filings.toolsItem 8. Financial Statements and Supplementary Data
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Item 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT REGIST****ERED 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, 2022 and 2021, 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, 2022, 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, 2022, 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, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, 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, 2022, 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 16 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 $107,472 million as of December 31, 2022. 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, 2022, 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 17 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 $35,415 million as of December 31, 2022. 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, 2022, 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 $8 billion of goodwill and approximately $13 billion of indefinite-lived intangible assets as of December 31, 2022. 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, newly executed long-term contracts, customer demand and build schedules, 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 terminal 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 terminal growth rates and discount rate selected by management.
/s/ Deloitte & Touche LLP
Omaha, Nebraska
February 25, 2023
We have served as the Company’s auditor since 1985.
K-69
BERKSHIRE HATHAWAY INC.
and Subsidiaries
CONSOLIDATED B****ALANCE SHEETS
(dollars in millions)
| December 31, | ||||||||
| 2022 | 2021 | |||||||
| ASSETS | ||||||||
| Insurance and Other: | ||||||||
| Cash and cash equivalents* | $ | 32,260 | $ | 85,319 | ||||
| Short-term investments in U.S. Treasury Bills | 92,774 | 58,535 | ||||||
| Investments in fixed maturity securities | 25,128 | 16,434 | ||||||
| Investments in equity securities | 308,793 | 350,719 | ||||||
| Equity method investments | 28,050 | 16,045 | ||||||
| Loans and finance receivables | 23,208 | 20,751 | ||||||
| Other receivables | 43,506 | 35,388 | ||||||
| Inventories | 25,366 | 20,954 | ||||||
| Property, plant and equipment | 21,113 | 20,834 | ||||||
| Equipment held for lease | 15,584 | 14,918 | ||||||
| Goodwill | 51,522 | 47,117 | ||||||
| Other intangible assets | 29,187 | 28,486 | ||||||
| Deferred charges - retroactive reinsurance | 9,870 | 10,639 | ||||||
| Other | 19,628 | 15,854 | ||||||
| 725,989 | 741,993 | |||||||
| Railroad, Utilities and Energy: | ||||||||
| Cash and cash equivalents* | 3,551 | 2,865 | ||||||
| Receivables | 4,795 | 4,177 | ||||||
| Property, plant and equipment | 160,268 | 155,530 | ||||||
| Goodwill | 26,597 | 26,758 | ||||||
| Regulatory assets | 5,062 | 3,963 | ||||||
| Other | 22,190 | 23,498 | ||||||
| 222,463 | 216,791 | |||||||
| $ | 948,452 | $ | 958,784 |
*** *Includes U.S. Treasury Bills with maturities of three months or less when purchased of $*2.6 *billion at December 31, 2022 and $*61.7 billion at December 31, 2021.
See accompanying Notes to Consolidated Financial Statements
K-70
BERKSHIRE HATHAWAY INC.
and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(dollars in millions)
| December 31, | ||||||||
| 2022 | 2021 | |||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Insurance and Other: | ||||||||
| Unpaid losses and loss adjustment expenses | $ | 107,472 | $ | 86,664 | ||||
| Unpaid losses and loss adjustment expenses under retroactive reinsurance contracts | 35,415 | 37,855 | ||||||
| Unearned premiums | 28,657 | 23,512 | ||||||
| Life, annuity and health insurance benefits | 22,421 | 22,282 | ||||||
| Other policyholder liabilities | 10,101 | 9,901 | ||||||
| Accounts payable, accruals and other liabilities | 33,201 | 30,376 | ||||||
| Aircraft repurchase liabilities and unearned lease revenues | 6,820 | 5,849 | ||||||
| Notes payable and other borrowings | 46,538 | 39,272 | ||||||
| 290,625 | 255,711 | |||||||
| Railroad, Utilities and Energy: | ||||||||
| Accounts payable, accruals and other liabilities | 16,615 | 15,696 | ||||||
| Regulatory liabilities | 7,369 | 7,214 | ||||||
| Notes payable and other borrowings | 76,206 | 74,990 | ||||||
| 100,190 | 97,900 | |||||||
| Income taxes, principally deferred | 77,020 | 90,243 | ||||||
| Total liabilities | 467,835 | 443,854 | ||||||
| Shareholders’ equity: | ||||||||
| Common stock | 8 | 8 | ||||||
| Capital in excess of par value | 35,167 | 35,592 | ||||||
| Accumulated other comprehensive income | (6,591 | ) | (4,027 | ) | ||||
| Retained earnings | 511,602 | 534,421 | ||||||
| Treasury stock, at cost | (67,826 | ) | (59,795 | ) | ||||
| Berkshire Hathaway shareholders’ equity | 472,360 | 506,199 | ||||||
| Noncontrolling interests | 8,257 | 8,731 | ||||||
| Total shareholders’ equity | 480,617 | 514,930 | ||||||
| $ | 948,452 | $ | 958,784 |
See accompanying Notes to Consolidated Financial Statements
K-71
BERKSHIRE HATHAWAY INC.
and Subsidiaries
CONSOLIDATED STATE****MENTS OF EARNINGS
(dollars in millions except per share amounts)
| Year Ended December 31, | ||||||||||||
| 2022 | 2021 | 2020 | ||||||||||
| Revenues: | ||||||||||||
| Insurance and Other: | ||||||||||||
| Insurance premiums earned | $ | 74,645 | $ | 69,478 | $ | 63,401 | ||||||
| Sales and service revenues | 157,518 | 145,043 | 127,044 | |||||||||
| Leasing revenues | 7,514 | 5,988 | 5,209 | |||||||||
| Interest, dividend and other investment income | 10,263 | 7,465 | 8,092 | |||||||||
| 249,940 | 227,974 | 203,746 | ||||||||||
| Railroad, Utilities and Energy: | ||||||||||||
| Freight rail transportation revenues | 25,802 | 23,177 | 20,750 | |||||||||
| Energy operating revenues | 21,023 | 18,891 | 15,540 | |||||||||
| Service revenues and other income | 5,324 | 6,161 | 5,543 | |||||||||
| 52,149 | 48,229 | 41,833 | ||||||||||
| Total revenues | 302,089 | 276,203 | 245,579 | |||||||||
| Investment and derivative contract gains (losses) | (67,899 | ) | 78,542 | 40,746 | ||||||||
| Costs and expenses: | ||||||||||||
| Insurance and Other: | ||||||||||||
| Insurance losses and loss adjustment expenses | 57,646 | 49,964 | 43,951 | |||||||||
| Life, annuity and health insurance benefits | 5,152 | 6,007 | 5,812 | |||||||||
| Insurance underwriting expenses | 11,942 | 12,569 | 12,798 | |||||||||
| Cost of sales and services | 124,319 | 114,138 | 101,091 | |||||||||
| Cost of leasing | 5,550 | 4,201 | 3,520 | |||||||||
| Selling, general and administrative expenses | 19,506 | 18,843 | 19,809 | |||||||||
| Goodwill and intangible asset impairments | — | — | 10,671 | |||||||||
| Interest expense | 1,187 | 1,086 | 1,105 | |||||||||
| 225,302 | 206,808 | 198,757 | ||||||||||
| Railroad, Utilities and Energy: | ||||||||||||
| Freight rail transportation expenses | 17,282 | 14,477 | 13,120 | |||||||||
| Utilities and energy cost of sales and other expenses | 15,896 | 13,959 | 11,638 | |||||||||
| Other expenses | 4,984 | 5,615 | 4,796 | |||||||||
| Interest expense | 3,165 | 3,086 | 2,978 | |||||||||
| 41,327 | 37,137 | 32,532 | ||||||||||
| Total costs and expenses | 266,629 | 243,945 | 231,289 | |||||||||
| Earnings (loss) before income taxes and equity method earnings | (32,439 | ) | 110,800 | 55,036 | ||||||||
| Equity method earnings | 1,863 | 886 | 657 | |||||||||
| Earnings (loss) before income taxes | (30,576 | ) | 111,686 | 55,693 | ||||||||
| Income tax expense (benefit) | (8,518 | ) | 20,879 | 12,440 | ||||||||
| Net earnings (loss) | (22,058 | ) | 90,807 | 43,253 | ||||||||
| Earnings (loss) attributable to noncontrolling interests | 761 | 1,012 | 732 | |||||||||
| Net earnings (loss) attributable to Berkshire Hathaway shareholders | $ | (22,819 | ) | $ | 89,795 | $ | 42,521 | |||||
| Net earnings (loss) per average equivalent Class A share | $ | (15,535 | ) | $ | 59,460 | $ | 26,668 | |||||
| Net earnings (loss) per average equivalent Class B share* | $ | (10.36 | ) | $ | 39.64 | $ | 17.78 | |||||
| Average equivalent Class A shares outstanding | 1,468,876 | 1,510,180 | 1,594,469 | |||||||||
| Average equivalent Class B shares outstanding | 2,203,313,642 | 2,265,269,867 | 2,391,703,454 |
*** Class B shares are economically equivalent to one-fifteen-hundredth of a Class A share. Accordingly, net earnings per average equivalent Class B share outstanding is equal to one-fifteen-hundredth of the equivalent Class A amount. See Note 21.
