Item 8. Financial Statements and Supplementary Data

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Item 8. Financial Statements and Supplementary Data

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, 2019 and 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, 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, 2019, 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, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 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, 2019, 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 US 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.

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.

K-63

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (Continued)

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.

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.

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.

K-64

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

Critical Audit Matter Description

The Company’s evaluation of goodwill and indefinite-lived intangible assets for impairment involves the comparison of the fair value of each reporting unit or asset to its carrying value. The Company evaluates goodwill and indefinite-lived intangible assets for impairment at least annually. When evaluating goodwill and indefinite-lived intangible assets for impairment, the fair value of each reporting unit or asset is estimated. Significant judgment is required in estimating fair values and performing impairment tests. The Company primarily uses discounted projected future earnings or cash flow methods to estimate fair value, which requires management to make significant estimates and assumptions related to forecasts of future revenue, earnings before interest and taxes (“EBIT”), and discount rate. Changes in these assumptions could have a significant impact on the fair value of reporting units and indefinite-lived intangible assets.

A reporting unit within the Manufacturing reportable segment, which had goodwill at acquisition date of $16,011 million, was an acquisition made by the Company in 2016. This subsidiary also has certain customer relationships that are intangible assets with indefinite lives. These customer relationships are a significant portion of the $18,965 million of indefinite-lived intangible assets the Company reported as of December 31, 2019. The fair values of the reporting unit and customer relationships exceeded their carrying values as of the annual evaluation date; therefore, no impairments were recognized.

Given the significant judgments made by management to estimate the fair value of this reporting unit and the customer relationships and the difference between their fair values and carrying values, performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to forecasts of future revenue and EBIT and the selection of the discount rates required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to forecasts of future revenue and EBIT and selection of the discount rates for the reporting unit and customer relationships included the following, among others:

	•	We tested the effectiveness of controls over goodwill and indefinite-lived intangible assets, including those over the forecasts of future revenue and EBIT.

	•	We evaluated management’s ability to accurately forecast future revenue and EBIT by comparing prior year forecasts to actual results in the respective years.

	•	We evaluated the reasonableness of management’s current revenue and EBIT forecasts by comparing the forecasts to historical results and forecasted information included in analyst and industry reports and certain peer companies’ disclosures.

	•	With the assistance of our fair value specialists, we evaluated the valuation methodologies, the long-term growth rates and discount rates, including testing the underlying source information and the mathematical accuracy of the calculations, and developed a range of independent estimates and compared those to the long-term growth rates and discount rates selected by management.

/s/ Deloitte & Touche LLP

Omaha, Nebraska

February 22, 2020

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

K-65

BERKSHIRE HATHAWAY INC.

and Subsidiaries

CONSOLIDATED BALANCE SHEETS

(dollars in millions)

	December 31,
	2019		2018
ASSETS
Insurance and Other:
Cash and cash equivalents*	$	61,151	$	27,749
Short-term investments in U.S. Treasury Bills		63,822		81,506
Investments in fixed maturity securities		18,685		19,898
Investments in equity securities		248,027		172,757
Equity method investments		17,505		17,325
Loans and finance receivables		17,527		16,280
Other receivables		32,418		31,564
Inventories		19,852		19,069
Property, plant and equipment		21,438		20,628
Equipment held for lease		15,065		14,298
Goodwill		57,052		56,323
Other intangible assets		31,051		31,499
Deferred charges under retroactive reinsurance contracts		13,747		14,104
Other		13,232		9,307
		630,572		532,307
Railroad, Utilities and Energy:
Cash and cash equivalents*		3,024		2,612
Receivables		3,417		3,666
Property, plant and equipment		137,838		131,780
Goodwill		24,830		24,702
Regulatory assets		2,881		3,067
Other		15,167		9,660
		187,157		175,487
	$	817,729	$	707,794

***	Cash and cash equivalents includes U.S. Treasury Bills with maturities of three months or less when purchased of $37.1 billion at December 31, 2019 and $3.9 billion at December 31, 2018.

See accompanying Notes to Consolidated Financial Statements

K-66

BERKSHIRE HATHAWAY INC.

and Subsidiaries

CONSOLIDATED BALANCE SHEETS

(dollars in millions)

	December 31,
	2019			2018
LIABILITIES AND SHAREHOLDERS’ EQUITY
Insurance and Other:
Unpaid losses and loss adjustment expenses	$	73,019		$	68,458
Unpaid losses and loss adjustment expenses under retroactive reinsurance contracts		42,441			41,834
Unearned premiums		19,782			18,093
Life, annuity and health insurance benefits		20,155			18,632
Other policyholder liabilities		7,723			7,675
Accounts payable, accruals and other liabilities		27,611			25,776
Derivative contract liabilities		968			2,452
Aircraft repurchase liabilities and unearned lease revenues		5,281			4,593
Notes payable and other borrowings		37,590			34,975
		234,570			222,488
Railroad, Utilities and Energy:
Accounts payable, accruals and other liabilities		14,708			11,410
Regulatory liabilities		7,311			7,506
Notes payable and other borrowings		65,778			62,515
		87,797			81,431
Income taxes, principally deferred		66,799			51,375
Total liabilities		389,166			355,294
Shareholders’ equity:
Common stock		8			8
Capital in excess of par value		35,658			35,707
Accumulated other comprehensive income		(5,243	)		(5,015	)
Retained earnings		402,493			321,112
Treasury stock, at cost		(8,125	)		(3,109	)
Berkshire Hathaway shareholders’ equity		424,791			348,703
Noncontrolling interests		3,772			3,797
Total shareholders’ equity		428,563			352,500
	$	817,729		$	707,794

See accompanying Notes to Consolidated Financial Statements

K-67

BERKSHIRE HATHAWAY INC.

and Subsidiaries

CONSOLIDATED STATEMENTS OF EARNINGS

(dollars in millions except per share amounts)

	Year Ended December 31,
	2019		2018			2017
Revenues:
Insurance and Other:
Insurance premiums earned	$	61,078	$	57,418		$	60,597
Sales and service revenues		134,989		133,336			130,343
Leasing revenues		5,856		5,732			2,452
Interest, dividend and other investment income		9,240		7,678			6,536
		211,163		204,164			199,928
Railroad, Utilities and Energy:
Freight rail transportation revenues		23,357		23,703			21,080
Energy operating revenues		15,353		15,555			15,155
Service revenues and other income		4,743		4,415			3,770
		43,453		43,673			40,005
Total revenues		254,616		247,837			239,933
Investment and derivative contract gains (losses):
Investment gains (losses)		71,123		(22,155	)		1,410
Derivative contract gains (losses)		1,484		(300	)		718
		72,607		(22,455	)		2,128
Costs and expenses:
Insurance and Other:
Insurance losses and loss adjustment expenses		44,456		39,906			48,891
Life, annuity and health insurance benefits		4,986		5,699			5,618
Insurance underwriting expenses		11,200		9,793			9,321
Cost of sales and services		107,041		106,083			104,343
Cost of leasing		4,003		4,061			1,455
Selling, general and administrative expenses		19,322		18,238			19,189
Interest expense		1,056		1,035			1,132
		192,064		184,815			189,949
Railroad, Utilities and Energy:
Freight rail transportation expenses		15,436		16,045			14,031
Utilities and energy cost of sales and other expenses		11,296		11,641			10,772
Other expenses		4,002		3,895			3,231
Interest expense		2,905		2,818			3,254
		33,639		34,399			31,288
Total costs and expenses		225,703		219,214			221,237
Earnings before income taxes and equity method earnings (losses)		101,520		6,168			20,824
Equity method earnings (losses)		1,176		(2,167	)		3,014
Earnings before income taxes		102,696		4,001			23,838
Income tax expense (benefit)		20,904		(321	)		(21,515	)
Net earnings		81,792		4,322			45,353
Earnings attributable to noncontrolling interests		375		301			413
Net earnings attributable to Berkshire Hathaway shareholders	$	81,417	$	4,021		$	44,940
Net earnings per average equivalent Class A share	$	49,828	$	2,446		$	27,326
Net earnings per average equivalent Class B share*	$	33.22	$	1.63		$	18.22
Average equivalent Class A shares outstanding		1,633,946		1,643,795			1,644,615
Average equivalent Class B shares outstanding		2,450,919,020		2,465,692,368			2,466,923,163

***	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-68

BERKSHIRE HATHAWAY INC.

and Subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(dollars in millions)

	Year Ended December 31,
	2019			2018			2017
Net earnings	$	81,792		$	4,322		$	45,353
Other comprehensive income:
Net change in unrealized appreciation of investments		204			(185	)		30,450
Applicable income taxes		(44	)		31			(10,566	)
Reclassification of investment appreciation in net earnings		(62	)		(253	)		(1,399	)
Applicable income taxes		13			53			490
Foreign currency translation		323			(1,531	)		2,364
Applicable income taxes		(28	)		62			(95	)
Prior service cost and actuarial gains/losses of defined benefit pension plans		(711	)		(571	)		225
Applicable income taxes		155			143			(45	)
Other, net		(48	)		(12	)		(9	)
Other comprehensive income, net		(198	)		(2,263	)		21,415
Comprehensive income		81,594			2,059			66,768
Comprehensive income attributable to noncontrolling interests		405			249			555
Comprehensive income attributable to Berkshire Hathaway shareholders	$	81,189		$	1,810		$	66,213

BERKSHIRE HATHAWAY INC.

and Subsidiaries

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(dollars in millions)

	Berkshire Hathaway shareholders’ equity
	Common stock and capital in excess of par value			Accumulated other comprehensive income			Retained earnings			Treasury stock			Non- controlling interests			Total
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
Net earnings								81,417						375			81,792
Other comprehensive income, net					(228	)								30			(198	)
Issuance (acquisition) of common stock		21									(5,016	)					(4,995	)
Transactions with noncontrolling interests		(70	)					(36	)					(430	)		(536	)
Balance December 31, 2019	$	35,666		$	(5,243	)	$	402,493		$	(8,125	)	$	3,772		$	428,563

See accompanying Notes to Consolidated Financial Statements

K-69

BERKSHIRE HATHAWAY INC.

and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in millions)

