,188 |
|
|
$ |
31,698 |
|
|
$ |
32,188 |
|
Investments in equity securities
|
|
|
89,115 |
|
|
|
76,991 |
|
|
|
89,115 |
|
|
|
76,991 |
|
Other investments
|
|
|
19,411 |
|
|
|
16,921 |
|
|
|
20,426 |
|
|
|
17,927 |
|
Loans and finance receivables
|
|
|
13,799 |
|
|
|
13,934 |
|
|
|
13,016 |
|
|
|
13,126 |
|
Derivative contract assets (1)
|
|
|
293 |
|
|
|
327 |
|
|
|
293 |
|
|
|
327 |
|
Notes payable and other borrowings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance and other
|
|
|
13,635 |
|
|
|
13,768 |
|
|
|
14,186 |
|
|
|
14,334 |
|
Railroad, utilities and energy
|
|
|
34,523 |
|
|
|
32,580 |
|
|
|
38,697 |
|
|
|
38,257 |
|
Finance and financial products
|
|
|
13,677 |
|
|
|
14,036 |
|
|
|
14,549 |
|
|
|
14,959 |
|
Derivative contract liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Railroad, utilities and energy (2)
|
|
|
472 |
|
|
|
336 |
|
|
|
472 |
|
|
|
336 |
|
Finance and financial products
|
|
|
9,055 |
|
|
|
10,139 |
|
|
|
9,055 |
|
|
|
10,139 |
|
(1)
|
Included in other assets
|
(2)
|
Included in accounts payable, accruals and other liabilities
|
Notes To Consolidated Financial Statements (Continued)
Note 16. Fair value measurements (Continued)
Fair values for substantially all of our financial instruments were measured using market or income approaches. Considerable judgment may be required in interpreting market data used to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that could be realized in an actual current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value.
The hierarchy for measuring fair value consists of Levels 1 through 3.
Level 1 – Inputs represent unadjusted quoted prices for identical assets or liabilities exchanged in active markets. Substantially all of our investments in equity securities are traded on an exchange in active markets and fair values are based on the closing prices as of the balance sheet date.
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. Fair values of investments in fixed maturity securities and notes payable and other borrowings are primarily based on price evaluations which incorporate market prices for identical instruments in inactive markets and market data available for instruments with similar characteristics. Pricing evaluations generally reflect discounted expected future cash flows, which incorporate yield curves for instruments with similar characteristics, such as credit rating, estimated duration 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 or related observable inputs that can be corroborated at the measurement date. Unobservable inputs require management to make certain projections and assumptions about the information that would be used by market participants in pricing assets or liabilities. Measurements of non-exchange traded derivative contracts and certain other investments carried at fair value are based primarily on valuation models, discounted cash flow models or other valuation techniques that are believed to be used by market participants.
Financial instruments measured at fair value on a recurring basis are summarized, according to the hierarchy previously described, as follows (in millions).
|
|
Total
Fair Value
|
|
|
Quoted
Prices
(Level 1)
|
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
|
Significant
Unobservable Inputs
(Level 3)
|
|
March 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury, U.S. government corporations and agencies
|
|
$ |
2,652 |
|
|
$ |
1,022 |
|
|
$ |
1,628 |
|
|
$ |
2 |
|
States, municipalities and political subdivisions
|
|
|
2,951 |
|
|
|
— |
|
|
|
2,950 |
|
|
|
1 |
|
Foreign governments
|
|
|
10,991 |
|
|
|
4,582 |
|
|
|
6,409 |
|
|
|
— |
|
Corporate bonds
|
|
|
12,297 |
|
|
|
— |
|
|
|
11,645 |
|
|
|
652 |
|
Mortgage-backed securities
|
|
|
2,807 |
|
|
|
— |
|
|
|
2,807 |
|
|
|
— |
|
Investments in equity securities
|
|
|
89,115 |
|
|
|
89,018 |
|
|
|
65 |
|
|
|
32 |
|
Other investments
|
|
|
14,158 |
|
|
|
— |
|
|
|
— |
|
|
|
14,158 |
|
Loans and finance receivables (1)
|
|
|
13,016 |
|
|
|
— |
|
|
|
1,019 |
|
|
|
11,997 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable and other borrowings (1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance and other
|
|
|
14,186 |
|
|
|
— |
|
|
|
14,186 |
|
|
|
— |
|
Railroad, utilities and energy
|
|
|
38,697 |
|
|
|
— |
|
|
|
38,697 |
|
|
|
— |
|
Finance and financial products
|
|
|
14,549 |
|
|
|
— |
|
|
|
13,667 |
|
|
|
882 |
|
Net derivative contract (assets)/liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Railroad, utilities and energy
|
|
|
411 |
|
|
|
31 |
|
|
|
405 |
|
|
|
(25 |
) |
Finance and financial products:
|
|
|
|
|
|
|
|
|
|
|
|
|
|