See accompanying Notes to Consolidated Financial Statements
K-72
BERKSHIRE HATHAWAY INC.
and Subsidiaries
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(dollars in millions)
| Year Ended December 31, | ||||||||||||
| 2022 | 2021 | 2020 | ||||||||||
| Net earnings (loss) | $ | (22,058 | ) | $ | 90,807 | $ | 43,253 | |||||
| Other comprehensive income: | ||||||||||||
| Unrealized gains (losses) on investments | (713 | ) | (217 | ) | 74 | |||||||
| Applicable income taxes | 158 | 50 | (19 | ) | ||||||||
| Foreign currency translation | (2,136 | ) | (1,011 | ) | 1,284 | |||||||
| Applicable income taxes | 22 | (6 | ) | 3 | ||||||||
| Defined benefit pension plans | (253 | ) | 1,775 | (355 | ) | |||||||
| Applicable income taxes | 47 | (457 | ) | 74 | ||||||||
| Other, net | 250 | 100 | (42 | ) | ||||||||
| Other comprehensive income, net | (2,625 | ) | 234 | 1,019 | ||||||||
| Comprehensive income | (24,683 | ) | 91,041 | 44,272 | ||||||||
| Comprehensive income attributable to noncontrolling interests | 700 | 1,030 | 751 | |||||||||
| Comprehensive income attributable to Berkshire Hathaway shareholders | $ | (25,383 | ) | $ | 90,011 | $ | 43,521 |
BERKSHIRE HATHAWAY INC.
and Subsidiaries
CONSOLIDATED STATEMENTS OF CH****ANGES 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, 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 | ||||||||||||||||||
| 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 | ||||||||||||||||
| Net earnings | — | — | 89,795 | — | 1,012 | 90,807 | ||||||||||||||||||
| Other comprehensive income, net | — | 216 | — | — | 18 | 234 | ||||||||||||||||||
| Acquisition of common stock | — | — | — | (26,942 | ) | — | (26,942 | ) | ||||||||||||||||
| Transactions with noncontrolling interests | (34 | ) | — | — | — | (471 | ) | (505 | ) | |||||||||||||||
| Balance December 31, 2021 | 35,600 | (4,027 | ) | 534,421 | (59,795 | ) | 8,731 | 514,930 | ||||||||||||||||
| Net earnings (loss) | — | — | (22,819 | ) | — | 761 | (22,058 | ) | ||||||||||||||||
| Other comprehensive income, net | — | (2,564 | ) | — | — | (61 | ) | (2,625 | ) | |||||||||||||||
| Acquisition of common stock | — | — | — | (8,031 | ) | — | (8,031 | ) | ||||||||||||||||
| Transactions with noncontrolling interests | (425 | ) | — | — | — | (1,174 | ) | (1,599 | ) | |||||||||||||||
| Balance December 31, 2022 | $ | 35,175 | $ | (6,591 | ) | $ | 511,602 | $ | (67,826 | ) | $ | 8,257 | $ | 480,617 |
See accompanying Notes to Consolidated Financial Statements
K-73
BERKSHIRE HATHAWAY INC.
and Subsidiaries
CONSOLIDATED STATEM****ENTS OF CASH FLOWS
(dollars in millions)
| Year Ended December 31, | ||||||||||||
| 2022 | 2021 | 2020 | ||||||||||
| Cash flows from operating activities: | ||||||||||||
| Net earnings (loss) | $ | (22,058 | ) | $ | 90,807 | $ | 43,253 | |||||
| Adjustments to reconcile net earnings (loss) to operating cash flows: | ||||||||||||
| Investment (gains) losses | 67,623 | (77,576 | ) | (40,905 | ) | |||||||
| Depreciation and amortization | 10,899 | 10,718 | 10,596 | |||||||||
| Other | (4,324 | ) | (3,397 | ) | 11,263 | |||||||
| Changes in operating assets and liabilities: | ||||||||||||
| Unpaid losses and loss adjustment expenses | 4,057 | 4,194 | 4,476 | |||||||||
| Deferred charges - retroactive reinsurance | 769 | 1,802 | 1,307 | |||||||||
| Unearned premiums | 1,861 | 2,306 | 1,587 | |||||||||
| Receivables and originated loans | (5,592 | ) | (5,834 | ) | (1,609 | ) | ||||||
| Inventories | (4,779 | ) | (1,862 | ) | 681 | |||||||
| Other assets | (373 | ) | 176 | (1,790 | ) | |||||||
| Other liabilities | 2,033 | 2,790 | 3,719 | |||||||||
| Income taxes | (12,892 | ) | 15,297 | 7,195 | ||||||||
| Net cash flows from operating activities | 37,224 | 39,421 | 39,773 | |||||||||
| Cash flows from investing activities: | ||||||||||||
| Purchases of equity securities | (67,930 | ) | (8,448 | ) | (30,161 | ) | ||||||
| Sales of equity securities | 33,664 | 15,849 | 38,756 | |||||||||
| Purchases of U.S. Treasury Bills and fixed maturity securities | (183,922 | ) | (152,637 | ) | (208,429 | ) | ||||||
| Sales of U.S. Treasury Bills and fixed maturity securities | 90,088 | 27,188 | 31,873 | |||||||||
| Redemptions and maturities of U.S. Treasury Bills and fixed maturity securities | 66,318 | 160,402 | 149,709 | |||||||||
| Acquisitions of businesses, net of cash acquired | (10,594 | ) | (456 | ) | (2,532 | ) | ||||||
| Purchases of property, plant and equipment and equipment held for lease | (15,464 | ) | (13,276 | ) | (13,012 | ) | ||||||
| Other | 239 | 770 | (3,961 | ) | ||||||||
| Net cash flows from investing activities | (87,601 | ) | 29,392 | (37,757 | ) | |||||||
| Cash flows from financing activities: | ||||||||||||
| Proceeds from borrowings of insurance and other businesses | 7,822 | 2,961 | 5,925 | |||||||||
| Repayments of borrowings of insurance and other businesses | (1,502 | ) | (3,032 | ) | (2,700 | ) | ||||||
| Proceeds from borrowings of railroad, utilities and energy businesses | 4,873 | 3,959 | 8,445 | |||||||||
| Repayments of borrowings of railroad, utilities and energy businesses | (2,426 | ) | (4,016 | ) | (3,761 | ) | ||||||
| Changes in short term borrowings, net | (596 | ) | (624 | ) | (1,118 | ) | ||||||
| Acquisition of treasury stock | (7,854 | ) | (27,061 | ) | (24,706 | ) | ||||||
| Other, principally transactions with noncontrolling interests | (1,979 | ) | (695 | ) | (429 | ) | ||||||
| Net cash flows from financing activities | (1,662 | ) | (28,508 | ) | (18,344 | ) | ||||||
| Effects of foreign currency exchange rate changes | (268 | ) | 5 | 92 | ||||||||
| Increase (decrease) in cash and cash equivalents and restricted cash | (52,307 | ) | 40,310 | (16,236 | ) | |||||||
| Cash and cash equivalents and restricted cash at beginning of year | 88,706 | 48,396 | 64,632 | |||||||||
| Cash and cash equivalents and restricted cash at end of year* | $ | 36,399 | $ | 88,706 | $ | 48,396 | ||||||
| ** Cash and cash equivalents and restricted cash at end of year are comprised of:* | ||||||||||||
| Insurance and Other | $ | 32,260 | $ | 85,319 | $ | 44,714 | ||||||
| Railroad, Utilities and Energy | 3,551 | 2,865 | 3,276 | |||||||||
| Restricted cash included in other assets | 588 | 522 | 406 | |||||||||
| $ | 36,399 | $ | 88,706 | $ | 48,396 |
See accompanying Notes to Consolidated Financial Statements
K-74
BERKSHIRE HATHAWAY INC.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022
(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 numerous 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 25. Information concerning significant 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. Certain immaterial balances in the Consolidated Financial Statements have been reclassified in prior years to conform to current year presentations.
(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 indefinite-lived intangible assets for impairment require considerable judgment. Actual results may differ from the estimates used in preparing our Consolidated Financial Statements.
