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, 2020 and 2019, 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, 2020, 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, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, 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, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

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-67

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 $79,854 million as of December 31, 2020. 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, 2020, 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 $40,966 million as of December 31, 2020. The key assumptions affecting certain claim liabilities and related deferred charge reinsurance assumed assets (“related assets”) include expected loss and expense (“loss”) ratios, expected loss payment emergence patterns and expected loss reporting emergence.

Given the subjectivity of estimating these key assumptions, performing audit procedures to evaluate whether claim liabilities were appropriately recorded as of December 31, 2020, required a high degree of auditor judgment and an increased extent of effort, including the need to involve our actuarial specialists.

How the Critical Audit Matter Was Addressed in the Audit

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

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

K-68

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 and 13 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 net earnings or net cash flows and multiples of earnings 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 rates. Changes in these assumptions could have a significant impact on the fair value of reporting units and indefinite-lived intangible assets.

The Precision Castparts Corp. (“PCC”) reporting unit reported approximately $31 billion of goodwill and indefinite-lived intangible assets as of December 31, 2019. During the second quarter of 2020, the Company performed an interim reevaluation of the goodwill and indefinite-lived intangible assets at the PCC reporting unit. This determination was made due to disruptions arising from the COVID-19 pandemic that had an adverse impact on the industries in which PCC operates. As a result of the reevaluation, the Company recognized goodwill and indefinite-lived intangible asset impairment charges in the amount of approximately $10 billion, as the fair values of the PCC reporting unit and indefinite-lived intangible assets were less than their respective carrying values. As a result, PCC reported goodwill and indefinite-lived intangible assets of approximately $21 billion as of December 31, 2020.

Given the significant judgments made by management to estimate the fair value of the PCC reporting unit and certain customer relationships with indefinite lives along with 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 rate 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 the selection of the discount rate for the PCC reporting unit and certain 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 and the selection of the discount rate.

	•	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 rate, 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 rate selected by management.

/s/ Deloitte & Touche LLP

Omaha, Nebraska

February 27, 2021

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

K-69

BERKSHIRE HATHAWAY INC.

and Subsidiaries

CONSOLIDATED BALANCE SHEETS

(dollars in millions)

		December 31,
		2020				2019
ASSETS
Insurance and Other:
Cash and cash equivalents*		$	44,714			$	61,151
Short-term investments in U.S. Treasury Bills			90,300				63,822
Investments in fixed maturity securities			20,410				18,685
Investments in equity securities			281,170				248,027
Equity method investments			17,303				17,505
Loans and finance receivables			19,201				17,527
Other receivables			32,310				32,418
Inventories			19,208				19,852
Property, plant and equipment			21,200				21,438
Equipment held for lease			14,601				15,065
Goodwill			47,121				57,052
Other intangible assets			29,462				31,051
Deferred charges under retroactive reinsurance contracts			12,441				13,747
Other			14,580				13,232
			664,021				630,572
Railroad, Utilities and Energy:
Cash and cash equivalents*			3,276				3,024
Receivables			3,542				3,417
Property, plant and equipment			151,216				137,838
Goodwill			26,613				24,830
Regulatory assets			3,440				2,881
Other			21,621				15,167
			209,708				187,157
		$	873,729			$	817,729

***	Includes U.S. Treasury Bills with maturities of three months or less when purchased of $23.2 billion at December 31, 2020 and $37.1 billion at December 31, 2019.

See accompanying Notes to Consolidated Financial Statements

K-70

BERKSHIRE HATHAWAY INC.

and Subsidiaries

CONSOLIDATED BALANCE SHEETS

(dollars in millions)

		December 31,
		2020				2019
LIABILITIES AND SHAREHOLDERS’ EQUITY
Insurance and Other:
Unpaid losses and loss adjustment expenses		$	79,854			$	73,019
Unpaid losses and loss adjustment expenses under retroactive reinsurance contracts			40,966				42,441
Unearned premiums			21,395				19,782
Life, annuity and health insurance benefits			21,616				20,155
Other policyholder liabilities			8,670				7,723
Accounts payable, accruals and other liabilities			29,279				27,611
Derivative contract liabilities			1,065				968
Aircraft repurchase liabilities and unearned lease revenues			5,856				5,281
Notes payable and other borrowings			41,522				37,590
			250,223				234,570
Railroad, Utilities and Energy:
Accounts payable, accruals and other liabilities			15,224				14,708
Regulatory liabilities			7,475				7,311
Notes payable and other borrowings			75,373				65,778
			98,072				87,797
Income taxes, principally deferred			74,098				66,799
Total liabilities			422,393				389,166
Shareholders’ equity:
Common stock			8				8
Capital in excess of par value			35,626				35,658
Accumulated other comprehensive income			(4,243	)			(5,243	)
Retained earnings			444,626				402,493
Treasury stock, at cost			(32,853	)			(8,125	)
Berkshire Hathaway shareholders’ equity			443,164				424,791
Noncontrolling interests			8,172				3,772
Total shareholders’ equity			451,336				428,563
		$	873,729			$	817,729

See accompanying Notes to Consolidated Financial Statements

K-71

BERKSHIRE HATHAWAY INC.

and Subsidiaries

CONSOLIDATED STATEMENTS OF EARNINGS

(dollars in millions except per share amounts)

		Year Ended December 31,
		2020				2019				2018
Revenues:
Insurance and Other:
Insurance premiums earned		$	63,401			$	61,078			$	57,418
Sales and service revenues			127,044				134,989				133,336
Leasing revenues			5,209				5,856				5,732
Interest, dividend and other investment income			8,092				9,240				7,678
			203,746				211,163				204,164
Railroad, Utilities and Energy:
Freight rail transportation revenues			20,750				23,357				23,703
Energy operating revenues			15,540				15,353				15,555
Service revenues and other income			5,474				4,743				4,415
			41,764				43,453				43,673
Total revenues			245,510				254,616				247,837
Investment and derivative contract gains/losses:			40,746				72,607				(22,455	)
Costs and expenses:
Insurance and Other:
Insurance losses and loss adjustment expenses			43,951				44,456				39,906
Life, annuity and health insurance benefits			5,812				4,986				5,699
Insurance underwriting expenses			12,798				11,200				9,793
Cost of sales and services			101,091				107,041				106,083
Cost of leasing			3,520				4,003				4,061
Selling, general and administrative expenses			19,809				19,226				17,856
Goodwill and intangible asset impairments			10,671				96				382
Interest expense			1,105				1,056				1,035
			198,757				192,064				184,815
Railroad, Utilities and Energy:
Freight rail transportation expenses			13,120				15,436				16,045
Utilities and energy cost of sales and other expenses			11,638				11,296				11,641
Other expenses			4,796				4,002				3,895
Interest expense			2,978				2,905				2,818
			32,532				33,639				34,399
Total costs and expenses			231,289				225,703				219,214
Earnings before income taxes and equity method earnings (losses)			54,967				101,520				6,168
Equity method earnings (losses)			726				1,176				(2,167	)
Earnings before income taxes			55,693				102,696				4,001
Income tax expense (benefit)			12,440				20,904				(321	)
Net earnings			43,253				81,792				4,322
Earnings attributable to noncontrolling interests			732				375				301
Net earnings attributable to Berkshire Hathaway shareholders		$	42,521			$	81,417			$	4,021
Net earnings per average equivalent Class A share		$	26,668			$	49,828			$	2,446
Net earnings per average equivalent Class B share*		$	17.78			$	33.22			$	1.63
Average equivalent Class A shares outstanding			1,594,469				1,633,946				1,643,795
Average equivalent Class B shares outstanding			2,391,703,454				2,450,919,020				2,465,692,368

***	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 22.

See accompanying Notes to Consolidated Financial Statements

K-72

BERKSHIRE HATHAWAY INC.

and Subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(dollars in millions)

		Year Ended December 31,
		2020				2019				2018
Net earnings		$	43,253			$	81,792			$	4,322
Other comprehensive income:
Unrealized appreciation of investments			74				142				(438	)
Applicable income taxes			(19	)			(31	)			84
Foreign currency translation			1,284				323				(1,531	)
Applicable income taxes			3				(28	)			62
Defined benefit pension plans			(355	)			(711	)			(571	)
Applicable income taxes			74				155				143
Other, net			(42	)			(48	)			(12	)
Other comprehensive income, net			1,019				(198	)			(2,263	)
Comprehensive income			44,272				81,594				2,059
Comprehensive income attributable to noncontrolling interests			751				405				249
Comprehensive income attributable to Berkshire Hathaway shareholders		$	43,521			$	81,189			$	1,810

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, 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
Net earnings			—				—				42,521				—				732				43,253
Adoption of new accounting pronouncement			—				—				(388	)			—				—				(388	)
Other comprehensive income, net			—				1,000				—				—				19				1,019
Issuance (acquisition) of common stock			—				—				—				(24,728	)			—				(24,728	)
Transactions with noncontrolling interests			(32	)			—				—				—				3,649				3,617
Balance December 31, 2020		$	35,634			$	(4,243	)		$	444,626			$	(32,853	)		$	8,172			$	451,336

See accompanying Notes to Consolidated Financial Statements

K-73

BERKSHIRE HATHAWAY INC.

and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in millions)