	Year Ended December 31,
	2019			2018			2017
Cash flows from operating activities:
Net earnings	$	81,792		$	4,322		$	45,353
Adjustments to reconcile net earnings to operating cash flows:
Investment gains/losses		(71,123	)		22,155			(1,410	)
Depreciation and amortization		10,064			9,779			9,188
Other		(1,254	)		2,957			458
Changes in operating assets and liabilities:
Losses and loss adjustment expenses		6,087			3,449			25,027
Deferred charges reinsurance assumed		357			1,174			(7,231	)
Unearned premiums		1,707			1,794			1,761
Receivables and originated loans		(2,303	)		(3,443	)		(1,990	)
Other assets		(2,011	)		(1,832	)		(1,665	)
Other liabilities		190			2,002			1,194
Income taxes		15,181			(4,957	)		(24,957	)
Net cash flows from operating activities		38,687			37,400			45,728
Cash flows from investing activities:
Purchases of equity securities		(18,642	)		(43,210	)		(20,326	)
Sales and redemptions of equity securities		14,336			18,783			19,512
Purchases of U.S. Treasury Bills and fixed maturity securities		(136,123	)		(141,844	)		(158,492	)
Sales of U.S. Treasury Bills and fixed maturity securities		15,929			39,693			49,327
Redemptions and maturities of U.S. Treasury Bills and fixed maturity securities		137,767			113,045			86,727
Purchases of loans and finance receivables		(75	)		(1,771	)		(1,435	)
Collections of loans and finance receivables		345			342			1,702
Acquisitions of businesses, net of cash acquired		(1,683	)		(3,279	)		(2,708	)
Purchases of property, plant and equipment and equipment held for lease		(15,979	)		(14,537	)		(11,708	)
Other		(1,496	)		(71	)		(3,608	)
Net cash flows from investing activities		(5,621	)		(32,849	)		(41,009	)
Cash flows from financing activities:
Proceeds from borrowings of insurance and other businesses		8,144			2,409			2,645
Repayments of borrowings of insurance and other businesses		(5,095	)		(7,395	)		(5,465	)
Proceeds from borrowings of railroad, utilities and energy businesses		5,400			7,019			3,013
Repayments of borrowings of railroad, utilities and energy businesses		(2,638	)		(4,213	)		(3,549	)
Changes in short term borrowings, net		266			(1,943	)		2,079
Acquisition of treasury stock		(4,850	)		(1,346	)		—
Other		(497	)		(343	)		(121	)
Net cash flows from financing activities		730			(5,812	)		(1,398	)
Effects of foreign currency exchange rate changes		25			(140	)		248
Increase (decrease) in cash and cash equivalents and restricted cash		33,821			(1,401	)		3,569
Cash and cash equivalents and restricted cash at beginning of year		30,811			32,212			28,643
Cash and cash equivalents and restricted cash at end of year *	$	64,632		$	30,811		$	32,212
* Cash and cash equivalents and restricted cash at end of year are comprised of the following:
Insurance and Other	$	61,151		$	27,749		$	28,673
Railroad, Utilities and Energy		3,024			2,612			2,910
Restricted cash, included in other assets		457			450			629
	$	64,632		$	30,811		$	32,212

See accompanying Notes to Consolidated Financial Statements

K-70

BERKSHIRE HATHAWAY INC.

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2019

(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 and retailing. 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 27. Information concerning business acquisitions completed over the past three years appears in Note 2. We believe that reporting the Railroad, Utilities and Energy subsidiaries separately is appropriate given the relative significance of their long-lived assets, capital expenditures and debt, which is not guaranteed by Berkshire.

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 balance sheet date 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 (including U.S. Treasury Bills) with maturities of three months or less when purchased. Short-term investments in U.S. Treasury Bills consist of U.S. Treasury Bills with maturities exceeding three months at the time of purchase and 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. Securities classified as held-to-maturity are carried at amortized cost, reflecting the ability and intent to hold the securities to maturity. Securities classified as trading are 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 securities are classified as available-for-sale and are carried at fair value with net unrealized gains or losses reported in accumulated other comprehensive income. As of December 31, 2019, 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.

Investment gains and losses for available-for-sale fixed maturity securities are recorded when the securities are sold, as determined on a specific identification basis. If the fair value of a fixed maturity security is less than cost, we evaluate the security for other-than-temporary impairment. 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 remainder in other comprehensive income.

K-71

Notes to Consolidated Financial Statements (Continued)

(1)	Significant accounting policies and practices (Continued)

	(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. In addition, 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 consist of balances due from customers, insurance premiums receivable and reinsurance losses recoverable. 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 charge-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.

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.

K-72

Notes to Consolidated Financial Statements (Continued)

(1)	Significant accounting policies and practices (Continued)

	(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, if such contracts involve our regulated utilities subsidiaries, as regulatory assets or liabilities 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 materials, direct and indirect labor and factory overhead. At December 31, 2019, we used the last-in-first-out (“LIFO”) method to value approximately 37% of consolidated inventories 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 was approximately $950 million as of December 31, 2019 and $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 allowance for funds used during construction, which represents the cost of equity funds used to finance the construction of the regulated facilities. 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.

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 composite 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.

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 – 10 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.

K-73

Notes to Consolidated Financial Statements (Continued)

(1)	Significant accounting policies and practices (Continued)

	(l)	Property, plant and equipment (Continued)

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)	Leases

We are party to contracts where we lease property to others (“lessor” contracts) and where we lease property from others (“lessee” contracts). We record additions to equipment that we lease to others at cost. We depreciate equipment held for lease to estimated salvage value primarily using the straight-line method over estimated useful lives ranging from 5 to 35 years. We use declining balance deprecation methods for assets when the revenue-earning power of the asset is relatively greater during the earlier years of its life and maintenance and repair costs increase during the later years. We also evaluate equipment held for lease for impairment consistent with policies for property, plant and equipment.

When we lease assets from others, we record right-of-use assets and lease liabilities. Right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. In this regard, lease payments include fixed payments and variable payments that depend on an index or rate. The lease term is generally the non-cancellable lease period. Certain lease contracts contain renewal options or other terms that provide for variable payments based on performance or usage. Options are not included in determining right-of-use assets or lease liabilities unless it is reasonably certain that options will be exercised. Generally, incremental borrowing rates are used in measuring lease liabilities. Right-of-use assets are subject to review for impairment.

	(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. Several methods 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.

Intangible assets with indefinite lives are also tested for impairment at least annually and when events or changes in circumstances indicate that, more-likely-than-not, the asset is impaired. Significant judgment is required in estimating fair values and performing goodwill and indefinite-life intangible asset 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 useful 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.

K-74

Notes to Consolidated Financial Statements (Continued)

(1)	Significant accounting policies and practices (Continued)

	(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 contract 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.

On January 1, 2018, we adopted Accounting Standards Codification (“ASC”) 606 “Revenues from Contracts with Customers.” Except as described in Note 1(x), 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 among 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.

K-75

Notes to Consolidated Financial Statements (Continued)

(1)	Significant accounting policies and practices (Continued)

	(o)	Revenue recognition (Continued)

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.

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 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 amounts recoverable 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.

K-76

Notes to Consolidated Financial Statements (Continued)

(1)	Significant accounting policies and practices (Continued)

	(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 $2,937 million and $2,658 million at December 31, 2019 and 2018, respectively.

	(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 generally range from 3% to 7.5%.

	(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.

K-77

Notes to Consolidated Financial Statements (Continued)

(1)	Significant accounting policies and practices (Continued)

	(v)	Income taxes (Continued)

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.

	(w)	New accounting pronouncements adopted in 2019

Berkshire adopted ASC 842 “Leases” on January 1, 2019. Most significantly, ASC 842 requires a lessee to recognize a liability to make operating lease payments and an asset with respect to its right to use the underlying asset for the lease term. In adopting and applying ASC 842, we elected to use practical expedients, including but not limited to, not reassessing past lease and easement accounting, not separating lease components from non-lease components by class of asset and not recording assets or liabilities for leases with terms of one year or less. We adopted ASC 842 as of January 1, 2019 with regard to contracts in effect as of that date and elected to not restate prior period financial statements.

Upon the adoption of ASC 842, we recognized operating lease right-of-use assets of approximately $6.2 billion and lease liabilities of $5.9 billion. We also reduced other assets by approximately $300 million. Consequently, our consolidated assets and liabilities increased by approximately $5.9 billion. ASC 842 did not have a material effect on our accounting for our lessor contracts or for lessee contracts classified as financing leases.

	(x)	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 “Revenues from Contracts with Customers.” 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 on our shareholders’ equity follows (in millions).

	ASU 2016-01			ASU 2018-02			ASC 606			Total
Increase (decrease):
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. 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 Tax Cuts and Jobs Act of 2017 that were included in accumulated other comprehensive income as of January 1, 2018 to retained earnings.

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 discussed in Note 1(o), 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.

K-78

Notes to Consolidated Financial Statements (Continued)

(1)	Significant accounting policies and practices (Continued)

	(y)	New accounting pronouncements to be adopted subsequent to December 31, 2019

In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13, which together with subsequent FASB amendments, were codified in ASC 326 “Financial Instruments—Credit Losses.” ASC 326 provides for the recognition and measurement at the reporting date of expected credit losses for financial assets held at amortized cost. ASC 326 also modifies impairment loss recognition measurement for available-for-sale debt securities. Under existing accounting principles, credit losses are recognized and measured when such losses become probable based on the prevailing facts and circumstances. ASC 326 is effective for reporting periods beginning after December 15, 2019. We are adopting ASC 326 as of January 1, 2020 and do not expect its adoption will have a material effect 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, and we are adopting ASU 2017-14 as of January 1, 2020.

In August 2018, the FASB issued ASU 2018-12 “Targeted Improvements to the Accounting for Long-Duration Contracts.” ASU 2018-12 requires periodic reassessment of actuarial and discount rate assumptions used to value policyholder liabilities and deferred acquisition costs arising 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. Currently, the actuarial and discount rate assumptions are set at the contract inception date and not subsequently changed, except under limited circumstances. ASU 2018-12 requires new disclosures and is effective for fiscal years beginning after December 15, 2021, with early adoption permitted. We are evaluating the effect this standard will have on our Consolidated Financial Statements.

(2)	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.

On October 1, 2018, we acquired Medical Liability Mutual Insurance Company (“Medical Liability Mutual”), a writer of medical professional liability insurance domiciled in New York. At that time, Medical Liability Mutual’s name was changed to MLMIC Insurance Company (“MLMIC”). The acquisition price was approximately $2.5 billion. 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 the fair value of its liabilities was approximately $3.6 billion, consisting primarily of unpaid losses and loss adjustment expenses ($3.2 billion).