To varying degrees the COVID-19 pandemic and its consequences continues to affect our operating businesses. Significant government and private sector actions have been taken since 2020 to control the spread and mitigate the economic effects of the virus and its variants. Such actions in 2022 included temporary business closures or restrictions of business activities in various parts of the world. In addition, significant disruptions of supply chains and higher costs emerged in 2021 and persisted in 2022. The development of geopolitical conflicts in 2022 contributed to disruptions of supply chains, resulting in cost increases for commodities, goods and services in many parts of the world. In the U.S. and elsewhere, governments are implementing actions intended to slow price inflation. The economic effects from these events over longer terms cannot be reasonably estimated at this time. 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 with maturities of three months or less when purchased. Short-term investments in U.S. Treasury Bills have maturities exceeding three months and less than one year at the time of purchase.
(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 our investments in fixed maturity securities 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.
K-75
Notes to Consolidated Financial Statements (Continued)
(1)
Significant accounting policies and practices (Continued)
(d)
Investments in fixed maturity securities (Continued)
We record investment gains and losses on available-for-sale fixed maturity securities when the securities are sold, 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. As of the balance sheet date, we evaluate whether the other 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, 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 or 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 other investments when such investments possess substantially identical subordinated interests to common stock, and do not apply the equity method to investments that are not in-substance common stock as defined by GAAP.
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. If net losses reduce our 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)
Loans and finance receivables
Loans and finance receivables are primarily manufactured home loans, and to a lesser extent, commercial loans and site-built home loans. We carry substantially all loans and finance receivables 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 and fees received, as well as acquisition premiums or discounts, are amortized as yield adjustments over the lives of the loans.
Measurements of expected credit losses include provisions for non-collection, whether the risk is probable or remote. Expected credit losses on manufactured home 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.
K-76
Notes to Consolidated Financial Statements (Continued)
(1)
Significant accounting policies and practices (Continued)
(g)
Loans and finance receivables (Continued)
Loans are considered delinquent when payments are more than 30 days past due. We place loans over 90 days past due on nonaccrual status and accrued but uncollected interest is reversed. Subsequent collections on the loans are first applied to the principal and interest owed for the most delinquent amount. We resume interest income accrual once a loan is less than 90 days delinquent.
Loans are considered non-performing when the foreclosure process has started. Once a loan is in the process of foreclosure, interest income is not recognized until 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.
(h)
Other receivables
Other receivables include balances due from customers, insurance premiums receivable and reinsurance losses recoverable, as well as other receivables. 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 unpaid losses and loss adjustment expenses arising from property and casualty contracts and benefits under life and health contracts. Receivables are stated net of estimated allowances for uncollectible balances.
We measure expected credit losses primarily utilizing 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 recoverables 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.
(i)
Derivatives
We carry assets and liabilities arising from derivative contracts at fair value in other assets and accounts payable, accruals and other liabilities in our Consolidated Balance Sheets. Balances are 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, 2022, we used the last-in-first-out (“LIFO”) method to value approximately 30% 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 $2.5 billion as of December 31, 2022 and $1.9 billion as of December 31, 2021.
K-77
Notes to Consolidated Financial Statements (Continued)
(1)
Significant accounting policies and practices (Continued)
(l)
Property, plant and equipment and equipment held for lease
We use property, plant and equipment in our operations. We also own equipment that we lease to others under lease contracts. We record additions to property, plant and equipment and equipment held for lease 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 its useful life or otherwise do not meet capitalization criteria are charged to expense as incurred.
Depreciation of assets of our regulated utilities and railroad is generally determined using group depreciation methods where rates are based on periodic depreciation studies approved by the applicable regulator. Under group depreciation, a composite rate is applied to the gross investment in a particular class of property, despite differences in the service life or salvage value of individual property units within the same class. When such assets are retired or sold, no gain or loss is recognized. Gains or losses on disposals of all other assets are recorded through earnings.
We depreciate property, plant and equipment used by our other businesses to the estimated salvage value primarily using the straight-line method over estimated service lives. Ranges of estimated service 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 – 2 to 50 years. We depreciate the 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 depreciation methods for assets when the revenue-earning power of the asset is greater during the earlier years of its life.
We evaluate property, plant and equipment and equipment held for lease 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 from others. 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 considered 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. As permitted under GAAP, for some leases we do not separate lease components from non-lease components by class of asset and we do not record assets or liabilities for leases with terms of one year or less.
(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. When the carrying amount of a reporting unit, including goodwill, exceeds the estimated fair value, the excess up to the balance of goodwill is charged to earnings as an impairment loss.
K-78
Notes to Consolidated Financial Statements (Continued)
(1)
Significant accounting policies and practices (Continued)
(n)
Goodwill and other intangible assets (Continued)
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-lived 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. Premiums are generally earned in proportion to the coverage provided, which in most cases is 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 generally received in full and 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 periodic payment annuity contracts are earned when due. Premiums for periodic payment annuity contracts are received in full at the inception of the contracts. 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 directly or 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, late delivery penalties, 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.
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 portion of the service completed as of the balance sheet date. Invoices for freight transportation services are generally issued to customers and paid within 30 days or less. Customer incentives, which are primarily provided for shipping a specified cumulative volume or shipping to/from specific locations, are recorded as a reduction to revenue on a pro-rata basis based on actual or projected future customer shipments.
K-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. Other service revenues derive from contracts with customers in which performance obligations are satisfied over time, where customers receive and consume benefits as we perform the services or at a point in time when the services are provided. Other service revenues primarily derive from real estate brokerage, automotive repair, aircraft management, aviation training, franchising and news distribution.
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 lessor contracts 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 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.
(r)
Insurance policy acquisition costs
We capitalize the direct incremental costs that relate to the successful sale of insurance contracts, subject to ultimate recoverability. Direct incremental acquisition costs include commissions, premium taxes and certain other costs associated with successful efforts. We expense all other underwriting costs as incurred. For short duration contracts, we subsequently amortize deferred policy acquisition costs to underwriting expenses as the related premiums are earned. Acquisition costs related to long duration life insurance contracts are amortized over the expected premium-paying period in proportion to the anticipated premiums over the life of the policy. Such anticipated premiums are estimated using the same assumptions used for computing liabilities for future policy benefits. The recoverability of deferred policy acquisition costs generally considers anticipated investment income. The unamortized balances are included in other assets and were approximately $3.8 billion and $3.4 billion at December 31, 2022 and 2021, respectively, which included $3.2 billion and $2.9 billion, respectively, related to property and casualty insurance contracts.
K-80
Notes to Consolidated Financial Statements (Continued)
(1)
Significant accounting policies and practices (Continued)
(s)
Life, annuity and health insurance benefits
Liabilities for future life, annuity and health insurance benefits represent the present value of expected future benefits and non-acquisition variable expenses, less the present value of expected future net premiums (the portion of gross premium required to provide for all expected future benefits and variable expenses). In estimating future cash flows, we consider the timing and amounts of future claims, premiums and expenses, which require estimates concerning future investment yields, expected mortality, morbidity and lapse or withdrawal rates. 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 for discounting may vary by contract or underlying currency denomination of our reinsurance contracts. Generally, assumptions regarding cash flow and discount rate are fixed at the inception of the contract and changed only under certain adverse circumstances. The effects of changes in estimated cash flows and discount rate assumptions on benefit liabilities are recorded in earnings in the period of the change. Periodic payment and annuity reinsurance contracts are regarded as limited payment contracts under GAAP. We discount 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 received less brokerage expense at the inception date. Discount rates for most contracts range between 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 subsidiary, 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 U.S., which includes eligible subsidiaries. In addition, we file income tax returns in state, local and foreign jurisdictions. 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 income tax assets when realization is not likely.
Liabilities are established for uncertain tax positions taken or positions expected to be taken in income tax returns when such positions, in our judgment, do not meet a more-likely-than-not threshold based on the technical merits of the positions. Estimated interest and penalties related to uncertain tax positions are included as a component of income tax expense.
K-81
Notes to Consolidated Financial Statements (Continued)
(1)
Significant accounting policies and practices (Continued)
(w)
New accounting pronouncements adopted in 2020
We adopted Accounting Standards Codification (“ASC”) 326 “Financial Instruments-Credit Losses” on January 1, 2020, which 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. 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.
(x)
New accounting pronouncements to be adopted subsequent to December 31, 2022
In August 2018, the Financial Accounting Standards Board issued Accounting Standards Update 2018-12 “Targeted Improvements to the Accounting for Long-Duration Contracts” (“ASU 2018-12”). ASU 2018-12 requires reassessment of cash flow assumptions at least annually and revision of discount rate assumptions each reporting period in valuing policyholder liabilities of long-duration insurance and reinsurance contracts. Discount rate assumptions are established based upon upper-medium grade corporate bond yields that reflect the duration characteristics of the liabilities. ASU 2018-12 also provides for new disclosures. Under ASU 2018-12, the effects from changes in cash flow assumptions are reflected in earnings and the effects from changes in discount rate assumptions are reflected in other comprehensive income. Prior to ASU 2018-12, the cash flow and discount rate assumptions were set at the contract inception date and not subsequently changed, except under certain adverse circumstances. ASU 2018-12 is to be applied retrospectively to the earliest period presented in the financial statements.