		Year Ended December 31,
		2020				2019				2018
Cash flows from operating activities:
Net earnings		$	43,253			$	81,792			$	4,322
Adjustments to reconcile net earnings to operating cash flows:
Investment (gains) losses			(40,905	)			(71,123	)			22,155
Depreciation and amortization			10,596				10,064				9,779
Other, including asset impairment charges			11,263				(1,254	)			2,957
Changes in operating assets and liabilities:
Losses and loss adjustment expenses			4,819				6,087				3,449
Deferred charges reinsurance assumed			1,307				357				1,174
Unearned premiums			1,587				1,707				1,794
Receivables and originated loans			(1,609	)			(2,303	)			(3,443	)
Other assets			(1,109	)			(2,011	)			(1,832	)
Other liabilities			3,376				190				2,002
Income taxes			7,195				15,181				(4,957	)
Net cash flows from operating activities			39,773				38,687				37,400
Cash flows from investing activities:
Purchases of equity securities			(30,161	)			(18,642	)			(43,210	)
Sales of equity securities			38,756				14,336				18,783
Purchases of U.S. Treasury Bills and fixed maturity securities			(208,429	)			(136,123	)			(141,844	)
Sales of U.S. Treasury Bills and fixed maturity securities			31,873				15,929				39,693
Redemptions and maturities of U.S. Treasury Bills and fixed maturity securities			149,709				137,767				113,045
Purchases of loans and finance receivables			(772	)			(75	)			(1,771	)
Collections of loans and finance receivables			393				345				342
Acquisitions of businesses, net of cash acquired			(2,532	)			(1,683	)			(3,279	)
Purchases of property, plant and equipment and equipment held for lease			(13,012	)			(15,979	)			(14,537	)
Other			(3,582	)			(1,496	)			(71	)
Net cash flows from investing activities			(37,757	)			(5,621	)			(32,849	)
Cash flows from financing activities:
Proceeds from borrowings of insurance and other businesses			5,925				8,144				2,409
Repayments of borrowings of insurance and other businesses			(2,700	)			(5,095	)			(7,395	)
Proceeds from borrowings of railroad, utilities and energy businesses			8,445				5,400				7,019
Repayments of borrowings of railroad, utilities and energy businesses			(3,761	)			(2,638	)			(4,213	)
Changes in short term borrowings, net			(1,118	)			266				(1,943	)
Acquisition of treasury stock			(24,706	)			(4,850	)			(1,346	)
Other			(429	)			(497	)			(343	)
Net cash flows from financing activities			(18,344	)			730				(5,812	)
Effects of foreign currency exchange rate changes			92				25				(140	)
Increase (decrease) in cash and cash equivalents and restricted cash			(16,236	)			33,821				(1,401	)
Cash and cash equivalents and restricted cash at beginning of year			64,632				30,811				32,212
Cash and cash equivalents and restricted cash at end of year *		$	48,396			$	64,632			$	30,811
* Cash and cash equivalents and restricted cash at end of year are comprised of the following:
Insurance and Other		$	44,714			$	61,151			$	27,749
Railroad, Utilities and Energy			3,276				3,024				2,612
Restricted cash, included in other assets			406				457				450
		$	48,396			$	64,632			$	30,811

See accompanying Notes to Consolidated Financial Statements

K-74

BERKSHIRE HATHAWAY INC.

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2020

(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

We prepare our Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States (“GAAP”) which 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. Our 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.

The novel coronavirus (“COVID-19”) spread rapidly across the world in 2020 and was declared a pandemic by the World Health Organization. The government and private sector responses to contain its spread began to significantly affect our operating businesses in March. COVID-19 has since adversely affected nearly all of our operations, although the effects are varying significantly. The duration and extent of the effects over longer terms cannot be reasonably estimated at this time. The risks and uncertainties resulting from the pandemic that may affect our future earnings, cash flows and financial condition include the time necessary to distribute safe and effective vaccines and to vaccinate a significant number of people in the U.S. and throughout the world as well as the long-term effect from the pandemic on the demand for certain of our products and services. Accordingly, significant estimates used in the preparation of our financial statements including those associated with evaluations of certain long-lived assets, goodwill and other intangible assets for impairment, expected credit losses on amounts owed to us and the estimations of certain losses assumed under insurance and reinsurance contracts may be subject to significant adjustments in future periods.

	(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.

K-75

Notes to Consolidated Financial Statements (Continued)

(1)	Significant accounting policies and practices (Continued)

	(d)	Investments in fixed maturity securities

We classify investments in fixed maturity securities on the acquisition date and 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. Substantially all of these investments are 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.

We record investment gains and losses on available-for-sale fixed maturity securities when the securities are sold, as determined on a specific identification basis. For securities in an unrealized loss position, we recognize a loss in earnings for the excess of amortized cost over fair value if we intend to sell before the price recovers. Otherwise, we evaluate as of the balance sheet date whether the unrealized losses are attributable to credit losses or other factors. We consider the severity of the decline in value, creditworthiness of the issuer and other relevant factors. We record an allowance for credit losses, limited to the excess of amortized cost over fair value, along with a corresponding charge to earnings if the present value of estimated cash flows is less than the present value of contractual cash flows. The allowance may be subsequently increased or decreased based on the prevailing facts and circumstances. The portion of the unrealized loss that we believe is not related to a credit loss is recognized in other comprehensive income.

	(e)	Investments in equity securities

We carry substantially all investments in equity securities at fair value and record the subsequent changes in fair values in the Consolidated Statements of Earnings as a component of investment gains/losses.

	(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. Trade receivables, insurance premium receivables and other receivables are primarily short-term in nature with stated collection terms of less than one year from the date of origination. Reinsurance recoverables are comprised of amounts ceded under reinsurance contracts or pursuant to mandatory government-sponsored insurance programs. Reinsurance recoverables relate to claims for unpaid losses and loss adjustment expenses arising from property and casualty contracts and claim benefits under life and health insurance contracts. Receivables are stated net of estimated allowances for uncollectible balances. Prior to 2020, we recorded provisions for uncollectible balances when it was probable counterparties or customers would be unable to pay all amounts due based on the contractual terms and historical loss history.

As of January 1, 2020, we adopted a new accounting pronouncement that affects the measurement of allowances for credit losses. See Note 1(w). In measuring credit loss allowances, we primarily utilize credit loss history, with adjustments to reflect current or expected future economic conditions when reasonable and supportable forecasts of losses deviate from historical experience. In evaluating expected credit losses of reinsurance recoverable on unpaid losses, we review the credit quality of the counterparty and consider right-of-offset provisions within reinsurance contracts and other forms of credit enhancement including, collateral, guarantees and other available information. We charge-off receivables against the allowances after all reasonable collection efforts are exhausted.

K-76

Notes to Consolidated Financial Statements (Continued)

(1)	Significant accounting policies and practices (Continued)

	(h)	Loans and finance receivables

Loans and finance receivables are primarily manufactured home loans, and to lesser extent, commercial loans and site-built home loans. We carry substantially all of these loans at amortized cost, net of allowances for expected credit losses, 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.

Prior to 2020, credit losses were measured when non-collection was considered probable based on the prevailing facts and circumstances. Beginning in 2020, measurements of expected credit losses include provisions for non-collection, whether the risk is probable or remote. Expected credit losses on manufactured housing installment loans are based on the net present value of future principal payments less estimated expenses related to the charge-off and foreclosure of expected uncollectible loans and include provisions for loans that are not in foreclosure. Our principal credit quality indicator is whether the loans are performing. Expected credit loss estimates consider historical default rates, collateral recovery rates, historical runoff rates, interest rates, reductions of future cash flows for modified loans and the historical time elapsed from last payment until foreclosure, among other factors. In addition, our estimates consider current conditions and reasonable and supportable forecasts.

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

	(i)	Derivatives

We carry derivative contracts in our Consolidated Balance Sheets at fair value, net of reductions permitted under master netting agreements with counterparties. We record the changes in fair value of derivative contracts that do not qualify as hedging instruments for financial reporting purposes in earnings or, 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 estimating 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, and 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 or products acquired for resale and homes constructed for sale. Manufactured inventory costs include materials, direct and indirect labor and factory overhead. At December 31, 2020, we used the last-in-first-out (“LIFO”) method to value approximately 35% 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 $1.1 billion as of December 31, 2020 and $950 million as of December 31, 2019.

K-77

Notes to Consolidated Financial Statements (Continued)

(1)	Significant accounting policies and practices (Continued)

	(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 useful lives 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 43 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 40 years.

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

	(m)	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 acquisitions of and 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 3 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.

K-78

Notes to Consolidated Financial Statements (Continued)

(1)	Significant accounting policies and practices (Continued)

	(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 excess 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.

	(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 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.

Sales and service revenues are recognized when goods or services are 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.

K-79

Notes to Consolidated Financial Statements (Continued)

(1)	Significant accounting policies and practices (Continued)

	(o)	Revenue recognition (Continued)

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 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.

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/unit 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 and 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.

	(p)	Losses and loss adjustment expenses

We record liabilities for unpaid losses and loss adjustment expenses 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) loss reports from policyholders and cedents, (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 under short duration retroactive reinsurance contracts consistent with other short duration property/casualty insurance and reinsurance contracts described 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-80

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 approximately $3.25 billion and $2.95 billion at December 31, 2020 and 2019, respectively.

	(s)	Life and annuity insurance benefits

We compute 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 for most contracts range from 3% to 7%.

	(t)	Regulated utilities and energy businesses

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

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

	(u)	Foreign currency

The accounts of our non-U.S. based subsidiaries are measured, in most instances, using functional currencies other than the U.S. Dollar. Revenues and expenses in the financial statements 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. The net effects of 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-81

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 2020

We adopted Accounting Standards Codification (“ASC”) 326 “Financial Instruments-Credit Losses” on January 1, 2020. ASC 326 provides for the measurement of expected credit losses on financial assets that are carried at amortized cost based on the net amounts expected to be collected. Measurements of expected credit losses therefore include provisions for non-collection, whether the risk is probable or remote. Prior to the adoption of ASC 326, credit losses were measured when non-collection was considered probable based on the prevailing facts and circumstances. We do not measure an allowance for expected credit losses on accrued interest and instead, as permitted, we elected to reverse uncollectible accrued interest through interest income on a timely basis. Upon adoption of ASC 326, we recorded a charge to retained earnings of $388 million representing the cumulative after-tax increase in our allowances for credit losses, which was primarily related to our manufactured housing loans.

	(x)	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 respect 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.

	(y)	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	)

In adopting ASU 2016-01, as of January 1, 2018, we reclassified the net after-tax unrealized gains on equity securities from accumulated other comprehensive income to retained earnings. Thereafter, the unrealized gains and losses from the changes during the period in the fair values of our equity securities are included within investment gains/losses in the Consolidated Statements of Earnings. In adopting ASU 2018-02, we reclassified certain deferred income tax effects as of January 1, 2018 attributable to the reduction in the U.S. statutory income tax rate under the Tax Cuts and Jobs Act of 2017 from accumulated other comprehensive income 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.

K-82

Notes to Consolidated Financial Statements (Continued)

(1)	Significant accounting policies and practices (Continued)

	(z)	New accounting pronouncements to be adopted subsequent to December 31, 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 of long-duration insurance and reinsurance contracts, with the effects of changes in cash flow assumptions reflected in earnings and the effects of changes in discount rate assumptions reflected in other comprehensive income. Under current GAAP, 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, 2022, 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.