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, net of cash acquired was approximately $1.7 billion in 2019, $1.0 billion in 2018 and $2.7 billion in 2017. We do not believe that these acquisitions are material, individually or in the aggregate to our Consolidated Financial Statements.

K-79

Notes to Consolidated Financial Statements (Continued)

(3)	Investments in fixed maturity securities

Investments in fixed maturity securities as of December 31, 2019 and 2018 are summarized by type below (in millions).

	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
December 31, 2019
U.S. Treasury, U.S. government corporations and agencies	$	3,054	$	37	$	(1	)	$	3,090
Foreign governments		8,584		63		(9	)		8,638
Corporate bonds		5,896		459		(3	)		6,352
Other		539		67		(1	)		605
	$	18,073	$	626	$	(14	)	$	18,685
December 31, 2018
U.S. Treasury, U.S. government corporations and agencies	$	4,223	$	22	$	(22	)	$	4,223
Foreign governments		7,480		50		(28	)		7,502
Corporate bonds		7,055		408		(23	)		7,440
Other		669		66		(2	)		733
	$	19,427	$	546	$	(75	)	$	19,898

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, 2019, approximately 87% of our foreign government holdings were rated AA or higher by at least one of the major rating agencies.

The amortized cost and estimated fair value of fixed maturity securities at December 31, 2019 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		$	6,732			$	10,203			$	311			$	428			$	399			$	18,073
Fair value			6,761				10,321				355				789				459				18,685

K-80

Notes to Consolidated Financial Statements (Continued)

(4)	Investments in equity securities

Investments in equity securities as of December 31, 2019 and 2018 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, 2019 *
Banks, insurance and finance	$	40,419	$	61,976	$	102,395
Consumer products		38,887		60,747		99,634
Commercial, industrial and other		31,034		14,964		45,998
	$	110,340	$	137,687	$	248,027

***	Approximately 67% of the aggregate fair value was concentrated in five companies (American Express Company – $18.9 billion; Apple Inc. – $73.7 billion; Bank of America Corporation – $33.4 billion; The Coca-Cola Company – $22.1 billion and Wells Fargo & Company – $18.6 billion).

	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).

On April 30, 2019, Berkshire committed to invest a total of $10 billion in connection with Occidental Petroleum Corporation’s (“Occidental”) proposal to acquire Anadarko Petroleum Corporation (“Anadarko”). The Anadarko shareholders approved the acquisition by Occidental on August 8, 2019 and the acquisition and our investment in Occidental closed on August 8, 2019. Our investments in Occidental are included in the commercial, industrial and other category in the preceding table.

Berkshire’s investments in Occidental include newly issued Occidental Cumulative Perpetual Preferred Stock with an aggregate liquidation value of $10 billion, together with warrants to purchase up to 80 million shares of Occidental common stock at an exercise price of $62.50 per share. The preferred stock accrues dividends at 8% per annum and is redeemable at the option of Occidental commencing on the tenth anniversary of issuance at a redemption price equal to 105% of the liquidation preference plus any accumulated and unpaid dividends, or mandatorily under certain specified capital return events. Dividends on the preferred stock may be paid in cash or, at Occidental’s option, in shares of Occidental common stock. The warrants are exercisable in whole or in part until one year after the redemption of the preferred stock.

(5)	Equity method investments

Berkshire and its subsidiaries hold investments in certain businesses that are accounted for pursuant to the equity method. Currently, the most significant of these is our investment in the common stock of The Kraft Heinz Company (“Kraft Heinz”). Kraft Heinz is one of the world’s largest manufacturers and marketers of food and beverage products, including condiments and sauces, cheese and dairy, meals, meats, refreshment beverages, coffee and other grocery products. Berkshire currently owns 325,442,152 shares of Kraft Heinz common stock representing 26.6% of the outstanding shares.

K-81

Notes to Consolidated Financial Statements (Continued)

(5)	Equity method investments (Continued)

Shares of Kraft Heinz common stock are publicly-traded and the fair value of our investment at December 31, 2019 and 2018 was approximately $10.5 billion and $14.0 billion, respectively. The carrying value of our investment at both December 31, 2019 and 2018 was approximately $13.8 billion. We recorded equity method earnings of $493 million in 2019, losses of approximately $2.7 billion in 2018, and earnings of approximately $2.9 billion in 2017. In 2019 and 2018, our equity method earnings/losses included our share of the after-tax intangible asset impairment losses recorded by Kraft Heinz. Kraft Heinz recorded pre-tax impairment losses of approximately $1.9 billion in 2019 and $15.9 billion in 2018. In 2017, our equity method earnings included 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 $521 million in 2019, $814 million in 2018 and $797 million in 2017, which we recorded as reductions in our carrying value.

As of December 31, 2019, the carrying value of our investment in Kraft Heinz exceeded the fair value based on the quoted market price by $3.3 billion (24%). In light of that fact, we evaluated our investment in Kraft Heinz for impairment. We utilize no bright-line tests in such evaluations. Based on the available facts and information regarding the operating results of Kraft Heinz, our ability and intent to hold the investment until recovery, the relative amount of the decline, and the length of time that fair value was less than carrying value, we concluded that recognition of an impairment loss in earnings was not required. However, we will continue to monitor this investment and it is possible that an impairment loss will be recorded in earnings in a future period based on changes in facts and circumstances or intentions.

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

		December 28, 2019				December 29, 2018
Assets		$	101,450			$	103,461
Liabilities			49,701				51,683

		Year ending December 28, 2019				Year ending December 29, 2018				Year ending December 30, 2017
Sales		$	24,977			$	26,268			$	26,076
Net earnings (losses) attributable to Kraft Heinz common shareholders		$	1,935			$	(10,192	)		$	10,941

Other investments accounted for pursuant to the equity method include our investments in Berkadia Commercial Mortgage LLC (“Berkadia”), Pilot Travel Centers LLC (“Pilot”) and Electric Transmission Texas, LLC (“ETT”). The carrying value of our investments in these entities was approximately $3.7 billion as of December 31, 2019 and $3.5 billion as of December 31, 2018. Our equity method earnings in these entities were $683 million in 2019, $563 million in 2018 and $76 million in 2017. Additional information concerning these investments follows.

We own a 50% interest in Berkadia, with Jefferies Financial Group Inc. (“Jefferies”) owning the other 50% interest. Berkadia is a servicer 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, 2019, 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, headquartered in Knoxville, Tennessee. Pilot 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 $30 billion in annual revenues. The Haslam family currently owns a 50.1% interest in Pilot and a third party owns the remaining 11.3% interest. We also entered into an agreement to acquire in 2023 an additional 41.4% interest in Pilot with the Haslam family retaining a 20% interest. As a result, Berkshire will become the majority owner of Pilot in 2023.

K-82

Notes to Consolidated Financial Statements (Continued)

(6)	Investment gains/losses

Investment gains/losses for each of the three years ending December 31, 2019 are summarized below (in millions).

	2019			2018			2017
Equity securities:
Unrealized investment gains/losses on securities held at the end of the period	$	69,581		$	(22,729	)	$	—
Investment gains/losses during the year on securities sold		1,585			291			—
Gross realized gains		—			—			2,237
Gross realized losses		—			—			(919	)
		71,166			(22,438	)		1,318
Fixed maturity securities:
Gross realized gains		87			480			103
Gross realized losses		(25	)		(227	)		(22	)
Other		(105	)		30			11
	$	71,123		$	(22,155	)	$	1,410

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, investment gains and losses included in earnings also include unrealized gains and losses from changes in fair values during the period on equity securities we still own. Prior to 2018, we recorded the changes in unrealized gains and losses on our investments in equity securities in other comprehensive income.

As reflected in the Consolidated Statements of Cash Flows, we received proceeds of approximately $14.3 billion in 2019 and $18.8 billion in 2018 from sales of equity securities. In the preceding table, investment gains/losses on equity securities sold during 2019 and 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 the year, which are generally the difference between the proceeds from sales and our original cost, were $3.2 billion in 2019 and $3.3 billion in 2018.

(7)	Loans and finance receivables

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

	December 31,
	2019			2018
Loans and finance receivables before allowances and discounts	$	18,199		$	16,962
Allowances for uncollectible loans		(167	)		(177	)
Unamortized acquisition discounts and points		(505	)		(505	)
	$	17,527		$	16,280

Loans and finance receivables are predominantly installment loans originated or acquired by our manufactured housing business. Provisions for loan losses for 2019 and 2018 were $125 million and $141 million, respectively. Loan charge-offs, net of recoveries, were $135 million in 2019 and $144 million in 2018. At December 31, 2019, 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, 2019, we considered approximately 99% of the loan balances to be performing and approximately 96% of the loan balances to be current as to payment status.

Additionally, in 2018, we 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, 2019, the outstanding loans under the facility were approximately $1.6 billion.

K-83

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,
	2019			2018
Insurance premiums receivable	$	13,379		$	12,452
Reinsurance recoverable on unpaid losses		2,855			3,060
Trade receivables		12,275			12,617
Other		4,327			3,823
Allowances for uncollectible accounts		(418	)		(388	)
	$	32,418		$	31,564

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

	December 31,
	2019			2018
Trade receivables	$	3,120		$	3,433
Other		388			362
Allowances for uncollectible accounts		(91	)		(129	)
	$	3,417		$	3,666

Trade receivables include unbilled revenue of $638 million and $554 million as of December 31, 2019 and 2018, respectively, attributable to the regulated utility businesses.

(9)	Inventories

Inventories are comprised of the following (in millions).

	December 31,
	2019		2018
Raw materials	$	4,492	$	4,182
Work in process and other		2,700		2,625
Finished manufactured goods		4,821		4,541
Goods acquired for resale		7,839		7,721
	$	19,852	$	19,069

(10)	Property, plant and equipment

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

	December 31,
	2019			2018
Land	$	2,540		$	2,536
Buildings and improvements		10,719			9,959
Machinery and equipment		24,285			22,574
Furniture, fixtures and other		4,666			4,758
		42,210			39,827
Accumulated depreciation		(20,772	)		(19,199	)
	$	21,438		$	20,628

K-84

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,
	2019			2018
Railroad:
Land, track structure and other roadway	$	62,404		$	59,509
Locomotives, freight cars and other equipment		13,482			13,016
Construction in progress		748			664
		76,634			73,189
Accumulated depreciation		(12,101	)		(10,004	)
		64,533			63,185
Utilities and energy:
Utility generation, transmission and distribution systems		81,127			77,288
Interstate natural gas pipeline assets		8,165			7,524
Independent power plants and other assets		8,817			8,324
Construction in progress		3,732			3,110
		101,841			96,246
Accumulated depreciation		(28,536	)		(27,651	)
		73,305			68,595
	$	137,838		$	131,780

Depreciation expense for each of the three years ending December 31, 2019 is summarized below (in millions).