We adopted ASU 2018-12 as of January 1, 2023 using the modified retrospective method. Revised cash flow and discount rate assumptions were applied to contracts in-force between January 1, 2021 (the transition date) and December 31, 2022 with liabilities remeasured, with the cumulative effect from discount rate changes (based on prevailing interest rates) recorded in accumulated other comprehensive income and the cumulative effect from cash flow assumption changes in retained earnings.
The adoption of ASU 2018-12 produced a cumulative after-tax reduction in our originally reported consolidated shareholders’ equity at the end of 2020 of approximately $6.4 billion (or 1.4%), consisting of reductions to accumulated other comprehensive income of $5.7 billion and retained earnings of $700 million. The cumulative decline in shareholders’ equity decreased to approximately $4.6 billion (or 0.9% of the shareholders’ equity originally reported) at December 31, 2021. The cumulative effect of adopting ASU 2018-12 will increase our shareholders’ equity at December 31, 2022 by approximately $1.0 billion. These effects reflect the after-tax increases or decreases to our life, health and annuity benefits liabilities and reinsurance recoverables, primarily derived from changes in discount rate assumptions. The effects of adopting ASU 2018-12 will be reflected primarily in other comprehensive income and the impact on our consolidated net earnings for each of the years ending December 31, 2022 and 2021 is not material.
(2)
Significant business acquisitions
Our long-held acquisition strategy is to acquire businesses that have consistent earning power, good returns on equity and able and honest management. Financial results attributable to business acquisitions are included in our Consolidated Financial Statements beginning on their respective acquisition dates. Information concerning significant business acquisitions completed in each of the three years ending December 31, 2022 follows.
On October 19, 2022, Berkshire acquired all of the outstanding common stock of Alleghany Corporation (“Alleghany”) for approximately $11.5 billion, which includes the value of certain Alleghany equity awards, pursuant to a definitive agreement and plan of merger dated as of March 20, 2022. Alleghany operates a group of property and casualty reinsurance and insurance businesses. It also owns a portfolio of non-financial businesses.
K-82
Notes to Consolidated Financial Statements (Continued)
(2)
Significant business acquisitions (Continued)
The preliminary values of the Alleghany identified assets acquired and liabilities assumed are summarized as follows (in millions). Valuations of certain assets, such as intangible assets and goodwill, and certain liabilities as of the acquisition date have not been finalized at this time and are provisional.
| Cash, cash equivalents and U.S. Treasury Bills | $ | 3,762 | |
| Investments in fixed maturity and equity securities | 15,982 | ||
| Loans and other receivables | 5,650 | ||
| Goodwill and other intangible assets | 6,362 | ||
| Other | 3,834 | ||
| Assets acquired | $ | 35,590 | |
| Unpaid losses and loss adjustment expenses | $ | 15,080 | |
| Unearned premiums | 3,536 | ||
| Notes payable | 2,169 | ||
| Other | 3,300 | ||
| Liabilities assumed | 24,085 | ||
| Net assets | $ | 11,505 |
Alleghany’s consolidated revenues and net earnings included in Berkshire’s Consolidated Financial Statements in 2022 were approximately $2.4 billion and $216 million, respectively. The following table sets forth certain unaudited pro forma consolidated earnings data for the years ending December 31, 2022 and 2021, as if the Alleghany acquisition was consummated on the same terms at the beginning of 2021 (in millions, except per share amounts).
| 2022 | 2021 | ||||||
| Revenues | $ | 311,184 | $ | 287,450 | |||
| Net earnings (loss) attributable to Berkshire Hathaway shareholders | (24,107 | ) | 90,728 | ||||
| Net earnings (loss) per equivalent Class A common share | (16,412 | ) | 60,077 |
Berkshire Hathaway Energy (“BHE”) acquired certain businesses of Dominion Energy, Inc. (“Dominion”) on November 1, 2020 for cash of approximately $2.5 billion. The acquired businesses included natural gas transmission, gathering and storage pipelines, natural gas storage capacity and partial ownership of a liquefied natural gas export, import and storage facility (“Cove Point”). As part of the Dominion 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.
(3)
Investments in fixed maturity securities
Investments in fixed maturity securities as of December 31, 2022 and 2021 are summarized by type below (in millions).
| Amortized Cost | Unrealized Gains | Unrealized Losses | Fair Value | ||||||||||||
| December 31, 2022 | |||||||||||||||
| U.S. Treasury, U.S. government corporations and agencies | $ | 10,039 | $ | 12 | $ | (249 | ) | $ | 9,802 | ||||||
| Foreign governments | 10,454 | 50 | (177 | ) | 10,327 | ||||||||||
| Corporate bonds | 1,945 | 256 | (6 | ) | 2,195 | ||||||||||
| Other | 2,735 | 77 | (8 | ) | 2,804 | ||||||||||
| $ | 25,173 | $ | 395 | $ | (440 | ) | $ | 25,128 | |||||||
| December 31, 2021 | |||||||||||||||
| U.S. Treasury, U.S. government corporations and agencies | $ | 3,286 | $ | 22 | $ | (5 | ) | $ | 3,303 | ||||||
| Foreign governments | 10,998 | 29 | (33 | ) | 10,994 | ||||||||||
| Corporate bonds | 1,363 | 412 | (1 | ) | 1,774 | ||||||||||
| Other | 317 | 47 | (1 | ) | 363 | ||||||||||
| $ | 15,964 | $ | 510 | $ | (40 | ) | $ | 16,434 |
K-83
Notes to Consolidated Financial Statements (Continued)
(3)
Investments in fixed maturity securities (Continued)
The fair value of investments in U.S. Treasury securities as of December 31, 2022 included approximately $9.1 billion of securities that mature in 2023 and 2024. 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, 2022, approximately 93% 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, 2022 are summarized below by contractual maturity dates. Amounts are in millions. Actual maturities may differ from contractual maturities due to 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 | $ | 7,720 | $ | 13,413 | $ | 1,393 | $ | 842 | $ | 1,805 | $ | 25,173 | |||||||||||
| Fair value | 7,660 | 13,122 | 1,627 | 864 | 1,855 | 25,128 |
(4)
Investments in equity securities
Investments in equity securities as of December 31, 2022 and 2021 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, 2022 * | ||||||||||||
| Banks, insurance and finance | $ | 25,893 | $ | 43,663 | $ | 69,556 | ||||||
| Consumer products | 40,508 | 112,384 | 152,892 | |||||||||
| Commercial, industrial and other | 65,209 | 21,136 | 86,345 | |||||||||
| $ | 131,610 | $ | 177,183 | $ | 308,793 |
*** Approximately 75*% of the aggregate fair value was concentrated in* five *companies (American Express Company – $*22.4 *billion; Apple Inc. – $*119.0 *billion; Bank of America Corporation – $*34.2 *billion; The Coca-Cola Company – $*25.4 *billion and Chevron Corporation – $*30.0 billion).
| Cost Basis | Net Unrealized Gains | Fair Value | ||||||||||
| December 31, 2021 * | ||||||||||||
| Banks, insurance and finance | $ | 26,822 | $ | 62,236 | $ | 89,058 | ||||||
| Consumer products | 36,076 | 154,945 | 191,021 | |||||||||
| Commercial, industrial and other | 41,707 | 28,933 | 70,640 | |||||||||
| $ | 104,605 | $ | 246,114 | $ | 350,719 |
*** Approximately 73*% of the aggregate fair value was concentrated in* four *companies (American Express Company – $*24.8 *billion; Apple Inc. – $*161.2 *billion; Bank of America Corporation – $*46.0 *billion and The Coca-Cola Company – $*23.7 billion).
During 2022, we began acquiring common stock of Occidental Petroleum Corporation (“Occidental”) and our aggregate voting interest exceeded 20% on August 4, 2022. We adopted the equity method with respect to our investment in Occidental common stock as of that date and included this investment in equity method investments at December 31, 2022. See Note 5. We continue to report our investments in Occidental Cumulative Perpetual Preferred Stock and Occidental common stock warrants at fair value as equity securities, as such interests are not in-substance common stock under GAAP and are not eligible for the equity method.
K-84
Notes to Consolidated Financial Statements (Continued)
(4)
Investments in equity securities (Continued)
Our investment in Occidental preferred stock has an aggregate liquidation value of $10 billion and our investment in Occidental warrants allows us to purchase up to 83.86 million shares of Occidental common stock at an exercise price of $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 and is mandatorily redeemable at 110% of the liquidation preference plus accrued dividends under specified events. The warrants are exercisable in whole or in part until one year after the redemption of the preferred stock.
