Item 8. Financial Statements and Supplementary Data

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Item 8. Financial Statements and Supplementary Data

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the Board of Directors of

Berkshire Hathaway Inc.

Omaha, Nebraska

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Berkshire Hathaway Inc. and subsidiaries (the “Company”) as of December 31, 2018 and 2017, the related consolidated statements of earnings, comprehensive income, changes in shareholders’ equity, and cash flows, for each of the three years in the period ended December 31, 2018, and the related notes (collectively referred to as the “financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

Change in Accounting Principle

As discussed in Note 1 to the financial statements, the Company has changed its method of accounting for investments in equity securities (excluding equity method investments) in 2018 due to the adoption of ASU 2016-01 “Financial Instruments – Recognition and Measurement of Financial Assets and Financial Liabilities.”

Basis for Opinions

The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on these financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

K-62

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (Continued)

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Deloitte & Touche LLP

Omaha, Nebraska

February 23, 2019

We have served as the Company’s auditor since 1985.

K-63

BERKSHIRE HATHAWAY INC.

and Subsidiaries

CONSOLIDATED BALANCE SHEETS

(dollars in millions)


		December 31,
	2018			2017
ASSETS
*Insurance and Other:*
Cash and cash equivalents*		$	27,749		$	28,673
Short-term investments in U.S. Treasury Bills			81,506			84,371
Investments in fixed maturity securities			19,898			21,353
Investments in equity securities			172,757			170,540
Equity method investments			17,325			21,024
Loans and finance receivables			16,280			13,748
Other receivables			31,564			29,392
Inventories			19,069			17,366
Property, plant and equipment			20,628			19,868
Equipment held for lease			14,298			10,167
Goodwill			56,323			56,478
Other intangible assets			31,499			32,518
Deferred charges under retroactive reinsurance contracts			14,104			15,278
Other			9,307			9,391

			532,307			530,167

*Railroad, Utilities and Energy:*
Cash and cash equivalents*			2,612			2,910
Receivables			3,666			3,531
Property, plant and equipment			131,780			128,184
Goodwill			24,702			24,780
Regulatory assets			3,067			2,950
Other			9,660			9,573

			175,487			171,928

		$	707,794		$	702,095

*	Cash and cash equivalents includes U.S. Treasury Bills with maturities of three months or less when purchased of $3.9 billion at December 31, 2018 and $5.7 billion at December 31, 2017.

See accompanying Notes to Consolidated Financial Statements

K-64

BERKSHIRE HATHAWAY INC.

and Subsidiaries

CONSOLIDATED BALANCE SHEETS

(dollars in millions)


		December 31,
	2018				2017
LIABILITIES AND SHAREHOLDERS’ EQUITY
*Insurance and Other:*
Unpaid losses and loss adjustment expenses		$	68,458			$	61,122
Unpaid losses and loss adjustment expenses under retroactive reinsurance contracts			41,834				42,937
Unearned premiums			18,093				16,040
Life, annuity and health insurance benefits			18,632				17,608
Other policyholder liabilities			7,675				7,654
Accounts payable, accruals and other liabilities			25,776				24,569
Derivative contract liabilities			2,452				2,172
Aircraft repurchase liabilities and unearned lease revenues			4,593				—
Notes payable and other borrowings			34,975				40,409

			222,488				212,511

*Railroad, Utilities and Energy:*
Accounts payable, accruals and other liabilities			11,410				11,334
Regulatory liabilities			7,506				7,511
Notes payable and other borrowings			62,515				62,178

			81,431				81,023

Income taxes, principally deferred			51,375				56,607

Total liabilities			355,294				350,141

Shareholders’ equity:
Common stock			8				8
Capital in excess of par value			35,707				35,694
Accumulated other comprehensive income			(5,015	)			58,571
Retained earnings			321,112				255,786
Treasury stock, at cost			(3,109	)			(1,763	)

Berkshire Hathaway shareholders’ equity			348,703				348,296
Noncontrolling interests			3,797				3,658

Total shareholders’ equity			352,500				351,954

		$	707,794			$	702,095

See accompanying Notes to Consolidated Financial Statements

K-65

BERKSHIRE HATHAWAY INC.

and Subsidiaries

CONSOLIDATED STATEMENTS OF EARNINGS

(dollars in millions except per share amounts)


		Year Ended December 31,
	2018			2017			2016
Revenues:
*Insurance and Other:*
Insurance premiums earned		$	57,418		$	60,597		$	45,881
Sales and service revenues			133,336			130,343			123,053
Leasing revenues			5,732			2,452			2,553
Interest, dividend and other investment income			7,678			6,536			6,180

			204,164			199,928			177,667

*Railroad, Utilities and Energy:*
Freight rail transportation revenues			23,703			21,080			19,683
Energy operating revenues			15,555			15,155			14,621
Service revenues and other income			4,415			3,770			3,143

			43,673			40,005			37,447

Total revenues			247,837			239,933			215,114

Investment and derivative contract gains (losses):
Investment gains (losses)			(22,155)			1,410			7,553
Derivative contract gains (losses)			(300)			718			751

			(22,455)			2,128			8,304

Costs and expenses:
*Insurance and Other:*
Insurance losses and loss adjustment expenses			39,906			48,891			30,906
Life, annuity and health insurance benefits			5,699			5,618			5,131
Insurance underwriting expenses			9,793			9,321			7,713
Cost of sales and services			106,083			104,343			97,867
Cost of leasing			4,061			1,455			1,335
Selling, general and administrative expenses			18,238			19,189			17,973
Interest expense			1,035			1,132			1,099

			184,815			189,949			162,024

*Railroad, Utilities and Energy:*
Freight rail transportation expenses			16,045			14,031			13,134
Utilities and energy cost of sales and other expenses			11,641			10,772			10,471
Other expenses			3,895			3,231			2,589
Interest expense			2,818			3,254			2,642

		34,399			31,288			28,836

Total costs and expenses			219,214			221,237			190,860

Earnings before income taxes and equity method earnings (losses)			6,168			20,824			32,558
Equity method earnings (losses)			(2,167)			3,014			1,109

Earnings before income taxes			4,001			23,838			33,667
Income tax expense (benefit)			(321)			(21,515)			9,240

Net earnings			4,322			45,353			24,427
Earnings attributable to noncontrolling interests			301			413			353

Net earnings attributable to Berkshire Hathaway shareholders		$	4,021		$	44,940		$	24,074

Net earnings per average equivalent Class A share		$	2,446		$	27,326		$	14,645
Net earnings per average equivalent Class B share*		$	1.63		$	18.22		$	9.76
Average equivalent Class A shares outstanding			1,643,795			1,644,615			1,643,826
Average equivalent Class B shares outstanding			2,465,692,368			2,466,923,163			2,465,739,654

*	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 21.

See accompanying Notes to Consolidated Financial Statements

K-66

BERKSHIRE HATHAWAY INC.

and Subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(dollars in millions)


	Year Ended December 31,
	2018			2017			2016
Net earnings	$	4,322		$	45,353		$	24,427

Other comprehensive income:
Net change in unrealized appreciation of investments		(185	)		30,450			13,858
Applicable income taxes		31			(10,566	)		(4,846	)
Reclassification of investment appreciation in net earnings		(253	)		(1,399	)		(6,820	)
Applicable income taxes		53			490			2,387
Foreign currency translation		(1,531	)		2,364			(1,541	)
Applicable income taxes		62			(95	)		66
Prior service cost and actuarial gains/losses of defined benefit pension plans		(571	)		225			354
Applicable income taxes		143			(45	)		(187	)
Other, net		(12	)		(9	)		(17	)

Other comprehensive income, net		(2,263	)		21,415			3,254

Comprehensive income		2,059			66,768			27,681
Comprehensive income attributable to noncontrolling interests		249			555			291

Comprehensive income attributable to Berkshire Hathaway shareholders	$	1,810		$	66,213		$	27,390

BERKSHIRE HATHAWAY INC.

and Subsidiaries

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(dollars in millions)


		Berkshire Hathaway shareholders’ equity															Total
	Common stock and capital in excess of par value				Accumulated other comprehensive income			Retained earnings			Treasury stock			Non- controlling interests
Balance December 31, 2015		$	35,628			$	33,982		$	186,772		$	(1,763)		$	3,077	$	257,696
Net earnings			—				—			24,074			—			353		24,427
Other comprehensive income, net			—				3,316			—			—			(62)		3,254
Issuance of common stock			119				—			—			—			—		119
Transactions with noncontrolling interests			(58	)			—			—			—			(10)		(68)

Balance December 31, 2016			35,689				37,298			210,846			(1,763)			3,358		285,428
Net earnings			—				—			44,940			—			413		45,353
Other comprehensive income, net			—				21,273			—			—			142		21,415
Issuance of common stock			76				—			—			—			—		76
Transactions with noncontrolling interests			(63	)			—			—			—			(255)		(318)

Balance December 31, 2017			35,702				58,571			255,786			(1,763)			3,658		351,954
Adoption of new accounting pronouncements			—				(61,375)			61,305			—			—		(70)
Net earnings			—				—			4,021			—			301		4,322
Other comprehensive income, net			—				(2,211)			—			—			(52)		(2,263)
Issuance (acquisition) of common stock			59				—			—			(1,346)			—		(1,287)
Transactions with noncontrolling interests			(46	)			—			—			—			(110)		(156)

Balance December 31, 2018		$	35,715			$	(5,015)		$	321,112		$	(3,109)		$	3,797	$	352,500

See accompanying Notes to Consolidated Financial Statements

K-67

BERKSHIRE HATHAWAY INC.

and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in millions)


		Year Ended December 31,
	2018				2017				2016
Cash flows from operating activities:
Net earnings		$	4,322			$	45,353			$	24,427
Adjustments to reconcile net earnings to operating cash flows:
Investment gains/losses			22,155				(1,410	)			(7,553)
Depreciation and amortization			9,779				9,188				8,901
Other			2,957				458				(161)
Changes in operating assets and liabilities:
Losses and loss adjustment expenses			3,449				25,027				4,372
Deferred charges reinsurance assumed			1,174				(7,231	)			(360)
Unearned premiums			1,794				1,761				968
Receivables and originated loans			(3,443	)			(1,990	)			(3,302)
Other assets			(1,832	)			(1,665	)			(373)
Other liabilities			2,002				1,194				1,684
Income taxes			(4,957	)			(24,957	)			4,044

Net cash flows from operating activities			37,400				45,728				32,647

Cash flows from investing activities:
Purchases of U.S. Treasury Bills and fixed maturity securities			(141,844	)			(158,492	)			(96,568)
Purchases of equity securities			(43,210	)			(20,326	)			(16,508)
Sales of U.S. Treasury Bills and fixed maturity securities			39,693				49,327				18,757
Redemptions and maturities of U.S. Treasury Bills and fixed maturity securities			113,045				86,727				26,177
Sales and redemptions of equity securities			18,783				19,512				28,464
Purchases of loans and finance receivables			(1,771	)			(1,435	)			(307)
Collections of loans and finance receivables			342				1,702				490
Acquisitions of businesses, net of cash acquired			(3,279	)			(2,708	)			(31,399)
Purchases of property, plant and equipment and equipment held for lease			(14,537	)			(11,708	)			(12,954)
Other			(71	)			(3,608	)			(377)

Net cash flows from investing activities			(32,849	)			(41,009	)			(84,225)

Cash flows from financing activities:
Proceeds from borrowings of insurance and other businesses			2,409				2,645				14,172
Proceeds from borrowings of railroad, utilities and energy businesses			7,019				3,013				3,077
Repayments of borrowings of insurance and other businesses			(7,395	)			(5,465	)			(2,577)
Repayments of borrowings of railroad, utilities and energy businesses			(4,213	)			(3,549	)			(2,123)
Changes in short term borrowings, net			(1,943	)			2,079				130
Acquisition of treasury stock			(1,346	)			—				—
Other			(343	)			(121	)			112

Net cash flows from financing activities			(5,812	)			(1,398	)			12,791

Effects of foreign currency exchange rate changes			(140	)			248				(172)

Increase (decrease) in cash and cash equivalents and restricted cash			(1,401	)			3,569				(38,959)
Cash and cash equivalents and restricted cash at beginning of year			32,212				28,643				67,602

Cash and cash equivalents and restricted cash at end of year *		$	30,811			$	32,212			$	28,643

* Cash and cash equivalents and restricted cash at end of year are comprised of the following:
Insurance and Other		$	27,749			$	28,673			$	24,109
Railroad, Utilities and Energy			2,612				2,910				3,939
Restricted cash, included in other assets			450				629				595

		$	30,811			$	32,212			$	28,643

See accompanying Notes to Consolidated Financial Statements

K-68

BERKSHIRE HATHAWAY INC.

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2018

(1)	Significant accounting policies and practices

	(a)		Nature of operations and basis of consolidation

Berkshire Hathaway Inc. (“Berkshire”) is a holding company owning subsidiaries engaged in a number of diverse business activities, including insurance and reinsurance, freight rail transportation, utilities and energy, manufacturing, service, retailing and finance. In these notes the terms “us,” “we,” or “our” refer to Berkshire and its consolidated subsidiaries. Further information regarding our reportable business segments is contained in Note 26. Information concerning significant business acquisitions completed over the past three years appears in Note 2. The Consolidated Financial Statements for periods before 2018 reflect reclassifications to conform to 2018 presentations. Most significantly, line items previously reported under the sub-caption Finance and Financial Products in our Consolidated Financial Statements were reclassified to corresponding line items in the Insurance and Other section. We continue to believe that reporting the Railroad, Utilities and Energy subsidiaries separately is appropriate given relative significance of long-lived assets, capital expenditures and debt, which is not guaranteed by Berkshire. In addition, certain amounts related to equity method investments were reclassified to conform to current year presentations.

The accompanying Consolidated Financial Statements include the accounts of Berkshire consolidated with the accounts of all subsidiaries and affiliates in which we hold a controlling financial interest as of the financial statement date. Normally a controlling financial interest reflects ownership of a majority of the voting interests. We consolidate variable interest entities (“VIE”) when we possess both the power to direct the activities of the VIE that most significantly affect its economic performance, and we (a) are obligated to absorb the losses that could be significant to the VIE or (b) hold the right to receive benefits from the VIE that could be significant to the VIE. Intercompany accounts and transactions have been eliminated.

	(b)		Use of estimates in preparation of financial statements

The preparation of our Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. In particular, estimates of unpaid losses and loss adjustment expenses are subject to considerable estimation error due to the inherent uncertainty in projecting ultimate claim costs. In addition, estimates and assumptions associated with the amortization of deferred charges on retroactive reinsurance contracts, determinations of fair values of certain financial instruments and evaluations of goodwill and identifiable intangible assets for impairment require considerable judgment. Actual results may differ from the estimates used in preparing our Consolidated Financial Statements.

	(c)		Cash and cash equivalents and short-term investments in U.S. Treasury Bills

Cash equivalents consist of demand deposit and money market accounts and investments with maturities of three months or less when purchased. Short-term investments in U.S. Treasury Bills with remaining maturities exceeding three months at the time of purchase are stated at amortized cost, which approximates fair value.