In July 2020, Berkshire Hathaway Energy (“BHE”) reached a definitive agreement with Dominion Energy, Inc. (“Dominion”) to acquire substantially all of Dominion’s natural gas transmission and storage business. On October 5, 2020, BHE and Dominion also agreed, as permitted under the acquisition agreement, to provide for the acquisition of all originally agreed upon businesses, except for certain pipeline assets (the “Excluded Assets”) and entered into a second acquisition agreement with respect to the Excluded Assets. The acquisition of the Dominion businesses, other than the Excluded Assets, was completed on November 1, 2020 and included more than 5,400 miles of natural gas transmission, gathering and storage pipelines, about 420 billion cubic feet of operated natural gas storage capacity and partial ownership of a liquefied natural gas export, import and storage facility (“Cove Point”). Under the terms of the second acquisition agreement, BHE agreed to acquire the Excluded Assets for approximately $1.3 billion in cash. The closing of this second acquisition is subject to receiving necessary regulatory approvals and other customary closing conditions and is expected to occur during the first half of 2021.

The cost of the acquisition completed on November 1, 2020, was approximately $2.5 billion after post-closing adjustments as provided in the agreement. The preliminary fair values of identified assets acquired and liabilities assumed and residual goodwill are summarized as follows (in millions).

Property, plant and equipment	$	9,254
Goodwill		1,732
Other		2,376
Assets acquired	$	13,362
Notes payable and other borrowings	$	5,615
Other		1,317
Liabilities assumed		6,932
Noncontrolling interests		3,916
Net assets	$	2,514

As part of this acquisition, BHE acquired an indirect 25% economic interest in Cove Point, consisting of 100% of the general partnership interest and 25% of the limited partnership interests. We concluded that Cove Point is a VIE and that we have the power to direct the activities that most significantly impact its economic performance as well as the obligation to absorb losses and receive benefits which could be significant to Cove Point. Therefore, we treat Cove Point as a consolidated subsidiary. The noncontrolling interests in the preceding table is attributable to the limited partner interests held by third parties.

On October 1, 2018, we acquired MLMIC Insurance Company (“MLMIC”), a writer of medical professional liability insurance domiciled in New York. 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, primarily investments ($5.2 billion), and the fair value of its liabilities was approximately $3.6 billion, primarily unpaid losses and loss adjustment expenses ($3.2 billion).

K-83

Notes to Consolidated Financial Statements (Continued)

(2)	Business acquisitions (Continued)

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 $130 million in 2020, $1.7 billion in 2019 and $1.0 billion in 2018. We do not believe that these acquisitions are material, individually or in the aggregate to our Consolidated Financial Statements.

(3)	Investments in fixed maturity securities

Investments in fixed maturity securities as of December 31, 2020 and 2019 are summarized by type below (in millions).

		Amortized Cost				Unrealized Gains				Unrealized Losses				Fair Value
December 31, 2020
U.S. Treasury, U.S. government corporations and agencies		$	3,348			$	55			$	—			$	3,403
Foreign governments			11,233				110				(5	)			11,338
Corporate bonds			4,729				464				(2	)			5,191
Other			414				66				(2	)			478
		$	19,724			$	695			$	(9	)		$	20,410
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

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, 2020, approximately 88% 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, 2020 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		$	10,379			$	8,323			$	373			$	337			$	312			$	19,724
Fair value			10,448				8,456				496				640				370				20,410

K-84

Notes to Consolidated Financial Statements (Continued)

(4)	Investments in equity securities

Investments in equity securities as of December 31, 2020 and 2019 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, 2020 *
Banks, insurance and finance		$	26,312			$	40,167			$	66,479
Consumer products			34,747				111,583				146,330
Commercial, industrial and other			47,561				20,800				68,361
		$	108,620			$	172,550			$	281,170

***	Approximately 68% of the aggregate fair value was concentrated in four companies (American Express Company – $18.3 billion; Apple Inc. – $120.4 billion; Bank of America Corporation – $31.3 billion and The Coca-Cola Company – $21.9 billion).

		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 60% of the aggregate fair value was concentrated in four companies (American Express Company – $18.9 billion; Apple Inc. – $73.7 billion; Bank of America Corporation – $33.4 billion and The Coca-Cola Company – $22.1 billion).

On August 8, 2019, Berkshire invested a total of $10 billion in Occidental Corporation (“Occidental”) newly issued Occidental Cumulative Perpetual Preferred Stock with an aggregate liquidation value of $10 billion and warrants to purchase up to 80 million shares of Occidental common stock at an exercise price of $62.50 per share. In accordance with the terms of the warrants, on August 3, 2020, the number of shares of common stock that can be purchased was increased to 83.86 million shares and the exercise price was reduced to $59.62 per share. The preferred stock accrues dividends at 8% per annum and is redeemable at the option of Occidental commencing in 2029 at a redemption price equal to 105% of the liquidation preference plus any accumulated and unpaid dividends, or is mandatorily redeemable under certain specified capital return events. Dividends on the preferred stock may be 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. Our investments in Occidental are included in the commercial, industrial and other category in the preceding tables.

**(**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-85

Notes to Consolidated Financial Statements (Continued)

(5)	Equity method investments (Continued)

We recorded equity method earnings from our investment in Kraft Heinz of $95 million in 2020, $493 million in 2019 and losses of approximately $2.7 billion in 2018. Equity method earnings (losses) included the effects of goodwill and identifiable intangible asset impairment charges recorded by Kraft Heinz. Our share of such charges was approximately $850 million in 2020, $450 million in 2019 and $3.7 billion in 2018. We received dividends from Kraft Heinz of $521 million in each of 2020 and 2019 and $814 million in 2018, which we recorded as reductions in our carrying value.

Shares of Kraft Heinz common stock are publicly-traded and the fair value of our investment was approximately $11.3 billion at December 31, 2020 and $10.5 billion at December 31, 2019. The carrying value of our investment was approximately $13.3 billion at December 31, 2020 and $13.8 billion at December 31, 2019. As of December 31, 2020, the carrying value of our investment exceeded the fair value based on the quoted market price by $2.0 billion (15% of carrying value). In light of this 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 26, 2020				December 28, 2019
Assets		$	99,830			$	101,450
Liabilities			49,587				49,701

		Year ending December 26, 2020				Year ending December 28, 2019				Year ending December 29, 2018
Sales		$	26,185			$	24,977			$	26,268
Net earnings (losses) attributable to Kraft Heinz common shareholders		$	356			$	1,935			$	(10,192	)

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 $4.0 billion as of December 31, 2020 and $3.7 billion as of December 31, 2019. Our equity method earnings in these entities were $631 million in 2020, $683 million in 2019 and $563 million in 2018. 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, 2020, Berkadia’s commercial paper outstanding was $1.47 billion. The commercial paper is supported by a surety policy issued by a Berkshire insurance subsidiary. Jefferies is obligated to indemnify us for one-half of any losses incurred under the policy.

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 the largest operator of travel centers in North America, supplying more than 11 billion gallons of fuel per year via more than 950 retail locations across 44 U.S. states and six Canadian provinces and through wholesale distribution. The Haslam family currently owns a 50.1% interest in Pilot and a third party owns the remaining 11.3% interest. We also entered into an agreement to acquire 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-86

Notes to Consolidated Financial Statements (Continued)

(6)	Investment gains/losses

Investment gains/losses for each of the three years ending December 31, 2020 are summarized below (in millions).

		2020				2019				2018
Equity securities:
Change in unrealized investment gains/losses during the year on securities held at the end of the period		$	54,951			$	69,581			$	(22,729	)
Investment gains/losses during the year on securities sold			(14,036	)			1,585				291
			40,915				71,166				(22,438	)
Fixed maturity securities:
Gross realized gains			56				87				480
Gross realized losses			(27	)			(25	)			(227	)
Other			(39	)			(105	)			30
		$	40,905			$	71,123			$	(22,155	)

Equity securities gains and losses include unrealized gains and losses from changes in fair values during the period on equity securities we still own, as well as gains and losses on securities we sold during the period. As reflected in the Consolidated Statements of Cash Flows, we received proceeds of approximately $38.8 billion in 2020, $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 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 $6.2 billion in 2020, $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,
		2020				2019
Loans and finance receivables before allowances and discounts		$	20,436			$	18,199
Allowances for uncollectible loans			(712	)			(167	)
Unamortized acquisition discounts and points			(523	)			(505	)
		$	19,201			$	17,527

Loans and finance receivables are principally manufactured home loans, and to a lesser extent, commercial loans and site-built home loans. Reconciliations of the allowance for credit losses on loans and finance receivables for 2020 and 2019 follow (in millions).

		2020				2019
Balance at beginning of year		$	167			$	177
Adoption of ASC 326			486				—
Provision for credit losses			177				125
Charge-offs, net of recoveries			(118	)			(135	)
Balance at December 31		$	712			$	167

At December 31, 2020, approximately 99% of home loan balances were evaluated collectively for impairment. At December 31, 2020, we considered approximately 97% of the loan balances to be current as to payment status. A summary of performing and non-performing home loans before discounts and allowances by year of loan origination as of December 31, 2020 follows (in millions).

		Loans and Financing Receivables by Origination Year
		2020				2019				2018				2017				2016				Prior				Total
Performing		$	4,430			$	2,537			$	1,928			$	1,424			$	1,276			$	6,645			$	18,240
Non-performing			3				5				7				7				7				43				72
Total		$	4,433			$	2,542			$	1,935			$	1,431			$	1,283			$	6,688			$	18,312

K-87

Notes to Consolidated Financial Statements (Continued)

(7)	Loans and finance receivables (Continued)

We are party to an agreement with Seritage Growth Properties to provide a $2.0 billion term loan facility, which expires on July 31, 2023. The outstanding loan under the facility was approximately $1.6 billion at December 31, 2020 and 2019, and is secured by mortgages on real estate properties. In 2020, we provided a loan to Lee Enterprises, Inc. in connection with its acquisition of our newspaper operations and the repayment by Lee of its then outstanding credit facilities. The loan balance as of December 31, 2020 was $524 million. We are the sole lender to each of these entities and each of these loans is current as to payment status.

(8)	Other receivables

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

		December 31,
		2020				2019
Insurance premiums receivable		$	14,025			$	13,379
Reinsurance recoverables			4,805				4,470
Trade receivables			11,521				12,275
Other			2,637				2,712
Allowances for uncollectible accounts			(678	)			(418	)
		$	32,310			$	32,418

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

		December 31,
		2020				2019
Trade receivables		$	3,235			$	3,120
Other			438				388
Allowances for uncollectible accounts			(131	)			(91	)
		$	3,542			$	3,417

Provisions for credit losses on receivables in the preceding tables were $564 million in 2020 and $363 million in 2019. Net charge-offs were $401 million in 2020 and $350 million in 2019.