As of December 31, 2022, we owned 20.4% of the outstanding common stock of the American Express Company (“American Express”). Since 1995, we have been party to an agreement with American Express whereby we agreed to vote a significant portion of our shares in accordance with the recommendations of the American Express Board of Directors. We have also agreed to passivity commitments as requested by the Board of Governors of the Federal Reserve System, which collectively, in our judgment, restrict our ability to exercise significant influence over the operating and financial policies of American Express. Accordingly, we do not use the equity method with respect to our investment in American Express common stock and we continue to record our investment at fair value.
(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 are our investments in the common stock of The Kraft Heinz Company (“Kraft Heinz”) and, as of August 4, 2022, Occidental. We own 26.6% of Kraft Heinz common stock and 21.4% of Occidental common stock, which excludes the potential effect of the exercise of Occidental common stock warrants. See Note 4.
Kraft Heinz manufactures and markets food and beverage products, including condiments and sauces, cheese and dairy, meals, meats, refreshment beverages, coffee and other grocery products. Occidental is an international energy company, whose activities include oil and natural gas exploration, development and production, and chemical manufacturing businesses. Occidental’s midstream businesses purchase, market, gather, process, transport and store various oil, natural gas, carbon dioxide and other products. Occidental’s financial information is not available in time for concurrent reporting in our consolidated financial statements. Therefore, we report the equity method effects for Occidental on a one-quarter lag. Our earnings in the fourth quarter of 2022 included our equity method share of Occidental’s third quarter earnings.
The common stock of Kraft Heinz and Occidental are publicly traded. The fair values and carrying values of these two investments in addition to the carrying values of our other significant equity method investments are summarized as follows (in millions).
| Carrying Value | Fair Value | ||||||||||||||
| December 31, | December 31, | ||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||
| Kraft Heinz | $ | 12,937 | $ | 13,112 | $ | 13,249 | $ | 11,683 | |||||||
| Occidental | 11,484 | — | 12,242 | — | |||||||||||
| Other | 3,629 | 2,933 | |||||||||||||
| $ | 28,050 | $ | 16,045 |
Our earnings and distributions received from significant equity method investments are summarized in the table below (in millions). As previously indicated, we are reporting the equity method effects for Occidental on a one-quarter lag, thus the earnings we recorded in 2022 below do not reflect Occidental’s results for its fourth quarter.
| Equity in Earnings | Distributions Received | ||||||||||||||||||||||
| Year ended December 31, | Year ended December 31, | ||||||||||||||||||||||
| 2022 | 2021 | 2020 | 2022 | 2021 | 2020 | ||||||||||||||||||
| Kraft Heinz | $ | 628 | $ | 269 | $ | 95 | $ | 521 | $ | 521 | $ | 521 | |||||||||||
| Occidental | 323 | — | — | 24 | — | — | |||||||||||||||||
| Other | 912 | 617 | 562 | 284 | 1,057 | 383 | |||||||||||||||||
| $ | 1,863 | $ | 886 | $ | 657 | $ | 829 | $ | 1,578 | $ | 904 |
K-85
Notes to Consolidated Financial Statements (Continued)
(5)
Equity method investments (Continued)
Summarized consolidated financial information of Kraft Heinz follows (in millions).
| December 31, 2022 | December 25, 2021 | ||||||
| Assets | $ | 90,513 | $ | 93,394 | |||
| Liabilities | 41,643 | 43,942 |
| Year ending | |||||||||||
| December 31, 2022 | December 25, 2021 | December 26, 2020 | |||||||||
| Sales | $ | 26,485 | $ | 26,042 | $ | 26,185 | |||||
| Net earnings attributable to Kraft Heinz common shareholders | 2,363 | 1,012 | 356 |
Summarized consolidated financial information of Occidental, reported on a one quarter lag follows (in millions).
| September 30, 2022 | |||
| Assets | $ | 72,144 | |
| Liabilities | 43,424 |
| Third Quarter | First Nine Months | ||||||
| 2022 | 2022 | ||||||
| Total revenues and other income | $ | 9,501 | $ | 28,769 | |||
| Net earnings attributable to Occidental common shareholders | 2,546 | 10,777 |
Other significant investments accounted for pursuant to the equity method as of December 31, 2022 included our investments in Pilot Travel Centers, LLC (“Pilot”) and Berkadia Commercial Mortgage LLC (“Berkadia”). Since 2017, we have owned a 38.6% interest in Pilot. We acquired an additional 41.4% interest on January 31, 2023 and became the majority owner of Pilot at that date. As a result, we discontinued the use of the equity method during the first quarter of 2023. See Note 26. We own a 50% interest in Berkadia, with Jefferies Financial Group Inc. (“Jefferies”) owning the other 50% interest. Berkadia provides capital solutions, investment sales advisory and mortgage servicing for multifamily and commercial real estate. Berkadia’s commercial paper borrowing capacity (currently limited to $1.5 billion) 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.
(6)
Investment and derivative contract gains (losses)
Investment and derivative contract gains (losses) for each of the three years ending December 31, 2022 are summarized as follows (in millions).
| 2022 | 2021 | 2020 | ||||||||||
| Investment gains (losses): | ||||||||||||
| Equity securities: | ||||||||||||
| Change in unrealized investment gains (losses) during the year on securities held at the end of the year | $ | (63,120 | ) | $ | 76,375 | $ | 54,951 | |||||
| Investment gains (losses) during the year on securities sold | (3,927 | ) | 997 | (14,036 | ) | |||||||
| (67,047 | ) | 77,372 | 40,915 | |||||||||
| Fixed maturity securities: | ||||||||||||
| Gross realized gains | 134 | 85 | 56 | |||||||||
| Gross realized losses | (684 | ) | (29 | ) | (27 | ) | ||||||
| Other | (26 | ) | 148 | (39 | ) | |||||||
| Investment gains (losses) | (67,623 | ) | 77,576 | 40,905 | ||||||||
| Derivative contract gains (losses) | (276 | ) | 966 | (159 | ) | |||||||
| $ | (67,899 | ) | $ | 78,542 | $ | 40,746 |
K-86
Notes to Consolidated Financial Statements (Continued)
(6)
Investment and derivative contract gains (losses) (Continued)
Equity securities gains and losses include unrealized gains and losses from changes in fair values during the year on equity securities we still own, as well as gains and losses on securities we sold during the year. As reflected in the Consolidated Statements of Cash Flows, we received proceeds of approximately $33.7 billion in 2022, $15.8 billion in 2021 and $38.8 billion in 2020 from sales of equity securities. In the preceding table, investment gains and losses on equity securities sold during the year represent the difference between the sales proceeds and the fair value of the equity securities sold at the beginning of the applicable year or, if later, the purchase date. Our taxable gains and losses on equity securities sold are generally the difference between the proceeds from sales and original cost. Equity securities sold produced taxable gains of $769 million in 2022, $3.6 billion in 2021 and $6.2 billion in 2020.
Our derivative contract gains and losses derived from equity index put option contracts. As of December 31, 2022, we had three open contracts, one of which has since expired. Our exposure to losses in the future is insignificant.
(7)
Loans and finance receivables
Loans and finance receivables are summarized as follows (in millions).
| December 31, | |||||||
| 2022 | 2021 | ||||||
| Loans and finance receivables before allowances and discounts | $ | 24,664 | $ | 22,065 | |||
| Allowances for credit losses | (856 | ) | (765 | ) | |||
| Unamortized acquisition discounts and points | (600 | ) | (549 | ) | |||
| $ | 23,208 | $ | 20,751 |
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 the three years ending December 31, 2022 follow (in millions).
| 2022 | 2021 | 2020 | |||||||||
| Balance at beginning of year | $ | 765 | $ | 712 | $ | 167 | |||||
| Adoption of ASC 326 | — | — | 486 | ||||||||
| Provision for credit losses | 124 | 88 | 177 | ||||||||
| Charge-offs, net of recoveries | (33 | ) | (35 | ) | (118 | ) | |||||
| Balance at December 31 | $ | 856 | $ | 765 | $ | 712 |
At December 31, 2022, substantially all manufactured and site-built home loan balances were evaluated collectively for impairment. At December 31, 2022, we considered approximately 96% 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, 2022 follows (in millions).
| Origination Year | |||||||||||||||||||||||||||
| 2022 | 2021 | 2020 | 2019 | 2018 | Prior | Total | |||||||||||||||||||||
| Performing | $ | 5,743 | $ | 3,630 | $ | 2,830 | $ | 1,992 | $ | 1,509 | $ | 6,959 | $ | 22,663 | |||||||||||||
| Non-performing | 4 | 9 | 9 | 8 | 6 | 46 | 82 | ||||||||||||||||||||
| $ | 5,747 | $ | 3,639 | $ | 2,839 | $ | 2,000 | $ | 1,515 | $ | 7,005 | $ | 22,745 |
We are the lender under several commercial loan agreements which had a principal value of approximately $1.9 billion at December 31, 2022 and December 31, 2021. The balance at December 31, 2022 included $450 million acquired in connection with the Alleghany acquisition. Our largest commercial loan is with Seritage Growth Properties (“Seritage”) with an unpaid principal balance of $1.0 billion as of December 31, 2022 and $1.4 billion as of December 31, 2021. Our commercial loans are generally secured by mortgages on real estate properties or by other assets and substantially all of these loans are current as to payment status.