	2019		2018		2017
Insurance and other	$	2,269	$	2,186	$	2,116
Railroad, utilities and energy		5,297		5,098		4,852
	$	7,566	$	7,284	$	6,968

(11)	Equipment held for lease

Equipment held for lease includes railcars, aircraft, over-the-road trailers, intermodal tank containers, cranes, storage units and furniture. Equipment held for lease is summarized below (in millions).

	December 31,
	2019			2018
Railcars	$	9,260		$	8,862
Aircraft		8,093			7,376
Other		4,862			4,379
		22,215			20,617
Accumulated depreciation		(7,150	)		(6,319	)
	$	15,065		$	14,298

Depreciation expense for equipment held for lease was $1,181 million in 2019, $1,102 million in 2018 and $751 million in 2017. Operating lease revenues in 2019 were $5,856 million consisting of $4,415 million of fixed lease revenue and $1,441 million of variable lease revenue.

K-85

Notes to Consolidated Financial Statements (Continued)

(11)	Equipment held for lease (Continued)

Operating lease revenues were $5,732 million in 2018 and $2,452 million in 2017. In 2018, due to the adoption of ASC 606, $3,280 million was recorded as operating lease revenues that in previous years would have been recorded as sales and service revenues.

A summary of our remaining operating lease receipts as of December 31, 2019 follows (in millions).

2020				2021				2022				2023				2024				Thereafter				Total
$	2,623			$	1,914			$	1,367			$	889			$	468			$	439			$	7,700

(12)	Leases

We are party to contracts where we lease property from others. As a lessee, we primarily lease office and operating facilities, locomotives, freight cars, energy generation facilities and transmission assets. Operating lease right-of-use assets were $5,941 million and lease liabilities were $5,882 million at December 31, 2019. Such amounts were included in other assets and accounts payable, accruals and other liabilities in our Consolidated Balance Sheet. The weighted average term of these leases was approximately 7.7 years and the weighted average discount rate used to measure lease liabilities was approximately 3.8%. A summary of our remaining operating lease payments as of December 31, 2019 and December 31, 2018 follows (in millions).

	Year 1		Year 2		Year 3		Year 4		Year 5		Thereafter		Total lease payments		Amount representing interest			Lease liabilities
December 31:
2019	$	1,374	$	1,183	$	950	$	764	$	620	$	1,988	$	6,879	$	(997	)	$	5,882
2018		1,310		1,268		1,048		820		658		2,079		7,183

Components of operating lease costs in 2019 by type were as follows (in millions).

Operating lease cost				Short-term lease cost				Variable lease cost				Sublease income				Total lease cost
$	1,459			$	178			$	276			$	(24	)		$	1,889

Operating lease expense was $1,649 million in 2018 and $1,579 million in 2017.

(13)	Goodwill and other intangible assets

Reconciliations of the changes in the carrying value of goodwill during 2019 and 2018 follows (in millions).

	December 31,
	2019			2018
Balance at beginning of year	$	81,025		$	81,258
Acquisitions of businesses		890			376
Other, including foreign currency translation		(33	)		(609	)
Balance at end of year	$	81,882		$	81,025

K-86

Notes to Consolidated Financial Statements (Continued)

(13)	Goodwill and other intangible assets (Continued)

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

	December 31, 2019				December 31, 2018
	Gross carrying amount		Accumulated amortization		Gross carrying amount		Accumulated amortization
Insurance and other:
Trademarks and trade names	$	5,286	$	759	$	5,152	$	727
Patents and technology		4,560		3,032		4,446		2,790
Customer relationships		27,943		5,025		27,697		4,287
Other		3,364		1,286		3,198		1,190
	$	41,153	$	10,102	$	40,493	$	8,994

Railroad, utilities and energy:
Trademarks and trade names	$	212	$	26	$	216	$	23
Customer relationships		678		324		678		286
Other		113		58		117		53
	$	1,003	$	408	$	1,011	$	362

Intangible asset amortization expense was $1,317 million in 2019, $1,393 million in 2018 and $1,469 million in 2017. Estimated amortization expense over the next five years is as follows (in millions): 2020 – $1,275; 2021 – $1,144; 2022 – $1,082; 2023 – $993 and 2024 – $913. Intangible assets with indefinite lives were $19.0 billion as of December 31, 2019 and $18.9 billion as of December 31, 2018 and primarily related to certain customer relationships and trademarks and trade names.

(14)	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, 2019		$	968			$	14,385
December 31, 2018			2,452				26,759

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.

We recorded derivative contract gains of $1,484 million in 2019, losses of $300 million in 2018 and gains of $718 million in 2017, with respect to our equity index put option contracts. The gains in 2019 were primarily due to increases in equity index values.

The equity index put option contracts are European style options written prior to March 2008 on four major equity indexes. During 2019, contracts with notional values of approximately $12.3 billion expired and substantially all of the remaining contracts will expire by February 2023. At December 31, 2019, the remaining weighted average life of all contracts was approximately 1.8 years. We received aggregate premiums of $2.5 billion on the remaining contracts at the contract inception dates and we have no counterparty credit risk. 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. 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 $397 million at December 31, 2019 and $1,653 million at December 31, 2018. 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.

K-87

Notes to Consolidated Financial Statements (Continued)

(14)	Derivative contracts (Continued)

Our regulated utility subsidiaries may use forward purchases and sales, futures, swaps and options to manage a portion of their commodity price risks. Most of these 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 were $145 million and $172 million at December 31, 2019 and 2018, respectively. Derivative contract liabilities were $76 million and $111 million at December 31, 2019 and 2018, respectively.

(15)	Unpaid losses and loss adjustment expenses

Our liabilities for unpaid losses and loss adjustment expenses (also referred to as “claim liabilities”) under property and casualty insurance and reinsurance contracts are based upon estimates of the ultimate claim costs associated with claim occurrences as of the balance sheet date and include estimates for incurred-but-not-reported (“IBNR”) claims. A reconciliation of the changes in claim liabilities, excluding liabilities under retroactive reinsurance contracts (see Note 16), for each of the three years ending December 31, 2019 is as follows (in millions).

	2019			2018			2017
Balances – beginning of year:
Gross liabilities	$	68,458		$	61,122		$	53,379
Reinsurance recoverable on unpaid losses		(3,060	)		(3,201	)		(3,338	)
Net liabilities		65,398			57,921			50,041
Incurred losses and loss adjustment expenses:
Current accident year events		43,335			39,876			37,702
Prior accident years’ events		(752	)		(1,406	)		(544	)
Total incurred losses and loss adjustment expenses		42,583			38,470			37,158
Paid losses and loss adjustment expenses:
Current accident year events		(19,482	)		(18,391	)		(17,425	)
Prior accident years’ events		(17,642	)		(15,452	)		(12,507	)
Total payments		(37,124	)		(33,843	)		(29,932	)
Foreign currency translation adjustment		(23	)		(331	)		654
Business acquisition (disposition)		(670	)		3,181			—
Balances – end of year:
Net liabilities		70,164			65,398			57,921
Reinsurance recoverable on unpaid losses		2,855			3,060			3,201
Gross liabilities	$	73,019		$	68,458		$	61,122

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 included approximately $1.0 billion in 2019, $1.6 billion in 2018 and $3.0 billion in 2017 from significant catastrophe events occurring in each year. The effects of businesses acquired (or disposed) are included (or excluded) on a retrospective basis for all years presented in the disaggregated accident year incurred and paid loss and allocated loss adjustment expenses data shown in this Note.

We recorded net reductions of estimated ultimate liabilities for prior accident years of $752 million in 2019, $1,406 million in 2018 and $544 million in 2017, which produced corresponding reductions in incurred losses and loss adjustment expenses. These reductions, as percentages of the net liabilities at the beginning of each year, were 1.1% in 2019, 2.4% in 2018 and 1.1% in 2017.

Estimated ultimate liabilities for prior years’ loss events related to primary insurance were reduced by $457 million in 2019, $937 million in 2018 and $249 million in 2017. The decrease in 2019 was primarily attributable to lower than anticipated medical professional liability and workers’ compensation losses, partially offset by higher commercial auto and other liability losses. The decreases in 2018 and 2017 were primarily related to workers’ compensation and medical professional liability claims. Liabilities for prior years’ private passenger auto claims were reduced in 2018 and increased in 2017. Estimated ultimate liabilities for prior years’ loss events related to property and casualty reinsurance were reduced $295 million in 2019, $469 million in 2018 and $295 million in 2017.

K-88

Notes to Consolidated Financial Statements (Continued)

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

Estimated claim liabilities include amounts for environmental, asbestos and other latent injury exposures, net of reinsurance recoverable, of approximately $1.7 billion at December 31, 2019 and 2018. These liabilities are subject to change due to changes in the legal and regulatory environment. We are unable to reliably estimate additional losses or a range of losses that are reasonably possible for these claims.

A reconciliation of the disaggregated net unpaid losses and allocated loss adjustment expenses (the latter referred to as “ALAE”) of GEICO, Berkshire Hathaway Primary Group (“BH Primary”) and Berkshire Hathaway Reinsurance Group (“BHRG”) to our consolidated unpaid losses and loss adjustment expenses as of December 31, 2019 follows (in millions).

	GEICO Physical Damage		GEICO Auto Liability		BH Primary Medical Professional Liability		BH Primary Workers’ Compensation and Other Casualty		BHRG Property		BHRG Casualty		Total
Unpaid losses and ALAE, net	$	321	$	18,475	$	7,479	$	9,568	$	9,382	$	21,304	$	66,529
Reinsurance recoverable		—		1,014		54		597		268		852		2,785
Unpaid unallocated loss adjustment expenses														2,367
Other unpaid losses and loss adjustment expenses														1,338
Unpaid losses and loss adjustment expenses													$	73,019

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 include loss adjustment expenses, once the facts and merits of the claim are evaluated.

