Berkshire Hathaway (BRK-B) 10-K risk factor changes: FY2019 vs FY2018

[removed: We] [added: We] are dependent on a few key people for our major investment and capital allocation [removed: decisions.][added: decisions.]

Buffett, Chairman of the Board of Directors and Chief Executive Officer, age [removed: 88,] [added: 89,] in consultation with Charles T.

Munger, Vice Chairman of the Board of Directors, age [removed: 95.][added: 96.]

However, Berkshire’s Board of Directors has identified certain current Berkshire [removed: subsidiary] managers who, in their judgment, are capable of succeeding Mr. Buffett and has agreed on a replacement for Mr. Buffett should a replacement be needed currently.

[removed: Investments] [added: Investments] are unusually concentrated [added: in equity securities] and fair values are subject to loss in [removed: value.][added: value.]

A significant decline in the fair values of our larger investments in equity securities may produce a material decline in our consolidated shareholders’ equity and our consolidated [removed: statement of] earnings.

[removed: Competition] [added: Competition] and technology may erode our business franchises and result in lower [removed: earnings.][added: earnings.]

[removed: Deterioration] [added: Deterioration] of general economic conditions may significantly reduce our operating earnings and impair our ability to access capital markets at a reasonable [removed: cost.][added: cost.]

[removed: Terrorist] [added: Terrorist] acts could hurt our operating [removed: businesses.][added: businesses.]

A [removed: successful (as defined by the aggressor)] cyber, biological, nuclear or chemical attack could produce significant losses to our worldwide operations.

We cannot predict whether such initiatives will have a material adverse impact on our consolidated financial position, results of operations [removed: or] [added: and/or] cash flows.

[removed: Cyber] [added: Cyber] security [removed: risks][added: risks]

Like those of many large businesses, certain of our information systems have been subject to computer viruses, malicious codes, unauthorized access, phishing efforts, denial-of-service attacks and other [removed: cyber attacks] [added: cyber-attacks] and we expect to be subject to similar attacks in the future as such attacks become more sophisticated and frequent.

A significant disruption or failure of our technology systems could result in service interruptions, safety failures, security events, regulatory compliance failures, an inability to protect information and assets against unauthorized [removed: users,] [added: users] and other operational difficulties.

Additionally, if we are unable to acquire, develop, implement, adopt or protect rights around new technology, we may suffer a competitive disadvantage, which could also have an adverse effect on our results of operations, financial condition [removed: and] [added: and/or] liquidity.

[removed: Cyber attacks] [added: Cyber-attacks] could further adversely affect our ability to operate facilities, information technology and business systems, or compromise confidential customer and employee information.

Political, economic, social or financial market instability or damage to or interference with our operating assets, customers or suppliers from [removed: cyber attacks] [added: cyber-attacks] may result in business interruptions, lost revenues, higher commodity prices, disruption in fuel supplies, lower energy consumption, unstable markets, increased security, repair or other costs, or may materially adversely affect us in ways that cannot be predicted at this time.

Furthermore, instability in the financial markets resulting from terrorism, sustained or significant [removed: cyber attacks,] [added: cyber-attacks,] or war could also have a material adverse effect on our ability to raise capital.

Over ten years ago, we assumed the risk of potentially significant losses under a number of equity index put option [removed: contracts.][added: contracts, which contain equity price risks.]

[removed: The] [added: Most of the] contracts remaining at year end [removed: 2018] [added: 2019] will expire [removed: from 2019 through 2025.][added: by February 2023.]

Nevertheless, there can be no assurance that equity securities prices will not decline significantly resulting in [added: significant] settlement payments [removed: that significantly exceed the year end 2018 intrinsic value of the contracts ($1.7 billion), recorded fair value ($2.45 billion) or the premiums we received at inception ($4.0 billion).][added: upon contract expirations.]

[removed: Risks] [added: Risks] unique to our regulated [removed: businesses][added: businesses]

[removed: Our] [added: Our] tolerance for risk in our insurance businesses may result in significant underwriting [removed: losses.][added: losses.]

We [added: employ various disciplined underwriting practices intended to mitigate potential losses and] attempt to take into account all possible correlations and avoid writing groups of policies from which pre-tax losses from a single [added: catastrophe] event might aggregate above $10 billion.

Our estimated unpaid losses arising under contracts covering property and casualty insurance risks are large [removed: ($110] [added: ($115.5] billion at December 31, [removed: 2018),] [added: 2019),] and a small percentage increase to those liabilities can result in materially lower reported earnings.

[removed: Changes] [added: Changes] in regulations and regulatory actions can adversely affect our operating results and our ability to allocate [removed: capital.][added: capital.]

Accordingly, changes in regulations related to these or other matters or regulatory actions imposing restrictions on our insurance [removed: companies] [added: businesses] may adversely impact our results of operations and restrict our ability to allocate capital.

For example, [removed: enacted] federal [removed: legislation] [added: legislation, enacted in 2008 and amended in 2015,] mandated the implementation of positive train control [removed: (“PTC”)] technology by December 31, [removed: 2018,] [added: 2020,] on certain mainline track where inter-city and commuter passenger railroads operate and where toxic-by-inhalation (“TIH”) hazardous materials are transported.

Changes in the regulation of the rail industry could negatively impact BNSF’s ability to determine prices for rail services and to make capital improvements to its rail network, resulting in an adverse effect on our results of operations, financial condition [removed: or] [added: and/or] liquidity.

Regulations broadly apply and may limit management’s ability to independently make and implement decisions regarding numerous matters including: acquiring businesses; constructing, acquiring or disposing of operating assets; operating and maintaining generating facilities and transmission and distribution system assets; complying with pipeline safety and integrity and environmental requirements; setting rates charged to customers; establishing capital structures and issuing [removed: debt or equity securities;] [added: debt;] transacting between our domestic utilities and our other subsidiaries and affiliates; and paying dividends or similar distributions.

Further, a significant portion of costs of capital improvements [removed: are] [added: may be] funded through debt issued by BNSF and BHE and their subsidiaries.

Disruptions in debt capital markets that restrict access to funding when needed could adversely affect the results of operations, liquidity [removed: and] [added: and/or] capital resources of these businesses.

K-21

Accordingly, we could incur a significant loss from a single catastrophe event resulting from a natural disaster or man-made catastrophes such as terrorism or cyber-attacks.

However, despite our efforts, it is possible that losses could manifest in ways that we do not anticipate and that our risk mitigation strategies are not designed to address.

Additionally, various provisions of our policies, such as limitations or exclusions from coverage, negotiated to limit our risks, may not be enforceable in the manner we intend.

U.S. state insurance regulators and international insurance regulators are also actively developing various regulatory mechanisms to address the regulation of large internationally active insurance groups, including regulations concerning group capital, liquidity, governance and risk management.

| --- | --- |

##### [Table of Contents](#toc)

Derivative contracts may require significant cash settlement payments and result in significant losses in the future.

Accordingly, we could incur a significant loss from a single event.

We may also write coverages for losses arising from acts of terrorism.

However, despite our efforts, losses may aggregate in unanticipated ways.

Due to the Federal Railroad Administration’s (“FRA”) interpretation of the PTC mandate as requiring all railroads that run on our tracks to be compliant before we can be deemed compliant, the FRA has confirmed an extension of the deadline for the Company to December 31, 2020.

[removed: Results] [added: Results] of [removed: Operations][added: Operations]

| | | [removed: 2018] [added: 2019] | | | | [removed: 2017] [added: 2018] | | | | [removed: 2016] [added: 2017] | | |

| Insurance – underwriting | | $ | [removed: 1,566] [added: 325] | | | $ | [removed: (2,219] [added: 1,566] | [removed: )] | | $ | [removed: 1,370] [added: (2,219] | [added: )] |

| Insurance – investment income | | | [removed: 4,554] [added: 5,530] | | | | [removed: 3,887] [added: 4,554] | | | | [removed: 3,636] [added: 3,887] | |

| Railroad | | | [removed: 5,219] [added: 5,481] | | | | [removed: 3,959] [added: 5,219] | | | | [removed: 3,569] [added: 3,959] | |

| Utilities and energy | | | [removed: 2,621] [added: 2,840] | | | | [removed: 2,033] [added: 2,621] | | | | [removed: 2,230] [added: 2,033] | |

| Manufacturing, service and retailing | | | [removed: 9,364] [added: 9,372] | | | | [removed: 7,282] [added: 9,364] | | | | [removed: 6,803] [added: 7,282] | |

| Investment and derivative gains/losses | | | [removed: (17,737] [added: 57,445] | [removed: )] | | | [removed: 1,377] [added: (17,737] | [added: )] | | | [removed: 6,497] [added: 1,377] | |

| Other | | | [removed: (1,566] [added: 424] | [removed: )] | | | [removed: (485] [added: (1,566] | ) | | | [removed: (31] [added: (485] | ) |

| Tax Cuts and Jobs Act of 2017 | | | — | | | | [removed: 29,106] [added: —] | | | | [removed: —] [added: 29,106] | |

| Net earnings attributable to Berkshire Hathaway shareholders | | $ | [removed: 4,021] [added: 81,417] | | | $ | [removed: 44,940] [added: 4,021] | | | $ | [removed: 24,074] [added: 44,940] | |

The business segment data (Note [removed: 26] [added: 27] to the accompanying Consolidated Financial Statements) should be read in conjunction with this discussion.

These gains and losses [removed: are likely to be] [added: have been] very significant given the size of our [removed: current] holdings and the inherent volatility in securities [removed: prices.][added: prices, producing extraordinary volatility in our reported net earnings for 2019 and 2018.]

After-tax earnings of our business operations in [added: 2019 and] 2018 were favorably affected by lower U.S. income tax [removed: expense,] [added: expense compared to 2017,] primarily attributable to a reduction in the statutory U.S. corporate income tax rate from 35% to 21%.

The effect of the lower U.S. statutory income tax rate [removed: in 2018] on the comparative after-tax earnings of our various business operations varied, reflecting the differences in the mix of earnings subject to income tax, income tax credits and the effects of state and local income taxes.