K-87
Notes to Consolidated Financial Statements (Continued)
(8)
Other receivables
Other receivables are comprised of the following (in millions).
| December 31, | |||||||
| 2022 | 2021 | ||||||
| Insurance and other: | |||||||
| Insurance premiums receivable | $ | 18,398 | $ | 15,050 | |||
| Reinsurance recoverables | 7,119 | 4,900 | |||||
| Trade receivables | 14,510 | 12,971 | |||||
| Other | 4,154 | 3,146 | |||||
| Allowances for credit losses | (675 | ) | (679 | ) | |||
| $ | 43,506 | $ | 35,388 | ||||
| Railroad, utilities and energy: | |||||||
| Trade receivables | $ | 4,182 | $ | 3,678 | |||
| Other | 754 | 650 | |||||
| Allowances for credit losses | (141 | ) | (151 | ) | |||
| $ | 4,795 | $ | 4,177 |
Provisions for credit losses with respect to receivables summarized above were $409 million in 2022, $441 million in 2021 and $564 million in 2020. Charge-offs, net of recoveries, were $432 million in 2022, $420 million in 2021 and $401 million in 2020.
(9)
Inventories
Inventories are comprised of the following (in millions).
| December 31, | ||||||||
| 2022 | 2021 | |||||||
| Raw materials | $ | 6,381 | $ | 5,743 | ||||
| Work in process and other | 3,464 | 3,192 | ||||||
| Finished manufactured goods | 5,739 | 4,530 | ||||||
| Goods acquired for resale | 9,782 | 7,489 | ||||||
| $ | 25,366 | $ | 20,954 |
(10)
Property, plant and equipment
A summary of property, plant and equipment of our insurance and other businesses follows (in millions).
| December 31, | ||||||||
| 2022 | 2021 | |||||||
| Land, buildings and improvements | $ | 14,761 | $ | 14,070 | ||||
| Machinery and equipment | 26,690 | 26,063 | ||||||
| Furniture, fixtures and other | 4,847 | 4,640 | ||||||
| 46,298 | 44,773 | |||||||
| Accumulated depreciation | (25,185 | ) | (23,939 | ) | ||||
| $ | 21,113 | $ | 20,834 |
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, | ||||||||
| 2022 | 2021 | |||||||
| Railroad: | ||||||||
| Land, track structure and other roadway | $ | 67,350 | $ | 65,843 | ||||
| Locomotives, freight cars and other equipment | 16,031 | 13,822 | ||||||
| Construction in progress | 1,743 | 1,027 | ||||||
| 85,124 | 80,692 | |||||||
| Accumulated depreciation | (17,899 | ) | (14,978 | ) | ||||
| 67,225 | 65,714 | |||||||
| Utilities and energy: | ||||||||
| Utility generation, transmission and distribution systems | 92,759 | 90,223 | ||||||
| Interstate natural gas pipeline assets | 18,328 | 17,423 | ||||||
| Independent power plants and other assets | 14,650 | 13,695 | ||||||
| Construction in progress | 5,357 | 4,196 | ||||||
| 131,094 | 125,537 | |||||||
| Accumulated depreciation | (38,051 | ) | (35,721 | ) | ||||
| 93,043 | 89,816 | |||||||
| $ | 160,268 | $ | 155,530 |
Depreciation expense for each of the three years ending December 31, 2022 is summarized below (in millions).
| 2022 | 2021 | 2020 | ||||||||||
| Insurance and other | $ | 2,276 | $ | 2,318 | $ | 2,320 | ||||||
| Railroad, utilities and energy | 6,181 | 5,990 | 5,799 | |||||||||
| $ | 8,457 | $ | 8,308 | $ | 8,119 |
(11)
Equipment held for lease
Equipment held for lease includes railcars, aircraft, and other equipment, including over-the-road trailers, intermodal tank containers, cranes, storage units and furniture. Equipment held for lease is summarized below (in millions).
| December 31, | ||||||||
| 2022 | 2021 | |||||||
| Railcars | $ | 9,612 | $ | 9,448 | ||||
| Aircraft | 10,667 | 9,234 | ||||||
| Other | 5,212 | 5,053 | ||||||
| 25,491 | 23,735 | |||||||
| Accumulated depreciation | (9,907 | ) | (8,817 | ) | ||||
| $ | 15,584 | $ | 14,918 |
K-89
Notes to Consolidated Financial Statements (Continued)
(11)
Equipment held for lease (Continued)
Depreciation expense for equipment held for lease was $1,209 million in 2022, $1,158 million in 2021 and $1,200 million in 2020. Fixed and variable operating lease revenues for each of the three years ending December 31, 2022 are summarized below (in millions).
| 2022 | 2021 | 2020 | ||||||||||
| Fixed lease revenue | $ | 5,184 | $ | 4,482 | $ | 4,262 | ||||||
| Variable lease revenue | 2,330 | 1,506 | 947 | |||||||||
| $ | 7,514 | $ | 5,988 | $ | 5,209 |
A summary of future operating lease receipts as of December 31, 2022 follows (in millions).
| 2023 | 2024 | 2025 | 2026 | 2027 | Thereafter | Total | ||||||||||||||||||||
| $ | 3,365 | $ | 2,687 | $ | 1,992 | $ | 1,373 | $ | 673 | $ | 299 | $ | 10,389 |
(12)
Leases
We are party to contracts where we lease property from others under contracts classified as operating leases. We primarily lease buildings, offices and operating facilities. Operating lease right-of-use assets are included in other assets and operating lease liabilities are included in accounts payable, accruals and other liabilities. Information related to our operating leases follows (dollars in millions).
| Right-of-use assets | Lease liabilities | Weighted average remaining term in years | Weighted average discount rate used to measure liabilities | ||||||||||||||
| December 31, 2022 | $ | 4,975 | $ | 4,939 | 7.0 | 3.7 | % | ||||||||||
| December 31, 2021 | 5,091 | 4,991 | 7.2 | 3.5 | % |
A summary of our remaining future operating lease payments reconciled to lease liabilities as of December 31, 2022 and December 31, 2021 follows (in millions).
| Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | Thereafter | Total lease payments | Amount representing interest | Lease liabilities | ||||||||||||||||||||||||||||
| December 31: | ||||||||||||||||||||||||||||||||||||
| 2022 | $ | 1,283 | $ | 1,073 | $ | 822 | $ | 560 | $ | 449 | $ | 1,464 | $ | 5,651 | $ | (712 | ) | $ | 4,939 | |||||||||||||||||
| 2021 | 1,238 | 1,038 | 835 | 631 | 418 | 1,571 | 5,731 | (740 | ) | 4,991 |
Components of operating lease costs for the three years ending December 31, 2022, by type, are summarized in the following table (in millions).
| 2022 | 2021 | 2020 | |||||||||||
| Operating lease cost | $ | 1,361 | $ | 1,426 | $ | 1,413 | |||||||
| Short-term lease cost | 233 | 154 | 145 | ||||||||||
| Variable lease cost | 217 | 223 | 228 | ||||||||||
| Sublease income | (12 | ) | (10 | ) | (10 | ) | |||||||
| Total lease cost | $ | 1,799 | $ | 1,793 | $ | 1,776 |
K-90
Notes to Consolidated Financial Statements (Continued)
(13)
Goodwill and other intangible assets
Reconciliations of the changes in the carrying value of goodwill during 2022 and 2021 follow (in millions).
| December 31, | ||||||||
| 2022 | 2021 | |||||||
| Balance at beginning of year | $ | 73,875 | $ | 73,734 | ||||
| Business acquisitions | 4,657 | 353 | ||||||
| Other, including foreign currency translation | (413 | ) | (212 | ) | ||||
| Balance at end of year* | $ | 78,119 | $ | 73,875 |
*** *Net of accumulated goodwill impairments of $*11.0 billion as of December 31, 2022 and 2021
The gross carrying amounts and related accumulated amortization of other intangible assets are summarized as follows (in millions).
| December 31, 2022 | December 31, 2021 | |||||||||||||||||||||||
| Gross carrying amount | Accumulated amortization | Net carrying value | Gross carrying amount | Accumulated amortization | Net carrying value | |||||||||||||||||||
| Insurance and other: | ||||||||||||||||||||||||
| Customer relationships | $ | 27,765 | $ | 7,174 | $ | 20,591 | $ | 27,335 | $ | 6,450 | $ | 20,885 | ||||||||||||
| Trademarks and trade names | 5,603 | 822 | 4,781 | 5,176 | 802 | 4,374 | ||||||||||||||||||
| Patents and technology | 4,943 | 3,748 | 1,195 | 4,763 | 3,484 | 1,279 | ||||||||||||||||||
| Other | 4,150 | 1,530 | 2,620 | 3,390 | 1,442 | 1,948 | ||||||||||||||||||
| $ | 42,461 | $ | 13,274 | $ | 29,187 | $ | 40,664 | $ | 12,178 | $ | 28,486 | |||||||||||||
| Railroad, utilities and energy: | ||||||||||||||||||||||||
| Customer relationships and contracts and other | $ | 1,914 | $ | 622 | $ | 1,292 | $ | 1,693 | $ | 542 | $ | 1,151 |
Intangible asset amortization expense was $1,233 million in 2022, $1,252 million in 2021 and $1,277 million in 2020. Estimated amortization expense over the next five years is as follows (in millions): 2023 – $1,253; 2024 – $1,128; 2025 – $1,081; 2026 – $1,000 and 2027 – $877. Intangible assets with indefinite lives were $18.3 billion as of December 31, 2022 and $18.5 billion as of December 31, 2021 and primarily related to certain customer relationships and trademarks and trade names.