	(d)		Investments in fixed maturity securities

We classify investments in fixed maturity securities at the acquisition date and re-evaluate the classification at each balance sheet date. We carry held-to-maturity investments at amortized cost, reflecting the ability and intent to hold the securities to maturity. Trading investments are securities acquired with the intent to sell in the near term and are carried at fair value with changes in fair value reported in earnings. All other fixed maturity securities are classified as available-for-sale and are carried at fair value with net unrealized gains or losses reported as a component of accumulated other comprehensive income. As of December 31, 2018, substantially all of our investments in fixed maturity securities were classified as available-for-sale. We amortize the difference between the original cost and maturity value of a fixed maturity security to earnings using the interest method.

K-69

Notes to Consolidated Financial Statements (Continued)

(1)	Significant accounting policies and practices (Continued)

	(d)		Investments in fixed maturity securities (Continued)

Investment gains and losses arise when fixed maturity securities are sold (as determined on a specific identification basis) or are other-than-temporarily impaired with respect to securities classified as available-for-sale. If the value of a fixed maturity investment declines to below amortized cost and the decline is deemed to be other than temporary, the amortized cost of the investment is reduced to fair value, with a corresponding charge to earnings. We recognize an other-than-temporary impairment if we (a) intend to sell or expect to be required to sell the security before its amortized cost is recovered or (b) do not expect to ultimately recover the amortized cost basis even if we do not intend to sell the security. Under scenario (a), we recognize the loss in earnings and under scenario (b), we recognize the credit loss component in earnings and the difference between fair value and the amortized cost basis net of the credit loss in other comprehensive income.

	(e)		Investments in equity securities

We carry substantially all of our investments in equity securities at fair value and record the subsequent changes in fair values in the Consolidated Statement of Earnings as a component of investment gains/losses. Prior to January 1, 2018, substantially all of our equity security investments were classified as available-for-sale and were also carried at fair value. However, we recorded the periodic changes in fair value of these securities as components of other comprehensive income and we recorded gains and losses in the Consolidated Statements of Earnings when equity securities were sold (on a specific identification basis) or were other-than-temporarily impaired.

	(f)		Investments under the equity method

We utilize the equity method to account for investments when we possess the ability to exercise significant influence, but not control, over the operating and financial policies of the investee. The ability to exercise significant influence is presumed when the investor possesses more than 20% of the voting interests of the investee. This presumption may be overcome based on specific facts and circumstances that demonstrate that the ability to exercise significant influence is restricted. We apply the equity method to investments in common stock and to other investments when such other investments possess substantially identical subordinated interests to common stock.

In applying the equity method, we record the investment at cost and subsequently increase or decrease the carrying amount of the investment by our proportionate share of the net earnings or losses and other comprehensive income of the investee. We record dividends or other equity distributions as reductions in the carrying value of the investment. In the event that net losses of the investee reduce the carrying amount to zero, additional net losses may be recorded if other investments in the investee are at-risk, even if we have not committed to provide financial support to the investee. Such additional equity method losses, if any, are based upon the change in our claim on the investee’s book value.

	(g)		Receivables

Receivables primarily consists of balances due from customers, insurance premiums receivable and reinsurance recoverable on unpaid losses. Receivables are stated net of estimated allowances for uncollectible balances. Allowances for uncollectible balances are provided when it is probable counterparties or customers will be unable to pay all amounts due based on the contractual terms. We write-off receivables against the allowances after all reasonable collection efforts are exhausted.

	(h)		Loans and finance receivables

Loans and finance receivables are predominantly manufactured housing installment loans. We carry these loans at amortized cost, net of allowances for uncollectible accounts, based on our ability and intent to hold such loans to maturity. Acquisition costs and loan origination and commitment costs paid or fees received along with acquisition premiums or discounts are amortized as yield adjustments over the lives of the loans. Substantially all of our loans and finance receivables are secured by real or personal property or by other assets of the borrower.

Allowances for credit losses on loans include estimates of losses on loans currently in foreclosure and losses on loans not currently in foreclosure. We estimate losses on loans in foreclosure based on historical experience and collateral recovery rates. Estimates of losses on loans not currently in foreclosure consider historical default rates, collateral recovery rates and prevailing economic conditions. Allowances for credit losses also incorporate the historical average time elapsed from the last payment until foreclosure.

K-70

Notes to Consolidated Financial Statements (Continued)

(1)	Significant accounting policies and practices (Continued)

	(h)		Loans and finance receivables (Continued)

Loans are considered delinquent when payments are more than 30 days past due. We place loans over 90 days past due on nonaccrual status and accrued but uncollected interest is reversed. Subsequent collections on the loans are first applied to the principal and interest owed for the most delinquent amount. We resume interest income accrual once a loan is less than 90 days delinquent.

Loans in the foreclosure process are considered non-performing. Once a loan is in foreclosure, interest income is not recognized unless the foreclosure is cured or the loan is modified. Once a modification is complete, interest income is recognized based on the terms of the new loan. Foreclosed loans are charged off when the collateral is sold. Loans not in foreclosure are evaluated for charge off based on individual circumstances concerning the future collectability of the loan and the condition of the collateral securing the loan.

	(i)		Derivatives

We carry derivative contracts in our Consolidated Balance Sheets at fair value, net of reductions permitted under master netting agreements with counterparties. We record the changes in fair value of derivative contracts that do not qualify as hedging instruments for financial reporting purposes in earnings or by our regulated utilities businesses as regulatory assets or liabilities, as applicable, when inclusion in regulated rates is probable.

	(j)		Fair value measurements

As defined under GAAP, fair value is the price that would be received to sell an asset or paid to transfer a liability between market participants in the principal market or in the most advantageous market when no principal market exists. Adjustments to transaction prices or quoted market prices may be required in illiquid or disorderly markets in order to estimate fair value. Alternative valuation techniques may be appropriate under the circumstances to determine the value that would be received to sell an asset or paid to transfer a liability in an orderly transaction. Market participants are assumed to be independent, knowledgeable, able and willing to transact an exchange and not acting under duress. Our nonperformance or credit risk is considered in determining the fair value of liabilities. Considerable judgment may be required in interpreting market data used to develop the estimates of fair value. Accordingly, estimates of fair value presented herein are not necessarily indicative of the amounts that could be realized in a current or future market exchange.

	(k)		Inventories

Inventories consist of manufactured goods, goods acquired for resale, homes constructed for sale, and materials consumed in business operations. Manufactured inventory costs include raw materials, direct and indirect labor and factory overhead. We used the last-in-first-out (“LIFO”) method to value approximately 39% of consolidated inventories at December 31, 2018 with the remainder primarily determined under first-in-first-out and average cost methods. Non-LIFO inventories are stated at the lower of cost or net realizable value. The excess of current or replacement costs over costs determined under LIFO were approximately $1.0 billion as of December 31, 2018.

	(l)		Property, plant and equipment

We record additions to property, plant and equipment used in operations at cost, which includes asset additions, improvements and betterments. With respect to constructed assets, all materials, direct labor and contract services as well as certain indirect costs are capitalized. Indirect costs include interest over the construction period. With respect to constructed assets of our utility and energy subsidiaries that are subject to authoritative guidance for regulated operations, capitalized costs also include an equity allowance for funds used during construction, which represents the cost of equity funds used to finance the construction of the regulated facilities. See Note 1(t).

Normal repairs and maintenance and other costs that do not improve the property, extend the useful life or otherwise do not meet capitalization criteria are charged to expense as incurred. Rail grinding costs related to our railroad properties are expensed as incurred.

Depreciation of assets of our regulated utilities and railroad is generally determined using group depreciation methods where rates are based on periodic depreciation studies approved by the applicable regulator. Under group depreciation, a single depreciation rate is applied to the gross investment in a particular class of property, despite differences in the service life or salvage value of individual property units within the same class. When such assets are retired or sold, no gain or loss is recognized. Gains or losses on disposals of all other assets are recorded through earnings.

K-71

Notes to Consolidated Financial Statements (Continued)

(1)	Significant accounting policies and practices (Continued)

	(l)		Property, plant and equipment (Continued)

We depreciate property, plant and equipment used by our other businesses to estimated salvage value primarily using the straight-line method over estimated useful lives. Ranges of estimated useful lives of depreciable assets used in our other businesses are as follows: buildings and improvements – 5 to 50 years, machinery and equipment – 3 to 25 years and furniture, fixtures and other – 3 to 15 years. Ranges of estimated useful lives of depreciable assets unique to our railroad business are as follows: track structure and other roadway – 9 to 100 years and locomotives, freight cars and other equipment – 6 to 41 years. Ranges of estimated useful lives of assets unique to our regulated utilities and energy businesses are as follows: utility generation, transmission and distribution systems – 5 to 80 years, interstate natural gas pipeline assets – 3 to 80 years and independent power plants and other assets – 3 to 30 years.

We evaluate property, plant and equipment for impairment when events or changes in circumstances indicate that the carrying value of such assets may not be recoverable or when the assets are held for sale. Upon the occurrence of a triggering event, we assess whether the estimated undiscounted cash flows expected from the use of the asset and the residual value from the ultimate disposal of the asset exceeds the carrying value. If the carrying value exceeds the estimated recoverable amounts, we reduce the carrying value to fair value and record an impairment loss in earnings, except with respect to impairment of assets of our regulated utility and energy subsidiaries where the impacts of regulation are considered in evaluating the carrying value.

	(m)		Equipment held for lease

We record additions to equipment held for lease at cost. We depreciate equipment held for lease to estimated salvage value primarily using the straight-line method over estimated useful lives ranging from 6 to 35 years. We also evaluate equipment held for lease for impairment consistent with policies for property, plant and equipment.

	(n)		Goodwill and other intangible assets

Goodwill represents the excess of the acquisition price of a business over the fair value of identified net assets of that business. We evaluate goodwill for impairment at least annually. When evaluating goodwill for impairment, we estimate the fair value of the reporting unit. There are several methods that may be used to estimate a reporting unit’s fair value, including market quotations, asset and liability fair values and other valuation techniques, including, but not limited to, discounted projected future net earnings or net cash flows and multiples of earnings. If the carrying amount of a reporting unit, including goodwill, exceeds the estimated fair value, then the identifiable assets and liabilities of the reporting unit are estimated at fair value as of the current testing date. The excess of the estimated fair value of the reporting unit over the current estimated fair value of net assets establishes the implied value of goodwill. The excess of the recorded goodwill over the implied goodwill value is charged to earnings as an impairment loss. Significant judgment is required in estimating the fair value of the reporting unit and performing goodwill impairment tests.

We amortize intangible assets with finite lives in a pattern that reflects the expected consumption of related economic benefits or on a straight-line basis over the estimated economic lives. Intangible assets with finite lives are reviewed for impairment when events or changes in circumstances indicate that the carrying amount may not be recoverable. Intangible assets with indefinite lives are tested for impairment at least annually and when events or changes in circumstances indicate that, more-likely-than-not, the asset is impaired.

	(o)		Revenue recognition

We earn insurance premiums on prospective property/casualty insurance and reinsurance contracts over the loss exposure or coverage period in proportion to the level of protection provided. In most cases, such premiums are earned ratably over the term of the contract with unearned premiums computed on a monthly or daily pro-rata basis. Premiums on retroactive property/casualty reinsurance contracts are earned at the inception of the contracts, as all of the underlying loss events covered by the policies occurred prior to inception. Premiums for life reinsurance and annuity contracts are earned when due. Premiums earned are stated net of amounts ceded to reinsurers. Premiums earned on contracts with experience-rating provisions reflect estimated loss experience under such contracts.

K-72

Notes to Consolidated Financial Statements (Continued)

(1)	Significant accounting policies and practices (Continued)

	(o)		Revenue recognition (Continued)

On January 1, 2018, we adopted Accounting Standards Codification (“ASC”) 606 “Revenues from Contracts with Customers.” Except as described in Note 1(w), our revenue recognition practices for contracts with customers under ASC 606 do not differ significantly from prior practices. Under ASC 606, revenues are recognized 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.

We manufacture and/or distribute a wide variety of industrial, building and consumer products. Our sales contracts provide customers with these products through wholesale and retail channels in exchange for consideration specified under the contracts. Contracts generally represent customer orders for individual products at stated prices. Sales contracts may contain either single or multiple performance obligations. In instances where contracts contain multiple performance obligations, we allocate the revenue to each obligation based on the relative stand-alone selling prices of each product or service.

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

Our product sales revenues are generally recognized at a point in time when control of the product transfers to the customer, which coincides with customer pickup or product delivery or acceptance, depending on terms of the arrangement. We recognize sales revenues and related costs with respect to certain contracts over time, primarily from certain castings, forgings and aerostructures contracts. Control of the product units under these contracts transfers continuously to the customer as the product is manufactured. These products generally have no alternative use and the contract requires the customer to provide reasonable compensation if terminated for reasons other than breach of contract.

Our energy revenue derives primarily from tariff based sales arrangements approved by various regulatory commissions. These tariff based revenues are mainly comprised of energy, transmission, distribution and natural gas and have performance obligations to deliver energy products and services to customers which are satisfied over time as energy is delivered or services are provided. Our nonregulated energy revenue primarily relates to our renewable energy business. Energy revenues are equivalent to the amounts we have the right to invoice and correspond directly with the value to the customer of the performance to date and include billed and unbilled amounts. Payments from customers are generally due from the customer within 30 days of billing. Rates charged for energy products and services are established by regulators or contractual arrangements that establish the transaction price, as well as the allocation of price amongst the separate performance obligations. When preliminary regulated rates are permitted to be billed prior to final approval by the applicable regulator, certain revenue collected may be subject to refund and a liability for estimated refunds is accrued.

The primary performance obligation under our freight rail transportation service contracts is to move freight from a point of origin to a point of destination. The performance obligations are represented by bills of lading which create a series of distinct services that have a similar pattern of transfer to the customer. The revenues for each performance obligation are based on various factors including the product being shipped, the origin and destination pair, and contract incentives which are outlined in various private rate agreements, common carrier public tariffs, interline foreign road agreements and pricing quotes. The transaction price is generally a per car amount to transport railcars from a specified origin to a specified destination. Freight revenues are recognized over time as the service is performed because the customer simultaneously receives and consumes the benefits of the service. Revenues recognized represent the proportion of the service completed as of the balance sheet date. Invoices for freight transportation services are generally issued to customers and paid within 30 days or less. Customer incentives, which are primarily provided for shipping a specified cumulative volume or shipping to/from specific locations, are recorded as a reduction to revenue on a pro-rata basis based on actual or projected future customer shipments.

K-73

Notes to Consolidated Financial Statements (Continued)

(1)	Significant accounting policies and practices (Continued)

	(o)		Revenue recognition (Continued)

Other service revenues derive from contracts with customers in which performance obligations are satisfied over time, where customers receive and consume benefits as we perform the services, or at a point in time when the services are provided. Other service revenues primarily derive from real estate brokerage, automotive repair, aircraft management, aviation training, franchising and news distribution services.

Leasing revenue is generally recognized ratably over the term of the lease or based on usage, if applicable under the terms of the contract. A substantial portion of our leases are classified as operating leases. Prior to January 1, 2018, we recognized revenues from the sales of fractional ownership interests in aircraft over the term of the related management services agreements, as the transfers of the ownership interests were inseparable from the management services agreements. These agreements also include provisions that require us to repurchase the fractional interest at fair market value at contract termination or upon the customer’s request following the end of a minimum commitment period. ASC 606 provides that such contracts are subject to accounting guidance for lease contracts and not ASC 606. The re-characterization of these fractional ownership interests as operating leases did not have a significant effect on our consolidated revenues or earnings.