(9)	Inventories

Inventories are comprised of the following (in millions).

		December 31,
		2020				2019
Raw materials		$	4,821			$	4,492
Work in process and other			2,541				2,700
Finished manufactured goods			4,412				4,821
Goods acquired for resale			7,434				7,839
		$	19,208			$	19,852

(10)	Property, plant and equipment

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

		December 31,
		2020				2019
Land, buildings and improvements		$	13,799			$	13,259
Machinery and equipment			25,488				24,285
Furniture, fixtures and other			4,530				4,666
			43,817				42,210
Accumulated depreciation			(22,617	)			(20,772	)
		$	21,200			$	21,438

K-88

Notes to Consolidated Financial Statements (Continued)

(10)	Property, plant and equipment (Continued)

A summary of property, plant and equipment of railroad and utilities and energy businesses follows (in millions). The utility generation, transmission and distribution systems and interstate natural gas pipeline assets are owned by regulated public utility and natural gas pipeline subsidiaries.

		December 31,
		2020				2019
Railroad:
Land, track structure and other roadway		$	63,824			$	62,404
Locomotives, freight cars and other equipment			13,523				13,482
Construction in progress			916				748
			78,263				76,634
Accumulated depreciation			(13,175	)			(12,101	)
			65,088				64,533
Utilities and energy:
Utility generation, transmission and distribution systems			86,730				81,127
Interstate natural gas pipeline assets			16,667				8,165
Independent power plants and other assets			12,671				8,817
Construction in progress			3,308				3,732
			119,376				101,841
Accumulated depreciation			(33,248	)			(28,536	)
			86,128				73,305
		$	151,216			$	137,838

Depreciation expense for each of the three years ending December 31, 2020 is summarized below (in millions).

		2020				2019				2018
Insurance and other		$	2,320			$	2,269			$	2,186
Railroad, utilities and energy			5,799				5,297				5,098
		$	8,119			$	7,566			$	7,284

(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,
		2020				2019
Railcars		$	9,402			$	9,260
Aircraft			8,204				8,093
Other			4,868				4,862
			22,474				22,215
Accumulated depreciation			(7,873	)			(7,150	)
		$	14,601			$	15,065

Depreciation expense for equipment held for lease was $1,200 million in 2020, $1,181 million in 2019 and $1,102 million in 2018. Fixed and variable operating lease revenues for each of the two years ending December 31, 2020 are summarized below (in millions).

		2020				2019
Fixed lease revenue		$	4,262			$	4,415
Variable lease revenue			947				1,441
		$	5,209			$	5,856

K-89

Notes to Consolidated Financial Statements (Continued)

(11)	Equipment held for lease (Continued)

A summary of future operating lease receipts as of December 31, 2020 follows (in millions).

2021				2022				2023				2024				2025				Thereafter				Total
$	2,618			$	1,962			$	1,429			$	905			$	443			$	387			$	7,744

(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 $5,579 million and lease liabilities were $5,469 million at December 31, 2020. 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 7.3 years at December 31, 2020 and 7.7 years at December 31, 2019. The weighted average discount rate used to measure lease liabilities was approximately 3.6% at December 31, 2020 and 3.8% at December 31, 2019. A summary of our remaining operating lease payments as of December 31, 2020 and December 31, 2019 follows (in millions).

		Year 1				Year 2				Year 3				Year 4				Year 5				Thereafter				Total lease payments				Amount representing interest				Lease liabilities
December 31:
2020		$	1,342			$	1,111			$	905			$	725			$	544			$	1,691			$	6,318			$	(849	)		$	5,469
2019			1,374				1,183				950				764				620				1,988				6,879				(997	)			5,882

Components of operating lease costs for the years ending December 31, 2020 and 2019, by type, are summarized in the following table (in millions). Operating lease expense was $1,649 million in 2018.

		2020				2019
Operating lease cost		$	1,413			$	1,459
Short-term lease cost			145				178
Variable lease cost			228				276
Sublease income			(10	)			(24	)
Total lease cost		$	1,776			$	1,889

(13)	Goodwill and other intangible assets

Reconciliations of the changes in the carrying value of goodwill during 2020 and 2019 follows (in millions).

		December 31,
		2020				2019
Balance at beginning of year		$	81,882			$	81,025
Acquisitions of businesses			1,758				890
Impairment charges			(10,033	)			(90	)
Other, including foreign currency translation			127				57
Balance at end of year*		$	73,734			$	81,882

***	Net of accumulated goodwill impairments of $11.0 billion as of December 31, 2020 and $1.1 billion as of December 31, 2019.

K-90

Notes to Consolidated Financial Statements (Continued)

(13)	Goodwill and other intangible assets (Continued)

The gross carrying amounts and related accumulated amortization of other intangible assets are summarized as follows (in millions).

		December 31, 2020								December 31, 2019
		Gross carrying amount				Accumulated amortization				Gross carrying amount				Accumulated amortization
Insurance and other:
Customer relationships		$	27,374			$	5,756			$	27,943			$	5,025
Trademarks and trade names			5,206				779				5,286				759
Patents and technology			4,766				3,313				4,560				3,032
Other			3,339				1,375				3,364				1,286
		$	40,685			$	11,223			$	41,153			$	10,102
Railroad, utilities and energy:
Customer relationships		$	678			$	361			$	678			$	324
Trademarks, trade names and other			1,003				98				325				84
		$	1,681			$	459			$	1,003			$	408

Intangible asset amortization expense was $1,277 million in 2020, $1,317 million in 2019 and $1,393 million in 2018. Estimated amortization expense over the next five years is as follows (in millions): 2021 – $1,262; 2022 – $1,190; 2023 – $1,108; 2024 – $986 and 2025 – $906. Intangible assets with indefinite lives were $18.3 billion as of December 31, 2020 and $19.0 billion as of December 31, 2019 and primarily related to certain customer relationships and trademarks and trade names.

During 2020, we concluded it was necessary to reevaluate goodwill and indefinite-lived intangible assets of certain of our reporting units for impairment due to the disruptions arising from the COVID-19 pandemic. We believed that the most significant of these disruptions related to the air travel and commercial aerospace and supporting industries. We recorded pre-tax goodwill impairment charges of approximately $10 billion and pre-tax indefinite-lived intangible asset impairment charges of $638 million in the second quarter of 2020. Approximately $10 billion of these charges related to Precision Castparts Corp. (“PCC”), the largest business within Berkshire's manufacturing segment. The carrying value of PCC-related goodwill and indefinite-lived intangible assets prior to the impairment charges was approximately $31 billion.

The impairment charges were determined based on discounted cash flow methods and reflected our assessments of the risks and uncertainties associated with the aerospace industry. Significant judgment is required in estimating the fair value of a reporting unit and in performing impairment tests. Due to the inherent uncertainty in forecasting cash flows and earnings, actual results in the future may vary significantly from the forecasts.

(14)	Derivative contracts

We are party to derivative contracts through certain of our subsidiaries. The most significant derivative contracts consist of equity index put option contracts. Information related to these contracts follows (dollars in millions).

		December 31,
		2020				2019
Balance sheet liabilities - at fair value		$	1,065			$	968
Notional value			10,991				14,385
Intrinsic value			727				397
Weighted average remaining life (in years)			1.2				1.8

The equity index put option contracts are European style options written prior to March 2008 on four major equity indexes. Notional value in the preceding table represents the aggregate undiscounted amounts payable assuming that the value of each index is zero at each contract’s expiration date. Intrinsic value is the undiscounted liability assuming the contracts are settled based on the index values and foreign currency exchange rates as of the balance sheet date. Substantially all open contracts as of December 31, 2020 will expire by February 2023.

K-91

Notes to Consolidated Financial Statements (Continued)

(14)	Derivative contracts (Continued)

Future payments, if any, under any given contract will be required if the prevailing index value is below the contract strike price at the expiration date. We received aggregate premiums of $1.9 billion on the contract inception dates with respect to unexpired contracts as of December 31, 2020 and we have no counterparty credit risk.

We recorded derivative contract losses of $159 million in 2020, gains of $1,484 million in 2019 and losses of $300 million in 2018, with respect to our equity index put option contracts. These gains and losses were primarily due to changes in the equity index values. 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.

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.

(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, 2020 is as follows (in millions).

		2020				2019				2018
Balances at beginning of year:
Gross liabilities		$	73,019			$	68,458			$	61,122
Reinsurance recoverable on unpaid losses			(2,855	)			(3,060	)			(3,201	)
Net liabilities			70,164				65,398				57,921
Incurred losses and loss adjustment expenses:
Current accident year events			43,400				43,335				39,876
Prior accident years’ events			(356	)			(752	)			(1,406	)
Total			43,044				42,583				38,470
Paid losses and loss adjustment expenses:
Current accident year events			(17,884	)			(19,482	)			(18,391	)
Prior accident years’ events			(18,862	)			(17,642	)			(15,452	)
Total			(36,746	)			(37,124	)			(33,843	)
Foreign currency translation adjustment			480				(23	)			(331	)
Business acquisition (disposition)			—				(670	)			3,181
Balances at December 31:
Net liabilities			76,942				70,164				65,398
Reinsurance recoverable on unpaid losses			2,912				2,855				3,060
Gross liabilities		$	79,854			$	73,019			$	68,458

Incurred losses and loss adjustment expenses shown in the preceding table were recorded in earnings and related to insured events occurring in the current year (“current accident year”) and events occurring in all prior years (“prior accident years”). Current accident year losses included approximately $950 million in 2020, $1.0 billion in 2019 and $1.6 billion in 2018 from significant catastrophe events occurring in each year. Current accident year losses in 2020 also reflected the effects of low private passenger automobile claims frequencies and increased loss estimates for certain commercial insurance and reinsurance business attributable to the COVID-19 pandemic.

We recorded net reductions of estimated ultimate liabilities for prior accident years of $356 million in 2020, $752 million in 2019 and $1,406 million in 2018, 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 0.5% in 2020, 1.1% in 2019 and 2.4% in 2018.