(14)
Supplemental cash flow information
A summary of supplemental cash flow information for each of the three years ending December 31, 2022 is presented in the following table (in millions).
| 2022 | 2021 | 2020 | ||||||||||
| Cash paid during the year for: | ||||||||||||
| Income taxes | $ | 4,236 | $ | 5,412 | $ | 5,001 | ||||||
| Interest: | ||||||||||||
| Insurance and other | 1,150 | 1,227 | 1,001 | |||||||||
| Railroad, utilities and energy | 3,195 | 3,162 | 3,006 | |||||||||
| Other adjustments to reconcile net earnings to operating cash flows: | ||||||||||||
| Foreign currency exchange (gains) losses | (2,148 | ) | (1,433 | ) | 1,074 | |||||||
| Goodwill and intangible asset impairment charges | — | — | 10,671 | |||||||||
| Other | (2,176 | ) | (1,964 | ) | (482 | ) | ||||||
| Non-cash investing and financing activities: | ||||||||||||
| Liabilities assumed in connection with business acquisitions | 24,186 | 102 | 6,981 | |||||||||
| Operating lease liabilities arising from obtaining right-of-use assets | 1,118 | 687 | 729 |
K-91
Notes to Consolidated Financial Statements (Continued)
(15)
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 $35 billion as ordinary dividends during 2023. 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 $4.9 billion at December 31, 2022 and $6.4 billion at December 31, 2021.
Combined shareholders’ equity of U.S.-based insurance subsidiaries determined pursuant to statutory accounting rules (Surplus as Regards Policyholders) was approximately $272 billion at December 31, 2022 and $301 billion at December 31, 2021. 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.
(16)
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 17), for each of the three years ending December 31, 2022 follows (in millions). The changes in claim liabilities in 2022 within this table include Alleghany’s property and casualty claim liabilities beginning as of the October 19, 2022 acquisition date.
| 2022 | 2021 | 2020 | |||||||||
| Balances at beginning of year: | |||||||||||
| Gross liabilities | $ | 86,664 | $ | 79,854 | $ | 73,019 | |||||
| Reinsurance recoverable on unpaid losses | (2,960 | ) | (2,912 | ) | (2,855 | ) | |||||
| Net liabilities | 83,704 | 76,942 | 70,164 | ||||||||
| Incurred losses and loss adjustment expenses: | |||||||||||
| Current accident year | 59,463 | 52,099 | 43,400 | ||||||||
| Prior accident years | (2,672 | ) | (3,116 | ) | (356 | ) | |||||
| Total | 56,791 | 48,983 | 43,044 | ||||||||
| Paid losses and loss adjustment expenses: | |||||||||||
| Current accident year | (27,236 | ) | (22,897 | ) | (17,884 | ) | |||||
| Prior accident years | (23,083 | ) | (18,904 | ) | (18,862 | ) | |||||
| Total | (50,319 | ) | (41,801 | ) | (36,746 | ) | |||||
| Foreign currency effect | (508 | ) | (420 | ) | 480 | ||||||
| Net liabilities of acquired businesses (see Note 2) | 12,779 | — | — | ||||||||
| Balances at December 31: | |||||||||||
| Net liabilities | 102,447 | 83,704 | 76,942 | ||||||||
| Reinsurance recoverable on unpaid losses | 5,025 | 2,960 | 2,912 | ||||||||
| Gross liabilities | $ | 107,472 | $ | 86,664 | $ | 79,854 |
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”). Incurred and paid losses and loss adjustment expenses are net of reinsurance recoveries. Current accident year incurred losses from significant catastrophe events (losses in excess of $150 million per event) were approximately $3.1 billion in 2022 ($2.5 billion from Hurricane Ian), $2.9 billion in 2021 and $950 million in 2020. Significant catastrophe events in 2021 included Hurricane Ida ($1.5 billion), Winter Storm Uri and floods in Europe, while significant catastrophe events in 2020 included losses from Hurricanes Laura and Sally (about $600 million in the aggregate) and U.S. wildfires. Current accident year incurred losses for private passenger auto insurance increased significantly in 2022 and 2021, attributable to increases in claims frequencies and severities.
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We recorded net reductions of estimated ultimate liabilities for prior accident years of $2.7 billion in 2022, $3.1 billion in 2021 and $356 million in 2020, which produced corresponding reductions in incurred losses and loss adjustment expenses in those periods. These reductions, as percentages of the net liabilities at the beginning of each year, were 3.2% in 2022, 4.0% in 2021 and 0.5% in 2020.
We reduced estimated ultimate liabilities for prior accident years of primary insurance businesses by $1.1 billion in 2022, $2.4 billion in 2021 and $518 million in 2020. The reductions in each year derived primarily from private passenger auto, medical professional liability and workers’ compensation claims, partly offset by increases with respect to other casualty claims. Estimated ultimate liabilities for prior accident years of property and casualty reinsurance businesses were reduced $1.6 billion in 2022 and $718 million in 2021 and increased $162 million in 2020. The reductions in 2022 and 2021 reflected reduced estimates for both property and casualty claims. In 2020, increases in casualty claims estimates were partly offset by reductions in property estimates.
Estimated net claim liabilities for environmental, asbestos and other latent injury exposures were approximately $2.1 billion at December 31, 2022 and 2021. 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 accident year data for Alleghany’s primary insurance business is included in Berkshire Hathaway Primary Group (“BH Primary”) and for its reinsurance business is included in Berkshire Hathaway Reinsurance Group (“BHRG”) 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, BH Primary and BHRG to our consolidated unpaid losses and loss adjustment expenses as of December 31, 2022 follows (in millions).
| GEICO | BH Primary | BHRG | |||||||||||||||||||||||||
| Physical Damage | Auto Liability | Medical Professional Liability | Workers’ Compensation/ Other Casualty | Property | Casualty | Total | |||||||||||||||||||||
| Unpaid losses and ALAE, net | $ | 884 | $ | 20,930 | $ | 8,980 | $ | 18,491 | $ | 16,552 | $ | 31,366 | $ | 97,203 | |||||||||||||
| Reinsurance recoverable | 5 | 867 | 28 | 1,543 | 787 | 1,439 | 4,669 | ||||||||||||||||||||
| Unallocated loss adjustment expenses | 2,232 | ||||||||||||||||||||||||||
| Other losses and loss adjustment expenses | 3,368 | ||||||||||||||||||||||||||
| Unpaid losses and loss adjustment expenses | $ | 107,472 |
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.
Claim estimates for liability coverages normally reflect greater uncertainty than physical damage coverages, primarily due to the longer claim-tails, the greater chance of litigation and the time needed to evaluate facts at the time the case estimate is first established. The “claim-tail” is the period between the claim occurrence date and claim settlement or payment 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.
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GEICO’s net incurred and paid auto physical damage and liability losses and ALAE are summarized by accident year below. IBNR and case development liabilities are as of December 31, 2022. 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 auto policy coverages. Dollars are in millions.