Due to [removed: their] [added: the] significance, we presented these one-time effects as a distinct item in the preceding table.

[removed: After-tax] [added: Our insurance businesses generated after-tax] earnings from [removed: insurance] underwriting [removed: were approximately] [added: of $325 million in 2019 compared to earnings of] $1.6 billion in 2018 [removed: compared to] [added: and] after-tax losses of approximately $2.2 billion in 2017.

[removed: Results] [added: After-tax underwriting earnings] in [removed: 2018] [added: 2019] included [added: lower earnings from] reductions of estimated ultimate liabilities for prior years’ property/casualty loss [removed: events, gains] [added: events as compared to 2018 and losses of $92 million] from foreign currency exchange rate changes on certain non-U.S. Dollar denominated liabilities of [removed: U.S subsidiaries of $207 million and a lower effective income tax rate, partly offset by losses from significant catastrophe events of approximately $1.6 billion ($1.3 billion after-tax).][added: U.S. subsidiaries.]

[removed: After-tax losses from insurance underwriting in 2017 included] [added: We incurred] estimated pre-tax losses of approximately [removed: $3.0] [added: $1.0] billion [removed: ($1.95] [added: in 2019, $1.6] billion [removed: after-tax)] [added: in 2018 and $3.0 billion in 2017] from significant catastrophe events.

Underwriting results [removed: in 2017 also] included after-tax foreign currency exchange rate [added: gains of $207 million in 2018 and] losses of $295 [removed: million.][added: million in 2017.]

Our utilities and energy businesses produced higher after-tax earnings in 2018 compared to 2017, primarily due to [removed: a lower overall effective income tax rate and] the effects of losses incurred in 2017 in connection with the prepayment of certain long-term debt, [removed: partially offset by lower pre-tax] [added: increased] earnings [removed: in certain of] [added: at] the [removed: regulated utilities.][added: natural gas pipelines and other energy businesses and the TCJA income tax benefits recognized in 2018.]

Management’s Discussion and Analysis [removed: _(Continued)_][added: *(Continued)*]

[removed: Results] [added: Results] of [removed: Operations _(Continued)_][added: Operations *(Continued)*]

[removed: In 2017, we recorded after-tax] [added: Pre-tax net] unrealized gains on [removed: our investments in] equity securities of approximately [removed: $19] [added: $29] billion in [added: 2017 was recorded in] other comprehensive income.

Other earnings [added: also] included [removed: after-tax] foreign currency exchange rate gains of [added: $58 million in 2019,] $289 million in 2018, [added: and] losses of $655 million in 2017 [removed: and gains of $159 million in 2016] related to [removed: parent company Euro-denominated debt.][added: non-U.S. Dollar denominated debt issued by Berkshire and its U.S. based financing subsidiary, Berkshire Hathaway Finance Corporation (“BHFC”).]

[removed: In addition, other earnings] [added: The losses] in 2018 [removed: included losses from equity method investments due] [added: were attributable] to Kraft Heinz, partly offset by earnings from other equity method investments.

[removed: _Insurance—Underwriting_][added: Insurance—Underwriting]

However, we consider investment gains and losses, whether realized or unrealized as non-operating, based on our long-held [removed: philosophy] [added: strategy] of acquiring securities and holding those securities for long periods.

[removed: Accordingly, we] [added: We] believe that such gains and losses are not [removed: necessarily] meaningful in understanding the operating results of our insurance operations.

Generally, we consider [added: pre-tax] catastrophe losses in excess of $100 million [removed: (pre-tax)] from a current year event as significant.

Unpaid loss estimates, including estimates under retroactive reinsurance contracts, were approximately [removed: $110] [added: $115.5] billion as of December 31, [removed: 2018.][added: 2019.]

Our insurance and reinsurance businesses are GEICO, Berkshire Hathaway [removed: Reinsurance] [added: Primary] Group [removed: (“BHRG”)] and Berkshire Hathaway [removed: Primary Group.][added: Reinsurance Group (“BHRG”).]

[removed: _Insurance—Underwriting_ _(Continued)_][added: Insurance—Underwriting (Continued)]

| GEICO | | $ | [removed: 2,449] [added: 1,506] | | | $ | [removed: (310] [added: 2,449] | [removed: )] | | $ | [removed: 462] [added: (310] | [added: )] |

| Berkshire Hathaway Reinsurance Group | | | [removed: (1,109)] [added: (1,472] | [added: )] | | | [removed: (3,648] [added: (1,109] | ) | | | [removed: 1,012] [added: (3,648] | [added: )] |

| Berkshire Hathaway Primary Group | | | [removed: 670] [added: 383] | | | | [removed: 719] [added: 670] | | | | [removed: 657] [added: 719] | |

| Pre-tax underwriting gain (loss) | | | [removed: 2,010] [added: 417] | | | | [removed: (3,239] [added: 2,010] | [removed: )] | | | [removed: 2,131] [added: (3,239] | [added: )] |

| Income taxes and noncontrolling interests | | | [removed: 444] [added: 92] | | | | [removed: (1,020] [added: 444] | [removed: )] | | | [removed: 761] [added: (1,020] | [added: )] |

| Net underwriting gain (loss) | | $ | [removed: 1,566] [added: 325] | | | $ | [removed: (2,219] [added: 1,566] | [removed: )] | | $ | [removed: 1,370] [added: (2,219] | [added: )] |

| Effective income tax rate | | | [removed: 21.4%] [added: 24.2] | [added: %] | | | [removed: 32.0%] [added: 21.4] | [added: %] | | | [removed: 34.8%] [added: 32.0] | [added: %] |

Insurance underwriting results included after-tax losses from significant catastrophe events of approximately $800 million in 2019, $1.3 billion in 2018 and $1.95 billion in 2017.

Earnings from primary insurance operations were lower in 2019 and losses from reinsurance were higher than in 2018.

After-tax earnings from insurance investment income in 2019 increased 21.4% over 2018, which increased 17.2% over 2017.

These increases reflected increases in interest and dividend income.

After-tax earnings of our railroad business increased 5.0% in 2019 compared to 2018.

Earnings in 2019 benefitted from higher rates per car/unit, a curtailment gain related to an amendment to defined benefit retirement plans and ongoing operating cost control initiatives, partly offset by lower freight volumes and incremental costs associated with the persistent flooding conditions and severe winter weather in the first half of the year.

All key routes impacted by flooding resumed service by the third quarter.

After-tax earnings of our utilities and energy business increased 8.4% in 2019 compared to 2018 as all businesses produced higher earnings in 2019 versus 2018.

Earnings from our manufacturing, service and retailing businesses were relatively unchanged from 2018.

Operating results of our manufacturing, service and retailing businesses in 2019 were mixed, with several of these businesses experiencing lower earnings in 2019 from a variety of factors.

Revenues and pre-tax earnings in 2019 of certain of these businesses were negatively affected by the unfavorable effects of foreign currency translation attributable to a stronger U.S. Dollar, international trade tensions and U.S. trade tariffs.

Investment and derivative gains/losses in 2019 and 2018 included significant unrealized gains and losses from market price changes on our holdings of equity securities.

After-tax unrealized gains on equity securities were approximately $53.7 billion in 2019 compared to after-tax losses of $20.6 billion in 2018.

After-tax investment gains in 2019 also included after-tax realized gains on sales of equity and fixed maturity securities of $2.6 billion compared to $3.1 billion in 2018.

After-tax other earnings included equity method investment earnings of $1.0 billion in 2019, losses of $1.4 billion in 2018 and earnings of $1.1 billion in 2017.

Management’s Discussion and Analysis *(Continued)*

2019 versus 2018

Premiums written and earned in 2019 increased 5.5% and 6.6%, respectively, compared to 2018.

These increases were primarily attributable to voluntary auto policies-in-force growth of 6.4% over the past twelve months, partially offset by a decrease in average premiums per auto policy due to coverage changes and changes in state and risk mix.

The increase in voluntary auto policies-in-force primarily resulted from an increase in new business sales of 10.9% and a decrease in the number of policies not renewed.

Losses and loss adjustment expenses in 2019 increased 10.1% to $28.9 billion.

GEICO’s losses and loss adjustment expenses ratio in 2019 was 81.3%, an increase of 2.5 percentage points over 2018.

The loss ratio increase in 2019 reflected continuing increases in loss severities, slightly offset by lower storm-related losses.

GEICO increased ultimate claim loss estimates for prior years’ loss events by $42 million in 2019 compared to a decrease of $222 million in 2018.

Management’s Discussion and Analysis *(Continued)*

Insurance—Underwriting (Continued)

Underwriting expenses in 2019 were $5.1 billion, an increase of $493 million (10.6%) over 2018.

GEICO’s underwriting expense ratio in 2019 was 14.5%, an increase of 0.6 percentage points compared to 2018.

The underwriting expense increase was primarily attributable to increases in advertising expenses and employee-related costs, which reflected wage and staffing increases.

GEICO reduced ultimate claim loss estimates for prior years’ loss events by $222 million in 2018 and increased estimated prior year ultimate liabilities by $517 million in 2017.

| | | Amount | | | | % | | | | Amount | | | | % | | | | Amount | | | | % | | |

Premiums written in 2019 increased approximately $1.3 billion (15.0%) compared to 2018.

The increase was primarily attributable to volume increases from BH Specialty (30%), GUARD (28%) and MedPro Group (14%) and from the effects of the MLMIC acquisition, partially offset by the effects of the divestiture of Applied Underwriters and lower volume at BHHC.

The increases in premiums earned in 2019 reflected the overall volume increase over the past year.

Management’s Discussion and Analysis *(Continued)*

Insurance—Underwriting (Continued)

Berkshire Hathaway Primary Group (Continued)

BH Primary produced pre-tax underwriting earnings of $383 million in 2019 and $670 million in 2018.

BH Primary’s aggregate loss ratios were 69.1% in 2019 and 64.9% in 2018.

Losses and loss adjustment expenses incurred included reductions for prior years’ loss events of $499 million in 2019 and $715 million in 2018.

| | | | | | | | | | | | | |

See Note 18 to the Consolidated Financial Statements.