Estimates for liability coverages are more uncertain than for physical damage coverages 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-89

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 for physical damage and auto liability claims. IBNR and case development liabilities are as of December 31, 2019. 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.

Physical Damage

	Incurred Losses and ALAE through December 31,							Cumulative Number of
Accident Year		2018*		2019		IBNR and Case Development Liabilities		Reported Claims (in thousands)
2018		$	8,345	$	8,274	$	34		8,612
2019					9,020		334		8,772
	Incurred losses and ALAE			$	17,294

	Cumulative Paid Losses and ALAE through December 31,
Accident Year		2018*		2019
2018		$	8,078	$	8,301
2019					8,678
	Paid losses and ALAE				16,979
	Net unpaid losses and ALAE for 2018 – 2019				315
	Net unpaid losses and ALAE for accident years before 2018				6
	Net unpaid losses and ALAE			$	321

Auto Liability

	Incurred Losses and ALAE through December 31,												Cumulative Number of
Accident Year	2015*		2016*		2017*		2018*		2019		IBNR and Case Development Liabilities		Reported Claims (in thousands)
2015	$	10,590	$	10,666	$	10,785	$	10,824	$	10,853	$	156		2,338
2016				11,800		12,184		12,149		12,178		356		2,445
2017						14,095		13,864		13,888		983		2,628
2018								15,383		15,226		2,425		2,674
2019										16,901		4,694		2,577
	Incurred losses and ALAE								$	69,046

	Cumulative Paid Losses and ALAE through December 31,
Accident Year	2015*		2016*		2017*		2018*		2019
2015	$	4,579	$	7,694	$	9,133	$	10,007	$	10,472
2016				5,069		8,716		10,330		11,294
2017						5,806		9,944		11,799
2018								6,218		10,772
2019										6,742
	Paid losses and ALAE									51,079
	Net unpaid losses and ALAE for 2015 – 2019 accident years									17,967
	Net unpaid losses and ALAE for accident years before 2015									508
	Net unpaid losses and ALAE								$	18,475

***	Unaudited required supplemental information

K-90

Notes to Consolidated Financial Statements (Continued)

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

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 coverages and workers’ compensation and other casualty coverages. IBNR and case development liabilities are as of December 31, 2019. The cumulative number of reported claims reflects the number of individual claimants and includes claims that ultimately resulted in no liability or payment. Dollars are in millions.

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. These methodologies produce 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.

	Incurred Losses and ALAE through December 31,																						Cumulative Number of
Accident Year	2010*		2011*		2012*		2013*		2014*		2015*		2016*		2017*		2018*		2019		IBNR and Case Development Liabilities		Reported Claims (in thousands)
2010	$	1,399	$	1,346	$	1,348	$	1,329	$	1,234	$	1,140	$	1,085	$	1,031	$	1,006	$	991	$	29		12
2011				1,346		1,334		1,321		1,262		1,173		1,115		1,050		1,004		968		38		11
2012						1,336		1,306		1,277		1,223		1,168		1,078		1,035		998		64		11
2013								1,328		1,296		1,261		1,195		1,127		1,086		1,019		93		11
2014										1,370		1,375		1,305		1,246		1,218		1,127		184		11
2015												1,374		1,342		1,269		1,290		1,218		301		12
2016														1,392		1,416		1,414		1,394		412		14
2017																1,466		1,499		1,495		685		18
2018																		1,602		1,650		1,088		18
2019																				1,670		1,369		12
	Incurred losses and ALAE																		$	12,530

	Cumulative Paid Losses and ALAE through December 31,
Accident Year	2010*		2011*		2012*		2013*		2014*		2015*		2016*		2017*		2018*		2019
2010	$	15	$	95	$	224	$	377	$	526	$	654	$	745	$	810	$	853	$	888
2011				16		82		200		356		517		632		711		767		822
2012						15		93		218		377		522		642		725		789
2013								15		90		219		368		518		635		743
2014										21		106		238		396		540		671
2015												23		108		218		382		543
2016														22		115		274		461
2017																27		128		300
2018																		35		166
2019																				39
	Paid losses and ALAE																		$	5,422
	Net unpaid losses and ALAE for 2010 – 2019 accident years																			7,108
	Net unpaid losses and ALAE for accident years before 2010																			371
	Net unpaid losses and ALAE																		$	7,479

***	Unaudited required 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 as 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.

	Incurred Losses and ALAE through December 31,																						Cumulative Number of
Accident Year	2010*		2011*		2012*		2013*		2014*		2015*		2016*		2017*		2018*		2019		IBNR and Case Development Liabilities		Reported Claims (in thousands)
2010	$	662	$	638	$	612	$	577	$	560	$	556	$	548	$	539	$	531	$	528	$	36		41
2011				738		675		675		624		621		618		607		596		591		56		46
2012						873		850		837		791		780		762		750		736		76		53
2013								1,258		1,228		1,178		1,127		1,096		1,072		1,050		149		67
2014										1,743		1,638		1,614		1,548		1,482		1,497		220		90
2015												2,169		2,127		2,042		2,014		2,025		336		110
2016														2,511		2,422		2,359		2,325		533		114
2017																3,044		2,907		2,842		855		135
2018																		3,544		3,412		1,445		151
2019																				4,074		2,577	147
	Incurred losses and ALAE																		$	19,080

	Cumulative Paid Losses and ALAE through December 31,
Accident Year	2010*		2011*		2012*		2013*		2014*		2015*		2016*		2017*		2018*		2019
2010	$	102	$	236	$	314	$	374	$	417	$	445	$	459	$	466	$	472	$	480
2011				109		220		333		403		453		481		496		505		512
2012						116		299		414		501		560		592		611		626
2013								177		422		609		725		793		835		858
2014										239		557		800		1,007		1,111		1,176
2015												289		700		1,017		1,289		1,488
2016														329		775		1,148		1,461
2017																441		1,003		1,434
2018																		538		1,198
2019																				682
	Paid losses and ALAE																			9,915
	Net unpaid losses and ALAE for 2010 – 2019 accident years																			9,165
	Net unpaid losses and ALAE for accident years before 2010																			403
	Net unpaid losses and ALAE																		$	9,568

***	Unaudited required supplemental information

BHRG

We use a variety of methodologies to establish BHRG’s estimates for 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.

K-92

Notes to Consolidated Financial Statements (Continued)

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

Estimated IBNR liabilities are affected by expected case loss emergence patterns and expected loss ratios, which are evaluated as groups of contracts with similar exposures or on a contract-by-contract basis. Case and IBNR liability estimates for major catastrophe events are generally based on a per-contract assessment of the ultimate cost associated with the individual loss event. Claim count data is not provided consistently by ceding companies under our contracts or is otherwise considered unreliable.

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, 2019. Dollars are in millions.

BHRG Property

	Incurred Losses and ALAE through December 31,
Accident Year	2010*		2011*		2012*		2013*		2014*		2015*		2016*		2017*		2018*		2019		IBNR and Case Development Liabilities
2010	$	2,516	$	2,475	$	2,354	$	2,226	$	2,138	$	2,103	$	2,085	$	2,064	$	2,074	$	2,062	$	23
2011				4,197		4,138		3,851		3,754		3,753		3,723		3,700		3,686		3,674		41
2012						3,132		2,828		2,624		2,384		2,331		2,328		2,311		2,295		47
2013								3,181		3,022		2,679		2,589		2,569		2,510		2,459		61
2014										2,615		2,417		2,306		2,162		2,107		2,035		77
2015												3,243		3,084		2,528		2,935		2,932		208
2016														3,266		3,892		3,617		3,594		281
2017																5,258		4,959		4,807		478
2018																		4,366		4,468		1,025
2019																				4,100		1,977
Incurred losses and ALAE																			$	32,426

	Cumulative Paid Losses and ALAE through December 31,
Accident Year	2010*		2011*		2012*		2013*		2014*		2015*		2016*		2017*		2018*		2019
2010	$	335	$	1,059	$	1,485	$	1,742	$	1,905	$	1,954	$	2,000	$	2,024	$	2,031	$	2,043
2011				664		2,305		2,957		3,219		3,336		3,426		3,467		3,512		3,530
2012						260		1,219		1,797		1,935		2,023		2,099		2,118		2,163
2013								513		1,416		1,854		2,050		2,170		2,251		2,290
2014										464		1,235		1,561		1,699		1,764		1,814
2015												574		1,591		1,940		2,134		2,239
2016														705		1,790		2,181		2,641
2017																1,027		2,716		3,638
2018																		907		2,309
2019																				747
Paid losses and ALAE																				23,414
Net unpaid losses and ALAE for 2010 – 2019 accident years																				9,012
Net unpaid losses and ALAE for accident years before 2010																			370
Net unpaid losses and ALAE																			$	9,382

***	Unaudited required supplemental information

K-93

Notes to Consolidated Financial Statements (Continued)

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

BHRG Casualty

	Incurred Losses and ALAE through December 31,
Accident Year	2010*		2011*		2012*		2013*		2014*		2015*		2016*		2017*		2018*		2019		IBNR and Case Development Liabilities
2010	$	2,296	$	2,383	$	2,316	$	2,253	$	2,135	$	2,085	$	2,040	$	1,878	$	1,958	$	1,913	$	203
2011				2,602		2,690		2,560		2,500		2,411		2,320		2,313		2,274		2,240		299
2012						2,784		2,962		2,797		2,861		2,790		2,678		2,611		2,554		318
2013								2,124		2,257		2,287		2,131		2,077		2,023		1,928		411
2014										1,863		2,058		2,027		1,990		1,904		1,942		574
2015												1,870		2,071		2,098		1,999		1,872		534
2016														1,900		2,106		2,014		1,971		680
2017																2,186		2,674		2,552		941
2018																		2,914		3,544		1,511
2019																				3,405		2,348
	Incurred losses and ALAE																		$	23,921