	(p)		Losses and loss adjustment expenses

We record liabilities for unpaid losses and loss adjustment expenses assumed under short duration property/casualty insurance and reinsurance contracts for loss events that have occurred on or before the balance sheet date. Such liabilities represent the estimated ultimate payment amounts without discounting for time value.

We base liability estimates on (1) reports of losses from policyholders, (2) individual case estimates and (3) estimates of incurred but not reported losses. Losses and loss adjustment expenses in the Consolidated Statements of Earnings include paid claims, claim settlement costs and changes in estimated claim liabilities. Losses and loss adjustment expenses charged to earnings are net of amounts recovered and estimates of recoverable amounts under ceded reinsurance contracts. Reinsurance contracts do not relieve the ceding company of its obligations to indemnify policyholders with respect to the underlying insurance and reinsurance contracts.

	(q)		Retroactive reinsurance contracts

We record liabilities for unpaid losses and loss adjustment expenses assumed under retroactive reinsurance of short duration contracts consistent with other short duration property/casualty insurance and reinsurance contracts discussed in Note 1(p). With respect to retroactive reinsurance contracts, we also record deferred charge assets at the inception of the contracts, representing the excess, if any, of the estimated ultimate claim liabilities over the premiums earned. We subsequently amortize the deferred charge assets over the expected claim settlement periods using the interest method. Changes to the estimated timing or amount of future loss payments also produce changes in deferred charge balances. We apply changes in such estimates retrospectively and the resulting changes in deferred charge balances, together with periodic amortization, are included in insurance losses and loss adjustment expenses in the Consolidated Statements of Earnings.

	(r)		Insurance policy acquisition costs

We capitalize the incremental costs that directly relate to the successful sale of insurance contracts, subject to ultimate recoverability, and we subsequently amortize such costs to underwriting expenses as the related premiums are earned. Direct incremental acquisition costs include commissions, premium taxes and certain other costs associated with successful efforts. We expense all other underwriting costs as incurred. The recoverability of capitalized insurance policy acquisition costs generally reflects anticipation of investment income. The unamortized balances are included in other assets and were $2,658 million and $2,529 million at December 31, 2018 and 2017, respectively.

K-74

Notes to Consolidated Financial Statements (Continued)

(1)	Significant accounting policies and practices (Continued)

	(s)		Life and annuity insurance benefits

We compute our liabilities for insurance benefits under life contracts based upon estimated future investment yields, expected mortality, morbidity, and lapse or withdrawal rates as well as estimates of premiums we expect to receive and expenses we expect to incur in the future. These assumptions, as applicable, also include a margin for adverse deviation and may vary with the characteristics of the contract’s date of issuance, policy duration and country of risk. The interest rate assumptions used may vary by contract or jurisdiction. We discount periodic payment annuity liabilities based on the implicit rate as of the inception of the contracts such that the present value of the liabilities equals the premiums. Discount rates range from less than 1% to 7%.

	(t)		Regulated utilities and energy businesses

Certain energy subsidiaries prepare their financial statements in accordance with authoritative guidance for regulated operations, reflecting the economic effects of regulation from the ability to recover certain costs from customers and the requirement to return revenues to customers in the future through the regulated rate-setting process. Accordingly, certain costs are deferred as regulatory assets and certain income is accrued as regulatory liabilities. Regulatory assets and liabilities will be amortized into operating expenses and revenues over various future periods.

Regulatory assets and liabilities are continually assessed for probable future inclusion in regulatory rates by considering factors such as applicable regulatory or legislative changes and recent rate orders received by other regulated entities. If future inclusion in regulatory rates ceases to be probable, the amount no longer probable of inclusion in regulatory rates is charged or credited to earnings (or other comprehensive income, if applicable) or returned to customers.

	(u)		Foreign currency

The accounts of our non-U.S. based subsidiaries are measured, in most instances, using functional currencies other than the U.S. Dollar. Revenues and expenses of these subsidiaries are translated into U.S. Dollars at the average exchange rate for the period and assets and liabilities are translated at the exchange rate as of the end of the reporting period. Gains or losses from translating the financial statements of these subsidiaries are included in shareholders’ equity as a component of accumulated other comprehensive income. Gains and losses arising from transactions denominated in a currency other than the functional currency of the reporting entity, including gains and losses from the remeasurement of assets and liabilities due to changes in currency exchange rates, are included in earnings.

	(v)		Income taxes

Berkshire files a consolidated federal income tax return in the United States, which includes eligible subsidiaries. In addition, we file income tax returns in state, local and foreign jurisdictions as applicable. Provisions for current income tax liabilities are calculated and accrued on income and expense amounts expected to be included in the income tax returns for the current year. Income taxes reported in earnings also include deferred income tax provisions.

Deferred income tax assets and liabilities are computed on differences between the financial statement bases and tax bases of assets and liabilities at the enacted tax rates. Changes in deferred income tax assets and liabilities associated with components of other comprehensive income are charged or credited directly to other comprehensive income. Otherwise, changes in deferred income tax assets and liabilities are included as a component of income tax expense. The effect on deferred income tax assets and liabilities attributable to changes in enacted tax rates are charged or credited to income tax expense in the period of enactment. Valuation allowances are established for certain deferred tax assets when realization is not likely.

Assets and liabilities are established for uncertain tax positions taken or positions expected to be taken in income tax returns when such positions, in our judgment, do not meet a more-likely-than-not threshold based on the technical merits of the positions. Estimated interest and penalties related to uncertain tax positions are included as a component of income tax expense.

K-75

Notes to Consolidated Financial Statements (Continued)

(1)	Significant accounting policies and practices (Continued)

	(w)		New accounting pronouncements adopted in 2018

On January 1, 2018, we adopted Accounting Standards Update (“ASU”) 2016-01 “Financial Instruments—Recognition and Measurement of Financial Assets and Financial Liabilities,” ASU 2018-02 “Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income” and ASC 606. Prior year financial statements were not restated. A summary of the effects of the initial adoption of ASU 2016-01, ASU 2018-02 and ASC 606 follows (in millions).


	ASU 2016-01		ASU 2018-02		ASC 606		Total
Increase (decrease):
Assets	$	—	$	—	$	3,382	$	3,382
Liabilities		—		—		3,453		3,453
Accumulated other comprehensive income		(61,459)		84		—		(61,375)
Retained earnings		61,459		(84)		(70)		61,305
Shareholders’ equity		—		—		(70)		(70)

With respect to ASU 2016-01, beginning in 2018, unrealized gains and losses from the changes in the fair values of our equity securities during the period are included within investment gains (losses) in the Consolidated Statements of Earnings. For periods ending prior to January 1, 2018, we recognized gains and losses in earnings when we sold equity securities and for other-than-temporary impairment losses and we recorded unrealized gains and losses from the changes in fair value of such securities in other comprehensive income. As of January 1, 2018, we reclassified net after-tax unrealized gains on equity securities from accumulated other comprehensive income to retained earnings.

In adopting ASU 2018-02, we reclassified the stranded deferred income tax effects arising from the reduction in the U.S. statutory income tax rate under the U.S. Tax Cuts and Jobs Act that were included in accumulated other comprehensive income as of January 1, 2018 to retained earnings. The effect of the reduction in the U.S statutory income tax rate on other comprehensive income items was recorded in earnings in December 2017.

In adopting ASC 606, we recorded increases to certain assets and other liabilities, with the cumulative net effect recorded to retained earnings. Prior to January 1, 2018, we recognized revenues from the sales of fractional ownership interests in aircraft over the term of the related management services agreements, as the transfers of the ownership interests were inseparable from the management services agreements. These agreements also include provisions that require us to repurchase the fractional interest at fair market value at contract termination or upon the customer’s request following the end of a minimum commitment period. ASC 606 provides that such contracts are subject to accounting guidance for lease contracts. The principal effects of this re-characterization were to increase equipment held for lease and aircraft repurchase liabilities and unearned lease revenues by approximately $3.5 billion.

	(x)		New accounting pronouncements to be adopted subsequent to December 31, 2018

In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02 “Leases,” which together with subsequent amendments is included in ASC 842 “Leases.” Most significantly, ASC 842 requires a lessee to recognize a liability to make lease payments and an asset with respect to its right to use the underlying asset for the lease term. ASC 842 also addresses accounting and reporting by lessors, which is not significantly different from current accounting and reporting, and further provides for qualitative and quantitative disclosures. We adopted ASC 842 as of January 1, 2019 under the modified retrospective method with respect to lease contracts in effect as of the adoption date.

We are party to contracts where we are the lessee and other contracts where we are the lessor. For contracts where we are the lessee, our consolidated assets and liabilities increased by approximately $6 billion as of January 1, 2019, primarily due to the recognition of right-of-use assets and lease liabilities with respect to operating leases. We do not believe the adoption of ASC 842 will have a material effect on our consolidated financial position, results of operations or cash flows.

K-76

Notes to Consolidated Financial Statements (Continued)

(1)	Significant accounting policies and practices (Continued)

	(x)		New accounting pronouncements to be adopted subsequent to December 31, 2018 (Continued)

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

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

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 in the valuation of policyholder liabilities and deferred acquisition costs arising from the issuance of 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. Under current accounting guidance, the actuarial and discount rate assumptions are set at the contract inception date and not subsequently changed, except under limited circumstances. ASU 2018-12 also requires new disclosures and is effective for fiscal years beginning after December 15, 2020, with early adoption permitted. We are evaluating the effect this standard will have on our Consolidated Financial Statements.

(2)	Significant business acquisitions

Our long-held acquisition strategy is to acquire businesses that have consistent earning power, good returns on equity and able and honest management. Financial results attributable to business acquisitions are included in our Consolidated Financial Statements beginning on their respective acquisition dates.

In 2016, National Indemnity Company (“NICO”), a wholly-owned subsidiary, entered into a definitive agreement to acquire Medical Liability Mutual Insurance Company (“Medical Liability Mutual”), a writer of medical professional liability insurance domiciled in New York. The acquisition price was approximately $2.5 billion. The acquisition closed on October 1, 2018, at which time, Medical Liability Mutual’s name was changed to MLMIC Insurance Company (“MLMIC”). As of the acquisition date, the fair value of MLMIC’s assets was approximately $6.1 billion, including cash ($230 million) and investments ($5.2 billion), and liabilities were approximately $3.6 billion, consisting primarily of unpaid losses and loss adjustment expenses ($3.2 billion). MLMIC premiums earned for the year ending December 31, 2018 were approximately $400 million.

In each of the past three years, we also completed several smaller-sized business acquisitions, which we consider as “bolt-ons” to several of our existing business operations. Aggregate consideration paid for bolt-on acquisitions was approximately $1.0 billion in 2018, $2.7 billion in 2017 and $1.4 billion in 2016. We do not believe that these acquisitions are material, individually or in the aggregate to our Consolidated Financial Statements.

On January 29, 2016, Berkshire acquired all outstanding common stock of Precision Castparts Corp. (“PCC”) for cash of approximately $32.7 billion, which included the value of PCC shares we already owned. We funded the acquisition with a combination of existing cash balances and proceeds from a temporary credit facility. PCC is a worldwide, diversified manufacturer of complex metal components and products, serving the aerospace, power and general industrial markets. PCC also produces titanium and nickel superalloy melted and mill products for the aerospace, chemical processing, oil and gas and pollution control industries, and manufactures extruded seamless pipe, fittings and forgings for power generation and oil and gas applications.

K-77

Notes to Consolidated Financial Statements (Continued)

(2)	Significant business acquisitions (Continued)

On February 29, 2016, we acquired a recapitalized Duracell Company (“Duracell”) from The Procter & Gamble Company (“P&G”) in exchange for shares of P&G common stock held by Berkshire subsidiaries, which had a fair value of approximately $4.2 billion. Duracell manufactures high-performance alkaline batteries and wireless charging technologies. Goodwill from these acquisitions is not amortizable for income tax purposes. The fair values of identified assets acquired and liabilities assumed and residual goodwill at their respective acquisition dates are summarized as follows (in millions).


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

Assets acquired	$	47,899	$	5,143


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

Liabilities assumed	$	15,241	$	904

Net assets	$	32,658	$	4,239

(3)	Investments in fixed maturity securities

Investments in fixed maturity securities as of December 31, 2018 and 2017 are summarized by type below (in millions).


	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
December 31, 2018
U.S. Treasury, U.S. government corporations and agencies	$	4,223	$	22	$	(22)	$	4,223
States, municipalities and political subdivisions		182		7		—		189
Foreign governments		7,480		50		(28)		7,502
Corporate bonds		7,055		408		(23)		7,440
Mortgage-backed securities		487		59		(2)		544

	$	19,427	$	546	$	(75)	$	19,898

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

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

Investments in foreign governments include securities issued by national and provincial government entities as well as instruments that are unconditionally guaranteed by such entities. As of December 31, 2018, approximately 88% of our foreign government holdings were rated AA or higher by at least one of the major rating agencies.

K-78

Notes to Consolidated Financial Statements (Continued)

(3)	Investments in fixed maturity securities (Continued)

The amortized cost and estimated fair value of fixed maturity securities at December 31, 2018 are summarized below by contractual maturity dates. Amounts are 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
Amortized cost		$ 6,973	$	10,937	$	438	$	592	$	487	$	19,427
Fair value		6,982		10,994		494		884		544		19,898

(4)	Investments in equity securities

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


	Cost Basis		Net Unrealized Gains		Fair Value
December 31, 2018 *
Banks, insurance and finance	$	44,332	$	38,260	$	82,592
Consumer products		38,783		22,838		61,621
Commercial, industrial and other		19,752		8,792		28,544

	$	102,867	$	69,890	$	172,757

*	Approximately 68% of the aggregate fair value was concentrated in five companies (American Express Company – $14.5 billion; Apple Inc. – $40.3 billion; Bank of America Corporation – $22.6 billion; The Coca-Cola Company – $18.9 billion and Wells Fargo & Company – $20.7 billion).


	Cost Basis		Net Unrealized Gains		Fair Value
December 31, 2017 *
Banks, insurance and finance	$	25,783	$	55,026	$	80,809
Consumer products		25,177		25,698		50,875
Commercial, industrial and other		23,716		15,140		38,856

	$	74,676	$	95,864	$	170,540

*	Approximately 65% of the aggregate fair value was concentrated in five companies (American Express Company – $15.1 billion; Apple Inc. – $28.2 billion; Bank of America Corporation – $20.7 billion; The Coca-Cola Company – $18.4 billion and Wells Fargo & Company – $29.3 billion).

In 2011, we acquired 50,000 shares of 6% Non-Cumulative Perpetual Preferred Stock of Bank of America Corporation (“BAC”) with a liquidation value of $100,000 per share (“BAC Preferred”) and warrants to purchase up to 700,000,000 shares of common stock of BAC (“BAC Warrants”) at $7.142857 per share (up to $5 billion in the aggregate). On August 24, 2017, we exercised all of our BAC Warrants and acquired 700,000,000 shares of BAC common stock. We also surrendered substantially all of our BAC Preferred as payment of the $5 billion cost to exercise the BAC Warrants and acquire the BAC common stock. Our investment in BAC is included in the banks, insurance and finance category.