After-tax earnings of our railroad business in 2017 were $4.0 billion, an increase of 10.9% compared to 2016, reflecting increased unit volume.

After-tax earnings of our utility and energy businesses in 2017 declined $197 million compared to 2016, reflecting the debt prepayment losses in 2017.

##### [Table of Contents](#toc)

After-tax earnings in 2017 of our manufacturing, service and retailing businesses were $7.3 billion, an increase of 7.0% compared to 2016, reflecting comparatively higher earnings from several of our larger operations and the impact of businesses acquired in 2016 and 2017.

After-tax losses from investments and derivative contracts were $17.7 billion in 2018, which included after-tax losses of approximately $18 billion from changes in market values of our investments in equity securities held at December 31, 2018.

Prior to 2018, after-tax investment gains or losses on equity securities arose from the sale of securities during the period based on the cost of the disposed security or through the recording of other-than-temporary impairment losses.

After-tax investment and derivative gains were approximately $1.4 billion in 2017 and $6.5 billion in 2016.

Investment gains in 2016 included approximately $2.7 billion from the redemptions of our Wrigley and Kraft Heinz preferred stock investments, and sales of Dow Chemical common stock we received in the conversion of the Dow Chemical preferred stock investment.

Investment gains in 2016 also included a non-cash after-tax gain of approximately $1.9 billion related to the exchange of Procter & Gamble (“P&G”) common stock for 100% of the common stock of Duracell.

Other earnings in 2018 also reflected increased interest income from short-term investments.

We incurred estimated pre-tax losses of approximately $1.6 billion in 2018 and $3.0 billion in 2017 from significant catastrophe events.

| | | | | | | | | | | | | | | | | | | | | | | | | |

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Pre-tax underwriting gains in 2018 were $2,449 million compared to losses of $310 million in 2017.

Underwriting results in 2018 reflected the effects of lower losses from significant catastrophe events and from prior years’ loss events, as well as increased average premiums per policy.

These gains or losses produce corresponding increases or decreases to pre-tax underwriting gains.

GEICO’s losses and loss adjustment expenses included gains of $222 million in 2018 and losses of $517 million in 2017 with respect to prior years’ loss events.

Premiums written were $30.5 billion in 2017, an increase of 16.1% over 2016, and premiums earned were $29.4 billion, an increase of approximately $4.0 billion (15.5%).

During 2017, our voluntary auto policies-in-force grew approximately 8.6% and premiums per auto policy increased 6.9%.

The increase in average premiums per policy was attributable to rate increases, coverage changes and changes in state and risk mix.

Voluntary auto new business sales in 2017 increased 10.5% compared to 2016.

Pre-tax underwriting losses in 2017 were $310 million compared to pre-tax gains of $462 million in 2016.

Losses and loss adjustment expenses in 2017 increased approximately $4.5 billion (21.2%) compared to 2016.

Our loss ratio in 2017 increased 4.0 percentage points compared to 2016.

The increase in losses incurred was attributable to increased average claims severities, losses from significant catastrophe events in 2017 ($450 million) and losses with respect to prior years’ loss events ($517 million).

Underwriting expenses increased $277 million (7.0%) in 2017 compared to 2016.

Our expense ratio in 2017 declined 1.1 percentage points compared to 2016.

With the exception of our retroactive reinsurance and periodic payment annuity businesses, we strive to generate pre-tax underwriting profits.

| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

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Property/casualty premiums earned in 2018 were $8.9 billion, an increase of 18.2% compared to 2017, while premiums earned in 2017 increased 4.6% compared to 2016.

Losses and loss adjustment expenses in 2018 decreased $288 million (4.0%) compared to 2017, and the loss ratio declined 18 percentage points to 77.6%.

There were no significant catastrophe loss events in 2016.

The net gain in 2018 was primarily due to lower than expected property losses.

The net gain from prior years’ loss events in 2017 reflected losses from higher than expected property claims and increases in certain United Kingdom (“U.K.”) claim liabilities attributable to the U.K. Ministry of Justice’s decision to reduce the fixed discount rate required in lump sum settlement calculations of personal injury claims from 2.5% to negative 0.75%.

Retroactive reinsurance premiums earned in 2018 were $517 million, which derived primarily from one contract.

Deferred charge assets are subsequently amortized over the expected claim settlement period as losses and loss adjustment expenses.

Pre-tax underwriting losses from retroactive reinsurance contracts were $778 million in 2018, $1,330 million in 2017 and $60 million in 2016.

[removed: Management’s] [added: Management’s] Report on Internal Control Over Financial [removed: Reporting][added: Reporting]

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting as of December 31, [removed: 2018] [added: 2019] as required by the Securities Exchange Act of 1934 Rule 13a-15(c).

In making this assessment, we used the criteria set forth in the framework in [removed: _Internal] [added: *Internal] Control—Integrated [removed: Framework_] [added: Framework*] (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Based on our evaluation under the framework in [removed: _Internal] [added: *Internal] Control—Integrated [removed: Framework_] [added: Framework*] (2013), our management concluded that our internal control over financial reporting was effective as of December 31, [removed: 2018.][added: 2019.]

The effectiveness of our internal control over financial reporting as of December 31, [removed: 2018] [added: 2019] has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report which appears on page [removed: K-62.][added: K-63.]

February 22, 2020

K-62

February 23, 2019

K-61

##### [Table of Contents](#toc)

Berkshire Hathaway Inc. (“Berkshire,” “Company” or “Registrant”) is a holding company owning subsidiaries engaged in a [added: large] number of diverse business activities.

Berkshire also owns and operates [removed: a large number of] [added: numerous] other businesses engaged in a variety of activities, as identified herein.

Berkshire is domiciled in the state of Delaware, and its corporate headquarters [removed: are located] [added: is] in Omaha, Nebraska.

Berkshire and its consolidated subsidiaries employ approximately [removed: 389,000] [added: 391,500] people worldwide.

[removed: Insurance] [added: Insurance] and Reinsurance [removed: Businesses][added: Businesses]

Collectively, the combined statutory surplus of Berkshire’s U.S. based insurers was approximately [removed: $162] [added: $216] billion at December 31, [removed: 2018.][added: 2019.]

The Program currently extends to December 31, [removed: 2020] [added: 2027] through other Acts, most recently the Terrorism Risk Insurance Program Reauthorization Act of [removed: 2015] [added: 2019] (the [removed: “2015] [added: “2019] TRIA Reauthorization”).

Under TRIA, the Department of the Treasury is charged with certifying “acts of terrorism.” Coverage under TRIA occurs if the industry insured loss for certified events occurring during the calendar year exceeds [removed: $180 million in 2019 and] $200 million in 2020, or any calendar year thereafter.

During [removed: 2019,] [added: 2020 and thereafter,] in the event of a certified act of terrorism, the federal government will reimburse insurers (conditioned on their satisfaction of policyholder notification requirements) for [removed: 81%] [added: 80%] of their insured losses in excess of an insurance group’s deductible.

The aggregate deductible in [removed: 2019] [added: 2020] for Berkshire’s insurance group is expected to approximate $1.3 billion.

There is also an aggregate [added: program] limit of $100 billion on the amount of the federal government coverage for each TRIA year.

Berkshire’s insurance underwriting operations include the following groups: (1) GEICO, (2) Berkshire Hathaway [removed: Reinsurance] [added: Primary] Group and (3) Berkshire Hathaway [removed: Primary] [added: Reinsurance] Group.

Except for retroactive reinsurance and periodic payment annuity products that generate significant amounts of up-front premiums along with estimated claims expected to be paid over very long [removed: periods of] time [added: periods] (creating “float,” see Investments section below), Berkshire expects to achieve a net underwriting profit over time and to reject inadequately priced risks.

Underwriting profit does not include [removed: investment] income earned from investments.

Berkshire’s insurance businesses employ approximately [removed: 49,000] [added: 50,000] people.

[removed: GEICO—GEICO] [added: GEICO—GEICO] is headquartered in Chevy Chase, Maryland.

[added: The] GEICO companies primarily offer private passenger automobile insurance to individuals in all 50 states and the District of Columbia.

GEICO also insures motorcycles, all-terrain vehicles, recreational vehicles, boats and small commercial fleets and acts as an agent for other insurers who offer homeowners, renters, [removed: boat,] life and identity management insurance to individuals who desire insurance coverages other than those offered by GEICO.

GEICO’s marketing is primarily through direct response methods in which applications for insurance are submitted directly to the companies via the Internet or by [removed: telephone.][added: telephone, and to a lesser extent, through captive agents.]

According to most recently published A.M. Best data for [removed: 2017,] [added: 2018,] the five largest automobile insurers had a combined market share in [removed: 2017] [added: 2018] of approximately [removed: 56%,] [added: 57%,] with GEICO’s market share being second largest at approximately [removed: 12.8%.][added: 13.4%.]

Since the publication of that data, GEICO’s management estimates its current market share is approximately [removed: 13.3%.][added: 13.6%.]

The name and reputation of GEICO [removed: is a] [added: are] material [removed: asset] [added: assets] and management protects it and other service marks through appropriate registrations.

[removed: Berkshire] [added: Berkshire] Hathaway Reinsurance [removed: Group—Berkshire’s] [added: Group—Berkshire’s] combined global reinsurance business, referred to as the Berkshire Hathaway Reinsurance Group (“BHRG”), offers a wide range of coverages on property, casualty, life and health risks to insurers and reinsurers worldwide.

[removed: _Property/casualty_][added: *Property/casualty*]

The NICO Group periodically participates in underwriting placements with major brokers in the London Market through Berkshire Hathaway [removed: Insurance International,] [added: International Insurance,] Ltd., based in Great Britain.

A significant portion of NICO Group’s annual reinsurance premium volume currently derives from a [removed: 10-year,] 20% quota-share agreement with Insurance Australia Group Limited (“IAG”) that [removed: became effective] [added: expires] July 1, [removed: 2015.][added: 2025.]

International business is also written through brokers, including [removed: Faraday,] [added: Faraday Underwriting Limited (“Faraday”),] a wholly-owned subsidiary.