	Cumulative Paid Losses and ALAE through December 31,
Accident Year	2010*		2011*		2012*		2013*		2014*		2015*		2016*		2017*		2018*		2019
2010	$	117	$	542	$	834	$	1,022	$	1,274	$	1,369	$	1,433	$	1,478	$	1,526	$	1,552
2011				289		812		1,155		1,395		1,483		1,575		1,653		1,693		1,727
2012						307		745		1,136		1,365		1,522		1,646		1,746		1,805
2013								290		517		802		930		1,034		1,135		1,195
2014										149		474		639		748		871		955
2015												195		487		710		830		921
2016														252		553		730		860
2017																230		562		816
2018																		264		865
2019																				351
	Paid losses and ALAE																			11,047
	Net unpaid losses and ALAE for 2010 – 2019 accident years																			12,874
	Net unpaid losses and ALAE for accident years before 2010																			8,430
	Net unpaid losses and ALAE																		$	21,304

***	Unaudited required supplemental information

K-94

Notes to Consolidated Financial Statements (Continued)

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

Required 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 Physical Damage		98	%		2	%
GEICO Auto Liability		42	%		29	%		13	%		8	%		4	%
BH Primary Medical Professional Liability		2	%		7	%		12	%		15	%		15	%		12	%		9	%		6	%		5	%		4	%
BH Primary Workers’ Compensation and Other Casualty		16	%		21	%		16	%		12	%		8	%		5	%		3	%		2	%		1	%		2	%
BHRG Property		19	%		36	%		17	%		9	%		4	%		3	%		1	%		1	%		0	%		1	%
BHRG Casualty		10	%		17	%		13	%		8	%		7	%		5	%		4	%		2	%		2	%		1	%

(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, when applicable, once a contractual retention amount has been reached. Reconciliations of the changes in estimated liabilities for retroactive reinsurance unpaid losses and loss adjustment expenses (“claim liabilities”) and related deferred charge reinsurance assumed assets for each of the three years ended December 31, 2019 follows (in millions).

	2019						2018						2017
	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	$	41,834		$	(14,104	)	$	42,937		$	(15,278	)	$	24,972		$	(8,047	)
Incurred losses and loss adjustment expenses
Current year contracts		1,138			(453	)		603			(86	)		19,005			(7,730	)
Prior years’ contracts		378			810			(341	)		1,260			(41	)		499
Total		1,516			357			262			1,174			18,964			(7,231	)
Paid losses and loss adjustment expenses		(909	)		—			(1,365	)		—			(999	)		—
Balances – end of year	$	42,441		$	(13,747	)	$	41,834		$	(14,104	)	$	42,937		$	(15,278	)
Incurred losses and loss adjustment expenses, net of deferred charges	$	1,873					$	1,436					$	11,733

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

In the first quarter of 2017, we entered into an agreement with various subsidiaries of American International Group, Inc. (collectively, “AIG”) 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. At the inception of the contract, 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.

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 both December 31, 2019 and 2018 and the related deferred charge assets were approximately $6.3 billion at December 31, 2019 and $6.9 billion at December 31, 2018.

K-95

Notes to Consolidated Financial Statements (Continued)

(16)	Retroactive reinsurance contracts (Continued)

Incurred losses and loss adjustment expenses related to contracts written in prior years were $1,188 million in 2019, $919 million in 2018 and $458 million in 2017, 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 $12.9 billion at December 31, 2019 and $13.1 billion at December 31, 2018. 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 laws or 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, 2019.

	Weighted Average			December 31,
	Interest Rate			2019		2018
Insurance and other:
Berkshire Hathaway Inc. (“Berkshire”):
U.S. Dollar denominated due 2020-2047		3.2	%	$	8,324	$	9,065
Euro denominated due 2020-2035		1.1	%		7,641		7,806
Japanese Yen denominated due 2024-2049		0.5	%		3,938		—
Berkshire Hathaway Finance Corporation (“BHFC”):
U.S. Dollar denominated due 2020-2049		4.1	%		8,679		10,650
Great Britain Pound denominated due 2039-2059		2.5	%		2,274		—
Other subsidiary borrowings due 2020-2045		4.0	%		5,262		5,597
Short-term subsidiary borrowings		3.9	%		1,472		1,857
				$	37,590	$	34,975

In September 2019, Berkshire issued ¥430.0 billion of senior notes consisting of ¥108.5 billion of 0.17% senior notes due in 2024, ¥61.0 billion of 0.27% senior notes due in 2026, ¥146.5 billion of 0.44% senior notes due in 2029, ¥19.0 billion of 0.787% senior notes due in 2034, ¥59.0 billion of 0.965% senior notes due in 2039 and ¥36.0 billion of 1.108% senior notes due in 2049.

Borrowings of BHFC, a wholly-owned finance subsidiary of Berkshire, consist of senior unsecured notes used to fund manufactured housing loans originated or acquired and equipment held for lease of certain subsidiaries. During 2019, BHFC repaid $3.95 billion of maturing senior notes. In 2019, BHFC issued $2.0 billion of 4.25% senior notes due in 2049 and £1.75 billion of senior notes consisting of £1.0 billion of 2.375% senior notes due in 2039 and £750 million of 2.625% senior notes due in 2059. Such borrowings are fully and unconditionally guaranteed by Berkshire.

The carrying values of our non-U.S. Dollar denominated senior notes (€6.85 billion, £1.75 billion and ¥430 billion par) reflect the applicable exchange rates as of the balance sheet dates. The effects of changes in foreign currency exchange rates during the period are recorded in earnings as a component of selling, general and administrative expenses. Changes in the exchange rates resulted in pre-tax gains of $192 million in 2019 and $366 million in 2018 and losses of $990 million in 2017.

K-96

Notes to Consolidated Financial Statements (Continued)

(17)	Notes payable and other borrowings (Continued)

In addition to BHFC borrowings, at December 31, 2019, Berkshire has guaranteed approximately $1.2 billion of other subsidiary borrowings. Generally, Berkshire’s guarantee of a subsidiary’s debt obligation is an absolute, unconditional and irrevocable guarantee for the full and prompt payment when due of all payment obligations.

	Weighted Average			December 31,
	Interest Rate			2019		2018
Railroad, utilities and energy:
Berkshire Hathaway Energy Company (“BHE”) and subsidiaries:
BHE senior unsecured debt due 2020-2049		4.6	%	$	8,581	$	8,577
Subsidiary and other debt due 2020-2064		4.5	%		30,772		28,196
Short-term debt		2.5	%		3,214		2,516
Burlington Northern Santa Fe and subsidiaries due 2020-2097		4.6	%		23,211		23,226
				$	65,778	$	62,515

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 2019, BHE and its subsidiaries issued approximately $4.6 billion of long-term debt, with maturity dates ranging from 2029 to 2059 and with a weighted average interest rate of 3.6%. In January 2020, a BHE subsidiary issued $725 million of term debt consisting of $425 million of 2.4% notes due in 2030 and $300 million of 3.125% notes due in 2050.

BNSF’s borrowings are primarily senior unsecured debentures. In July 2019, BNSF issued $825 million of 3.55% senior unsecured debentures due in 2050. As of December 31, 2019, 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, 2019, our subsidiaries had unused lines of credit and commercial paper capacity aggregating approximately $7.1 billion to support short-term borrowing programs and provide additional liquidity. Such unused lines of credit included approximately $5.6 billion related to BHE and its subsidiaries.

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

	2020		2021		2022		2023		2024
Insurance and other	$	4,097	$	3,246	$	1,609	$	5,341	$	2,190
Railroad, utilities and energy		6,323		2,225		3,349		4,061		2,890
	$	10,420	$	5,471	$	4,958	$	9,402	$	5,080

(18)	Income taxes

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

	December 31,
	2019		2018
Currently payable	$	24	$	323
Deferred		65,823		50,503
Other		952		549
	$	66,799	$	51,375

K-97

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 provided for 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 earnings of foreign subsidiaries and limit the deductibility of interest expenses. The TCJA also provides for accelerated deductions of certain capital expenditures made after September 27, 2017 through bonus depreciation.

In 2017, 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 reduction 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 and recognized additional deferred income tax rate change effects.

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,
	2019			2018
Deferred tax liabilities:
Investments – unrealized appreciation and cost basis differences	$	32,134		$	17,765
Deferred charges reinsurance assumed		2,890			2,970
Property, plant and equipment and equipment held for lease		29,388			28,279
Goodwill and other intangible assets		7,293			7,199
Other		3,144			3,187
		74,849			59,400
Deferred tax assets:
Unpaid losses and loss adjustment expenses		(1,086	)		(1,238	)
Unearned premiums		(853	)		(767	)
Accrued liabilities		(1,981	)		(1,956	)
Regulatory liabilities		(1,610	)		(1,673	)
Other		(3,496	)		(3,263	)
		(9,026	)		(8,897	)
Net deferred tax liability	$	65,823		$	50,503

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 current law. However, distributions to the U.S. or other foreign jurisdictions could be subject to withholding and other local taxes.

Income tax expense reflected in our Consolidated Statements of Earnings for each of the three years ending December 31, 2019 is as follows (in millions).

	2019		2018			2017
Federal	$	19,069	$	(1,613	)	$	(23,427	)
State		625		175			894
Foreign		1,210		1,117			1,018
	$	20,904	$	(321	)	$	(21,515	)

Current	$	5,818	$	5,176		$	3,299
Deferred		15,086		(5,497	)		(24,814	)
	$	20,904	$	(321	)	$	(21,515	)

K-98

Notes to Consolidated Financial Statements (Continued)

(18)	Income taxes (Continued)

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, 2019 in the table below (in millions).

	2019			2018			2017
Earnings before income taxes	$	102,696		$	4,001		$	23,838

Hypothetical income tax expense computed at the U.S. federal statutory rate	$	21,566		$	840		$	8,343
Dividends received deduction and tax-exempt interest		(433	)		(393	)		(905	)
State income taxes, less U.S. federal income tax benefit		494			138			465
Foreign tax rate differences		(6	)		271			(339	)
U.S. income tax credits		(942	)		(711	)		(636	)
Net benefit from the enactment of the TCJA		—			(302	)		(28,200	)
Other differences, net		225			(164	)		(243	)
	$	20,904		$	(321	)	$	(21,515	)

We file income tax returns in the United States and in state, local and foreign jurisdictions. We have settled income tax liabilities with the U.S. federal taxing authority (“IRS”) for tax years through 2011. The IRS is auditing Berkshire’s consolidated U.S. federal income tax returns for the 2012 through 2016 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 2020. We currently do not believe that the outcome of unresolved issues or claims will be material to our Consolidated Financial Statements.