K-79

Notes to Consolidated Financial Statements (Continued)

(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 26.7% of the outstanding shares. Shares of Kraft Heinz common stock are publicly-traded and the fair value of our investment at December 31, 2018 and 2017 was approximately $14.0 billion and $25.3 billion, respectively. Our carrying value of this investment at December 31, 2018 and 2017 was approximately $13.8 billion and $17.6 billion, respectively. We recorded equity method losses in 2018 of approximately $2.7 billion compared to earnings of $2.9 billion in 2017 and $923 million in 2016. Our losses in 2018 included our share of intangible asset impairment losses recorded by Kraft Heinz. In 2017, our earnings reflected our share of certain one-time effects of the Tax Cuts and Jobs Act of 2017 on Kraft Heinz’s net earnings. We received dividends on the common stock of $814 million and $797 million in 2018 and 2017, respectively, which we recorded as reductions of our investment.

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


	December 29, 2018		December 30, 2017
Assets		$ 103,627		$ 120,232
Liabilities		51,721		53,985


	Year ending December 29, 2018		Year ending December 30, 2017		Year ending December 31, 2016
Sales	$	26,259	$	26,085	$	26,335

Net earnings (losses) attributable to Kraft Heinz common shareholders	$	(10,229)	$	10,999	$	3,452

Other investments accounted for pursuant to the equity method include our investments in Berkadia Commercial Mortgage LLC (“Berkadia”), Pilot Travel Centers LLC, d/b/a Pilot Flying J (“Pilot Flying J”), and Electric Transmission Texas, LLC (“ETT”). The carrying value of our investments in these entities was approximately $3.5 billion as of December 31, 2018 and $3.4 billion as of December 31, 2017. Our equity method earnings in these entities were $563 million in 2018, $76 million in 2017 and $186 million in 2016. Additional information concerning these investments follows.

We own a 50% interest in Berkadia, with Jefferies Financial Group Inc. (“Jefferies”), formerly known as Leucadia National Corporation, owning the other 50% interest. Berkadia is a servicer of 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. A source of funding for Berkadia’s operations is through its issuance of commercial paper, which is currently limited to $1.5 billion. On December 31, 2018, 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. In addition, 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.

On October 3, 2017, we entered into an investment agreement and an equity purchase agreement whereby we acquired a 38.6% interest in Pilot Flying J, headquartered in Knoxville, Tennessee. Pilot Flying J is one of the largest operators of travel centers in North America, with more than 28,000 team members, 750 locations across the U.S. and Canada, and more than $20 billion in annual revenues. The Haslam family currently owns a 50.1% interest in Pilot Flying J and a third party owns the remaining 11.3% interest. We also entered into an agreement to acquire in 2023 an additional 41.4% interest in Pilot Flying J with the Haslam family retaining a 20% interest. As a result, Berkshire will become the majority owner of Pilot Flying J in 2023.

K-80

Notes to Consolidated Financial Statements (Continued)

(6)	Investment gains/losses

Investment gains/losses for each of the three years ending December 31, 2018 are summarized below (in millions).


	2018		2017		2016
Equity securities:
Unrealized investment gains/losses on securities held at the end of the period	$	(22,729)	$	—	$	—
Investment gains/losses during 2018 on securities sold in 2018		291		—		—
Gross realized gains		—		2,237		7,853
Gross realized losses		—		(919)		(415)

		(22,438)		1,318		7,438

Fixed maturity securities:
Gross realized gains		480		103		58
Gross realized losses		(227)		(22)		(51)
Other		30		11		108

	$	(22,155)	$	1,410	$	7,553

Prior to 2018, we recognized investment gains and losses in earnings when we sold or otherwise disposed of equity securities based on the difference between the proceeds from the sale and the cost of the securities and also when we recognized other-than-temporary impairment losses. Beginning in 2018, equity securities gains and losses include unrealized gains and losses from changes in fair values during the period on equity securities we still own. See Note 1(w). Prior to 2018, we recorded the changes in unrealized gains and losses on our investments in equity securities in other comprehensive income.

During 2018, as reflected in the Consolidated Statement of Cash Flows, we received proceeds of approximately $18.8 billion from sales of equity securities. In the preceding table, investment gains/losses on equity securities sold during 2018 reflect the difference between proceeds from sales and the fair value of the equity security sold at the beginning of the period or the purchase date, if later. Our taxable gains on equity securities sold during 2018, which are generally the difference between the proceeds from sales and our original cost, were $3.3 billion.

Net gains from equity securities in 2017 included approximately $1.0 billion related to the surrender of substantially all of our BAC Preferred as described in Note 4. Gross gains from equity securities in 2016 included approximately $4.2 billion from the redemptions of our investments in Wm. Wrigley Jr. Company and Kraft Heinz preferred stock and from the sale of Dow Chemical Company common stock received in the conversion of our Dow Chemical preferred stock investment. In 2016, we also recorded a non-cash holding gain of approximately $1.1 billion from the exchange of P&G common stock in connection with the acquisition of Duracell. See Note 2.

(7)	Loans and finance receivables

Loans and finance receivables are summarized as follows (in millions).


	December 31,
	2018			2017
Loans and finance receivables before allowances and discounts	$	16,622		$	14,126
Allowances for uncollectible loans		(177	)		(180	)
Unamortized acquisition discounts		(165	)		(198	)

	$	16,280		$	13,748

Loans and finance receivables are predominantly installment loans originated or acquired by our manufactured housing business. Provisions for loan losses for 2018 and 2017 were $141 million and $160 million, respectively. Loan charge-offs, net of recoveries, were $144 million in 2018 and $162 million in 2017. At December 31, 2018, approximately 98% of the manufactured housing loan balances were evaluated collectively for impairment, with the remainder evaluated individually. As part of the evaluation process, credit quality indicators are reviewed and loans are designated as performing or non-performing. At December 31, 2018, we considered approximately 99% of the loan balances to be performing and approximately 95% of the loan balances to be current as to payment status.

Additionally, during 2018, an insurance subsidiary entered into an agreement with Seritage Growth Properties to provide a $2.0 billion term loan facility, which matures on July 31, 2023. As of December 31, 2018, the outstanding loans under the facility were approximately $1.6 billion.

K-81

Notes to Consolidated Financial Statements (Continued)

(8)	Other receivables

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


	December 31,
	2018			2017
Insurance premiums receivable	$	12,452		$	11,058
Reinsurance recoverable on unpaid losses		3,060			3,201
Trade receivables		12,617			12,031
Other		3,823			3,464
Allowances for uncollectible accounts		(388	)		(362	)

	$	31,564		$	29,392

Receivables of our railroad and our utilities and energy businesses are comprised of the following (in millions).


	December 31,
	2018			2017
Trade receivables	$	3,433		$	3,346
Other		362			313
Allowances for uncollectible accounts		(129	)		(128	)

	$	3,666		$	3,531

Trade receivables include unbilled revenue of $554 million and $665 million as of December 31, 2018 and 2017, respectively, attributable to the regulated utility businesses.

(9)	Inventories

Inventories are comprised of the following (in millions).


	December 31,
	2018		2017
Raw materials	$	4,182	$	3,479
Work in process and other		2,625		2,568
Finished manufactured goods		4,541		4,505
Goods acquired for resale		7,721		6,814

	$	19,069	$	17,366

(10)	Property, plant and equipment

A summary of property, plant and equipment of our insurance and other businesses follows (in millions).


	December 31,
	2018			2017
Land	$	2,536		$	2,523
Buildings and improvements		9,959			9,409
Machinery and equipment		22,574			21,190
Furniture, fixtures and other		4,758			4,519

		39,827			37,641
Accumulated depreciation		(19,199	)		(17,773	)

	$	20,628		$	19,868

K-82

Notes to Consolidated Financial Statements (Continued)

(10)	Property, plant and equipment (Continued)

A summary of property, plant and equipment of our railroad and our 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.


		December 31,
	2018				2017
Railroad:
Land, track structure and other roadway		$	59,509			$	57,408
Locomotives, freight cars and other equipment			13,016				12,543
Construction in progress			664				989

			73,189				70,940
Accumulated depreciation			(10,004	)			(8,627	)

			63,185				62,313

Utilities and energy:
Utility generation, transmission and distribution systems			77,288				74,660
Interstate natural gas pipeline assets			7,524				7,176
Independent power plants and other assets			8,324				7,499
Construction in progress			3,110				2,556

			96,246				91,891
Accumulated depreciation			(27,651	)			(26,020	)

			68,595				65,871

		$	131,780			$	128,184

Depreciation expense for each of the three years ending December 31, 2018 is summarized below (in millions).


	2018		2017		2016
Insurance and other	$	2,186	$	2,116	$	2,017
Railroad, utilities and energy		5,098		4,852		4,639

	$	7,284	$	6,968	$	6,656

(11)	Equipment held for lease

Equipment held for lease is summarized below (in millions). Equipment held for lease includes railcars, aircraft, over-the-road trailers, intermodal tank containers, cranes, storage units and furniture. In conjunction with the adoption of ASC 606, we recorded a net asset of approximately $3.5 billion related to aircraft sold under fractional aircraft ownership programs in aircraft. Such amount included cost of approximately $5.3 billion, net of accumulated depreciation of $1.8 billion. We also recorded other liabilities of approximately $3.5 billion for estimated aircraft repurchase liabilities and unearned lease revenues, substantially offsetting the amount recorded in aircraft. See Note 1(w).


		December 31,
	2018				2017
Railcars		$	8,862			$	8,352
Aircraft			7,376				1,456
Other equipment held for lease			4,379				3,967

			20,617				13,775
Accumulated depreciation			(6,319	)			(3,608)

		$	14,298			$	10,167

Depreciation expense for equipment held for lease was $1,102 million in 2018, $751 million in 2017 and $755 million in 2016. As of December 31, 2018, the minimum future lease rentals to be received on equipment held for lease were as follows (in millions): 2019 – $2,493; 2020 – $1,771; 2021 – $1,222; 2022 – $779; 2023 – $421; and thereafter – $377.

K-83

Notes to Consolidated Financial Statements (Continued)

(12)	Goodwill and other intangible assets

Reconciliations of the changes in the carrying value of goodwill during 2018 and 2017 follows (in millions).


	December 31,
	2018			2017
Balance at beginning of year	$	81,258		$	79,486
Acquisitions of businesses		376			1,545
Other, including foreign currency translation		(609	)		227

Balance at end of year	$	81,025		$	81,258

Our other intangible assets and related accumulated amortization are summarized as follows (in millions).


	December 31, 2018				December 31, 2017
	Gross carrying amount		Accumulated amortization		Gross carrying amount		Accumulated amortization
Insurance and other	$	40,493	$	8,994	$	40,225	$	7,707
Railroad, utilities and energy		1,011		362		988		324

	$	41,504	$	9,356	$	41,213	$	8,031


Trademarks and trade names	$	5,368	$	750	$	5,381	$	692
Patents and technology		4,446		2,790		4,341		2,493
Customer relationships		28,375		4,573		28,322		3,722
Other		3,315		1,243		3,169		1,124

	$	41,504	$	9,356	$	41,213	$	8,031

Intangible asset amortization expense was $1,393 million in 2018, $1,469 million in 2017 and $1,490 million in 2016. Estimated amortization expense over the next five years is as follows (in millions): 2019 – $1,318; 2020 – $1,224; 2021 – $1,136; 2022 – $1,063 and 2023 – $1,018. Intangible assets with indefinite lives as of December 31, 2018 and 2017 were $18.9 billion and primarily related to certain customer relationships and trademarks and trade names.

(13)	Derivative contracts

We are party to derivative contracts through certain of our subsidiaries. Currently, the most significant derivative contracts consist of equity index put option contracts. The liabilities and related notional values of these contracts follows (in millions).


	Liabilities		Notional Value
December 31, 2018	$	2,452	$	26,759
December 31, 2017		2,172		28,753

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

K-84

Notes to Consolidated Financial Statements (Continued)

(13)	Derivative contracts (Continued)

We recorded derivative contract losses of $300 million in 2018 and gains of $718 million in 2017, with respect to our equity index put option contracts. The losses in 2018 were primarily due to decreases in equity index values during the fourth quarter. Derivative contract gains in 2016 were $751 million, which included $662 million related to equity index put option contracts and $89 million related to a credit default contract that was terminated.

The equity index put option contracts are European style options written prior to March 2008 on four major equity indexes. The remaining contracts expire between April 2019 and October 2025. At December 31, 2018, the remaining weighted average life of all contracts was approximately 1.9 years. In 2018, one equity index put option contract expired and another contract was terminated by mutual agreement with the counterparty. These contracts had an aggregate notional value of approximately $1.2 billion. Contracts with notional values of $12.2 billion will expire in 2019.

Future payments, if any, under any given contract will be required if the prevailing index value is below the contract strike price at the expiration date. We received aggregate premiums of $4.0 billion on the remaining contracts at the contract inception dates and we have no counterparty credit risk. The aggregate intrinsic value (the undiscounted liability assuming the contracts are settled based on the index values and foreign currency exchange rates as of the balance sheet date) was $1,653 million at December 31, 2018 and $789 million at December 31, 2017. These contracts may not be unilaterally terminated or fully settled before the expiration dates and the ultimate amount of cash basis gains or losses on these contracts will not be determined until the contract expiration dates.

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

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. Derivative contract assets are included in other assets and were $172 million as of December 31, 2018 and $142 million as of December 31, 2017. Derivative contract liabilities are included in accounts payable, accruals and other liabilities and were $111 million as of December 31, 2018 and $82 million as of December 31, 2017.

(14)	Supplemental cash flow information

A summary of supplemental cash flow information for each of the three years ending December 31, 2018 is presented in the following table (in millions).


	2018		2017		2016
Cash paid during the period for:
Income taxes	$	4,354	$	3,286	$	4,719
Interest:
Insurance and other		1,111		1,260		944
Railroad, utilities and energy		2,867		2,828		2,788
Non-cash investing and financing activities:
Liabilities assumed in connection with business acquisitions		3,735		747		16,555
Equity securities exchanged in connection with business acquisitions		—		—		4,239
Conversions and other exchanges of investments		—		—		4,154
Equity securities surrendered in connection with warrant exercise		—		4,965		—

K-85

Notes to Consolidated Financial Statements (Continued)

(15)	Unpaid losses and loss adjustment expenses

Our liabilities for unpaid losses and loss adjustment expenses (also referred to as “claim liabilities”) under short duration property and casualty insurance and reinsurance contracts are based upon estimates of the ultimate claim costs associated with claim occurrences as of the balance sheet date and include estimates for incurred-but-not-reported (“IBNR”) claims. A reconciliation of the changes in claim liabilities, excluding liabilities under retroactive reinsurance contracts (see Note 16), for each of the three years ending December 31, 2018 is as follows (in millions).