Faraday owns the managing agent of Syndicate 435 at Lloyd’s of [removed: London,] [added: London] and provides capacity and participates in 100% of the results of Syndicate 435.

[removed: _Retroactive reinsurance_][added: Retroactive reinsurance]

[removed: _Life/health_][added: Life/health]

[removed: In 2018, the General Re Group wrote approximately 29%] [added: Approximately 27%] of [added: the aggregate] life/health net premiums [added: written by the General Re Group were] in the United States, [removed: 20%] [added: compared to 18%] in Western Europe and [removed: the remaining 51%] [added: 55%] throughout the rest of the world.

[removed: Additionally,] Berkshire Hathaway Life Insurance Company of Nebraska (“BHLN”), a subsidiary of NICO, [removed: writes] [added: and its affiliates write] reinsurance covering various forms of traditional life insurance [added: exposures and, on a limited basis, health insurance] exposures.

[removed: _Periodic] [added: *Periodic] payment [removed: annuity_][added: annuity*]

Berkshire Hathaway Primary Group—The Berkshire Hathaway Primary Group (“BH Primary”) is a collection of independently managed [removed: primary] insurers that provide a wide variety of insurance coverages to policyholders located principally in the United States.

The [removed: “Berkshire] [added: Berkshire] Hathaway Homestate [removed: Companies”] [added: Companies] (“BHHC”) is a group of insurers offering workers’ compensation, commercial auto and commercial property coverages to a diverse client base.

BHHC has [removed: developed] a national reach, with the ability to provide first-dollar and small to large deductible workers’ compensation coverage to employers in all states, except those where coverage is available only through state-operated workers’ compensation funds.

MedPro [removed: Group (“MedPro”) is a leading provider of] [added: provides] customized [removed: healthcare liability] [added: HCL] insurance, claims, patient safety and risk solutions to physicians, surgeons, dentists and other healthcare professionals, as well as hospitals, senior care and other healthcare [removed: facilities in the United States.][added: facilities.]

U.S. [removed: Investment Corporation (“USIC”) and its subsidiaries are] [added: Liability Insurance Company (“USLI”) includes a group of five] specialty insurers that underwrite commercial, professional and personal lines insurance on an admitted basis, as well as an excess and surplus basis.

[removed: USIC] [added: USLI] markets policies in all 50 states and the District of Columbia [added: and Canada] through wholesale and retail insurance agents.

[removed: USIC] [added: USLI] companies also underwrite and market a wide variety of specialty insurance products.

U.S. states, through the NAIC, and international insurance regulators through the International Association of Insurance Supervisors (“IAIS”) have been developing standards and best practices focused on establishing a common set of principles (“Insurance Core Principles”) and framework (“ComFrame”) for the regulation of large multi-national insurance groups.

The standards address a variety of topics regarding supervision, coordination of regulators, insurance capital standards, risk management and governance.

While the IAIS standards do not have legal effect, the states and the NAIC are implementing, and are expected to continue to implement, various regulatory tools and mandates.

For example, the U.S. state regulators now require insurance groups to file an annual report, called an Own Risk Solvency Assessment or ORSA, with the group’s lead regulator.

U.S. state regulators formed supervisory colleges intended to promote communication and cooperation amongst the various domestic international insurance regulators.

The Nebraska Department of Insurance acts as the lead group wide supervisor for our group of insurance companies and chairs the Berkshire supervisory college.

The NAIC is also developing further tools, including a group capital calculation tool and various liquidity assessments, that could be imposed on insurance groups in the future.

The extent of insurance regulation varies significantly among the countries in which our non-U.S. operations conduct business.

While each country imposes licensing, solvency, auditing, and financial reporting requirements, the type and extent of the requirements differ substantially.

For example:

| | • | in some countries, insurers are required to prepare and file monthly and/or quarterly financial reports, and in others, only annual reports; |

| --- | --- | --- |

| | • | some regulators require intermediaries to be involved in the sale of insurance products, whereas other regulators permit direct sales contact between the insurer and the customer; |

| --- | --- | --- |

| | • | the extent of restrictions imposed upon an insurer's use of local and offshore reinsurance vary; |

| --- | --- | --- |

| | • | policy form filing and rate regulation vary by country; |

| --- | --- | --- |

| | • | the frequency of contact and periodic on-site examinations by insurance authorities differ by country; |

| --- | --- | --- |

| | • | the scope and prescriptive requirements of an insurer’s risk management and governance framework vary significantly by country; and |

| --- | --- | --- |

| | • | regulatory requirements relating to insurer dividend policies vary by country. |

| --- | --- | --- |

Significant variations can also be found in the size, structure, and resources of the local regulatory departments that oversee insurance activities.

Certain regulators prefer close relationships with all subject insurers and others operate a risk-based approach.

Berkshire’s insurance group operates in some countries through subsidiaries and in some countries through branches of subsidiaries.

Berkshire insurance subsidiaries are located in several countries, including Germany, the United Kingdom, Ireland, Australia and South Africa, and also maintain branches in other countries, including Canada, various members of the European Union, Australia, New Zealand, Singapore, Hong Kong, Macau and Dubai.

Most of these foreign jurisdictions impose local capital requirements.

Other legal requirements include discretionary licensing procedures, local retention of funds and records, and data privacy and protection program requirements.

Berkshire’s international insurance companies are also subject to multinational application of certain U.S. laws.

There are various regulatory bodies and initiatives that impact Berkshire in multiple international jurisdictions and the potential for significant effect on the Berkshire insurance group could be heightened as a result of recent industry and economic developments.

On June 23, 2016, the United Kingdom (“UK”) voted in a national referendum to withdraw from the EU (“Brexit”), which resulted in the UK’s withdrawal from the EU on January 31, 2020.

In anticipation of the UK leaving the EU, Berkshire Hathaway European Insurance DAC in Ireland was established to permit property and casualty insurance and reinsurance businesses to continue to operate in the European Union following Brexit.

Following the withdrawal of the UK from the EU as result of Brexit, Berkshire expects to continue to maintain a substantial presence in London.

MedPro Group (“MedPro”) is a leading provider of healthcare liability (“HCL”) insurance in the United States.

Additionally, MedPro provides HCL insurance solutions in Europe, delivers liability insurance to other professionals, and offers specialized accident and health insurance solutions to colleges and other customers through its subsidiaries and other Berkshire affiliates.

GUARD also offers complementary professional liability and umbrella products nationwide.

In October 2019, Berkshire sold its 81% interest in Applied Underwriters, Inc. (“Applied”).

NICO also periodically writes retroactive reinsurance contracts.

| --- | --- |

##### [Table of Contents](#toc)

Under the 2015 TRIA Reauthorization, the federal government’s reimbursement obligation will be reduced to 80% in 2020 and thereafter.

Regulation of the insurance industry outside of the United States is subject to the laws and regulations of each country in which an insurer has operations or writes premiums.

Some jurisdictions impose comprehensive regulatory requirements on insurance businesses, such as in the United Kingdom, where insurers are subject to regulation by the Prudential Regulation Authority and the Financial Conduct Authority in Germany where insurers are subject to regulation by the Federal Financial Supervisory Authority (BaFin) and in Australia where insurers are subject to regulation by the Australian Prudential Regulatory Authority.

Other jurisdictions may impose fewer requirements.

In certain foreign countries, reinsurers are also required to be licensed by governmental authorities.

These licenses may be subject to modification, suspension or revocation dependent on such factors as amount and types of insurance liabilities and minimum capital and solvency tests.

The violation of regulatory requirements may result in fines, censures and/or criminal sanctions in various jurisdictions.

NICO also occasionally writes retroactive reinsurance contracts, which cover past loss events arising from property and casualty contracts written by ceding insurers and reinsurers.

MedPro has provided insurance coverage to protect healthcare providers against losses since 1899.

MedPro distributes policies primarily through a nationwide network of appointed agents and brokers.

MedPro currently offers coverage options to healthcare providers in the other countries as well as student health insurance, through its subsidiaries and other Berkshire affiliates.

Applied Underwriters, Inc. (“Applied”) is a provider of payroll and insurance services to small and mid-sized employers.

Applied, through its subsidiaries principally markets a product that bundles workers’ compensation and other employment related insurance coverages and business services into a seamless package that is designed to remove the burden of administrative and regulatory requirements faced by small to mid-sized employers.

Applied is based in Omaha, Nebraska.

Guard also provides complementary commercial auto and professional liability in an expanding number of states.

The cost of average float in 2017 was approximately 3%, primarily attributable to sizable catastrophe losses and foreign currency exchange rate losses relating to non-U.S. Dollar denominated reinsurance liabilities.

As a result, BNSF is subject to, and will from time to time continue to be subject to, environmental cleanup and enforcement actions.

Accordingly, BNSF may be responsible under CERCLA and other federal and state statutes for all or part of the costs to clean up sites at which certain substances may have been released by BNSF, its current lessees, former owners or lessees of properties, or other third parties.

BNSF Logistics, LLC, a wholly-owned subsidiary of BNSF, provides non-asset based logistics services to third parties.

BNSF Logistics’ services include transportation strategy and execution, managed transportation services, supply chain consulting, project management, engineering, reverse logistics, warehousing and cross-docking, and customs house brokerage services.

BHE acquired AltaLink L.P. (“AltaLink”) on December 1, 2014.

Supporting the United States’ commitment under the Paris Agreement was the Clean Power Plan, which was finalized by the U.S. Environmental Protection Agency (“EPA”) in August 2015.

The Clean Power Plan established the Best System of Emission Reduction for fossil-fueled power plants to include: (a) heat rate improvements; (b) increased utilization of existing combined-cycle natural gas-fueled generating facilities; and (c) increased deployment of new and incremental non-carbon generation placed in service after 2012.

The final Clean Power Plan compliance obligations were scheduled to begin in 2022, and extend through 2030.

The EPA issued a proposal to repeal the Clean Power Plan on October 10, 2017, which has not yet been finalized.

The EPA received comments on the proposal through October 2018 and anticipates finishing the rule in spring 2019.

Berkshire acquired Precision Castparts Corp. (“PCC”) on January 29, 2016.