At December 31, 2019 and 2018, net unrecognized tax benefits were $952 million and $549 million, respectively. Included in the balance at December 31, 2019, were $795 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 recognition. Because of the impact of deferred income tax accounting, these positions, when recognized, would not affect the annual effective income tax rate. In 2019, we recorded income tax expense of $377 million for uncertain tax positions related to investments by a subsidiary in certain tax equity investment funds that generated income tax benefits from 2015 through 2018. We now believe that it is more likely than not those income tax benefits are not valid. As of December 31, 2019, we do not expect any material increases 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 $21 billion as ordinary dividends during 2020.

Combined shareholders’ equity of U.S. based insurance subsidiaries determined pursuant to statutory accounting rules (Surplus as Regards Policyholders) was approximately $216 billion at December 31, 2019 and $162 billion at December 31, 2018. 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-99

Notes to Consolidated Financial Statements (Continued)

(20)	Fair value measurements

Our financial assets and liabilities are summarized below as of December 31, 2019 and December 31, 2018, 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, 2019
Investments in fixed maturity securities:
U.S. Treasury, U.S. government corporations and agencies	$	3,090	$	3,090	$	3,046	$	44	$	—
Foreign governments		8,638		8,638		5,437		3,201		—
Corporate bonds		6,352		6,352		—		6,350		2
Other		605		605		—		605		—
Investments in equity securities		248,027		248,027		237,271		46		10,710
Investment in Kraft Heinz common stock		13,757		10,456		10,456		—		—
Loans and finance receivables		17,527		17,861		—		1,809		16,052
Derivative contract assets (1)		145		145		—		23		122
Derivative contract liabilities:
Railroad, utilities and energy (1)		76		76		6		59		11
Equity index put options		968		968		—		—		968
Notes payable and other borrowings:
Insurance and other		37,590		40,589		—		40,569		20
Railroad, utilities and energy		65,778		76,237		—		76,237		—

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	$	—
Foreign governments		7,502		7,502		5,417		2,085		—
Corporate bonds		7,440		7,440		—		7,434		6
Other		733		733		—		733		—
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		—

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

K-100

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, 2019 follow (in millions).

	Investments in equity and fixed maturity securities			Net derivative contract liabilities
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		2			3
Dispositions and settlements		(1	)		(164	)
Balance December 31, 2018		7			(2,343	)
Gains (losses) included in:
Earnings		404			1,972
Other comprehensive income		—			(1	)
Regulatory assets and liabilities		—			(26	)
Acquisitions		10,000			6
Dispositions and settlements		(4	)		(465	)
Balance December 31, 2019	$	10,407		$	(857	)

K-101

Notes to Consolidated Financial Statements (Continued)

(20)	Fair value measurements (Continued)

We acquired investments in Occidental Cumulative Perpetual Preferred Stock (“Occidental Preferred”) and Occidental common stock warrants in August 2019 at an aggregate cost of $10 billion. We currently consider the fair value measurements to contain Level 3 inputs. See Note 4. We acquired preferred stock and common stock warrants of Bank of America Corporation (“BAC”) in 2011. We exercised the BAC warrants to acquire BAC common stock in August 2017. As payment of the cost to acquire the BAC common stock, we surrendered substantially all of the BAC preferred stock. Additionally, in December 2017, Restaurant Brands International Inc. (“RBI”) redeemed a $3 billion private placement security that we acquired in 2014. During 2017, we concluded the Level 3 inputs used in the previous fair value determinations of the BAC warrants, BAC preferred stock and RBI investments were not significant and we transferred these measurements from Level 3 to Level 2.

Quantitative information as of December 31, 2019, 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
Investments in equity securities:
Preferred stock	$	10,314	Discounted cash flow	Expected duration	10 years
				Discount for transferability restrictions and subordination	375 basis points

Common stock warrants		90	Warrant pricing model	Expected duration	10 years
				Volatility	26%

Derivative contract liabilities		968	Option pricing model	Volatility	16%

Investments in equity securities at December 31, 2019 included the Occidental Preferred and common stock warrants. These investments are subject to contractual restrictions on transferability and contain provisions that currently prevent us from economically hedging our investments. In applying discounted cash flow techniques in valuing the Occidental Preferred, we made assumptions regarding the expected duration of the investment. The Occidental Preferred is redeemable at Occidental’s option beginning in 2029. We also made estimates regarding the impact of subordination, as the Occidental Preferred has a lower priority in liquidation than debt instruments. In valuing the Occidental common stock warrants, we used a warrant valuation model. While most of the inputs to the model are observable, we made assumptions regarding the expected duration and volatility of the warrants. The Occidental common stock warrants expire on the one-year anniversary on which no Occidental Preferred remains outstanding.

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. We determine the fair value of the equity index put option contract liabilities based on the Black-Scholes option valuation model. Given the current index values, remaining contract durations and applicable strike prices for these contracts, we believe the only significant model input after December 31, 2019 is the prevailing index price, which is observable.

K-102

Notes to Consolidated Financial Statements (Continued)

(21)	Common stock

Changes in Berkshire’s issued, treasury and outstanding common stock during the three years ending December 31, 2019 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, 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		(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		(20,542	)		—			(20,542	)		31,492,234		—			31,492,234
Treasury stock acquired		—			(1,217	)		(1,217	)		—		(4,729,147	)		(4,729,147	)
Balance December 31, 2018		742,213			(12,897	)		729,316			1,373,558,983		(6,138,909	)		1,367,420,074
Conversions of Class A common stock to Class B common stock and exercises of replacement stock options		(22,906	)		—			(22,906	)		34,624,869		—			34,624,869
Treasury stock acquired		—			(4,440	)		(4,440	)		—		(17,563,410	)		(17,563,410	)
Balance December 31, 2019		719,307			(17,337	)		701,970			1,408,183,852		(23,702,319	)		1,384,481,533

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 1,624,958 shares outstanding as of December 31, 2019 and 1,640,929 shares outstanding as of December 31, 2018.

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. 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 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 Bill 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.

K-103

Notes to Consolidated Financial Statements (Continued)

(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, 2019 follows (in millions).

	Unrealized appreciation of investments, net			Foreign currency translation			Defined benefit pension plans			Other			Accumulated other comprehensive income
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	)
Other comprehensive income, net before reclassifications		160			257			(644	)		(48	)		(275	)
Reclassifications into net earnings:
Reclassifications before income taxes		(62	)		—			95			9			42
Applicable income taxes		13			—			(4	)		(4	)		5
Balance December 31, 2019	$	481		$	(4,346	)	$	(1,369	)	$	(9	)	$	(5,243	)

(23)	Supplemental cash flow information

A summary of supplemental cash flow information for each of the three years ending December 31, 2019 is presented in the following table (in millions).

	2019		2018		2017
Cash paid during the period for:
Income taxes	$	5,415	$	4,354	$	3,286
Interest:
Insurance and other		1,011		1,111		1,260
Railroad, utilities and energy		2,879		2,867		2,828
Non-cash investing and financing activities:
Liabilities assumed in connection with business acquisitions		766		3,735		747
Right-of-use assets obtained in exchange for new operating lease liabilities		782		—		—
Equity securities surrendered in connection with warrant exercise		—		—		4,965

K-104

Notes to Consolidated Financial Statements (Continued)

(24)	Revenues from contracts with customers

On January 1, 2018, we adopted ASC 606 “Revenues from Contracts with Customers.” 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 tables summarize customer contract revenues disaggregated by reportable segment and the source of the revenue for the years ended December 31, 2019 and 2018 (in millions). Other revenues included in consolidated revenues were primarily insurance premiums earned, interest, dividend and other investment income and leasing revenues which are not within the scope of ASC 606.

2019	Manufacturing		McLane Company		Service and Retail		BNSF		Berkshire Hathaway Energy		Insurance, Corporate and other		Total
Manufactured products:
Industrial and commercial products	$	25,311	$	—	$	184	$	—	$	—	$	—	$	25,495
Building products		15,620		—		—		—		—		—		15,620
Consumer products		14,120		—		—		—		—		—		14,120
Grocery and convenience store distribution		—		33,057		—		—		—		—		33,057
Food and beverage distribution		—		16,767		—		—		—		—		16,767
Auto sales		—		—		8,481		—		—		—		8,481
Other retail and wholesale distribution		2,299		—		12,213		—		—		—		14,512
Service		1,642		539		4,062		23,302		4,096		—		33,641
Electricity and natural gas		—		—		—		—		14,819		—		14,819
Total		58,992		50,363		24,940		23,302		18,915		—		176,512
Other revenue		3,632		95		4,459		55		1,181		68,682		78,104
	$	62,624	$	50,458	$	29,399	$	23,357	$	20,096	$	68,682	$	254,616

2018	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, 2019 follows (in millions).

	Performance obligations expected to be satisfied:
	Less than 12 months		Greater than 12 months		Total
Electricity and natural gas	$	871	$	5,136	$	6,007
Other sales and service contracts		1,158		2,562		3,720

K-105

Notes to Consolidated Financial Statements (Continued)

(25)	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, 2019 were as follows (in millions).

	2019			2018			2017
Service cost	$	224		$	271		$	273
Interest cost		618			593			635
Expected return on plan assets		(936	)		(988	)		(939	)
Amortization of actuarial losses and other		26			188			157
Net periodic pension expense	$	(68	)	$	64		$	126

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 $1.3 billion and $1.2 billion as of December 31, 2019 and 2018, 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, 2019 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.

	2019									2018
	BHE			All other			Consolidated			BHE			All other			Consolidated
Benefit obligations
Accumulated benefit obligation end of year	$	4,653		$	12,889		$	17,542		$	4,346		$	11,540		$	15,886

PBO beginning of year	$	4,551		$	12,371		$	16,922		$	5,207		$	13,617		$	18,824
Service cost		32			192			224			40			231			271
Interest cost		161			457			618			161			432			593
Benefits paid		(257	)		(776	)		(1,033	)		(208	)		(633	)		(841	)
Settlements		(121	)		(46	)		(167	)		(301	)		(133	)		(434	)
Actuarial (gains) or losses and other		532			1,610			2,142			(348	)		(1,143	)		(1,491	)
PBO end of year	$	4,898		$	13,808		$	18,706		$	4,551		$	12,371		$	16,922

Plan assets
Plan assets beginning of year	$	4,385		$	10,574		$	14,959		$	5,129		$	11,885		$	17,014
Employer contributions		68			131			199			98			495			593
Benefits paid		(257	)		(776	)		(1,033	)		(208	)		(633	)		(841	)
Actual return on plan assets		650			1,764			2,414			(191	)		(949	)		(1,140	)
Settlements		(121	)		(46	)		(167	)		(324	)		(132	)		(456	)
Other		83			41			124			(119	)		(92	)		(211	)
Plan assets end of year	$	4,808		$	11,688		$	16,496		$	4,385		$	10,574		$	14,959

Funded status – net liability	$	90		$	2,120		$	2,210		$	166		$	1,797		$	1,963

The funded status of our defined benefit pension plans at December 31, 2019 reflected in assets was $857 million and in liabilities was $3,067 million. At December 31, 2018, the funded status included in assets was $510 million and in liabilities was $2,473 million.