	2018			2017			2016
Balances – beginning of year:
Gross liabilities	$	61,122		$	53,379		$	50,519
Reinsurance recoverable on unpaid losses		(3,201	)		(3,338	)		(3,307	)

Net liabilities		57,921			50,041			47,212

Incurred losses and loss adjustment expenses:
Current accident year events		39,876			37,702			30,636
Prior accident years’ events		(1,406	)		(544	)		(1,443	)

Total incurred losses and loss adjustment expenses		38,470			37,158			29,193

Paid losses and loss adjustment expenses:
Current accident year events		(18,391	)		(17,425	)		(14,898	)
Prior accident years’ events		(15,452	)		(12,507	)		(10,929	)

Total payments		(33,843	)		(29,932	)		(25,827	)

Foreign currency translation adjustment		(331	)		654			(537	)
Business acquisition		3,181			—			—

Balances – end of year:
Net liabilities		65,398			57,921			50,041
Reinsurance recoverable on unpaid losses		3,060			3,201			3,338

Gross liabilities	$	68,458		$	61,122		$	53,379

Incurred losses and loss adjustment expenses in the preceding table were recorded in earnings in each period and related to insured events occurring in the current year (“current accident year”) and events occurring in all prior years (“prior accident years”). Current accident year losses in 2018 included $1.6 billion from four significant catastrophe events, while current accident year losses in 2017 included approximately $3 billion from six significant catastrophe events during that year. As discussed in Note 2, NICO acquired MLMIC, a writer of medical professional liability insurance, on October 1, 2018.

Incurred losses and loss adjustment expenses from the net reductions of estimated ultimate liabilities for prior accident years were $1,406 million in 2018, $544 million in 2017 and $1,443 million in 2016. These reductions, as percentages of the net liabilities at the beginning of each year, were 2.4% in 2018, 1.1% in 2017 and 3.1% in 2016.

Estimated ultimate liabilities for prior years’ loss events related to primary insurance were decreased $937 million in 2018, $249 million in 2017 and $569 million in 2016. These decreases were primarily attributable to lower than anticipated medical malpractice and workers’ compensation losses. Liabilities for prior years’ private passenger auto claims were also reduced in 2018 and 2016, but were increased in 2017.

Estimated ultimate liabilities for prior years’ loss events related to property and casualty reinsurance were reduced $469 million in 2018, $295 million in 2017 and $874 million in 2016. The decrease in 2017 was net of increased losses from a United Kingdom government-mandated change to the computation of certain personal injury lump sum settlements and higher than expected property losses.

Estimated claim liabilities for environmental, asbestos and other latent injury exposures, net of reinsurance recoverable, were approximately $1.7 billion at December 31, 2018 and $1.6 billion at December 31, 2017. These liabilities are subject to change due to changes in the legal and regulatory environment as described in Note 16. We are unable to reliably estimate additional losses or a range of losses that are reasonably possible for these claims.

K-86

Notes to Consolidated Financial Statements (Continued)

(15)	Unpaid losses and loss adjustment expenses (Continued)

A reconciliation of the disaggregated net unpaid losses and allocated loss adjustment expenses (the latter referred to as “ALAE”) of GEICO, Berkshire Hathaway Reinsurance Group (“BHRG”) and Berkshire Hathaway Primary Group (“BH Primary”) to our consolidated unpaid losses and loss adjustment expenses as of December 31, 2018, follows (in millions).


	GEICO		BHRG Property		BHRG Casualty		BH Primary Medical Professional Liability		BH Primary Workers’ Compensation and Other Casualty		Total
Unpaid losses and ALAE, net	$	17,318	$	9,395	$	19,966	$	7,288	$	8,694	$	62,661
Reinsurance recoverable		896		312		850		53		940		3,051
Unpaid unallocated loss adjustment expenses												2,015
Other unpaid losses and loss adjustment expenses												731

Unpaid losses and loss adjustment expenses											$	68,458

GEICO

GEICO’s claim liabilities predominantly relate to various types of private passenger auto liability and physical damage claims. For such claims, we establish and evaluate unpaid claim liabilities using standard actuarial loss development methods and techniques. The actuarial methods utilize historical claims data, adjusted when deemed appropriate to reflect perceived changes in loss patterns. Claim liabilities include average, case, case development and IBNR estimates.

We establish average liabilities based on expected severities for newly reported physical damage and liability claims prior to establishing an individual case reserve when we have insufficient time or information to make specific claim estimates and for a large number of minor physical damage claims that once reported are quickly settled. We establish liability case loss estimates, which includes loss adjustment expenses, once the facts and merits of the claim are evaluated.

Estimates for liability coverages are more uncertain primarily due to the longer claim-tails, the greater chance of protracted litigation and the incompleteness of facts at the time the case estimate is first established. The “claim-tail” is the time period between the claim occurrence date and settlement date. Consequently, we establish additional case development liabilities, which are usually percentages of the case liabilities. For unreported claims, IBNR liabilities are estimated by projecting the ultimate number of claims expected (reported and unreported) for each significant coverage and deducting reported claims to produce estimated unreported claims. The product of the average cost per unreported claim and the number of unreported claims produces the IBNR liability estimate. We may record supplemental IBNR liabilities in certain situations when actuarial techniques are difficult to apply.

K-87

Notes to Consolidated Financial Statements (Continued)

(15)	Unpaid losses and loss adjustment expenses (Continued)

GEICO’s incurred and paid losses and ALAE, net of reinsurance, are summarized by accident year below. IBNR and case development liabilities are as of December 31, 2018. Claim counts are established when accidents that may result in a liability are reported and are based on policy coverage. Each claim event may generate claims under multiple coverages, and thus may result in multiple counts. The “Cumulative Number of Reported Claims” includes the combined number of reported claims for all policy coverages and excludes projected IBNR claims. Dollars are in millions.


Accident Year		Incurred Losses and ALAE through December 31,														IBNR and Case Development Liabilities		Cumulative Number of Reported Claims (in thousands)
	2014*			2015*			2016*			2017*			2018
2014		$	14,680		$	14,572		$	14,559		$	14,589		$	14,651		$ 148		7,976
2015						16,887			16,875			16,993			17,039		319		8,926
2016									19,106			19,390			19,364		823		9,633
2017												22,675			22,257		2,208		10,816
2018															24,120		4,659		10,968

			Incurred losses and ALAE											$	97,431



Accident Year		Cumulative Paid Losses and ALAE through December 31,
	2014*			2015*			2016*			2017*			2018
2014		$	9,199		$	12,036		$	13,140		$	13,850		$	14,273
2015						10,606			13,858			15,285			16,186
2016									12,020			15,862			17,493
2017												13,878			18,249
2018															14,498

			Paid losses and ALAE												80,699

Net unpaid losses and ALAE for 2014 – 2018 accident years															16,732
Net unpaid losses and ALAE for accident years before 2014															586

Net unpaid losses and ALAE														$	17,318

Unaudited supplemental information

BHRG

We use a variety of actuarial methodologies to establish BHRG’s property and casualty claims liabilities. We use certain methodologies, such as paid and incurred loss development techniques, incurred and paid loss Bornhuetter-Ferguson techniques and frequency and severity techniques, as well as ground-up techniques when appropriate.

Our claims liabilities are principally a function of reported losses from ceding companies, case development and IBNR liability estimates. Case loss estimates are reported under our contracts either individually or in bulk as provided under the terms of the contracts. We may independently evaluate case losses reported by the ceding company, and if deemed appropriate, we may establish case liabilities based on our estimates. Estimated IBNR liabilities are driven by expected case loss emergence patterns and expected loss ratios, which may be evaluated as groups or portfolios of contracts with similar exposures, or on an individual contract-by-contract basis. Case and IBNR liability estimates for major catastrophe events may be based on a per-contract assessment of the ultimate cost associated with the individual loss event. Claim count data is not provided, as such information is not provided consistently by ceding companies under our contracts or is otherwise considered unreliable.

K-88

Notes to Consolidated Financial Statements (Continued)

(15)	Unpaid losses and loss adjustment expenses (Continued)

Incurred and paid losses and ALAE of BHRG are disaggregated based on losses that are expected to have shorter claim-tails (property) and losses expected to have longer claim-tails (casualty). Under certain contracts, the coverage can apply to multiple lines of business written by the ceding company, whether property, casualty or combined, and the ceding company may not report loss data by such lines consistently, if at all. In those instances, we allocated losses to property and casualty coverages based on internal estimates. BHRG’s disaggregated incurred and paid losses and ALAE are summarized by accident year, net of reinsurance. IBNR and case development liabilities are as of December 31, 2018. Dollars are in millions.

BHRG Property


Accident Year		Incurred Losses and ALAE through December 31,																													IBNR and Case Development Liabilities
	2009*			2010*			2011*			2012*			2013*			2014*			2015*			2016*			2017*			2018
2009		$	2,366		$	2,037		$	2,232		$	2,154		$	2,058		$	2,031		$	1,990		$	1,985			$1,984		$	1,984		$ 7
2010						2,523			2,380			2,408			2,274			2,180			2,145			2,126			2,106			2,114		23
2011									4,300			4,084			3,810			3,720			3,719			3,689			3,666			3,652		52
2012												3,144			2,833			2,629			2,389			2,336			2,333			2,315		65
2013															3,196			3,039			2,695			2,604			2,584			2,524		105
2014																		2,621			2,427			2,315			2,171			2,115		120
2015																					3,244			3,088			2,531			2,938		136
2016																								3,267			3,906			3,625		583
2017																											5,248			4,958		600
2018																														4,373		2,125

Incurred losses and ALAE																													$	30,598


Accident Year		Cumulative Paid Losses and ALAE through December 31,
	2009*			2010*			2011*			2012*			2013*			2014*			2015*			2016*			2017*			2018
2009		$	402		$	1,110		$	1,613		$	1,777		$	1,846		$	1,916		$	1,950		$	1,959		$	1,961		$	1,963
2010						336			1,024			1,506			1,772			1,931			1,987			2,033			2,058			2,065
2011									701			2,282			2,931			3,200			3,310			3,398			3,440			3,485
2012												266			1,222			1,801			1,939			2,028			2,103			2,123
2013															516			1,427			1,866			2,063			2,184			2,264
2014																		465			1,244			1,569			1,708			1,773
2015																					569			1,590			1,940			2,135
2016																								703			1,792			2,187
2017																											1,026			2,713
2018																														910

Paid losses and ALAE																														21,618

Net unpaid losses and ALAE for 2009 – 2018 accident years																														8,980
Net unpaid losses and ALAE for accident years before 2009																														415

Net unpaid losses and ALAE																													$	9,395

*	Unaudited supplemental information

K-89

Notes to Consolidated Financial Statements (Continued)

(15)	Unpaid losses and loss adjustment expenses (Continued)

BHRG Casualty


Accident Year		Incurred Losses and ALAE through December 31,																											IBNR and Case Development Liabilities
	2009*			2010*			2011*			2012*			2013*			2014*			2015*			2016*			2017*		2018
2009		$	2,375			$2,687		$	2,546		$	2,476		$	2,414		$	2,339		$	2,292		$	2,231		$2,192		$ 2,209	$	213
2010						2,301			2,387			2,322			2,258			2,139			2,090			2,044		1,883		1,963		228
2011									2,609			2,696			2,567			2,508			2,418			2,327		2,320		2,282		363
2012												2,789			2,964			2,799			2,864			2,793		2,682		2,615		514
2013															2,130			2,259			2,290			2,134		2,082		2,028		544
2014																		1,867			2,061			2,029		1,991		1,905		611
2015																					1,875			2,072		2,099		2,000		647
2016																								1,903		2,107		2,014		818
2017																										2,189		2,676		1,141
2018																												2,917		1,856

Incurred losses and ALAE																												$ 22,609


Accident Year		Cumulative Paid Losses and ALAE through December 31,
	2009*			2010*			2011*			2012*			2013*			2014*			2015*			2016*			2017*		2018
2009			$ 247		$	852		$	940		$	1,211		$	1,430		$	1,586		$	1,622		$	1,658		$1,684		$ 1,716
2010						118			546			838			1,026			1,278			1,374			1,437		1,482		1,531
2011									292			817			1,160			1,400			1,489			1,581		1,659		1,698
2012												309			749			1,140			1,370			1,527		1,651		1,750
2013															291			521			807			935		1,039		1,140
2014																		150			478			644		753		875
2015																					196			491		714		834
2016																								253		556		734
2017																										231		568
2018																												267

Paid losses and ALAE																												11,113

						Net unpaid losses and ALAE for 2009 – 2018 accident years																						11,496
						Net unpaid losses and ALAE for accident years before 2009																						8,470

						Net unpaid losses and ALAE																						$ 19,966

*	Unaudited supplemental information

BH Primary

BH Primary’s liabilities for unpaid losses and loss adjustment expenses primarily derive from medical professional liability and workers’ compensation and other casualty insurance, including commercial auto and general liability insurance. Incurred and paid losses and ALAE are summarized by accident year in the following tables, disaggregated by medical professional liability and workers’ compensation and other casualty coverages. IBNR and case development liabilities are as of December 31, 2018. The cumulative number of reported claims reflects the number of individual claimants, and includes claims that ultimately result in no liability or payment. Dollars are in millions.

K-90

Notes to Consolidated Financial Statements (Continued)

(15)	Unpaid losses and loss adjustment expenses (Continued)

BH Primary Medical Professional Liability

We estimate the ultimate expected incurred losses and loss adjustment expenses for medical professional claim liabilities using commonly accepted actuarial methodologies such as the paid and incurred development method, Bornhuetter-Ferguson based methods, hindsight outstanding severity method, trended severity method and trended pure premium method. Using a combination of these methodologies produces a range of loss estimates from which we determine our best estimate. Periodically, we study developments in older accident years and adjust initial loss estimates to reflect recent development based upon claim age, coverage and litigation experience. As previously noted, MLMIC was acquired on October 1, 2018. MLMIC’s incurred and paid losses and ALAE are included for all years presented retrospectively.


Accident Year		Incurred Losses and ALAE through December 31,																													IBNR and Case Development Liabilities		Cumulative Number of Reported Claims (in thousands)
	2009*			2010*			2011*			2012*			2013*			2014*			2015*			2016*			2017*			2018
2009		$	1,423		$	1,349		$	1,294		$	1,251		$	1,153		$	1,060		$	988		$	941		$	922		$	904		$ 22		13
2010						1,399			1,346			1,348			1,329			1,234			1,140			1,085			1,031			1,006		43		13
2011									1,346			1,334			1,321			1,262			1,173			1,115			1,050			1,004		71		13
2012												1,336			1,306			1,277			1,223			1,168			1,078			1,035		108		13
2013															1,328			1,296			1,261			1,195			1,127			1,086		160		12
2014																		1,370			1,375			1,305			1,246			1,218		296		13
2015																					1,374			1,342			1,269			1,290		450		14
2016																								1,392			1,416			1,414		641		14
2017																											1,466			1,499		1,011		18
2018																														1,602		1,410		15

									Incurred losses and ALAE																				$	12,058


Accident Year		Cumulative Paid Losses and ALAE through December 31,
	2009*			2010*			2011*			2012*			2013*			2014*			2015*			2016*			2017*			2018
2009		$	5		$	90		$	203		$	350		$	480		$	619		$	699		$	753		$	789		$	810
2010						15			95			224			377			526			654			745			810			853
2011									16			82			200			356			517			632			711			767
2012												15			93			218			377			522			642			725
2013															15			90			219			368			518			635
2014																		21			106			238			396			540
2015																					23			108			218			382
2016																								22			115			274
2017																											27			128
2018																														35

									Paid losses and ALAE																					5,149

						Net unpaid losses and ALAE for 2009 – 2018 accident years																								6,909
						Net unpaid losses and ALAE for accident years before 2009																								379

						Net unpaid losses and ALAE																							$	7,288

*	Unaudited supplemental information

K-91

Notes to Consolidated Financial Statements (Continued)

(15)	Unpaid losses and loss adjustment expenses (Continued)

BH Primary Workers’ Compensation and Other Casualty

We periodically evaluate ultimate loss and loss adjustment expense estimates for the workers’ compensation and other casualty claims using a combination of commonly accepted actuarial methodologies such as the Bornhuetter-Ferguson and chain-ladder approaches using paid and incurred loss data. Paid and incurred loss data is segregated and analyzed by state due to the different state regulatory frameworks that may impact certain factors including the duration and amount of loss payments. We also separately study the various components of liabilities, such employee lost wages, medical expenses and the costs of claims investigations and administration. We establish case liabilities for reported claims based upon the facts and circumstances of the claim. The excess of the ultimate projected losses, including the expected development of case estimates, and the case-basis liabilities is included in IBNR liabilities.