_Foodservice Technologies_ manufactures hot and cold food preparation and holding equipment for restaurants, cafeterias, hotels, caterers, and other foodservice providers worldwide.

_Electrical Products_ produces electrical wire and cable for use in utility applications and residential and commercial buildings; and portable lighting equipment for mining and safety markets.

Operations are based in the U.S. and business is conducted primarily in the U.S., Canada, and China.

Following the downturn of oil and gas markets in recent years, renewal rental rates have declined for some railcar types and has resulted in a decline in utilization, which has had a meaningful impact on UTLX’s results.

While tank car specifications are highly regulated in North America, regulatory changes are not expected to materially affect UTLX’s operating results, competitive position, or financial strength.

In 2014, Berkshire acquired a global supplier of pipeline flow improver products from Phillips 66.

The business, headquartered in Houston, Texas, was named Phillips Specialty Products, Inc. at the time of the acquisition and is currently named LiquidPower Specialty Products Inc. (“LSPI”).

LSPI specializes in maximizing the flow potential of pipelines, increasing operational flexibility and throughput capacity.

Clayton’s homes are marketed in 48 states through a network of 2,149 retailers, including 366 company-owned home centers and 280 subdivisions.

Home finance and insurance products are offered through its subsidiaries primarily to purchasers of manufactured and modular homes.

Clayton acquired its first site builder in 2015 and, thereafter, added seven additional site builders.

| --- | --- |

[removed: ##### [Table] [added: Table] of [removed: Contents](#toc)][added: Contents]

[removed: UNITED STATES][added: UNITED STATES]

[removed: SECURITIES] [added: SECURITIES] AND EXCHANGE [removed: COMMISSION][added: COMMISSION]

[removed: Washington,] [added: Washington,] D.C. [removed: 20549][added: 20549]

[removed: FORM 10-K][added: FORM 10-K]

[added: |] ☑ [removed: ANNUAL] [added: | ANNUAL] REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF [removed: 1934][added: 1934 |]

For the fiscal year ended December 31, [removed: 2018][added: 2019]

[added: |] ☐ [removed: TRANSITION] [added: | TRANSITION] REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF [removed: 1934][added: 1934 |]

[removed: For] [added: For] the transition period from [removed: to][added: to]

[removed: BERKSHIRE] [added: BERKSHIRE] HATHAWAY [removed: INC.][added: INC.]

[removed: (Exact] [added: (Exact] name of Registrant as specified in its [removed: charter)][added: charter)]

| [removed: Delaware] [added: Delaware] | | [removed: 47-0813844] [added: 47-0813844] |

| [removed: State] [added: State] or other jurisdiction [removed: of incorporation] [added: of incorporation] or [removed: organization] [added: organization] | | [removed: (I.R.S. Employer Identification Number)] [added: (I.R.S. Employer Identification No.)] |

| [removed: 3555] [added: 3555] Farnam Street, Omaha, [removed: Nebraska] [added: Nebraska] | | [removed: 68131] [added: 68131] |

| [removed: (Address] [added: (Address] of principal executive [removed: office)] [added: office)] | | [removed: (Zip Code)] [added: (Zip Code)] |

[removed: Registrant’s] [added: Registrant’s] telephone number, including area code (402) [removed: 346-1400][added: 346-1400]

[removed: Securities] [added: Securities] registered pursuant to Section 12(b) of the [removed: Act:][added: Act:]

| [removed: Title] [added: Title] of each [removed: class] [added: class] | | [removed: Name] [added: Trading Symbols | | Name] of each exchange on which [removed: registered] [added: registered] |

| [removed: Class] [added: February 13, 2020—Class] B common stock, $0.0033 [removed: Par Value |] [added: par value] | [removed: New York Stock Exchange] [added: 1,385,994,959 shares] |

[removed: Securities] [added: Securities] registered pursuant to Section 12(g) of the Act: [removed: NONE][added: NONE]

State the aggregate market value of the voting stock held by non-affiliates of the Registrant as of June 30, [removed: 2018: $367,009,000,000*][added: 2019: $417,300,000,000*]

| February [removed: 14, 2019—Class] [added: 13, 2020—Class] A common stock, $5 par value | [removed: | 725,807] [added: 700,396] shares |

[removed: DOCUMENTS] [added: DOCUMENTS] INCORPORATED BY [removed: REFERENCE][added: REFERENCE]

Portions of the Proxy Statement for the Registrant’s Annual Meeting to be held May [removed: 4, 2019] [added: 2, 2020] are incorporated in Part III.

| [removed: |] * | This aggregate value is computed at the last sale price of the common stock as reported on the New York Stock Exchange on June 30, [removed: 2018.] [added: 2019.] It does not include the value of Class A common stock [removed: (294,660 shares)] and Class B common stock [removed: (57,946,850 shares)] held by Directors and Executive Officers of the Registrant and members of their immediate families, some of whom may not constitute “affiliates” for purpose of the Securities Exchange Act of 1934. |

| | | [removed: | | Page No. | |] [added: Page No.] |

| [removed: [Part I](#toc678758_1) | | | |] [added: [Part I](#PART_I)] | | [removed: [](#toc678758_1)] |

| [removed: Item 1. | | [Business Description](#toc678758_2) |] [added: Item 1.] | [added: [Business Description](#ITEM_1_BUSINESS_DESCRIPTION)] | K-1 | [removed: |]

| [removed: Item 1A. | | [Risk Factors](#toc678758_3) | |] [added: Item 1A.] | [removed: K-22] [added: [Risk Factors](#ITEM_1A_RISK_FACTORS)] | [added: K-21] |

| [removed: Item 1B. |] [added: Item 1B.] | [removed: [Unresolved] [added: [Unresolved] Staff [removed: Comments](#toc678758_4) | |] [added: Comments](#ITEM_1B_UNRESOLVED_STAFF_COMMENTS)] | K-25 | [removed: |]

| [removed: Item 2. |] [added: Item 2.] | [removed: [Description] [added: [Description] of [removed: Properties](#toc678758_5) | |] [added: Properties](#ITEM_2_DESCRIPTION_PROPERTIES)] | K-25 | [removed: |]

| [removed: Item 3. | | [Legal Proceedings](#toc678758_6) | |] [added: Item 3.] | [removed: K-28] [added: [Legal Proceedings](#ITEM_3_LEGAL_PROCEEDINGS)] | [added: K-27] |

| [removed: Item 4. |] [added: Item 4.] | [removed: [Mine] [added: [Mine] Safety [removed: Disclosures](#toc678758_7) | | | K-28] [added: Disclosures](#ITEM_4_MINE_SAFETY_DISCLOSURES)] | [added: K-27] |

| [removed: [Part II](#toc678758_8) | | | |] [added: [Part II](#PART_II)] | | |

| [removed: Item 5. |] [added: Item 5.] | [removed: [Market] [added: [Market] for Registrant’s Common Equity, Related Security Holder Matters and Issuer Purchases [removed: of](#toc678758_9) [Equity Securities](#toc678758_9) | |] [added: of Equity Securities](#ITEM_5_MARKET_FOR_REGISTRANTS_COMMON_EQU)] | K-29 | [removed: |]

| [removed: Item 6. |] [added: Item 6.] | [removed: [Selected] [added: [Selected] Financial [removed: Data](#toc678758_10) | |] [added: Data](#ITEM_6_SELECTED_FINANCIAL_DATA)] | K-31 | [removed: |]

| [removed: Item 7. |] [added: Item 7.] | [removed: [Management’s] [added: [Management’s] Discussion and Analysis of Financial Condition and Results of [removed: Operations](#toc678758_11) | |] [added: Operations](#ITEM_7_MANAGEMENTS_DISCUSSION_ANALYSIS_F)] | K-32 | [removed: |]

| [removed: Item 7A. |] [added: Item 7A.] | [removed: [Quantitative] [added: [Quantitative] and Qualitative Disclosures About Market [removed: Risk](#toc678758_12) | | | K-61] [added: Risk](#ITEM_7A_QUANTITATIVE_QUALITATIVE_DISCLOS)] | [added: K-62] |

| [removed: Item 8. |] [added: Item 8.] | [removed: [Financial] [added: [Financial] Statements and Supplementary [removed: Data](#toc678758_13) | | | K-62] [added: Data](#ITEM_8_FINANCIAL_STATEMENTS_SUPPLEMENTAR)] | [added: K-63] |

| | [removed: |] [Consolidated Balance Sheets— December 31, [removed: 2018] [added: 2019] and December 31, [removed: 2017](#toc678758_14) | | K-64 |] [added: 2018](#CONSOLIDATED_BALANCE_SHEETS)] | [added: K-66] |

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OR

| --- | --- |

| --- | --- | --- | --- | --- |

| Class A Common Stock Class B Common Stock 0.750% Senior Notes due 2023 1.125% Senior Notes due 2027 1.625% Senior Notes due 2035 0.500% Senior Notes due 2020 1.300% Senior Notes due 2024 2.150% Senior Notes due 2028 0.250% Senior Notes due 2021 0.625% Senior Notes due 2023 2.375% Senior Notes due 2039 2.625% Senior Notes due 2059 | | BRK.A BRK.B BRK23 BRK27 BRK35 BRK20 BRK24 BRK28 BRK21 BRK23A BRK39 BRK59 | | New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange |

| | |

| --- | --- |

| --- | --- |

| | | |

| | | |

| | | |

| | | |

| | | |

| | | |

| | | |

| [Signatures](#SIGNATURES) | | K-118 |

10-K 1 d678758d10k.htm 10-K

OR

| --- | --- | --- |

| Class A common stock, $5.00 Par Value | | New York Stock Exchange |

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

| February 14, 2019—Class B common stock, $0.0033 par value | | 1,372,751,831 shares |

Table of Contents

| | | | | | | |

| --- | --- | --- | --- | --- | --- | --- |

| [Signatures](#toc678758_32) | | | | | K-114 | |

| --- | --- |

[removed: Railroad] [added: Railroad] Business—Burlington Northern Santa [removed: Fe][added: Fe]

[removed: The] [added: As of December 31, 2019, the] total BNSF [added: Railway] system, including single and multiple main tracks, yard tracks and sidings, [removed: consists] [added: consisted] of over 50,000 operated miles of [removed: track, all of which are owned by or held under easement by BNSF except for over 10,000 miles operated under trackage rights.][added: track.]