K-106

Notes to Consolidated Financial Statements (Continued)

(25)	Pension plans (Continued)

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

	2019
Discount rate applicable to pension benefit obligations		3.1	%	3.9	%	3.3	%
Expected long-term rate of return on plan assets	6.4			6.4		6.4
Rate of compensation increase	2.5			2.6		2.8
Discount rate applicable to net periodic pension expense		4.0		3.4		3.9

Benefit payments expected over the next ten years are as follows (in millions): 2020 – $1,059; 2021 – $997; 2022 – $1,003; 2023 – $1,009; 2024 – $1,017; and 2025 to 2029 – $5,035. Sponsoring subsidiaries expect to contribute $191 million to defined benefit pension plans in 2020.

Fair value measurements of plan assets as of December 31, 2019 and 2018 follow (in millions).

	Fair Value								Investment funds and partnerships
	Total		Level 1		Level 2		Level 3		at net asset value
December 31, 2019
Cash and cash equivalents	$	412	$	309	$	103	$	—	$	—
Equity securities		11,105		9,860		836		409		—
Government obligations		1,537		1,433		104		—		—
Other fixed maturity securities		791		160		600		31		—
Investment funds and other		2,651		143		358		40		2,110
	$	16,496	$	11,905	$	2,001	$	480	$	2,110
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

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, 2019 follows (in millions).

	2019			2018
Balance beginning of year	$	(1,184	)	$	(614	)
Amount included in net periodic pension expense		94			116
Actuarial gains (losses) and other		(806	)		(686	)
Balance end of year	$	(1,896	)	$	(1,184	)

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 $1,233 million in 2019, $1,009 million in 2018 and $1,001 million in 2017.

K-107

Notes to Consolidated Financial Statements (Continued)

(26)	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.

Our subsidiaries regularly make commitments in the ordinary course of business to purchase goods and services used in their businesses. As of December 31, 2019, estimated future payments under such arrangements were as follows: $15.7 billion in 2020, $5.6 billion in 2021, $3.7 billion in 2022, $2.8 billion in 2023, $2.6 billion in 2024 and $19.7 billion after 2024. The most significant of these relate to our railroad, utilities and energy businesses and our fractional aircraft ownership business.

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, 2019, we estimate the cost would have been approximately $5.4 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.

(27)	Business segment data

Our operating businesses include a large and diverse group of insurance, manufacturing, service and retailing businesses. We organize our reportable business segments in a manner that reflects how management views those business activities. Certain businesses are grouped together for segment reporting based upon similar products or product lines, marketing, selling and distribution characteristics, even though those business units are operated under separate local management.

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 business acquisition 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 Primary Group		Underwriting multiple lines of property and casualty insurance policies for primarily commercial accounts

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

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-108

Notes to Consolidated Financial Statements (Continued)

(27)	Business segment data (Continued)

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

	Revenues							Earnings before income taxes
	2019		2018		2017			2019			2018			2017
Operating Businesses:
Insurance:
Underwriting:
GEICO	$	35,572	$	33,363	$	29,441		$	1,506		$	2,449		$	(310	)
Berkshire Hathaway Primary Group		9,165		8,111		7,143			383			670			719
Berkshire Hathaway Reinsurance Group		16,341		15,944		24,013			(1,472	)		(1,109	)		(3,648	)
Insurance underwriting		61,078		57,418		60,597			417			2,010			(3,239	)
Investment income		6,615		5,518		4,865			6,600			5,503			4,855
Total insurance		67,693		62,936		65,462			7,017			7,513			1,616

BNSF		23,515		23,855		21,387			7,250			6,863			6,328
Berkshire Hathaway Energy		20,114		19,987		18,854			2,618			2,472			2,499
Manufacturing		62,730		61,883		57,645			9,522			9,366			8,324
McLane Company		50,458		49,987		49,775			288			246			299
Service and retailing		29,487		28,939		27,219			2,555			2,696			2,304
		253,997		247,587		240,342			29,250			29,156			21,370
Reconciliation to consolidated amount:
Investment and derivative gains/losses		—		—		—			72,607			(22,455	)		2,128
Interest expense, not allocated to segments		—		—		—			(416	)		(458	)		(486	)
Equity method investments		—		—		—			1,176			(2,167	)		3,014
Corporate, eliminations and other		619		250		(409	)		79			(75	)		(2,188	)
	$	254,616	$	247,837	$	239,933		$	102,696		$	4,001		$	23,838

	Interest expense									Income tax expense
	2019			2018			2017			2019			2018			2017
Operating Businesses:
Insurance	$	—		$	—		$	—		$	1,166		$	1,374		$	(71	)
BNSF		1,070			1,041			1,016			1,769			1,644			2,369
Berkshire Hathaway Energy		1,835			1,777			2,254			(526	)		(452	)		148
Manufacturing		752			690			679			2,253			2,188			2,678
McLane Company		—			15			19			71			59			94
Service and retailing		86			91			67			603			634			812
		3,743			3,614			4,035			5,336			5,447			6,030
Reconciliation to consolidated amount:
Investment and derivative gains/losses		—			—			—			15,159			(4,673	)		742
Interest expense, not allocated to segments		416			458			486			(88	)		(96	)		(170	)
Equity method investments		—			—			—			148			(753	)		910
Income tax net benefit – Tax Cuts and Jobs Act of 2017		—			—			—			—			—			(28,200	)
Corporate, eliminations and other		(198	)		(219	)		(135	)		349			(246	)		(827	)
	$	3,961		$	3,853		$	4,386		$	20,904		$	(321	)	$	(21,515	)

K-109

Notes to Consolidated Financial Statements (Continued)

(27)	Business segment data (Continued)

	Capital expenditures						Depreciation of tangible assets
	2019		2018		2017		2019		2018		2017
Operating Businesses:
Insurance	$	108	$	130	$	170	$	82	$	79	$	84
BNSF		3,608		3,187		3,256		2,350		2,268		2,304
Berkshire Hathaway Energy		7,364		6,241		4,571		2,947		2,830		2,548
Manufacturing		2,981		3,116		2,490		1,951		1,890		1,839
McLane Company		158		276		289		225		204		193
Service and retailing		1,760		1,587		932		1,192		1,115		751
	$	15,979	$	14,537	$	11,708	$	8,747	$	8,386	$	7,719

	Goodwill at year-end						Identifiable assets at year-end
	2019		2018		2017		2019		2018		2017
Operating Businesses:
Insurance	$	15,289	$	15,289	$	15,499	$	364,550	$	289,746	$	294,418
BNSF		14,851		14,851		14,845		73,699		70,242		69,438
Berkshire Hathaway Energy		9,979		9,851		9,935		88,651		80,543		77,710
Manufacturing		34,800		34,019		33,967		104,437		99,912		97,753
McLane Company		734		734		734		6,872		6,243		6,090
Service and retailing		6,229		6,281		6,278		26,494		24,724		20,014
	$	81,882	$	81,025	$	81,258		664,703		571,410		565,423
Reconciliation to consolidated amount:
Corporate and other								71,144		55,359		55,414
Goodwill								81,882		81,025		81,258
							$	817,729	$	707,794	$	702,095

Property/casualty and life/health insurance premiums written and earned are summarized below (in millions).

	Property/Casualty									Life/Health
	2019			2018			2017			2019			2018			2017
Premiums Written:
Direct	$	47,578		$	44,513		$	39,377		$	839		$	1,111		$	866
Assumed		10,214			8,970			17,815			5,046			5,540			4,925
Ceded		(821	)		(869	)		(694	)		(45	)		(49	)		(47	)
	$	56,971		$	52,614		$	56,498		$	5,840		$	6,602		$	5,744
Premiums Earned:
Direct	$	46,540		$	43,095		$	37,755		$	839		$	1,111		$	866
Assumed		9,643			8,649			17,813			4,952			5,438			4,866
Ceded		(851	)		(825	)		(677	)		(45	)		(50	)		(26	)
	$	55,332		$	50,919		$	54,891		$	5,746		$	6,499		$	5,706

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

	Property/Casualty						Life/Health
	2019		2018		2017		2019		2018		2017
United States	$	50,529	$	46,146	$	50,604	$	2,553	$	3,598	$	3,320
Asia Pacific		3,114		3,726		3,307		1,582		1,361		879
Western Europe		2,535		2,157		1,516		908		939		909
All other		793		585		1,071		797		704		636
	$	56,971	$	52,614	$	56,498	$	5,840	$	6,602	$	5,744

K-110

Notes to Consolidated Financial Statements (Continued)

(27)	Business segment data (Continued)

Consolidated sales, service and leasing revenues were $140.8 billion in 2019, $139.1 billion in 2018 and $132.8 billion in 2017. In 2019, 85% of such revenues were attributable to the United States compared to 84% in 2018 and 85% in 2017. The remainder of sales, service and leasing revenues were primarily in Europe, Canada and the Asia Pacific. In 2019 and 2018, approximately 96% of our revenues from railroad, utilities and energy businesses were in the United States compared to 95% in 2017. At December 31, 2019, 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.

(28)	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
2019
Revenues	$	60,678		$	63,598	$	64,972	$	65,368
Net earnings (loss) attributable to Berkshire shareholders *		21,661			14,073		16,524		29,159
Net earnings (loss) attributable to Berkshire shareholders per equivalent Class A common share		13,209			8,608		10,119		17,909

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	)

*	Includes after-tax investment and derivative gains/losses as follows:

		1st Quarter				2nd Quarter				3rd Quarter				4th Quarter
2019		$	16,106			$	7,934			$	8,666			$	24,739
2018			(6,426	)			5,118				11,660				(28,089	)

K-111

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