K-92

Notes to Consolidated Financial Statements (Continued)

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

Estimated ultimate liabilities for prior years’ loss events related to primary insurance were reduced by $518 million in 2020, $457 million in 2019 and $937 million in 2018. The decrease in 2020 was primarily attributable to reductions for private passenger automobile, medical professional liability and workers’ compensation claims, partly offset by increases for other casualty claims. The decrease in 2019 reflected reductions in medical professional liability and workers’ compensation claims, partially offset by higher commercial auto and other liability claims. The decrease in 2018 was primarily due to reductions for workers’ compensation, medical professional liability and private passenger automobile claims. Estimated ultimate liabilities for prior years’ loss events related to property and casualty reinsurance increased $162 million in 2020 and were reduced $295 million in 2019 and $469 million in 2018. The increase in 2020 included increased claims estimates for legacy casualty exposures.

Estimated claim liabilities included amounts for environmental, asbestos and other latent injury exposures, net of reinsurance recoverable, of approximately $2.1 billion at December 31, 2020 and $1.7 billion at December 31, 2019. 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.

Disaggregated information concerning our claims liabilities is provided below and in the pages that follow. The effects of businesses acquired or disposed during the period are reflected in the data presented on a retrospective basis. 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, 2020 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		$	524			$	18,755			$	7,897			$	11,294		$	11,280			$	22,890			$	72,640
Reinsurance recoverable			—				1,109				49				621			181				864				2,824
Unpaid unallocated loss adjustment expenses																										2,671
Other unpaid losses and loss adjustment expenses																										1,719
Unpaid losses and loss adjustment expenses																									$	79,854

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 individual case reserves when insufficient time or information is available for specific claim estimates and for large volumes of minor physical damage claims that once reported are quickly settled. We establish case loss estimates for liability claims, including estimates for loss adjustment expenses, as 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-93

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, 2020. 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				2019*				2020				IBNR and Case Development Liabilities				Reported Claims (in thousands)
2019				$	9,020			$	8,920			$	69				8,929
2020									8,603				296				7,794
		Incurred losses and ALAE						$	17,523
		Cumulative Paid Losses and ALAE through December 31,
Accident Year				2019*				2020
2019				$	8,678			$	8,905
2020									8,118
		Paid losses and ALAE							17,023
		Net unpaid losses and ALAE for 2019 – 2020 accident years							500
		Net unpaid losses and ALAE for accident years before 2019							24
		Net unpaid losses and ALAE						$	524

Auto Liability

		Incurred Losses and ALAE through December 31,																								Cumulative Number of
Accident Year		2016*				2017*				2018*				2019*				2020				IBNR and Case Development Liabilities				Reported Claims (in thousands)
2016		$	11,800			$	12,184			$	12,149			$	12,178			$	12,198			$	222				2,451
2017							14,095				13,864				13,888				13,824				502				2,639
2018											15,383				15,226				14,985				1,163				2,702
2019															16,901				16,678				2,905				2,749
2020																			14,637				4,482				1,945
		Incurred losses and ALAE																$	72,322
		Cumulative Paid Losses and ALAE through December 31,
Accident Year		2016*				2017*				2018*				2019*				2020
2016		$	5,069			$	8,716			$	10,330			$	11,294			$	11,718
2017							5,806				9,944				11,799				12,729
2018											6,218				10,772				12,658
2019															6,742				11,671
2020																			5,395
		Paid losses and ALAE																	54,171
		Net unpaid losses and ALAE for 2016 – 2020 accident years																	18,151
		Net unpaid losses and ALAE for accident years before 2016																	604
		Net unpaid losses and ALAE																$	18,755

***	Unaudited required supplemental information

K-94

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, 2020. 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 a variety of commonly accepted actuarial methodologies, such as the paid and incurred development method and Bornhuetter-Ferguson based methods, as well as other techniques that consider insured loss exposures and historical and expected loss trends, among other factors. These methodologies produce loss estimates from which we determine our best estimate. In addition, 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		2011*				2012*				2013*				2014*				2015*				2016*				2017*				2018*				2019*				2020				IBNR and Case Development Liabilities				Reported Claims (in thousands)
2011		$	1,346			$	1,334			$	1,321			$	1,262			$	1,173			$	1,115			$	1,050			$	1,004			$	968			$	972			$	39				11
2012							1,336				1,306				1,277				1,223				1,168				1,078				1,035				998				988				53				11
2013											1,328				1,296				1,261				1,195				1,127				1,086				1,019				985				65				11
2014															1,370				1,375				1,305				1,246				1,218				1,127				1,061				129				11
2015																			1,374				1,342				1,269				1,290				1,218				1,157				202				12
2016																							1,392				1,416				1,414				1,394				1,341				286				14
2017																											1,466				1,499				1,495				1,474				494				20
2018																															1,602				1,650				1,659				780				22
2019																																			1,670				1,691				1,204				17
2020																																							1,704				1,529				13
		Incurred losses and ALAE																																				$	13,032
		Cumulative Paid Losses and ALAE through December 31,
Accident Year		2011*				2012*				2013*				2014*				2015*				2016*				2017*				2018*				2019*				2020
2011		$	16			$	82			$	200			$	356			$	517			$	632			$	711			$	767			$	822			$	842
2012							15				93				218				377				522				642				725				789				830
2013											15				90				219				368				518				635				743				793
2014															21				106				238				396				540				671				752
2015																			23				108				218				382				543				663
2016																							22				115				274				461				620
2017																											27				128				300				457
2018																															35				166				367
2019																																			39				160
2020																																							34
		Paid losses and ALAE																																					5,518
		Net unpaid losses and ALAE for 2011– 2020 accident years																																					7,514
		Net unpaid losses and ALAE for accident years before 2011																																					383
		Net unpaid losses and ALAE																																				$	7,897

***	Unaudited required supplemental information

K-95

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		2011*				2012*				2013*				2014*				2015*				2016*				2017*				2018*				2019*				2020				IBNR and Case Development Liabilities				Reported Claims (in thousands)
2011		$	738			$	675			$	675			$	624			$	621			$	618			$	607			$	596			$	591			$	576			$	39				46
2012							873				850				837				791				780				762				750				736				718				53				53
2013											1,258				1,228				1,178				1,127				1,096				1,072				1,050				1,028				120				67
2014															1,743				1,638				1,614				1,548				1,482				1,497				1,477				190				90
2015																			2,169				2,127				2,042				2,014				2,025				1,997				267				111
2016																							2,511				2,422				2,359				2,325				2,365				470				115
2017																											3,044				2,907				2,842				2,843				691				138
2018																															3,544				3,412				3,480				1,152				160
2019																																			4,074				4,102				1,788				170
2020																																							4,421				2,987				120
		Incurred losses and ALAE																																				$	23,007
		Cumulative Paid Losses and ALAE through December 31,
Accident Year		2011*				2012*				2013*				2014*				2015*				2016*				2017*				2018*				2019*				2020
2011		$	109			$	220			$	333			$	403			$	453			$	481			$	496			$	505			$	512			$	519
2012							116				299				414				501				560				592				611				626				634
2013											177				422				609				725				793				835				858				874
2014															239				557				800				1,007				1,111				1,176				1,214
2015																			289				700				1,017				1,289				1,488				1,570
2016																							329				775				1,148				1,461				1,661
2017																											441				1,003				1,434				1,771
2018																															538				1,198				1,683
2019																																			682				1,478
2020																																							695
		Paid losses and ALAE																																					12,099
		Net unpaid losses and ALAE for 2011 – 2020 accident years																																					10,908
		Net unpaid losses and ALAE for accident years before 2011																																					386
		Net unpaid losses and ALAE																																				$	11,294

***	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-96

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. Estimated case and IBNR liabilities 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, 2020. Dollars are in millions.

BHRG Property

		Incurred Losses and ALAE through December 31,
Accident Year		2011*				2012*				2013*				2014*				2015*				2016*				2017*				2018*				2019*				2020				IBNR and Case Development Liabilities
2011		$	4,111			$	4,095			$	3,804			$	3,711			$	3,707			$	3,672			$	3,654			$	3,638			$	3,627			$	3,616			$	30
2012							3,153				2,846				2,644				2,403				2,351				2,348				2,329				2,315				2,305				35
2013											3,255				3,093				2,745				2,653				2,631				2,570				2,518				2,504				45
2014															2,648				2,436				2,322				2,178				2,123				2,050				2,021				48
2015																			3,287				3,135				2,577				2,979				2,976				3,000				143
2016																							3,293				3,923				3,646				3,614				3,616				218
2017																											5,291				4,986				4,837				4,727				187
2018																															4,426				4,524				4,397				678
2019																																			4,146				4,299				952
2020																																							5,858				3,129
Incurred losses and ALAE																																						$	36,343
		Cumulative Paid Losses and ALAE through December 31,
Accident Year		2011*				2012*				2013*				2014*				2015*				2016*				2017*				2018*				2019*				2020
2011		$	609			$	2,259			$	2,917			$	3,188			$	3,304			$	3,387			$	3,429			$	3,474			$	3,493			$	3,507
2012							262				1,232				1,813				1,950				2,040				2,117				2,135				2,181				2,199
2013											526				1,459				1,906				2,105				2,226				2,307				2,347				2,376
2014															467				1,249				1,574				1,713				1,779				1,829				1,858
2015																			581				1,614				1,969				2,166				2,271				2,453
2016																							709				1,811				2,208				2,670				2,923
2017																											1,028				2,734				3,660				3,972
2018																															915				2,341				2,868
2019																																			751				2,282
2020																																							960
Paid losses and ALAE																																							25,398
Net unpaid losses and ALAE for 2011 – 2020 accident years																																							10,945
Net unpaid losses and ALAE for accident years before 2011																																						335
Net unpaid losses and ALAE																																						$	11,280