Support facilities for rail operations include yards and terminals throughout its rail network, system locomotive shops to perform locomotive servicing and maintenance, a centralized network operations center for train dispatching and network operations monitoring and [removed: management in Fort Worth, Texas,] [added: management,] regional dispatching centers, computers, telecommunications equipment, signal systems and other support systems.

In the ordinary course of business, BNSF [removed: makes] [added: incurs] significant [removed: capital investments to expand] [added: costs in repairing] and [removed: improve] [added: maintaining] its [removed: railroad network.][added: properties.]

In [removed: 2018,] [added: 2019,] BNSF recorded approximately $2 billion in repairs and maintenance expense.

Pursuant to separate financing agreements, [removed: a] [added: the] majority of these properties are pledged or encumbered to support or otherwise provide the security for the related subsidiary debt.

BHE or its affiliates own or have interests in the following types of [added: operating] electric generating facilities at December 31, [removed: 2018:][added: 2019:]

| [removed: Energy Source] [added: Energy Source] | | [removed: Entity] [added: Entity] | | [removed: Location] [added: Location] by [removed: Significance] [added: Significance] | | [removed: Facility] [added: Facility] Net Capacity (MW) [removed: (1)] [added: (1)] | | | | [removed: Net] [added: Net] Owned Capacity (MW) [removed: (1)] [added: (1)] | | |

| Natural gas | | PacifiCorp, MEC, NV Energy and BHE Renewables | | Nevada, Utah, Iowa, Illinois, Washington, Oregon, Texas, New York, [removed: and] Arizona [added: and Wyoming] | | | [removed: 10,920] [added: 10,938] | | | | [removed: 10,641] [added: 10,659] | |

| Coal | | PacifiCorp, MEC and NV Energy | | Wyoming, Iowa, Utah, Arizona, Nevada, Colorado and Montana | | | [removed: 16,181] [added: 13,641] | | | | [removed: 9,138] [added: 8,593] | |

| Wind | | PacifiCorp, MEC and BHE Renewables | | Iowa, Wyoming, Texas, Nebraska, Washington, California, Illinois, Oregon and Kansas | | | [removed: 7,862] [added: 8,883] | | | | [removed: 7,853] [added: 8,883] | |

| Nuclear | | MEC | | Illinois | | | [removed: 1,823] [added: 1,821] | | | | [removed: 456] [added: 455] | |

| Geothermal | | PacifiCorp and BHE Renewables | | California and Utah | | | [removed: 370] [added: 377] | | | | [removed: 370] [added: 377] | |

| [removed: _(1)_] [added: *(1)*] | [removed: _Facility] [added: Facility] Net Capacity [added: in megawatts] (MW) represents the lesser of nominal ratings or any limitations under applicable interconnection, power purchase, or other agreements for intermittent resources and the total net dependable capability available during summer conditions for all other units. An intermittent resource’s nominal rating is the manufacturer’s contractually specified capability (in MW) under specified conditions. Net Owned Capacity indicates BHE’s ownership of Facility Net [removed: Capacity._] [added: Capacity.] |

As of December 31, [removed: 2018,] [added: 2019,] BHE’s subsidiaries also have electric generating facilities that are under construction in [removed: Iowa and] [added: Iowa,] Wyoming [added: and Montana] having total Facility Net Capacity and Net Owned Capacity of [removed: 2,390] [added: 1,816] MW.

PacifiCorp, MEC and NV Energy own electric transmission and distribution systems, including approximately [removed: 24,800] [added: 25,200] miles of transmission lines and approximately 1,690 substations, gas distribution facilities, including approximately [removed: 27,400] [added: 27,500] miles of gas mains and service [removed: lines, and an estimated 25 million tons of recoverable coal reserves in mines owned or leased in Wyoming and Colorado.][added: lines.]

The electricity distribution network of Northern Powergrid (Northeast) and Northern Powergrid (Yorkshire) includes approximately 17,400 miles of overhead lines, approximately 42,300 miles of underground cables and approximately [removed: 780] [added: 770] major substations.

Northern Natural’s pipeline system consists of approximately [removed: 14,700] [added: 14,600] miles of natural gas pipelines, including approximately [removed: 6,300] [added: 6,100] miles of mainline transmission pipelines and approximately [removed: 8,400] [added: 8,500] miles of branch and lateral pipelines.

[removed: Other Segments][added: Other Segments]

[removed: The] [added: Material] physical properties used by Berkshire’s other significant business segments are summarized below:

| | | | | | | | | [removed: Number] [added: Number] of [removed: Properties] [added: Properties] | | | | | | |

| [removed: Business] [added: Business] | | [removed: Country] [added: Country] | | [removed: Locations] [added: Locations] | | [removed: Property/Facility type] [added: Property/Facility type] | | [removed: Owned] [added: Owned] | | | | [removed: Leased] [added: Leased] | | |

| GEICO | | U.S. | | [removed: Locations in 39 states] | | Offices and claims centers | | | [removed: 12] [added: 10] | | | | [removed: 108] [added: 117] | |

| | | Non-U.S. | | Locations in [removed: one country] [added: 18 countries] | | Offices | | | [removed: —] [added: 1] | | | | [removed: 2] [added: 33] | |

| BHRG | | U.S. | | [removed: Locations in 15 states] | | Offices | | | 1 | | | | [removed: 28] [added: 29] | |

| | | Non-U.S. | | Locations in [removed: 23] [added: 7] countries | | Offices | | | [removed: 1] [added: —] | | | | [removed: 35] [added: 12] | |

| BH Primary | | U.S. | | [removed: Locations in 23 states] | | Offices | | | [removed: 9] [added: 7] | | | | [removed: 79] [added: 48] | |

| | | Non-U.S. | | Locations in [removed: 8] [added: 6] countries | | [removed: Offices] [added: Offices/Warehouses] | | | [removed: —] [added: 1] | | | | [removed: 12] [added: 8] | |

| | | | | | | Offices/Warehouses | | | [removed: 240] [added: 71] | | | | [removed: 443] [added: 468] | |

| | | | | | | Retail/Showroom | | | [removed: 225] [added: 228] | | | | [removed: 226] [added: 225] | |

| | | | | | | Housing communities | | | [removed: 280] [added: 311] | | | | — | |

| | | Non-U.S. | | Locations in [removed: 65] [added: 64] countries | | Manufacturing facility | | | [removed: 241] [added: 233] | | | | [removed: 172] [added: 138] | |

| | | | | | | Offices/Warehouses | | | [removed: 59] [added: 200] | | | | [removed: 540] [added: 403] | |

| | | | | | | Retail/Showroom | | | — | | | | [removed: 5] [added: 10] | |

| Service | | U.S. | | [removed: Locations in 38 states] | | Training facilities/Hangars | | | [removed: 19] [added: 20] | | | | [removed: 130] [added: 139] | |

| | | | | | | Offices/Distribution | | | [removed: 52] [added: 1] | | | | [removed: 207] [added: 33] | |

| | | | | | | Production facilities | | | [removed: 24] [added: 23] | | | | 3 | |

| | | | | | | Leasing/Showroom/Retail | | | [removed: 40] [added: 28] | | | | [removed: 91] [added: 59] | |

| | | Non-U.S. | | Locations in [removed: 34] [added: 35] countries | | Training facilities/Hangars | | | [removed: 18] [added: 17] | | | | [removed: 35] [added: 14] | |

| | | | | | | Offices/Distribution | | | [removed: —] [added: 55] | | | | [removed: 115] [added: 178] | |

| | | | | Total | | | 38,658 | | | | 31,795 | |

| Manufacturing | | U.S. | | | | Manufacturing facility | | | 499 | | | | 114 | |

| | | | | | | Offices | | | 4 | | | | 2 | |

| --- | --- |

##### [Table of Contents](#toc)

BNSF incurs significant costs in repairing and maintaining its properties.

| | | | | | | | | | | | | |

| | | | | Total | | | 40,154 | | | | 31,286 | |

| | | | | | | | | | | | | | | |

| Manufacturing | | U.S. | | Locations in 48 states | | Manufacturing facility | | | 543 | | | | 167 | |

| | | | | | | Retail/Showroom | | | 143 | | | | 564 | |

| | | Non-U.S. | | Locations in 6 countries | | Offices/Warehouses | | | 1 | | | | 12 | |

K-27

| [removed: Name] [added: Name] | | [removed: Age] [added: Age] | | [removed: Position] [added: Position] with [removed: Registrant] [added: Registrant] | | [removed: Since] [added: Since] |

| Warren E. Buffett | | [removed: 88] [added: 89] | | Chairman and Chief Executive Officer | | 1970 |

| Charles T. Munger | | [removed: 95] [added: 96] | | Vice Chairman | | 1978 |

| Gregory E. Abel | | [removed: 56] [added: 57] | | Vice Chairman – Non-Insurance Operations | | 2018 |

| Ajit Jain | | [removed: 67] [added: 68] | | Vice Chairman – Insurance Operations | | 2018 |

| Marc D. Hamburg | | [removed: 69] [added: 70] | | Senior Vice-President – Chief Financial Officer | | 1992 |

[removed: FORWARD-LOOKING STATEMENTS][added: FORWARD-LOOKING STATEMENTS]

[removed: Part II][added: Part II]

K-27

| --- | --- |

| | | | | | | |

##### [Table of Contents](#toc)

[removed: Market Information][added: Market Information]

Berkshire’s Class A and Class B common stock are listed for trading on the New York Stock Exchange, trading [removed: symbol:] [added: symbols:] BRK.A and BRK.B, respectively.

[removed: Shareholders][added: Shareholders]

Berkshire had approximately [removed: 2,000] [added: 1,750] record holders of its Class A common stock and [removed: 19,500] [added: 19,200] record holders of its Class B common stock at February [removed: 15, 2019.][added: 13, 2020.]