Accident Year		Incurred Losses and ALAE through December 31,																													IBNR and Case Development Liabilities		Cumulative Number of Reported Claims (in thousands)
	2009*			2010*			2011*			2012*			2013*			2014*			2015*			2016*			2017*			2018
2009		$	732		$	673		$	676		$	632		$	609		$	595		$	589		$	585		$	576		$	562	$	40		46
2010						715			675			644			609			589			584			576			562			553		42		47
2011									786			706			709			657			653			647			632			622		72		51
2012												907			887			876			828			815			792			779		105		63
2013															1,339			1,310			1,257			1,210			1,173			1,148		188		83
2014																		1,866			1,737			1,716			1,641			1,572		287		112
2015																					2,314			2,244			2,156			2,124		445		133
2016																								2,656			2,561			2,475		833		127
2017																											3,262			3,122		1,395		143
2018																														3,761		2,459		142

									Incurred losses and ALAE																				$	16,718


Accident Year		Cumulative Paid Losses and ALAE through December 31,
	2009*			2010*			2011*			2012*			2013*			2014*			2015*			2016*			2017*			2018
2009		$	99		$	228		$	328		$	389		$	434		$	464		$	488		$	499		$	503		$	507
2010						106			250			327			393			437			465			479			484			491
2011									114			222			344			415			470			498			512			522
2012												101			301			422			515			576			607			627
2013															193			452			650			776			842			887
2014																		247			581			837			1,046			1,155
2015																					297			715			1,044			1,328
2016																								332			792			1,181
2017																											467			1,078
2018																														570

									Paid losses and ALAE																					8,346

						Net unpaid losses and ALAE for 2009 – 2018 accident years																								8,372
						Net unpaid losses and ALAE for accident years before 2009																								322

						Net unpaid losses and ALAE																							$	8,694

*	Unaudited supplemental information

K-92

Notes to Consolidated Financial Statements (Continued)

(15)	Unpaid losses and loss adjustment expenses (Continued)

Supplemental unaudited average historical claims duration information based on the net losses and ALAE incurred and paid accident year data in the preceding tables follows. The percentages show the average portions of net losses and ALAE paid by each succeeding year, with year 1 representing the current accident year.


Average Annual Percentage Payout of Incurred Losses by Age, Net of Reinsurance
In Year	1		2		3		4		5		6		7		8		9		10
GEICO		61.7%		19.6%		8.1%		4.9%		2.8%
BHRG Property		19.0%		36.1%		18.3%		7.9%		4.3%		3.0%		1.5%		1.0%		0.2%		0.1%
BHRG Casualty		10.4%		17.8%		11.5%		8.5%		7.4%		5.1%		3.0%		1.9%		1.8%		1.4%
BH Primary Medical Professional Liability		1.6%		7.3%		11.5%		14.5%		14.1%		12.4%		8.4%		6.0%		4.1%		2.3%
BH Primary Workers’ Compensation and Other Casualty		15.8%		21.5%		16.5%		12.0%		7.6%		4.6%		2.9%		1.5%		1.0%		0.7%

(16)	Retroactive reinsurance contracts

Retroactive reinsurance policies provide indemnification of losses and loss adjustment expenses of short-duration insurance contracts with respect to underlying loss events that occurred prior to the contract inception date. Claims payments may commence immediately after the contract date or, if 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 three years ended December 31, 2018 follows (in millions).


	2018				2017				2016
	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 – beginning of year	$	42,937	$	(15,278)	$	24,972	$	(8,047)	$	24,058	$	(7,687)

Incurred losses and loss adjustment expenses
Current year contracts		603		(86)		19,005		(7,730)		2,136		(874)
Prior years’ contracts		(341)		1,260		(41)		499		(63)		514

Total		262		1,174		18,964		(7,231)		2,073		(360)

Paid losses and loss adjustment expenses		(1,365)		—		(999)		—		(1,159)		—

Balances – end of year	$	41,834	$	(14,104)	$	42,937	$	(15,278)	$	24,972	$	(8,047)

Incurred losses and loss adjustment expenses, net of deferred charges	$	1,436			$	11,733			$	1,713

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

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

K-93

Notes to Consolidated Financial Statements (Continued)

(16)	Retroactive reinsurance contracts (Continued)

In the fourth quarter of 2017, we increased our estimated ultimate claim liabilities under the aforementioned AIG contract by approximately $1.8 billion based on higher than expected loss payments reported by AIG under the contractual retention. We also increased the related deferred charge asset by $1.7 billion based on our re-estimation of the amounts and timing of future claim payments. The estimated ultimate claim liabilities with respect to the AIG contract were approximately $18.2 billion at December 31, 2018 and at December 31, 2017 and the related deferred charge assets were approximately $6.9 billion at December 31, 2018 and $7.5 billion at December 31, 2017.

Incurred losses and loss adjustment expenses related to contracts written in prior years were $919 million in 2018, $458 million in 2017 and $451 million in 2016, which included recurring amortization of deferred charges and the effect of changes in the timing and amount of expected future loss payments.

In establishing retroactive reinsurance claim liabilities, we analyze historical aggregate loss payment patterns and project losses into the future under various probability-weighted scenarios. We expect the claim-tail to be very long for many contracts, with some lasting several decades. We monitor claim payment activity and review ceding company reports and other information concerning the underlying losses. We reassess and revise the expected timing and amounts of ultimate losses periodically or when significant events are revealed through our monitoring and review processes.

Our retroactive reinsurance claim liabilities include estimated liabilities for environmental, asbestos and other latent injury exposures of approximately $13.1 billion at December 31, 2018 and $14.0 billion at December 31, 2017. Retroactive reinsurance contracts are generally subject to aggregate policy limits and thus, our exposure to such claims under these contracts is likewise limited. We monitor evolving case law and its effect on environmental and other latent injury claims. Changing government regulations, newly identified toxins, newly reported claims, new theories of liability, new contract interpretations and other factors could result in increases in these liabilities, which could be material to our results of operations. We are unable to reliably estimate the amount of additional net loss or the range of net loss that is reasonably possible.

(17)	Notes payable and other borrowings

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


		Weighted Average Interest Rate			December 31,
	2018			2017
Insurance and other:
Berkshire Hathaway Inc. (“Berkshire”):
U.S. Dollar denominated borrowings due 2019-2047			3.1%		$	9,065	$	10,603
Euro denominated borrowings due 2020-2035			1.1%			7,806		8,164
Berkshire Hathaway Finance Corporation (“BHFC”) due 2019-2048			3.4%			10,650		12,926
Subsidiary borrowings due 2019-2045			4.0%			5,597		6,884
Short-term subsidiary borrowings			4.3%			1,857		1,832

					$	34,975	$	40,409

The carrying value of Berkshire’s Euro denominated senior notes reflects the Euro/U.S. Dollar exchange rate as of the balance sheet date. The gains or losses arising from the changes in the Euro/U.S. Dollar exchange rate during the period are recorded in earnings as a component of selling, general and administrative expenses. Changes in the Euro/U.S. Dollar exchange rate resulted in pre-tax gains of $366 million in 2018, losses of $990 million in 2017 and gains of $264 million in 2016. The carrying values of the Euro denominated senior notes reflected corresponding decreases with respect to the gains and increases with respect to the losses in those periods.

K-94

Notes to Consolidated Financial Statements (Continued)

(17)	Notes payable and other borrowings (Continued)

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 finance subsidiaries. In August 2018, BHFC issued $2.35 billion of 4.2% senior notes due in 2048. During 2018, BHFC repaid $4.6 billion of maturing senior notes. During January 2019, BHFC issued $1.25 billion of 4.25% senior notes due in 2049 and repaid $950 million of maturing notes. Such borrowings are fully and unconditionally guaranteed by Berkshire. In addition to BHFC’s borrowings, Berkshire guaranteed approximately $1.7 billion of other subsidiary borrowings at December 31, 2018. 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				December 31,
	2018				2017
Railroad, utilities and energy:
Berkshire Hathaway Energy Company (“BHE”) and subsidiaries:
BHE senior unsecured debt due 2020-2049			4.6	%		$	8,577	$	6,452
Subsidiary and other debt due 2019-2064			4.7	%			28,196		28,739
Short-term debt			3.1	%			2,516		4,488
Burlington Northern Santa Fe and subsidiaries due 2019-2097			4.7	%			23,226		22,499

						$	62,515	$	62,178

BHE subsidiary debt represents amounts issued pursuant to separate financing agreements. Substantially all of the assets of certain BHE subsidiaries are, or may be, pledged or encumbered to support or otherwise secure debt. These borrowing arrangements generally contain various covenants, including covenants which pertain to leverage ratios, interest coverage ratios and/or debt service coverage ratios. During 2018, BHE and its subsidiaries issued approximately $5.5 billion of long-term debt. The debt issued in 2018 has maturity dates ranging from 2020 to 2049 and a weighted average interest rate of 3.6%. Proceeds from these debt issuances were used to repay debt, to fund capital expenditures and for general corporate purposes.

BNSF’s borrowings are primarily senior unsecured debentures. In 2018, BNSF issued $1.5 billion of senior unsecured debentures due in 2048. These debentures have a weighted average interest rate of 4.1%. As of December 31, 2018, BNSF, BHE and their subsidiaries were in compliance with all applicable debt covenants. Berkshire does not guarantee any debt, borrowings or lines of credit of BNSF, BHE or their subsidiaries.

As of December 31, 2018, our subsidiaries had unused lines of credit and commercial paper capacity aggregating approximately $7.3 billion to support short-term borrowing programs and provide additional liquidity. Such unused lines of credit included approximately $6.1 billion related to BHE and its subsidiaries.

Debt principal repayments expected during each of the next five years are as follows (in millions).


	2019		2020		2021		2022		2023
Insurance and other		$ 6,760		$ 2,811		$ 3,261		$ 1,616		$ 5,371
Railroad, utilities and energy		5,452		2,778		2,260		3,346		4,066

		$ 12,212		$ 5,589		$ 5,521		$ 4,962		$ 9,437

(18)	Income taxes

The liabilities for income taxes reflected in our Consolidated Balance Sheets are as follows (in millions).


	December 31,
	2018		2017
Currently payable (receivable)	$	323	$	(129)
Deferred		50,503		56,182
Other		549		554

	$	51,375	$	56,607

K-95

Notes to Consolidated Financial Statements (Continued)

(18)	Income taxes (Continued)

On December 22, 2017, President Trump signed into law legislation known as the Tax Cuts and Jobs Act of 2017 (“TCJA”). Among its provisions, the TCJA reduced the statutory U.S. Corporate income tax rate from 35% to 21% effective January 1, 2018. The TCJA also included a one-time tax on certain accumulated undistributed post-1986 earnings of foreign subsidiaries. Further, the TCJA includes provisions that, in certain instances, impose U.S. income tax liabilities on future earnings of foreign subsidiaries and limit the deductibility of future interest expenses. The TCJA also provides for accelerated deductions of certain capital expenditures made after September 27, 2017 through bonus depreciation. The application of the TCJA may change due to regulations subsequently issued by the U.S. Treasury Department.

Upon the enactment of the TCJA, we recorded a reduction in our deferred income tax liabilities of approximately $35.6 billion for the effect of the aforementioned change in the U.S. statutory income tax rate. As a result, we recorded an income tax benefit of approximately $29.6 billion and we increased regulatory liabilities of our regulated utility subsidiaries by approximately $6.0 billion for the portion of the deferred income tax liability reduction that we will be required to, effectively, refund to customers in the rate setting process. We also recognized an income tax charge of approximately $1.4 billion with respect to the deemed repatriation of the accumulated undistributed post-1986 earnings of our foreign subsidiaries. Thus, upon the enactment of the TCJA, we included a net income tax benefit in our 2017 earnings of approximately $28.2 billion. In 2018, we reduced our estimate of the income taxes on the deemed repatriation of earnings of foreign subsidiaries by $141 million and recognized additional deferred income tax rate change effects.

We have not established deferred income taxes on accumulated undistributed earnings of certain foreign subsidiaries, which are expected to be reinvested indefinitely. Repatriation of all accumulated earnings of foreign subsidiaries would be impracticable to the extent that such earnings represent capital to support normal business operations. Generally, no U.S. federal income taxes will be imposed on future distributions of foreign earnings under the current law. However, distributions to the U.S. or other foreign jurisdictions could be subject to withholding and other local taxes.

The tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities are shown below (in millions).


	December 31,
	2018		2017
Deferred tax liabilities:
Investments – unrealized appreciation and cost basis differences	$	17,765	$	24,251
Deferred charges reinsurance assumed		2,970		3,226
Property, plant and equipment		28,279		26,671
Goodwill and other intangible assets		7,199		7,204
Other		3,187		3,216

		59,400		64,568


Deferred tax assets:
Unpaid losses and loss adjustment expenses		(1,238)		(1,231)
Unearned premiums		(767)		(345)
Accrued liabilities		(1,956)		(2,501)
Regulatory liabilities		(1,673)		(1,707)
Other		(3,263)		(2,602)

		(8,897)		(8,386)

Net deferred tax liability	$	50,503	$	56,182

K-96

Notes to Consolidated Financial Statements (Continued)

(18)	Income taxes (Continued)

Income tax expense reflected in our Consolidated Statements of Earnings for each of the three years ending December 31, 2018 is as follows (in millions).


	2018		2017		2016
Federal	$	(1,613)	$	(23,427)	$	7,796
State		175		894		556
Foreign		1,117		1,018		888

	$	(321)	$	(21,515)	$	9,240

Current	$	5,176	$	3,299	$	6,565
Deferred		(5,497)		(24,814)		2,675

	$	(321)	$	(21,515)	$	9,240

Income tax expense is reconciled to hypothetical amounts computed at the U.S. federal statutory rate for each of the three years ending December 31, 2018 in the table below (in millions).