***	Unaudited required supplemental information

K-97

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		2011*				2012*				2013*				2014*				2015*				2016*				2017*				2018*				2019*				2020				IBNR and Case Development Liabilities
2011		$	2,635			$	2,726			$	2,595			$	2,536			$	2,447			$	2,354			$	2,346			$	2,307			$	2,272			$	2,255			$	279
2012							2,820				3,002				2,837				2,899				2,827				2,712				2,645				2,588				2,581				317
2013											2,160				2,298				2,328				2,170				2,114				2,060				1,964				1,892				387
2014															1,900				2,099				2,068				2,030				1,944				1,980				1,970				537
2015																			1,902				2,109				2,137				2,035				1,908				1,870				455
2016																							1,928				2,138				2,047				2,003				1,922				555
2017																											2,216				2,711				2,588				2,494				762
2018																															2,948				3,585				3,509				1,183
2019																																			3,455				3,931				1,924
2020																																							3,883				2,754
		Incurred losses and ALAE																																				$	26,307
		Cumulative Paid Losses and ALAE through December 31,
Accident Year		2011*				2012*				2013*				2014*				2015*				2016*				2017*				2018*				2019*				2020
2011		$	294			$	824			$	1,169			$	1,412			$	1,501			$	1,595			$	1,673			$	1,713			$	1,748			$	1,776
2012							312				757				1,150				1,381				1,539				1,664				1,764				1,825				1,883
2013											294				530				818				947				1,052				1,155				1,215				1,273
2014															153				488				655				765				889				974				1,119
2015																			199				500				725				846				938				1,029
2016																							255				563				742				874				972
2017																											233				574				830				1,282
2018																															267				875				1,649
2019																																			356				906
2020																																							406
		Paid losses and ALAE																																					12,295
		Net unpaid losses and ALAE for 2011 – 2020 accident years																																					14,012
		Net unpaid losses and ALAE for accident years before 2011																																					8,878
		Net unpaid losses and ALAE																																				$	22,890

***	Unaudited required supplemental information

K-98

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			97	%			2	%
GEICO Auto Liability			42	%			29	%			13	%			7	%			4	%
BH Primary Medical Professional Liability			2	%			7	%			12	%			14	%			14	%			12	%			9	%			6	%			5	%			2	%
BH Primary Workers’ Compensation and Other Casualty			16	%			21	%			16	%			13	%			8	%			4	%			3	%			2	%			1	%			1	%
BHRG Property			19	%			37	%			17	%			8	%			4	%			4	%			1	%			2	%			1	%			0	%
BHRG Casualty			11	%			16	%			14	%			9	%			5	%			5	%			5	%			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, 2020 follow (in millions).

		2020								2019								2018
		Unpaid losses and loss adjustment expenses				Deferred charges reinsurance assumed				Unpaid losses and loss adjustment expenses				Deferred charges reinsurance assumed				Unpaid losses and loss adjustment expenses				Deferred charges reinsurance assumed
Balances at beginning of year		$	42,441			$	(13,747	)		$	41,834			$	(14,104	)		$	42,937			$	(15,278	)
Incurred losses and loss adjustment expenses:
Current year contracts			—				—				1,138				(453	)			603				(86	)
Prior years’ contracts			(399	)			1,306				378				810				(341	)			1,260
Total			(399	)			1,306				1,516				357				262				1,174
Paid losses and loss adjustment expenses			(1,076	)			—				(909	)			—				(1,365	)			—
Balances at December 31		$	40,966			$	(12,441	)		$	42,441			$	(13,747	)		$	41,834			$	(14,104	)
Incurred losses and loss adjustment expenses, net of deferred charges		$	907							$	1,873							$	1,436

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 have little or no practical analytical value.

Estimated ultimate claim liabilities included $17.7 billion at December 31, 2020 and $18.2 billion at December 31, 2019, with respect to 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 for certain commercial insurance loss events occurring prior to 2016. The related deferred charge assets were $5.4 billion at December 31, 2020 and $6.3 billion at December 31, 2019.

K-99

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 $907 million in 2020, $1,188 million in 2019 and $919 million in 2018, 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 $12.5 billion at December 31, 2020 and $12.9 billion at December 31, 2019. 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, 2020.

		Weighted Average				December 31,
		Interest Rate				2020				2019
Insurance and other:
Berkshire Hathaway Inc. (“Berkshire”):
U.S. Dollar denominated due 2021-2047			3.2	%		$	8,308			$	8,324
Euro denominated due 2021-2035			1.0	%			8,326				7,641
Japanese Yen denominated due 2023-2060			0.7	%			6,031				3,938
Berkshire Hathaway Finance Corporation (“BHFC”):
U.S. Dollar denominated due 2021-2050			3.7	%			10,766				8,679
Great Britain Pound denominated due 2039-2059			2.5	%			2,347				2,274
Other subsidiary borrowings due 2021-2045			4.2	%			4,682				5,262
Short-term subsidiary borrowings			2.5	%			1,062				1,472
						$	41,522			$	37,590

In March 2020, Berkshire repaid €1.0 billion of maturing senior notes and issued €1.0 billion of 0.0% senior notes due in 2025. In April 2020, Berkshire issued ¥195.5 billion (approximately $1.8 billion) of senior notes with maturity dates ranging from 2023 to 2060 and a weighted average interest rate of 1.07%.

Borrowings of BHFC, a wholly owned finance subsidiary of Berkshire, consist of senior unsecured notes used to fund manufactured housing loans originated or acquired and equipment held for lease of certain subsidiaries. BHFC borrowings are fully and unconditionally guaranteed by Berkshire. During 2020, BHFC repaid $900 million of maturing senior notes and issued $3.0 billion of senior notes consisting of $500 million of 1.85% notes due in 2030, $750 million of 1.45% notes due in 2030 and $1.75 billion of 2.85% notes due in 2050.

The carrying values of Berkshire and BHFC non-U.S. Dollar denominated senior notes (€6.85 billion, £1.75 billion and ¥625.5 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 losses of approximately $1.0 billion in 2020 and pre-tax gains of $192 million in 2019 and $366 million in 2018.

K-100

Notes to Consolidated Financial Statements (Continued)

(17)	Notes payable and other borrowings (Continued)

In addition to BHFC borrowings, Berkshire guaranteed approximately $1.2 billion of other subsidiary borrowings at December 31, 2020. 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				2020			2019
Railroad, utilities and energy:
Berkshire Hathaway Energy Company (“BHE”) and subsidiaries:
BHE senior unsecured debt due 2021-2051		4.2	%		$	13,447		$	8,581
Subsidiary and other debt due 2021-2064		4.1	%			36,420			30,772
Short-term borrowings		1.8	%			2,286			3,214
Burlington Northern Santa Fe ("BNSF") and subsidiaries due 2021-2097		4.6	%			23,220			23,211
					$	75,373		$	65,778

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. In November 2020, BHE’s subsidiary debt increased $5.6 billion for the debt assumed in connection with the Dominion pipeline business acquisition. See Note 2 to the Consolidated Financial Statements. During 2020, BHE and its subsidiaries also issued new term debt of approximately $7.6 billion with maturity dates ranging from 2025 to 2062 and a weighted average interest rate of 3.2% and repaid $3.2 billion of term debt and reduced short-term borrowings.

BNSF’s borrowings are primarily senior unsecured debentures. During 2020, BNSF issued $575 million of 3.05% senior unsecured debentures due in 2051 and repaid debt of $570 million. As of December 31, 2020, 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, 2020, our subsidiaries had unused lines of credit and commercial paper capacity aggregating approximately $9.3 billion to support short-term borrowing programs and provide additional liquidity. Such unused lines of credit included approximately $8.2 billion related to BHE and its subsidiaries.

Debt principal repayments expected during each of the next five years are as follows (in millions). Amounts in 2021 include short-term borrowings.

		2021				2022				2023				2024				2025
Insurance and other		$	4,354			$	1,593			$	6,021			$	2,343			$	2,817
Railroad, utilities and energy			5,044				3,405				4,792				3,965				3,777
		$	9,398			$	4,998			$	10,813			$	6,308			$	6,594

(18)	Income taxes

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

		December 31,
		2020				2019
Currently payable (receivable)		$	(276	)		$	24
Deferred			73,261				65,823
Other			1,113				952
		$	74,098			$	66,799

K-101

Notes to Consolidated Financial Statements (Continued)

(18)	Income taxes (Continued)

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,
		2020				2019
Deferred tax liabilities:
Investments – unrealized appreciation and cost basis differences		$	40,181			$	32,134
Deferred charges reinsurance assumed			2,613				2,890
Property, plant and equipment and equipment held for lease			30,203				29,388
Goodwill and other intangible assets			6,753				7,293
Other			3,736				3,144
			83,486				74,849
Deferred tax assets:
Unpaid losses and loss adjustment expenses			(1,135	)			(1,086	)
Unearned premiums			(900	)			(853	)
Accrued liabilities			(2,193	)			(1,981	)
Regulatory liabilities			(1,421	)			(1,610	)
Other			(4,576	)			(3,496	)
			(10,225	)			(9,026	)
Net deferred tax liability		$	73,261			$	65,823

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.

On December 22, 2017, legislation known as the Tax Cuts and Jobs Act of 2017 (“TCJA”) was enacted. Among its provisions, the TCJA reduced the statutory U.S. Corporate income tax rate from 35% to 21% effective January 1, 2018 and provided for a one-time tax on certain accumulated undistributed post-1986 earnings of foreign subsidiaries. These effects were largely recorded in 2017 upon the enactment. 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.

Income tax expense reflected in our Consolidated Statements of Earnings for each of the three years ending December 31, 2020 is as follows (in millions).

		2020				2019				2018
Federal		$	10,596			$	19,069			$	(1,613	)
State			1,086				625				175
Foreign			758				1,210				1,117
		$	12,440			$	20,904			$	(321	)
Current		$	5,052			$	5,818			$	5,176
Deferred			7,388				15,086				(5,497	)
		$	12,440			$	20,904			$	(321	)

K-102

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, 2020 in the table below (in millions).

		2020				2019				2018
Earnings before income taxes		$	55,693			$	102,696			$	4,001
Hypothetical income tax expense computed at the U.S. federal statutory rate		$	11,696			$	21,566			$	840
Dividends received deduction and tax-exempt interest			(448	)			(433	)			(393	)
State income taxes, less U.S. federal income tax benefit			858				494				138
Foreign tax rate differences			13				(6	)			271
U.S. income tax credits			(1,519	)			(942	)			(711	)
Net benefit from the enactment of the TCJA			—				—				(302	)
Goodwill impairments			1,977				20				21
Other differences, net			(137	)			205				(185	)
		$	12,440			$	20,904			$	(321	)
Effective income tax rate			22.3	%			20.4	%			(8.0	)%

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 and the tax years 2012 and 2013 remain open. The IRS is auditing Berkshire’s consolidated U.S. federal income tax returns for the 2014 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 2021. We currently do not believe that the outcome of unresolved issues or claims will be material to our Consolidated Financial Statements.

At December 31, 2020 and 2019, net unrecognized tax benefits were $1,113 million and $952 million, respectively. Included in the balance at December 31, 2020, were $920 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. We recorded income tax expense of $60 million in 2020 and $377 million in 2019 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. We do not expect any material increases to the estimated amount of unrecognized tax benefits during 2021.