Record owners included nominees holding at least [removed: 417,000] [added: 411,000] shares of Class A common stock and [removed: 1,374,000,000] [added: 1,405,000,000] shares of Class B common stock on behalf of beneficial-but-not-of-record owners.

[removed: Dividends][added: Dividends]

[removed: Common] [added: Common] Stock Repurchase [removed: Program][added: Program]

[removed: On July 17,] [added: In] 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 Charles Munger, Vice Chairman of the Board, believe that the repurchase price is below Berkshire’s intrinsic value, conservatively determined.

Information with respect to Berkshire’s Class A and Class B common stock repurchased during the fourth quarter of [removed: 2018] [added: 2019] follows.

| [removed: Period] [added: Period] | | [removed: Total] [added: Total] number [removed: of shares purchased] [added: of shares purchased] | | | | [removed: Average price paid] [added: Average price paid] per [removed: share] [added: share] | | | | [removed: Total] [added: Total] number [removed: of shares purchased as] [added: of shares purchased as] part of [removed: publicly announced program] [added: publicly announced program] | | | | [removed: Maximum] [added: Maximum] number [removed: or value] [added: or value] of shares that [removed: yet may] [added: yet may] be [removed: repurchased under] [added: repurchased under] the [removed: program] [added: program] |

| October [removed: 11] [added: 1] through October [removed: 18:] [added: 9:] | | | | | | | | | | | | | | |

| December [removed: 13] [added: 2] through December [removed: 24:] [added: 31:] | | | | | | | | | | | | | | |

| [removed: | _*_] [added: *] | [removed: _The] [added: The] program does not specify a maximum number of shares to be repurchased or obligate Berkshire to repurchase any specific dollar amount or number of Class A or Class B shares and there is no expiration date to the repurchase program. Berkshire will not repurchase its common stock if the repurchases reduce the total value of Berkshire’s consolidated cash, cash equivalents and U.S. Treasury Bills holdings to less than $20 [removed: billion._] [added: billion.] |

Market for Registrant’s Common Equity, Related Security Holder Matters and Issuer Purchases of Equity Securities [removed: _(Continued)_][added: *(Continued)*]

[removed: Stock] [added: Stock] Performance [removed: Graph][added: Graph]

The following chart compares the subsequent value of $100 invested in Berkshire common stock on December 31, [removed: 2013] [added: 2014] with a similar investment in the Standard & Poor’s 500 Stock Index and in the Standard & Poor’s Property – Casualty Insurance Index.

[removed: ][added: ]

| [removed: _*_] [added: *] | [removed: _Cumulative] [added: Cumulative] return for the Standard & Poor’s indices based on reinvestment of [removed: dividends._] [added: dividends.] |

| [removed: __] | [removed: _It] [added: It] would be difficult to develop a peer group of companies similar to Berkshire. The Corporation owns subsidiaries engaged in a number of diverse business activities of which the most important is the property and casualty insurance business and, accordingly, management has used the Standard & Poor’s Property—Casualty Insurance Index for comparative [removed: purposes._] [added: purposes.] |

| Class A common stock | | | 688 | | | $ | 306,086.60 | | | | 688 | | | * |

| Class B common stock | | | 1,497,623 | | | $ | 204.07 | | | | 1,497,623 | | | * |

| November 11 through November 29: | | | | | | | | | | | | | | |

| Class A common stock | | | 1,326 | | | $ | 328,974.91 | | | | 1,326 | | | * |

| Class B common stock | | | 3,657,884 | | | $ | 218.62 | | | | 3,657,884 | | | * |

| Class A common stock | | | 674 | | | $ | 333,298.06 | | | | 674 | | | * |

| Class B common stock | | | 953,070 | | | $ | 221.67 | | | | 953,070 | | | * |

| Class A common stock | | | 202 | | | $ | 310,762.79 | | | | 202 | | | * |

| Class B common stock | | | 589,955 | | | $ | 205.09 | | | | 589,955 | | | * |

| Class A common stock | | | 790 | | | $ | 295,953.99 | | | | 790 | | | * |

| --- | --- | --- |

##### [Table of Contents](#toc)

[removed: Selected] [added: Selected] Financial Data for the Past Five [removed: Years][added: Years]

[removed: _(dollars] [added: (dollars] in millions except per-share [removed: data)_][added: data)]

| | | [removed: 2018] [added: 2019] | | | | [removed: 2017] [added: 2018] | | | | [removed: 2016] [added: 2017] | | | | [removed: 2015] [added: 2016] | | | | [removed: 2014] [added: 2015] | | |

| [removed: Revenues:] [added: Revenues:] | | | | | | | | | | | | | | | | | | | | |

| Insurance premiums earned | | $ | [removed: 57,418] [added: 61,078] | | | $ | [removed: 60,597] [added: 57,418] | | | $ | [removed: 45,881] [added: 60,597] | | | $ | [removed: 41,294] [added: 45,881] | | | $ | [removed: 41,253] [added: 41,294] | |

| Sales and service revenues | | | [removed: 133,336] [added: 134,989] | | | | [removed: 130,243] [added: 133,336] | | | | [removed: 123,053] [added: 130,243] | | | | [removed: 110,811] [added: 123,053] | | | | [removed: 100,606] [added: 110,811] | |

| Leasing revenue | | | [removed: 5,732] [added: 5,856] | | | | [removed: 2,552] [added: 5,732] | | | | [removed: 2,553] [added: 2,552] | | | | [removed: 1,546] [added: 2,553] | | | | [removed: 1,463] [added: 1,546] | |

| Railroad, utilities and energy revenues | | | [removed: 43,673] [added: 43,453] | | | | [removed: 40,005] [added: 43,673] | | | | [removed: 37,447] [added: 40,005] | | | | [removed: 39,923] [added: 37,447] | | | | [removed: 40,610] [added: 39,923] | |

| Interest, dividend and other investment income | | | [removed: 7,678] [added: 9,240] | | | | [removed: 6,536] [added: 7,678] | | | | [removed: 6,180] [added: 6,536] | | | | [removed: 6,867] [added: 6,180] | | | | [removed: 6,484] [added: 6,867] | |

| Total revenues | | $ | [removed: 247,837] [added: 254,616] | | | $ | [removed: 239,933] [added: 247,837] | | | $ | [removed: 215,114] [added: 239,933] | | | $ | [removed: 200,441] [added: 215,114] | | | $ | [removed: 190,416] [added: 200,441] | |

| [removed: Investment] [added: Investment] and derivative [removed: gains/losses] [added: gains/losses] | | $ | [removed: (22,455] [added: 72,607] | [removed: )] | | $ | [removed: 2,128] [added: (22,455] | [added: )] | | $ | [removed: 8,304] [added: 2,128] | | | $ | [removed: 10,347] [added: 8,304] | | | $ | [removed: 4,081] [added: 10,347] | |

| [removed: Earnings:] [added: Earnings:] | | | | | | | | | | | | | | | | | | | | |

| Net earnings attributable to Berkshire Hathaway [removed: _(1)_] [added: (1)] | | $ | [removed: 4,021] [added: 81,417] | | | $ | [removed: 44,940] [added: 4,021] | | | $ | [removed: 24,074] [added: 44,940] | | | $ | [removed: 24,083] [added: 24,074] | | | $ | [removed: 19,872] [added: 24,083] | |

| Net earnings per share attributable to Berkshire Hathaway shareholders [removed: _(2)_] [added: (2)] | | $ | [removed: 2,446] [added: 49,828] | | | $ | [removed: 27,326] [added: 2,446] | | | $ | [removed: 14,645] [added: 27,326] | | | $ | [removed: 14,656] [added: 14,645] | | | $ | [removed: 12,092] [added: 14,656] | |

| [removed: Year-end data:] [added: Year-end data:] | | | | | | | | | | | | | | | | | | | | |

| Total assets | | $ | [removed: 707,794] [added: 817,729] | | | $ | [removed: 702,095] [added: 707,794] | | | $ | [removed: 620,854] [added: 702,095] | | | $ | [removed: 552,257] [added: 620,854] | | | $ | [removed: 525,867] [added: 552,257] | |

| Insurance and other | | | [removed: 34,975] [added: 37,590] | | | | [removed: 40,409] [added: 34,975] | | | | [removed: 42,559] [added: 40,409] | | | | [removed: 26,550] [added: 42,559] | | | | [removed: 24,584] [added: 26,550] | |

| Railroad, utilities and energy | | | [removed: 62,515] [added: 65,778] | | | | [removed: 62,178] [added: 62,515] | | | | [removed: 59,085] [added: 62,178] | | | | [removed: 57,739] [added: 59,085] | | | | [removed: 55,306] [added: 57,739] | |

| Berkshire Hathaway shareholders’ equity | | | [removed: 348,703] [added: 424,791] | | | | [removed: 348,296] [added: 348,703] | | | | [removed: 282,070] [added: 348,296] | | | | [removed: 254,619] [added: 282,070] | | | | [removed: 239,239] [added: 254,619] | |

| Class A equivalent common shares outstanding, in thousands | | | [removed: 1,641] [added: 1,625] | | | | [removed: 1,645] [added: 1,641] | | | | [removed: 1,644] [added: 1,645] | | | | [removed: 1,643] [added: 1,644] | | | | 1,643 | |

| Berkshire Hathaway shareholders’ equity per outstanding Class A equivalent common share | | $ | [removed: 212,503] [added: 261,417] | | | $ | [removed: 211,750] [added: 212,503] | | | $ | [removed: 171,542] [added: 211,750] | | | $ | [removed: 154,935] [added: 171,542] | | | $ | [removed: 145,619] [added: 154,935] | |

| [removed: | _(1)_] [added: *(1)*] | [removed: _Includes] [added: Includes] after-tax investment and derivative gains/losses of [added: $57.4 billion in 2019,] $(17.7) billion in 2018, $1.4 billion in 2017, $6.5 billion in [removed: 2016, $6.7 billion in 2015] [added: 2016] and [removed: $3.3] [added: $6.7] billion in [removed: 2014.] [added: 2015.] Beginning in 2018, investment gains/losses include the changes in fair values of equity securities during the period. Previously, investment gains/losses of equity securities were recognized in earnings when securities were sold or were other-than-temporarily impaired. Net earnings in 2017 includes a one-time net benefit of $29.1 billion attributable to the enactment of the Tax Cuts and Jobs Act of [removed: 2017._] [added: 2017.] |

| [removed: | _(2)_] [added: *(2)*] | [removed: _Represents] [added: Represents] net earnings per average equivalent Class A share outstanding. Net earnings per average equivalent Class B common share outstanding is equal to 1/1,500 of such [removed: amount._] [added: amount.] |

| --- | --- |

| | | | | | | | | | | | | | | | | | | | | |

| --- | --- | --- |

##### [Table of Contents](#toc)

[removed: REPORT] [added: REPORT] OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING [removed: FIRM][added: FIRM]