	2018		2017			2016
Earnings before income taxes	$	4,001	$	23,838		$	33,667


Hypothetical income tax expense computed at the U.S. federal statutory rate	$	840	$	8,343		$	11,783
Dividends received deduction and tax exempt interest		(393)		(905	)		(789	)
State income taxes, less U.S. federal income tax benefit		138		465			361
Foreign tax rate differences		271		(339	)		(421	)
U.S. income tax credits		(711)		(636	)		(518	)
Non-taxable exchange of investments		—		—			(1,143	)
Net benefit from the enactment of the TCJA		(302)		(28,200	)		—
Other differences, net		(164)		(243	)		(33	)

	$	(321)	$	(21,515	)	$	9,240

We file income tax returns in the United States and in state, local and foreign jurisdictions. We are under examination by the taxing authorities in many of these jurisdictions. We have settled income tax liabilities with the U.S. federal taxing authority (“IRS”) for tax years through 2011. The IRS continues to audit Berkshire’s consolidated U.S. federal income tax returns for the 2012 and 2013 tax years. We are also under audit or subject to audit with respect to income taxes in many state and foreign jurisdictions. It is reasonably possible that certain of these income tax examinations will be settled in 2019. We currently do not believe that the outcome of unresolved issues or claims will be material to our Consolidated Financial Statements.

At December 31, 2018 and 2017, net unrecognized tax benefits were $549 million and $554 million, respectively. Included in the balance at December 31, 2018, were $452 million of tax positions that, if recognized, would impact the effective tax rate. The remaining balance in net unrecognized tax benefits principally relates to tax positions where the ultimate recognition is highly certain but there is uncertainty about the timing of such recognition. Because of the impact of deferred income tax accounting, the differences in recognition periods would not affect the annual effective tax rate but would accelerate the payment of cash to the taxing authority to an earlier period. As of December 31, 2018, we do not expect any material changes to the estimated amount of unrecognized tax benefits in the next twelve months.

(19)	Dividend restrictions – Insurance subsidiaries

Payments of dividends by our insurance subsidiaries are restricted by insurance statutes and regulations. Without prior regulatory approval, our principal insurance subsidiaries may declare up to approximately $16 billion as ordinary dividends during 2019.

Combined shareholders’ equity of U.S. based insurance subsidiaries determined pursuant to statutory accounting rules (Surplus as Regards Policyholders) was approximately $162 billion at December 31, 2018 and $170 billion at December 31, 2017. Statutory surplus differs from the corresponding amount based on GAAP due to differences in accounting for certain assets and liabilities. For instance, deferred charges reinsurance assumed, deferred policy acquisition costs, unrealized gains on certain investments and related deferred income taxes are recognized for GAAP but not for statutory reporting purposes. In addition, the carrying values of certain assets, such as goodwill and the carrying values of non-insurance entities owned by our insurance subsidiaries, are not fully recognized for statutory reporting purposes.

K-97

Notes to Consolidated Financial Statements (Continued)

(20)	Fair value measurements

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


	Carrying Value			Fair Value			Quoted Prices (Level 1)			Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
December 31, 2018
Investments in fixed maturity securities:
U.S. Treasury, U.S. government corporations and agencies		$	4,223		$	4,223		$	2,933		$	1,290		$	—
States, municipalities and political subdivisions			189			189			—			189			—
Foreign governments			7,502			7,502			5,417			2,085			—
Corporate bonds			7,440			7,440			—			7,434			6
Mortgage-backed securities			544			544			—			544			—
Investments in equity securities			172,757			172,757			172,253			203			301
Investment in Kraft Heinz common stock			13,813			14,007			14,007			—			—
Loans and finance receivables			16,280			16,377			—			1,531			14,846
Derivative contract assets (1)			172			172			2			52			118
Derivative contract liabilities:
Railroad, utilities and energy (1)			111			111			1			101			9
Equity index put options			2,452			2,452			—			—			2,452
Notes payable and other borrowings:
Insurance and other			34,975			35,361			—			35,335			26
Railroad, utilities and energy			62,515			66,422			—			66,422			—
December 31, 2017
Investments in fixed maturity securities:
U.S. Treasury, U.S. government corporations and agencies		$	3,953		$	3,953		$	2,360		$	1,593		$	—
States, municipalities and political subdivisions			854			854			—			854			—
Foreign governments			8,822			8,822			6,946			1,876			—
Corporate bonds			6,862			6,862			—			6,856			6
Mortgage-backed securities			862			862			—			862			—
Investments in equity securities			170,540			170,540			170,494			46			—
Investment in Kraft Heinz common stock			17,635			25,306			25,306			—			—
Loans and finance receivables			13,748			14,136			—			17			14,119
Derivative contract assets (1)			142			142			1			28			113
Derivative contract liabilities:
Railroad, utilities and energy (1)			82			82			3			69			10
Equity index put options			2,172			2,172			—			—			2,172
Notes payable and other borrowings:
Insurance and other			40,409			41,762			—			41,757			5
Railroad, utilities and energy			62,178			70,538			—			70,538			—

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

K-98

Notes to Consolidated Financial Statements (Continued)

(20)	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 assets and liabilities measured and carried at fair value on a recurring basis with the use of significant unobservable inputs (Level 3) for each of the three years ending December 31, 2018 follow (in millions).


	Investments in equity and fixed maturity securities			Net derivative contract liabilities
Balance December 31, 2015	$	21,503		$	(3,785	)
Gains (losses) included in:
Earnings		3,593			880
Other comprehensive income		872			(2	)
Regulatory assets and liabilities		—			(11	)
Acquisitions		10			—
Dispositions and settlements		(8,656	)		(101	)
Transfers into/out of Level 3		(1	)		195

Balance December 31, 2016		17,321			(2,824	)
Gains (losses) included in:
Earnings		—			888
Other comprehensive income		1,157			(3	)
Regulatory assets and liabilities		—			(1	)
Dispositions and settlements		(59	)		(129	)
Transfers into/out of Level 3		(18,413	)		—

Balance December 31, 2017		6			(2,069	)
Gains (losses) included in:
Earnings		—			(118	)
Other comprehensive income		—			2
Regulatory assets and liabilities		—			3
Acquisitions		302			3
Dispositions and settlements		(1	)		(164	)

Balance December 31, 2018	$	307		$	(2,343	)

K-99

Notes to Consolidated Financial Statements (Continued)

(20)	Fair value measurements (Continued)

Gains and losses included in earnings are reported as components of investment gains/losses, derivative gains/losses and other revenues, as appropriate. In 2017 and 2016, gains and losses included in other comprehensive income were primarily the net change in unrealized appreciation of investments and the reclassification of investment appreciation in net earnings in our Consolidated Statements of Comprehensive Income.

As disclosed in Note 4, we exercised our BAC Warrants to acquire BAC common stock on August 24, 2017. As payment of the cost to acquire the BAC common stock, we surrendered substantially all of our BAC Preferred. Additionally, Restaurant Brands International Inc. (“RBI”) in December 2017, redeemed a $3 billion private placement security that we acquired in 2014. Accordingly, during 2017, we concluded the Level 3 inputs used in the previous fair value determinations of the BAC Warrants, BAC Preferred Stock and RBI investment were not significant and we transferred these measurements from Level 3 to Level 2.

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


		Fair Value				Principal Valuation Techniques		Unobservable Inputs		Weighted Average
Derivative contract liabilities – Equity index put options		$	2,452			Option pricing model		Volatility			18%

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

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

(21)	Common stock

Changes in Berkshire’s issued, treasury and outstanding common stock during the three years ending December 31, 2018 are shown in the table below. In addition to our common stock, 1,000,000 shares of preferred stock are authorized, but none are issued.


	Class A, $5 Par Value (1,650,000 shares authorized)									Class B, $0.0033 Par Value (3,225,000,000 shares authorized)
	Issued			Treasury			Outstanding			Issued		Treasury			Outstanding
Balance December 31, 2015		820,102			(11,680	)		808,422			1,253,866,598		(1,409,762	)		1,252,456,836
Conversions of Class A common stock to Class B common stock and exercises of replacement stock options issued in a business acquisition		(32,044	)		—			(32,044	)		49,457,329		—			49,457,329

Balance December 31, 2016		788,058			(11,680)			776,378			1,303,323,927		(1,409,762	)		1,301,914,165
Conversions of Class A common stock to Class B common stock and exercises of replacement stock options issued in a business acquisition		(25,303	)		—			(25,303	)		38,742,822		—			38,742,822

Balance December 31, 2017		762,755			(11,680	)		751,075			1,342,066,749		(1,409,762	)		1,340,656,987
Conversions of Class A common stock to Class B common stock and exercises of replacement stock options issued in a business acquisition		(20,542	)		—			(20,542	)		31,492,234		—			31,492,234
Treasury stock acquired		—			(1,217	)		(1,217	)		—		(4,729,147	)		(4,729,147	)

Balance at December 31, 2018		742,213			(12,897	)		729,316			1,373,558,983		(6,138,909	)		1,367,420,074

K-100

Notes to Consolidated Financial Statements (Continued)

(21)	Common stock (Continued)

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 1,640,929 shares outstanding as of December 31, 2018 and 1,644,846 shares outstanding as of December 31, 2017.

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 average Class A shares outstanding.

For several years, Berkshire had a common stock repurchase program, which permitted Berkshire to repurchase its Class A and Class B shares at prices no higher than a 20% premium over the book value of the shares. On July 17, 2018, Berkshire’s Board of Directors authorized an amendment to the program, permitting Berkshire to repurchase 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 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.

(22)	Accumulated other comprehensive income

A summary of the net changes in after-tax accumulated other comprehensive income attributable to Berkshire Hathaway shareholders and amounts reclassified out of accumulated other comprehensive income for each of the three years ending December 31, 2018 follows (in millions).


	Unrealized appreciation of investments, net		Foreign currency translation		Prior service and actuarial gains/losses of defined benefit pension plans			Other			Accumulated other comprehensive income
Balance December 31, 2015	$	38,598	$	(3,856)	$	(762	)	$	2		$	33,982
Other comprehensive income, net before reclassifications		9,011		(1,412)		94			(48	)		7,645
Reclassifications into net earnings:
Earnings before income taxes		(6,820)		—		104			51			(6,665)
Applicable income taxes		2,387		—		(29	)		(22	)		2,336

Balance December 31, 2016		43,176		(5,268)		(593	)		(17	)		37,298
Other comprehensive income, net before reclassifications		19,826		2,151		65			16			22,058
Reclassifications into net earnings:
Reclassifications before income taxes		(1,399)		3		155			19			(1,222)
Applicable income taxes		490		—		(47	)		(6	)		437

Balance December 31, 2017		62,093		(3,114)		(420	)		12			58,571
Reclassifications to retained earnings upon adoption of new accounting standards		(61,340)		(65)		36			(6	)		(61,375)
Other comprehensive income, net before reclassifications		(183)		(1,424)		(513	)		25			(2,095)
Reclassifications into net earnings:
Reclassifications before income taxes		(253)		—		116			5			(132)
Applicable income taxes		53		—		(35	)		(2	)		16

Balance December 31, 2018	$	370	$	(4,603)	$	(816	)	$	34		$	(5,015)

K-101

Notes to Consolidated Financial Statements (Continued)

(23)	Revenues from contracts with customers

As discussed in Note 1(w), on January 1, 2018, we adopted ASC 606 “Revenues from Contracts with Customers.” Except as described in Note 1, our revenue recognition practices for contracts with customers under ASC 606 do not differ significantly from prior practices. Under ASC 606, revenues are recognized 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 table summarizes customer contract revenues disaggregated by reportable segment and the source of the revenue for the year ended December 31, 2018 (in millions). Other revenues included in our consolidated revenues were primarily insurance premiums earned, interest, dividend and other investment income and leasing revenues which are not within the scope of ASC 606.


	Manufacturing		McLane Company		Service and Retail		BNSF		Berkshire Hathaway Energy		Insurance, Corporate and other		Total
Manufactured products:
Industrial and commercial products	$	25,707	$	—	$	204	$	—	$	—	$	—	$	25,911
Building products		14,323		—		—		—		—		—		14,323
Consumer products		14,790		—		—		—		—		—		14,790
Grocery and convenience store distribution		—		33,518		—		—		—		—		33,518
Food and beverage distribution		—		16,309		—		—		—		—		16,309
Auto sales		—		—		8,181		—		—		—		8,181
Other retail and wholesale distribution		2,091		—		12,067		—		—		—		14,158
Service		1,519		84		4,100		23,652		3,949		—		33,304
Electricity and natural gas		—		—		—		—		14,951		—		14,951

Total		58,430		49,911		24,552		23,652		18,900		—		175,445
Other revenue		3,340		76		4,297		51		1,070		63,558		72,392

	$	61,770	$	49,987	$	28,849	$	23,703	$	19,970	$	63,558	$	247,837

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 December 31, 2018 follows (in millions).


	Performance obligations expected to be satisfied:
	Less than 12 months		Greater than 12 months		Total
Electricity and natural gas	$	842	$	5,678	$	6,520
Other sales and service contracts		1,190		1,904		3,094

(24)	Pension plans

Several of our subsidiaries sponsor defined benefit pension plans covering certain employees. Benefits under the plans are generally based on years of service and compensation, although benefits under certain plans are based on years of service and fixed benefit rates. Our subsidiaries may make contributions to the plans to meet regulatory requirements and may also make discretionary contributions. The components of our net periodic pension expense for each of the three years ending December 31, 2018 were as follows (in millions).


	2018			2017			2016
Service cost	$	271		$	273		$	282
Interest cost		593			635			691
Expected return on plan assets		(988	)		(939	)		(908	)
Amortization of actuarial losses and other		188			157			148

Net periodic pension expense	$	64		$	126		$	213

K-102

Notes to Consolidated Financial Statements (Continued)

(24)	Pension plans (Continued)

The accumulated benefit obligation is the actuarial present value of benefits earned based on service and compensation prior to the valuation date. The projected benefit obligation (“PBO”) is the actuarial present value of benefits earned based upon service and compensation prior to the valuation date and, if applicable, includes assumptions regarding future compensation levels. Benefit obligations under qualified U.S. defined benefit pension plans are funded through assets held in trusts. Pension obligations under certain non-U.S. plans and non-qualified U.S. plans are unfunded and the aggregate PBOs of such plans were approximately $1.2 billion and $1.3 billion as of December 31, 2018 and 2017, respectively.

Reconciliations of the changes in plan assets and PBOs related to BHE’s pension plans and all other pension plans for each of the two years ending December 31, 2018 are in the following tables (in millions). The costs of pension plans covering employees of certain regulated subsidiaries of BHE are generally recoverable through the regulated rate making process.