(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 $23 billion as ordinary dividends during 2021. Investments in fixed maturity and equity securities and short-term investments on deposit with U.S. state insurance authorities in accordance with state insurance regulations were approximately $5.5 billion at December 31, 2020 and $6.3 billion at December 31, 2019.

Combined shareholders’ equity of U.S. based insurance subsidiaries determined pursuant to statutory accounting rules (Surplus as Regards Policyholders) was approximately $237 billion at December 31, 2020 and $216 billion at December 31, 2019. 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 non-insurance entities owned by our insurance subsidiaries, are not fully recognized for statutory reporting purposes.

K-103

Notes to Consolidated Financial Statements (Continued)

(20)	Fair value measurements

Our financial assets and liabilities are summarized below as of December 31, 2020 and December 31, 2019, 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, 2020
Investments in fixed maturity securities:
U.S. Treasury, U.S. government corporations and agencies		$	3,403			$	3,403			$	3,358			$	45			$	—
Foreign governments			11,338				11,338				9,259				2,079				—
Corporate bonds			5,191				5,191				—				5,191				—
Other			478				478				—				478				—
Investments in equity securities			281,170				281,170				271,848				38				9,284
Investment in Kraft Heinz common stock			13,336				11,280				11,280				—				—
Loans and finance receivables			19,201				20,554				—				2,692				17,862
Derivative contract assets (1)			270				270				1				72				197
Derivative contract liabilities:
Railroad, utilities and energy (1)			121				121				6				96				19
Equity index put options			1,065				1,065				—				—				1,065
Notes payable and other borrowings:
Insurance and other			41,522				46,676				—				46,665				11
Railroad, utilities and energy			75,373				92,593				—				92,593				—
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				—

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

K-104

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, 2020 follow (in millions).

		Investments in equity and fixed maturity securities				Net derivative contract liabilities
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	)
Gains (losses) included in:
Earnings			(1,426	)			603
Other comprehensive income			—				—
Regulatory assets and liabilities			—				(17	)
Acquisitions			—				5
Dispositions and settlements			(2	)			(621	)
Balance December 31, 2020		$	8,979			$	(887	)

K-105

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 related fair value measurements to contain Level 3 inputs. See Note 4 for information regarding these investments.

Quantitative information as of December 31, 2020, 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		$	8,891			Discounted cash flow		Expected duration		9 years
								Discount for transferability restrictions and subordination		375 bps
Common stock warrants			86			Warrant pricing model		Expected duration		9 years
								Volatility		32%
Derivative contract liabilities			1,065			Option pricing model		Volatility		19%

Investments in equity securities in the preceding table include our investments in the Occidental Preferred and Occidental 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 contractually 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.

(21)	Accumulated other comprehensive income

A summary of the net changes in after-tax accumulated other comprehensive income attributable to Berkshire Hathaway shareholders for each of the three years ending December 31, 2020 follows (in millions).

		Unrealized appreciation of investments, net				Foreign currency translation				Defined benefit pension plans				Other				Accumulated other comprehensive income
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			(383	)			(1,424	)			(432	)			28				(2,211	)
Balance December 31, 2018			370				(4,603	)			(816	)			34				(5,015	)
Other comprehensive income, net			111				257				(553	)			(43	)			(228	)
Balance December 31, 2019			481				(4,346	)			(1,369	)			(9	)			(5,243	)
Other comprehensive income, net			55				1,264				(276	)			(43	)			1,000
Balance December 31, 2020		$	536			$	(3,082	)		$	(1,645	)		$	(52	)		$	(4,243	)

K-106

Notes to Consolidated Financial Statements (Continued)

(22)	Common stock

Changes in Berkshire’s issued, treasury and outstanding common stock during the three years ending December 31, 2020 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, 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
Conversions of Class A common stock to Class B common stock and exercises of replacement stock options			(40,784	)			—				(40,784	)			61,176,000				—				61,176,000
Treasury stock acquired			—				(17,255	)			(17,255	)			—				(95,614,062	)			(95,614,062	)
Balance December 31, 2020			678,523				(34,592	)			643,931				1,469,359,852				(119,316,381	)			1,350,043,471

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 1,543,960 shares outstanding as of December 31, 2020 and 1,624,958 shares outstanding as of December 31, 2019.

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.

Berkshire’s common stock repurchase program, as amended, permits 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.

(23)	Revenues from contracts with customers

We recognize revenue when a good or service is transferred to a customer. A good or service is transferred when or as the customer obtains control of that good or service. Revenues are based on the consideration we expect to receive in connection with our promises to deliver goods and services to our customers.

K-107

Notes to Consolidated Financial Statements (Continued)

(23)	Revenues from contracts with customers (Continued)

The following tables summarize customer contract revenues disaggregated by reportable segment and the source of the revenue for each of the three years ended December 31, 2020 (in millions). Other revenues included in consolidated revenues were primarily insurance premiums earned, interest, dividend and other investment income and leasing revenues, which are not considered to be revenues from contracts with customers under GAAP.

2020		Manufacturing				McLane Company				Service and retailing				BNSF				Berkshire Hathaway Energy				Insurance, Corporate and other				Total
Manufactured products:
Industrial and commercial products		$	20,772			$	—			$	192			$	—			$	—			$	—			$	20,964
Building products			15,943				—				—				—				—				—				15,943
Consumer products			14,757				—				—				—				—				—				14,757
Grocery and convenience store distribution			—				30,795				—				—				—				—				30,795
Food and beverage distribution			—				15,368				—				—				—				—				15,368
Auto sales			—				—				8,258				—				—				—				8,258
Other retail and wholesale distribution			2,452				—				12,470				—				—				—				14,922
Service			1,456				584				3,332				20,693				4,595				—				30,660
Electricity and natural gas			—				—				—				—				15,066				—				15,066
Total			55,380				46,747				24,252				20,693				19,661				—				166,733
Other revenues			3,598				93				3,859				57				1,353				69,817				78,777
		$	58,978			$	46,840			$	28,111			$	20,750			$	21,014			$	69,817			$	245,510

2019
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 revenues			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
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 revenues			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

K-108

Notes to Consolidated Financial Statements (Continued)

(23)	Revenues from contracts with customers (Continued)

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, 2020 and the timing of when the performance obligations are expected to be satisfied follows (in millions).

		Less than 12 months				Greater than 12 months				Total
Electricity and natural gas		$	3,210			$	22,088			$	25,298
Other sales and service contracts			1,228				2,382				3,610

(24)	Pension plans

Certain of our subsidiaries sponsor defined benefit pension plans. Benefits under the plans are generally based on years of service and compensation or fixed benefit rates. Plan sponsors 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, 2020 follow (in millions).

		2020				2019				2018
Service cost		$	235			$	224			$	271
Interest cost			510				618				593
Expected return on plan assets			(955	)			(936	)			(988	)
Amortization of actuarial losses and other			171				26				188
Net periodic pension expense		$	(39	)		$	(68	)		$	64

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 $1.6 billion and $1.3 billion as of December 31, 2020 and 2019, respectively. The cost of pension plans covering employees of certain regulated subsidiaries of BHE are generally recoverable through the regulated rate making process.

The funded status at year end 2020 and 2019 and reconciliations of the changes in PBOs and plan assets related to BHE’s pension plans and all other pension plans for each of the two years ending December 31, 2020 follow (in millions).

		2020												2019
		BHE				Other				Total				BHE				Other				Total
Benefit obligations
PBO beginning of year		$	4,898			$	13,808			$	18,706			$	4,551			$	12,371			$	16,922
Service cost			33				202				235				32				192				224
Interest cost			133				377				510				161				457				618
Benefits paid			(285	)			(709	)			(994	)			(257	)			(776	)			(1,033	)
Settlements			(63	)			(12	)			(75	)			(121	)			(46	)			(167	)
Actuarial (gains) or losses and other			566				1,481				2,047				532				1,610				2,142
PBO end of year		$	5,282			$	15,147			$	20,429			$	4,898			$	13,808			$	18,706
Plan assets
Plan assets beginning of year		$	4,808			$	11,688			$	16,496			$	4,385			$	10,574			$	14,959
Employer contributions			69				127				196				68				131				199
Benefits paid			(285	)			(709	)			(994	)			(257	)			(776	)			(1,033	)
Actual return on plan assets			554				1,820				2,374				650				1,764				2,414
Settlements			(63	)			(12	)			(75	)			(121	)			(46	)			(167	)
Other			75				(134	)			(59	)			83				41				124
Plan assets end of year		$	5,158			$	12,780			$	17,938			$	4,808			$	11,688			$	16,496
Funded status – net liability		$	124			$	2,367			$	2,491			$	90			$	2,120			$	2,210

K-109

Notes to Consolidated Financial Statements (Continued)

(24)	Pension plans (Continued)

The funded status reflected in assets was $1,351 million and in liabilities was $3,842 million at December 31, 2020. The funded status included in assets was $857 million and in liabilities was $3,067 million at December 31, 2019.

The accumulated benefit obligation (“ABO”) is the actuarial present value of benefits earned based on service and compensation prior to the valuation date. The ABO was $19.4 billion at December 31, 2020 and $17.5 billion at December 31, 2019. Information for plans with PBOs and ABOs in excess of plan assets as of December 31, 2020 and 2019 follows (in millions)

	2020			2019
PBOs	$	12,775		$	12,625
Plan assets		9,018			9,627
ABOs		10,875			10,617
Plan assets		7,820			8,367

Weighted average assumptions used in determining PBOs and net periodic pension expense follow.

		2020				2019				2018
Discount rate applicable to pension benefit obligations			2.3	%			3.1	%			3.9	%
Expected long-term rate of return on plan assets		6.2				6.4					6.4
Rate of compensation increase		2.6				2.5					2.6
Discount rate applicable to net periodic pension expense			3.1				4.0				3.4

Pension benefit payments expected over the next ten years are as follows (in millions): 2021 – $1,105; 2022 – $1,031; 2023 – $1,034; 2024 – $1,037; 2025 – $1,040; and 2026 to 2030 – $5,119. Sponsoring subsidiaries expect to contribute $202 million to the plans in 2021.

Fair value measurements of plan assets as of December 31, 2020 and 2019 follow (in millions).