[removed: Opinions] [added: Opinions] on the Financial Statements and Internal Control over Financial [removed: Reporting][added: Reporting]

We have audited the accompanying consolidated balance sheets of Berkshire Hathaway Inc. and subsidiaries (the “Company”) as of December 31, [removed: 2018] [added: 2019] and [removed: 2017,] [added: 2018,] 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, [removed: 2018,] [added: 2019,] 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, [removed: 2018,] [added: 2019,] based on criteria established in [removed: _Internal] [added: *Internal] Control — Integrated Framework [removed: (2013)_] [added: (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, [removed: 2018] [added: 2019] and [removed: 2017,] [added: 2018,] and the results of its operations and its cash flows for each of the three years in the period ended December 31, [removed: 2018,] [added: 2019,] 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, [removed: 2018,] [added: 2019,] based on criteria established in [removed: _Internal] [added: *Internal] Control — Integrated Framework [removed: (2013)_] [added: (2013)*] issued by COSO.

[removed: Change] [added: Change] in Accounting [removed: Principle][added: 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 [removed: ASU] [added: *ASU] 2016-01 “Financial Instruments – Recognition and Measurement of Financial Assets and Financial [removed: Liabilities.”][added: Liabilities.”*]

[removed: Basis] [added: Basis] for [removed: Opinions][added: Opinions]

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 [removed: U.S.] [added: US] federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM [removed: _(Continued)_][added: (Continued)]

[removed: Definition] [added: Definition] and Limitations of Internal Control over Financial [removed: Reporting][added: Reporting]

[removed: BERKSHIRE] [added: BERKSHIRE] HATHAWAY [removed: INC.][added: INC.]

[removed: and Subsidiaries][added: and Subsidiaries]

[removed: CONSOLIDATED] [added: CONSOLIDATED] BALANCE [removed: SHEETS][added: SHEETS]

[removed: _(dollars] [added: (dollars] in [removed: millions)_][added: millions)]

| | | [removed: December 31,] [added: December 31,] | | | | | | |

| | [removed: 2018] | [added: 2019] | | | [removed: 2017] | [added: 2018] | | | [added: | 2017 | | |]

| [removed: ASSETS] [added: ASSETS] | | | | | | | | |

| [removed: _Insurance] [added: Insurance] and [removed: Other:_] [added: Other:] | | | | | | | | |

| Cash and cash equivalents* | | $ | [removed: 27,749] [added: 61,151] | | | $ | [removed: 28,673] [added: 27,749] | |

| Short-term investments in U.S. Treasury Bills | | | [removed: 81,506] [added: 63,822] | | | | [removed: 84,371] [added: 81,506] | |

| Investments in fixed maturity securities | | | [removed: 19,898] [added: 18,685] | | | | [removed: 21,353] [added: 19,898] | |

| Investments in equity securities | | | [removed: 172,757] [added: 248,027] | | | | [removed: 170,540] [added: 172,757] | |

| Equity method investments | | | [removed: 17,325] [added: 17,505] | | | | [removed: 21,024] [added: 17,325] | |

| Loans and finance receivables | | | [removed: 16,280] [added: 17,527] | | | | [removed: 13,748] [added: 16,280] | |

| Other receivables | | | [removed: 31,564] [added: 32,418] | | | | [removed: 29,392] [added: 31,564] | |

| Inventories | | | [removed: 19,069] [added: 19,852] | | | | [removed: 17,366] [added: 19,069] | |

| Property, plant and equipment | | | [removed: 20,628] [added: 21,438] | | | | [removed: 19,868] [added: 20,628] | |

| Equipment held for lease | | | [removed: 14,298] [added: 15,065] | | | | [removed: 10,167] [added: 14,298] | |

| Goodwill | | | [removed: 56,323] [added: 57,052] | | | | [removed: 56,478] [added: 56,323] | |

| Other intangible assets | | | [removed: 31,499] [added: 31,051] | | | | [removed: 32,518] [added: 31,499] | |

| Deferred charges under retroactive reinsurance contracts | | | [removed: 14,104] [added: 13,747] | | | | [removed: 15,278] [added: 14,104] | |

| Other | | | [removed: 9,307] [added: 13,232] | | | | [removed: 9,391] [added: 9,307] | |

| [removed: _Railroad,] [added: Railroad,] Utilities and [removed: Energy:_] [added: Energy:] | | | | | | | | |

| Cash and cash equivalents* | | | [removed: 2,612] [added: 3,024] | | | | [removed: 2,910] [added: 2,612] | |

| Receivables | | | [removed: 3,666] [added: 3,417] | | | | [removed: 3,531] [added: 3,666] | |

| Property, plant and equipment | | | [removed: 131,780] [added: 137,838] | | | | [removed: 128,184] [added: 131,780] | |

| Goodwill | | | [removed: 24,702] [added: 24,830] | | | | [removed: 24,780] [added: 24,702] | |

| Regulatory assets | | | [removed: 3,067] [added: 2,881] | | | | [removed: 2,950] [added: 3,067] | |

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Unpaid Losses and Loss Adjustment Expenses— Refer to Notes 1 and 15 to the financial statements

Critical Audit Matter Description

The Company’s unpaid losses and loss adjustment expenses (“claim liabilities”) under short duration property and casualty insurance and reinsurance contracts are $73,019 million as of December 31, 2019.

The key assumptions affecting certain claim liabilities include expected loss and expense (“loss”) ratios, expected claim count emergence patterns, expected loss payment emergence patterns and expected loss reporting emergence patterns.

Given the subjectivity of estimating these key assumptions, performing audit procedures to evaluate whether claim liabilities were appropriately recorded as of December 31, 2019, required a high degree of auditor judgment and an increased extent of effort, including the need to involve our actuarial specialists.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the key assumptions affecting certain claim liabilities included the following, among others:

| • | We tested the operating effectiveness of controls over claim liabilities, including those over the key assumptions. |

| • | We evaluated the methods and assumptions used by management to estimate the claim liabilities by: |

| | • | Testing the underlying data that served as the basis for the actuarial analysis, such as historical claims and earned premium, to test that the inputs to the actuarial estimate were reasonable. |

| | • | Comparing management’s prior-year claim liabilities to actual development during the current year to identify potential bias in the determination of the claim liabilities. |

| --- | --- | --- |

| • | With the assistance of our actuarial specialists: |

| | • | We developed independent estimates of the claim liabilities, including loss data and industry claim development factors as needed, and compared our estimates to management’s estimates. |

| --- | --- | --- |

| | • | We compared management’s change in ultimate loss and loss adjustment expense to prior year estimates to test the reasonableness of the prior year estimates and assessed unexpected development. |

| --- | --- | --- |

Unpaid Losses and Loss Adjustment Expenses Under Retroactive Reinsurance Contracts — Refer to Notes 1 and 16 to the financial statements

Critical Audit Matter Description

The Company’s unpaid losses and loss adjustment expenses (“claim liabilities”) for property and casualty retroactive reinsurance contracts are $42,441 million as of December 31, 2019.

The key assumptions affecting certain claim liabilities and related deferred charge reinsurance assumed assets (“related assets”), include expected loss expense (“loss”) ratios, expected loss payment emergence patterns and expected loss reporting emergence.

Given the subjectivity of estimating these key assumptions, performing audit procedures to evaluate whether claim liabilities were appropriately recorded as of December 31, 2019, required a high degree of auditor judgment and an increased extent of effort, including the need to involve our actuarial specialists.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the key assumptions affecting claim liabilities and related assets included the following, among others:

| • | We tested the operating effectiveness of controls over claim liabilities and related assets, including those over the key assumptions. |

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (Continued)

| • | We evaluated the methods and assumptions used by management to estimate the claim liabilities and related assets by: |

| | • | Testing the underlying data that served as the basis for the actuarial analysis, including historical claims, to test that the inputs to the actuarial estimate were reasonable. |

| --- | --- | --- |

| | • | Comparing management’s prior-year claim liabilities to actual development during the current year to identify potential bias in the determination of the claim liabilities and related assets. |

| --- | --- | --- |

| • | With the assistance of our actuarial specialists: |

| | • | We developed independent claim liability estimates for certain retroactive reinsurance contracts and compared our estimates to management’s estimates. For other retroactive reinsurance contracts and related assets, we evaluated the process used by management to develop the estimated claim liabilities and related assets. |

| --- | --- | --- |

| | • | We compared management’s change in ultimate loss and loss adjustment expense to prior year estimates, assessed unexpected development and assessed internal rates of return. |

| --- | --- | --- |

Goodwill and Indefinite-Lived Intangible Assets — Refer to Notes 1, 13, and 27 to the financial statements

K-62

##### [Table of Contents](#toc)

February 23, 2019

| | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | | 532,307 | | | | 530,167 | |

| | | | 175,487 | | | | 171,928 | |

| | | | 222,488 | | | | 212,511 | |

| | | | 81,431 | | | | 81,023 | |

| | | | | | | | | | | | | |

| | | | | | | | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Balance December 31, 2015 | | $ | 35,628 | | | $ | 33,982 | | | $ | 186,772 | | | $ | (1,763) | | | $ | 3,077 | | | $ | 257,696 | |

| --- | --- | --- | --- |

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.

In addition, certain amounts related to equity method investments were reclassified to conform to current year presentations.

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.

Rail grinding costs related to our railroad properties are expensed as incurred.