	2018								2017
	BHE			All other			Consolidated		BHE			All other			Consolidated
Benefit obligations
Accumulated benefit obligation end of year	$	4,346		$	11,540		$	15,886	$	4,920		$	12,604		$	17,524

PBO beginning of year	$	5,207		$	13,617		$	18,824	$	5,077		$	12,673		$	17,750
Service cost		40			231			271		47			226			273
Interest cost		161			432			593		174			461			635
Benefits paid		(208	)		(633	)		(841)		(271	)		(626	)		(897	)
Settlements		(301	)		(133	)		(434)		(146	)		(95	)		(241	)
Actuarial (gains) or losses and other		(348	)		(1,143	)		(1,491)		326			978			1,304

PBO end of year	$	4,551		$	12,371		$	16,922	$	5,207		$	13,617		$	18,824

Plan assets
Plan assets beginning of year	$	5,129		$	11,885		$	17,014	$	4,694		$	10,703		$	15,397
Employer contributions		98			495			593		122			159			281
Benefits paid		(208	)		(633	)		(841)		(271	)		(626	)		(897	)
Actual return on plan assets		(191	)		(949	)		(1,140)		535			1,601			2,136
Settlements		(324	)		(132	)		(456)		(159	)		(76	)		(235	)
Other		(119	)		(92	)		(211)		208			124			332

Plan assets end of year	$	4,385		$	10,574		$	14,959	$	5,129		$	11,885		$	17,014

Funded status – net liability	$	166		$	1,797		$	1,963	$	78		$	1,732		$	1,810

The funded status of our defined benefit pension plans at December 31, 2018 reflected in assets was $510 million and in liabilities was $2,473 million. At December 31, 2017, the funded status included in assets was $1,176 million and in liabilities was $2,986 million.

Weighted average assumptions used in determining PBO and net periodic pension expense were as follows.


	2018		2017		2016
Discount rate applicable to pension benefit obligations		3.9%		3.3%		3.8%
Expected long-term rate of return on plan assets		6.4		6.4		6.1
Rate of compensation increase		2.6		2.8		3.0
Discount rate applicable to net periodic pension expense		3.4		3.9		4.2

Benefits payments expected over the next ten years are as follows (in millions): 2019 – $1,017; 2020 – $986; 2021 – $988; 2022 – $991; 2023 – $1,001; and 2024 to 2028 – $5,027. Sponsoring subsidiaries expect to contribute $193 million to defined benefit pension plans in 2019.

K-103

Notes to Consolidated Financial Statements (Continued)

(24)	Pension plans (Continued)

Fair value measurements of plan assets as of December 31, 2018 and 2017 follow (in millions).


	Fair Value								Investment funds and partnerships at net asset value
	Total		Level 1		Level 2		Level 3
December 31, 2018
Cash and cash equivalents	$	1,328	$	1,197	$	131	$	—	$	—
Equity securities		7,671		7,499		22		150		—
Government obligations		1,727		1,654		73		—		—
Other fixed maturity securities		836		172		631		33		—
Investment funds and other		3,397		170		1,042		273		1,912

	$	14,959	$	10,692	$	1,899	$	456	$	1,912

December 31, 2017
Cash and cash equivalents	$	738	$	594	$	144	$	—	$	—
Equity securities		9,824		9,641		23		160		—
Government obligations		1,536		1,497		39		—		—
Other fixed maturity securities		799		148		619		32		—
Investment funds and other		4,117		150		1,501		274		2,192

	$	17,014	$	12,030	$	2,326	$	466	$	2,192

Refer to Note 20 for a discussion of the three levels in the hierarchy of fair values. Plan assets are generally invested with the long-term objective of producing earnings to adequately cover expected benefit obligations, while assuming a prudent level of risk. Allocations may change as a result of changing market conditions and investment opportunities. The expected rates of return on plan assets reflect subjective assessments of expected invested asset returns over a period of several years. Generally, past investment returns are not given significant consideration when establishing assumptions for expected long-term rates of return on plan assets. Actual experience will differ from the assumed rates.

A reconciliation of the pre-tax accumulated other comprehensive income (loss) related to defined benefit pension plans for each of the two years ending December 31, 2018 follows (in millions).


	2018			2017
Balance beginning of year	$	(614	)	$	(839	)
Amount included in net periodic pension expense		116			155
Actuarial gains (losses) and other		(686	)		70

Balance end of year	$	(1,184	)	$	(614	)

Several of our subsidiaries also sponsor defined contribution retirement plans, such as 401(k) or profit sharing plans. Employee contributions are subject to regulatory limitations and the specific plan provisions. Several plans provide for employer matching contributions up to levels specified in the plans and provide for additional discretionary contributions as determined by management. Employer contributions expensed with respect to our defined contribution plans were $1,009 million in 2018, $1,001 million in 2017 and $912 million in 2016.

(25)	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.

K-104

Notes to Consolidated Financial Statements (Continued)

(25)	Contingencies and Commitments (Continued)

We lease certain manufacturing, warehouse, retail and office facilities as well as certain equipment. Rent expense under operating leases was $1,649 million in 2018, $1,579 million in 2017 and $1,573 million in 2016. Future minimum rental payments for operating leases having non-cancellable terms in excess of one year are as follows (in millions).


2019		2020		2021		2022				2023				After 2023		Total
$1,360		$1,317		$1,098			$872				$708			$3,658		$9,013

Our subsidiaries regularly make commitments in the ordinary course of business to purchase goods and services used in their businesses. The most significant of these relate to our railroad, utilities and energy businesses and our fractional aircraft ownership business. As of December 31, 2018, estimated future payments under such arrangements were as follows: $15.7 billion in 2019, $4.5 billion in 2020, $3.7 billion in 2021, $3.2 billion in 2022, $2.9 billion in 2023 and $17.3 billion after 2023.

Pursuant to the terms of agreements with noncontrolling shareholders in our less than wholly-owned subsidiaries, we may be obligated to acquire their equity interests. If we had acquired all outstanding noncontrolling interests as of December 31, 2018, we estimate the cost would have been approximately $5.6 billion. However, the timing and the amount of any such future payments that might be required are contingent on future actions of the noncontrolling owners.

(26)	Business segment data

Our operating businesses include a large and diverse group of insurance, finance, 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.

The accompanying business segment information for 2017 and 2016 reflects certain reclassifications to conform to presentations in 2018. Specifically, business units that previously were reported as the finance and financial products segment were reclassified to manufacturing (Clayton Homes and UTLX), services and retailing (CORT and XTRA leasing) and corporate and other (principally investment income).

The tabular information that follows shows data of reportable segments reconciled to amounts reflected in our Consolidated Financial Statements. Intersegment transactions are not eliminated from segment results when management considers those transactions in assessing the results of the respective segments. Furthermore, our management does not consider investment and derivative gains/losses, amortization of certain purchase accounting adjustments related to Berkshire’s business acquisitions or certain other corporate income and expense items in assessing the financial performance of operating units. Collectively, these items are included in reconciliations of segment amounts to consolidated amounts.


Business Identity		Business Activity
Insurance:
GEICO		Underwriting private passenger automobile insurance mainly by direct response methods

Berkshire Hathaway Reinsurance Group		Underwriting excess-of-loss, quota-share and facultative reinsurance worldwide

Berkshire Hathaway Primary Group		Underwriting multiple lines of property and casualty insurance policies for primarily commercial accounts

BNSF		Operation of one of the largest railroad systems in North America

Berkshire Hathaway Energy		Regulated electric and gas utility, including power generation and distribution activities and real estate brokerage activities

Manufacturing		Manufacturers of numerous products including industrial, consumer and building products, including manufactured housing and related consumer financing

McLane Company		Wholesale distribution of groceries and non-food items

Service and retailing		Providers of numerous services including fractional aircraft ownership programs, aviation pilot training, electronic components distribution, various retailing businesses, including automobile dealerships, and trailer and furniture leasing

K-105

Notes to Consolidated Financial Statements (Continued)

(26)	Business segment data (Continued)

A disaggregation of our consolidated data for each of the three most recent years is presented in the tables which follow (in millions).


		Revenues											Earnings before income taxes
	2018			2017				2016				2018				2017				2016
Operating Businesses:
Insurance:
Underwriting:
GEICO		$	33,363		$	29,441			$	25,483			$	2,449			$	(310	)		$	462
Berkshire Hathaway Reinsurance Group			15,944			24,013				14,141				(1,109	)			(3,648	)			1,012
Berkshire Hathaway Primary Group			8,111			7,143				6,257				670				719				657

Insurance underwriting			57,418			60,597				45,881				2,010				(3,239	)			2,131
Investment income			5,518			4,865				4,522				5,503				4,855				4,482

Total insurance			62,936			65,462				50,403				7,513				1,616				6,613

BNSF			23,855			21,387				19,829				6,863				6,328				5,693
Berkshire Hathaway Energy			19,987			18,854				17,764				2,472				2,499				2,878
Manufacturing			61,883			57,645				52,969				9,366				8,324				7,735
McLane Company			49,987			49,775				48,075				246				299				431
Service and retailing			28,939			27,219				26,392				2,696				2,304				2,058

			247,587			240,342				215,432				29,156				21,370				25,408
Reconciliation to consolidated amount:
Investment and derivative gains/losses			—			—				—				(22,455	)			2,128				8,304
Interest expense, not allocated to segments			—			—				—				(458	)			(486	)			(474	)
Equity method investments			—			—				—				(2,167	)			3,014				1,109
Corporate, eliminations and other			250			(409	)			(318	)			(75	)			(2,188	)			(680	)

		$	247,837		$	239,933			$	215,114			$	4,001			$	23,838			$	33,667


		Interest expense											Income tax expense
	2018			2017				2016				2018				2017				2016
Operating Businesses:
Insurance		$	—		$	—			$	—			$	1,374			$	(71	)		$	1,585
BNSF			1,041			1,016				992				1,644				2,369				2,124
Berkshire Hathaway Energy			1,777			2,254				1,715				(452	)			148				371
Manufacturing			690			679				631				2,188				2,678				2,442
McLane Company			15			19				—				59				94				169
Service and retailing			91			67				71				634				812				761

			3,614			4,035				3,409				5,447				6,030				7,452
Reconciliation to consolidated amount:
Investment and derivative gains/losses			—			—				—				(4,673	)			742				1,807
Interest expense, not allocated to segments			458			486				474				(96	)			(170	)			(166)
Equity method investments			—			—				—				(753	)			910				396
Income tax net benefit – Tax Cuts and Jobs Act of 2017			—			—				—				—				(28,200	)			—
Corporate, eliminations and other			(219)			(135	)			(142	)			(246	)			(827	)			(249)

		$	3,853		$	4,386			$	3,741			$	(321	)		$	(21,515	)		$	9,240

K-106

Notes to Consolidated Financial Statements (Continued)

(26)	Business segment data (Continued)


		Capital expenditures									Depreciation of tangible assets
	2018			2017			2016			2018			2017			2016
Operating Businesses:
Insurance		$	130		$	170		$	128		$	79		$	84		$	85
BNSF			3,187			3,256			3,819			2,268			2,304			2,079
Berkshire Hathaway Energy			6,241			4,571			5,090			2,830			2,548			2,560
Manufacturing			3,116			2,490			2,581			1,890			1,839			1,757
McLane Company			276			289			258			204			193			165
Service and retailing			1,587			932			1,078			1,115			751			765

		$	14,537		$	11,708		$	12,954		$	8,386		$	7,719		$	7,411


		Goodwill at year-end									Identifiable assets at year-end
	2018			2017			2016			2018			2017			2016
Operating Businesses:
Insurance		$	15,289		$	15,499		$	15,474		$	289,746		$	294,418		$	234,037
BNSF			14,851			14,845			14,845			70,242			69,438			69,277
Berkshire Hathaway Energy			9,851			9,935			9,266			80,543			77,710			74,571
Manufacturing			34,019			33,967			32,915			99,912			97,753			93,835
McLane Company			734			734			734			6,243			6,090			5,896
Service and retailing			6,281			6,278			6,252			24,724			20,014			19,208

		$	81,025		$	81,258		$	79,486			571,410			565,423			496,824

Reconciliation to consolidated amount:
Corporate and other												55,359			55,414			44,544
Goodwill												81,025			81,258			79,486

											$	707,794		$	702,095		$	620,854

Premiums written and earned by the property/casualty and life/health insurance businesses are summarized below (in millions).


		Property/Casualty												Life/Health
	2018				2017				2016				2018				2017				2016
Premiums Written:
Direct		$	44,513			$	39,377			$	34,001			$	1,111			$	866			$	1,060
Assumed			8,970				17,815				8,037				5,540				4,925				4,672
Ceded			(869	)			(694	)			(798	)			(49	)			(47	)			(62	)

		$	52,614			$	56,498			$	41,240			$	6,602			$	5,744			$	5,670

Premiums Earned:
Direct		$	43,095			$	37,755			$	33,207			$	1,111			$	866			$	1,060
Assumed			8,649				17,813				7,848				5,438				4,866				4,671
Ceded			(825	)			(677	)			(843	)			(50	)			(26	)			(62	)

		$	50,919			$	54,891			$	40,212			$	6,499			$	5,706			$	5,669

K-107

Notes to Consolidated Financial Statements (Continued)

(26)	Business segment data (Continued)

Insurance premiums written by geographic region (based upon the domicile of the insured or reinsured) are summarized below. Dollars are in millions.


		Property/Casualty									Life/Health
	2018			2017			2016			2018			2017			2016
United States		$	46,146		$	50,604		$	35,878		$	3,598		$	3,320		$	3,473
Asia Pacific			3,726			3,307			3,616			1,361			879			715
Western Europe			2,157			1,516			1,406			939			909			822
All other			585			1,071			340			704			636			660

		$	52,614		$	56,498		$	41,240		$	6,602		$	5,744		$	5,670

Consolidated sales, service and leasing revenues were $139.1 billion in 2018, $132.8 billion in 2017 and $125.6 billion in 2016. In 2018, 84% of such revenues were attributable to the United States compared to 85% in 2017 and 2016. The remainder of sales, service and leasing revenues were primarily in Europe, Canada and the Asia Pacific. Consolidated sales, service and leasing revenues included sales to Walmart Stores, Inc. of approximately $13 billion in 2018 and $14 billion in 2017 and 2016. In 2018, approximately 96% of our revenues from railroad, utilities and energy businesses were in the United States compared to 95% in 2017 and 2016. At December 31, 2018, approximately 89% of our consolidated net property, plant and equipment and equipment held for lease was located in the United States with the remainder primarily in Canada and Europe.

(27)	Quarterly data

A summary of revenues and net earnings by quarter for each of the last two years follows. This information is unaudited. Amounts are in millions, except per share amounts.


	1st Quarter			2nd Quarter		3rd Quarter		4th Quarter
2018
Revenues	$	58,473		$	62,200	$	63,450	$	63,714
Net earnings (loss) attributable to Berkshire shareholders *		(1,138	)		12,011		18,540		(25,392	)
Net earnings (loss) attributable to Berkshire shareholders per equivalent Class A common share		(692	)		7,301		11,280		(15,467	)
2017
Revenues	$	64,370		$	57,256	$	59,507	$	58,800
Net earnings attributable to Berkshire shareholders *		4,060			4,262		4,067		32,551
Net earnings attributable to Berkshire shareholders per equivalent Class A common share		2,469			2,592		2,473		19,790

*	Includes after-tax investment and derivative gains/losses and a one-time income tax net benefit attributable to the enactment of the Tax Cuts and Jobs Act of 2017 as follows:


	1st Quarter			2nd Quarter		3rd Quarter		4th Quarter
Investment and derivative gains/losses – 2018	$	(6,426	)	$	5,118	$	11,660	$	(28,089	)
Investment and derivative gains/losses – 2017		504			143		623		107
Income tax net benefit – Tax Cuts and Jobs Act of 2017		—			—		—		28,200

K-108

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