		Fair Value																Investment funds and partnerships
		Total				Level 1				Level 2				Level 3				at net asset value
December 31, 2020
Cash and cash equivalents		$	383			$	243			$	140			$	—			$	—
Equity securities			11,383				10,123				851				409				—
Fixed maturity securities			3,173				2,214				926				33				—
Investment funds and other			2,999				198				398				56				2,347
		$	17,938			$	12,778			$	2,315			$	498			$	2,347
December 31, 2019
Cash and cash equivalents		$	412			$	309			$	103			$	—			$	—
Equity securities			11,105				9,860				836				409				—
Fixed maturity securities			2,328				1,593				704				31				—
Investment funds and other			2,651				143				358				40				2,110
		$	16,496			$	11,905			$	2,001			$	480			$	2,110

See Note 20 for a discussion of the three levels of fair value measurements. 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 due to changing market conditions and investment opportunities. The expected rates of return on plan assets reflect subjective assessments of expected long-term investment returns. 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 of return.

K-110

Notes to Consolidated Financial Statements (Continued)

(24)	Pension plans (Continued)

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, 2020 follows (in millions).

		2020				2019
Balance beginning of year		$	(1,896	)		$	(1,184	)
Amount included in net periodic pension expense			141				94
Actuarial gains (losses) and other			(496	)			(806	)
Balance end of year		$	(2,251	)		$	(1,896	)

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. Our defined contribution plan expense was approximately $1.4 billion in 2020, $1.2 billion in 2019 and $1.0 billion in 2018.

(25)	Contingencies and Commitments

We are parties in a variety of legal actions that routinely arise out of the normal course of business, including legal actions seeking to establish liability directly through insurance contracts or indirectly through reinsurance contracts issued by Berkshire subsidiaries. Plaintiffs occasionally seek punitive or exemplary damages. We do not believe that such normal and routine litigation will have a material effect on our financial condition or results of operations. Berkshire and certain of its subsidiaries are also involved in other kinds of legal actions, some of which assert or may assert claims or seek to impose fines and penalties. We believe that any liability that may arise as a result of other pending legal actions will not have a material effect on our consolidated financial condition or results of operations.

Our subsidiaries regularly make commitments in the ordinary course of business to purchase goods and services used in their businesses. As of December 31, 2020, estimated future payments under such arrangements were as follows: $14.6 billion in 2021, $4.5 billion in 2022, $3.4 billion in 2023, $2.8 billion in 2024, $3.1 billion in 2025 and $20.0 billion after 2025. The most significant of these relate to our railroad, utilities and energy businesses and our shared aircraft ownership and leasing 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, 2020, we estimate the cost would have been approximately $6.3 billion. However, the timing and the amount of any such future payments that might be required are contingent on future actions of the noncontrolling owners.

(26**)**	Supplemental cash flow information

A summary of supplemental cash flow information for each of the three years ending December 31, 2020 is presented in the following table (in millions).

		2020				2019				2018
Cash paid during the period for:
Income taxes		$	5,001			$	5,415			$	4,354
Interest:
Insurance and other			1,001				1,011				1,111
Railroad, utilities and energy			3,006				2,879				2,867
Non-cash investing and financing activities:
Liabilities assumed in connection with business acquisitions			6,981				766				3,735
Operating lease liabilities arising from obtaining right-of-use assets			729				782				—

K-111

Notes to Consolidated Financial Statements (Continued)

(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, impairments or 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.

Berkshire’s operating segments are as follows.

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 home building and related financial services
McLane Company		Wholesale distribution of groceries and non-food items
Service and retailing		Providers of numerous services including shared aircraft ownership programs, aviation pilot training, electronic components distribution, various retailing businesses, including automobile dealerships and trailer and furniture leasing

K-112

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
		2020				2019				2018				2020				2019				2018
Operating Businesses
Insurance:
Underwriting:
GEICO		$	35,093			$	35,572			$	33,363			$	3,428			$	1,506			$	2,449
Berkshire Hathaway Primary Group			9,615				9,165				8,111				110				383				670
Berkshire Hathaway Reinsurance Group			18,693				16,341				15,944				(2,700	)			(1,472	)			(1,109	)
Insurance underwriting			63,401				61,078				57,418				838				417				2,010
Investment income			5,960				6,615				5,518				5,949				6,600				5,503
Total insurance			69,361				67,693				62,936				6,787				7,017				7,513
BNSF			20,869				23,515				23,855				6,792				7,250				6,863
Berkshire Hathaway Energy			21,031				20,114				19,987				2,479				2,618				2,472
Manufacturing			59,079				62,730				61,883				8,010				9,522				9,366
McLane Company			46,840				50,458				49,987				251				288				246
Service and retailing			28,178				29,487				28,939				2,628				2,555				2,696
			245,358				253,997				247,587				26,947				29,250				29,156
Reconciliation to consolidated amount
Investment and derivative gains/losses			—				—				—				40,746				72,607				(22,455	)
Interest expense, not allocated to segments			—				—				—				(483	)			(416	)			(458	)
Equity method investments			—				—				—				726				1,176				(2,167	)
Goodwill and intangible asset impairments			—				—				—				(10,671	)			(96	)			(382	)
Corporate, eliminations and other			152				619				250				(1,572	)			175				307
		$	245,510			$	254,616			$	247,837			$	55,693			$	102,696			$	4,001

		Interest expense												Income tax expense
		2020				2019				2018				2020				2019				2018
Operating Businesses
Insurance		$	—			$	—			$	—			$	1,089			$	1,166			$	1,374
BNSF			1,037				1,070				1,041				1,631				1,769				1,644
Berkshire Hathaway Energy			1,941				1,835				1,777				(1,010	)			(526	)			(452	)
Manufacturing			737				752				690				1,795				2,253				2,188
McLane Company			—				—				15				71				71				59
Service and retailing			61				86				91				669				603				634
			3,776				3,743				3,614				4,245				5,336				5,447
Reconciliation to consolidated amount
Investment and derivative gains/losses			—				—				—				8,855				15,159				(4,673	)
Interest expense, not allocated to segments			483				416				458				(102	)			(88	)			(96	)
Equity method investments			—				—				—				57				148				(753	)
Corporate, eliminations and other			(176	)			(198	)			(219	)			(615	)			349				(246	)
		$	4,083			$	3,961			$	3,853			$	12,440			$	20,904			$	(321	)

K-113

Notes to Consolidated Financial Statements (Continued)

(27)	Business segment data (Continued)

		Capital expenditures												Depreciation of tangible assets
		2020				2019				2018				2020				2019				2018
Operating Businesses
Insurance		$	50			$	108			$	130			$	74			$	82			$	79
BNSF			3,063				3,608				3,187				2,423				2,350				2,268
Berkshire Hathaway Energy			6,765				7,364				6,241				3,376				2,947				2,830
Manufacturing			2,133				2,981				3,116				2,026				1,951				1,890
McLane Company			98				158				276				204				225				204
Service and retailing			903				1,760				1,587				1,216				1,192				1,115
		$	13,012			$	15,979			$	14,537			$	9,319			$	8,747			$	8,386

		Goodwill at year-end												Identifiable assets at year-end
		2020				2019				2018				2020				2019				2018
Operating Businesses
Insurance		$	15,224			$	15,289			$	15,289			$	399,169			$	364,550			$	289,746
BNSF			14,851				14,851				14,851				73,809				73,699				70,242
Berkshire Hathaway Energy			11,763				9,979				9,851				109,286				88,651				80,543
Manufacturing			25,512				34,800				34,019				104,318				104,437				99,912
McLane Company			232				734				734				6,771				6,872				6,243
Service and retailing			6,152				6,229				6,281				26,173				26,494				24,724
		$	73,734			$	81,882			$	81,025				719,526				664,703				571,410
Reconciliation to consolidated amount
Corporate and other															80,469				71,144				55,359
Goodwill															73,734				81,882				81,025
														$	873,729			$	817,729			$	707,794

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

		Property/Casualty												Life/Health
		2020				2019				2018				2020				2019				2018
Premiums Written:
Direct		$	47,838			$	47,578			$	44,513			$	510			$	839			$	1,111
Assumed			11,533				10,214				8,970				5,960				5,046				5,540
Ceded			(898	)			(821	)			(869	)			(42	)			(45	)			(49	)
		$	58,473			$	56,971			$	52,614			$	6,428			$	5,840			$	6,602
Premiums Earned:
Direct		$	46,418			$	46,540			$	43,095			$	510			$	839			$	1,111
Assumed			11,449				9,643				8,649				5,973				4,952				5,438
Ceded			(907	)			(851	)			(825	)			(42	)			(45	)			(50	)
		$	56,960			$	55,332			$	50,919			$	6,441			$	5,746			$	6,499

K-114

Notes to Consolidated Financial Statements (Continued)

(27)	Business segment data (Continued)

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

	Property/Casualty										Life/Health
	2020			2019			2018				2020			2019			2018
United States	$	50,250		$	50,529		$	46,146			$	2,820		$	2,553		$	3,598
Western Europe		3,751			2,535			2,157				1,120			908			939
Asia Pacific		3,410			3,114			3,726				1,652			1,582			1,361
All other		1,062			793			585				836			797			704
	$	58,473		$	56,971		$	52,614			$	6,428		$	5,840		$	6,602

Consolidated sales, service and leasing revenues were $132.3 billion in 2020, $140.8 billion in 2019 and $139.1 billion in 2018. Sales, service and leasing revenues attributable to the United States were 86% in 2020, 85% in 2019 and 84% in 2018 of such amounts. The remainder of sales, service and leasing revenues were primarily in Europe, Canada and the Asia Pacific. Railroad, utilities and energy revenues were $41.8 billion in 2020, $43.5 billion in 2019 and $43.7 billion in 2018. In each of the three years, approximately 96% of such revenues were attributable to the United States. At December 31, 2020, 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 the United Kingdom.

(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
2020
Revenues		$	61,265			$	56,840			$	63,024			$	64,381
Net earnings (loss) attributable to Berkshire shareholders *			(49,746	)			26,295				30,137				35,835
Net earnings (loss) attributable to Berkshire shareholders per equivalent Class A common share			(30,653	)			16,314				18,994				23,015
2019
Revenues		$	60,678			$	63,598			$	64,972			$	65,368
Net earnings attributable to Berkshire shareholders *			21,661				14,073				16,524				29,159
Net earnings attributable to Berkshire shareholders per equivalent Class A common share			13,209				8,608				10,119				17,909

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

		1st Quarter				2nd Quarter				3rd Quarter				4th Quarter
2020		$	(55,617	)		$	31,645			$	24,737			$	30,826
2019			16,106				7,934				8,666				24,739

K-115