Physical Damage
| Incurred Losses and ALAE through December 31, | Cumulative Number of | |||||||||||||||||
| Accident Year | 2021* | 2022 | IBNR and Case Development Liabilities | Reported Claims (in thousands) | ||||||||||||||
| 2021 | $ | 12,135 | $ | 11,968 | $ | 70 | 9,141 | |||||||||||
| 2022 | 14,138 | 610 | 8,986 | |||||||||||||||
| Incurred losses and ALAE | $ | 26,106 | ||||||||||||||||
| Cumulative Paid Losses and ALAE through December 31, | ||||||||||||||||||
| Accident Year | 2021* | 2022 | ||||||||||||||||
| 2021 | $ | 11,427 | $ | 11,978 | ||||||||||||||
| 2022 | 13,251 | |||||||||||||||||
| Paid losses and ALAE | 25,229 | |||||||||||||||||
| Net unpaid losses and ALAE for 2021 – 2022 accident years | 877 | |||||||||||||||||
| Net unpaid losses and ALAE for accident years before 2021 | 7 | |||||||||||||||||
| Net unpaid losses and ALAE | $ | 884 |
Auto Liability
| Incurred Losses and ALAE through December 31, | Cumulative Number of | |||||||||||||||||||||||||||
| Accident Year | 2018* | 2019* | 2020* | 2021* | 2022 | IBNR and Case Development Liabilities | Reported Claims (in thousands) | |||||||||||||||||||||
| 2018 | $ | 15,383 | $ | 15,226 | $ | 14,985 | $ | 14,838 | $ | 14,854 | $ | 259 | 2,720 | |||||||||||||||
| 2019 | 16,901 | 16,678 | 16,191 | 16,151 | 566 | 2,790 | ||||||||||||||||||||||
| 2020 | 14,637 | 14,024 | 13,697 | 1,182 | 2,111 | |||||||||||||||||||||||
| 2021 | 17,481 | 17,457 | 2,994 | 2,413 | ||||||||||||||||||||||||
| 2022 | 19,645 | 6,275 | 2,166 | |||||||||||||||||||||||||
| Incurred losses and ALAE | $ | 81,804 | ||||||||||||||||||||||||||
| Cumulative Paid Losses and ALAE through December 31, | ||||||||||||||||||||||||||||
| Accident Year | 2018* | 2019* | 2020* | 2021* | 2022 | |||||||||||||||||||||||
| 2018 | $ | 6,218 | $ | 10,772 | $ | 12,658 | $ | 13,757 | $ | 14,337 | ||||||||||||||||||
| 2019 | 6,742 | 11,671 | 13,851 | 15,084 | ||||||||||||||||||||||||
| 2020 | 5,395 | 9,839 | 11,794 | |||||||||||||||||||||||||
| 2021 | 6,450 | 12,681 | ||||||||||||||||||||||||||
| 2022 | 7,614 | |||||||||||||||||||||||||||
| Paid losses and ALAE | 61,510 | |||||||||||||||||||||||||||
| Net unpaid losses and ALAE for 2018 – 2022 accident years | 20,294 | |||||||||||||||||||||||||||
| Net unpaid losses and ALAE for accident years before 2018 | 636 | |||||||||||||||||||||||||||
| Net unpaid losses and ALAE | $ | 20,930 |
*** Unaudited required supplemental information
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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, which includes commercial auto and general liability insurance. Net 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, 2022. 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.
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 developments based upon claim age, coverage and litigation experience.
| Incurred Losses and ALAE through December 31, | Cumulative Number of | |||||||||||||||||||||||||||||||||||||||||||||||
| Accident Year | 2013* | 2014* | 2015* | 2016* | 2017* | 2018* | 2019* | 2020* | 2021* | 2022 | IBNR and Case Development Liabilities | Reported Claims (in thousands) | ||||||||||||||||||||||||||||||||||||
| 2013 | $ | 1,328 | $ | 1,296 | $ | 1,261 | $ | 1,195 | $ | 1,127 | $ | 1,086 | $ | 1,019 | $ | 985 | $ | 978 | $ | 979 | $ | 37 | 11 | |||||||||||||||||||||||||
| 2014 | 1,370 | 1,375 | 1,305 | 1,246 | 1,218 | 1,127 | 1,061 | 1,033 | 1,029 | 74 | 11 | |||||||||||||||||||||||||||||||||||||
| 2015 | 1,374 | 1,342 | 1,269 | 1,290 | 1,218 | 1,157 | 1,093 | 1,033 | 84 | 12 | ||||||||||||||||||||||||||||||||||||||
| 2016 | 1,392 | 1,416 | 1,414 | 1,394 | 1,341 | 1,288 | 1,216 | 141 | 15 | |||||||||||||||||||||||||||||||||||||||
| 2017 | 1,466 | 1,499 | 1,495 | 1,474 | 1,382 | 1,349 | 228 | 21 | ||||||||||||||||||||||||||||||||||||||||
| 2018 | 1,602 | 1,650 | 1,659 | 1,580 | 1,616 | 289 | 24 | |||||||||||||||||||||||||||||||||||||||||
| 2019 | 1,670 | 1,691 | 1,663 | 1,614 | 584 | 21 | ||||||||||||||||||||||||||||||||||||||||||
| 2020 | 1,704 | 1,751 | 1,698 | 959 | 30 | |||||||||||||||||||||||||||||||||||||||||||
| 2021 | 1,852 | 1,855 | 1,444 | 20 | ||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 1,927 | 1,749 | 12 | |||||||||||||||||||||||||||||||||||||||||||||
| Incurred losses and ALAE | $ | 14,316 | ||||||||||||||||||||||||||||||||||||||||||||||
| Cumulative Paid Losses and ALAE through December 31, | ||||||||||||||||||||||||||||||||||||||||||||||||
| Accident Year | 2013* | 2014* | 2015* | 2016* | 2017* | 2018* | 2019* | 2020* | 2021* | 2022 | ||||||||||||||||||||||||||||||||||||||
| 2013 | $ | 15 | $ | 90 | $ | 219 | $ | 368 | $ | 518 | $ | 635 | $ | 743 | $ | 793 | $ | 821 | $ | 853 | ||||||||||||||||||||||||||||
| 2014 | 21 | 106 | 238 | 396 | 540 | 671 | 752 | 788 | 840 | |||||||||||||||||||||||||||||||||||||||
| 2015 | 23 | 108 | 218 | 382 | 543 | 663 | 719 | 799 | ||||||||||||||||||||||||||||||||||||||||
| 2016 | 22 | 115 | 274 | 461 | 620 | 712 | 822 | |||||||||||||||||||||||||||||||||||||||||
| 2017 | 27 | 128 | 300 | 457 | 582 | 739 | ||||||||||||||||||||||||||||||||||||||||||
| 2018 | 35 | 166 | 367 | 543 | 728 | |||||||||||||||||||||||||||||||||||||||||||
| 2019 | 39 | 160 | 314 | 536 | ||||||||||||||||||||||||||||||||||||||||||||
| 2020 | 34 | 148 | 321 | |||||||||||||||||||||||||||||||||||||||||||||
| 2021 | 36 | 136 | ||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 38 | |||||||||||||||||||||||||||||||||||||||||||||||
| Paid losses and ALAE | 5,812 | |||||||||||||||||||||||||||||||||||||||||||||||
| Net unpaid losses and ALAE for 2013 – 2022 accident years | 8,504 | |||||||||||||||||||||||||||||||||||||||||||||||
| Net unpaid losses and ALAE for accident years before 2013 | 476 | |||||||||||||||||||||||||||||||||||||||||||||||
| Net unpaid losses and ALAE | $ | 8,980 |
** Unaudited required supplemental information*
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Unpaid losses and loss adjustment expenses (Continued)
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. As previously noted, Alleghany was acquired on October 19, 2022. Alleghany’s incurred and paid losses and ALAE are included for all years presented retrospectively.
| Incurred Losses and ALAE through December 31, | Cumulative Number of | |||||||||||||||||||||||||||||||||||||||||||||||
| Accident Year | 2013* | 2014* | 2015* | 2016* | 2017* | 2018* | 2019* | 2020* | 2021* | 2022 | IBNR and Case Development Liabilities | Reported Claims (in thousands) | ||||||||||||||||||||||||||||||||||||
| 2013 | $ | 1,602 | $ | 1,574 | $ | 1,541 | $ | 1,491 | $ | 1,462 | $ | 1,435 | $ | 1,407 | $ | 1,376 | $ | 1,360 | $ | 1,340 | $ | 101 | 78 | |||||||||||||||||||||||||
| 2014 | 2,138 | 2,064 | 2,036 | 1,970 | 1,901 | 1,906 | 1,875 | 1,861 | 1,829 | 153 | 103 | |||||||||||||||||||||||||||||||||||||
| 2015 | 2,580 | 2,539 | 2,455 | 2,426 | 2,428 | 2,402 | 2,408 | 2,393 | 249 | 121 | ||||||||||||||||||||||||||||||||||||||
| 2016 | 2,931 | 2,848 | 2,793 | 2,772 | 2,815 | 2,825 | 2,864 | 409 | 125 | |||||||||||||||||||||||||||||||||||||||
| 2017 | 3,473 | 3,337 | 3,299 | 3,310 | 3,322 | 3,320 | 477 | 144 | ||||||||||||||||||||||||||||||||||||||||
| 2018 | 3,998 | 3,886 | 3,967 | 4,030 | 4,091 | 841 | 164 | |||||||||||||||||||||||||||||||||||||||||
| 2019 | 4,584 | 4,623 | 4,692 | 4,763 | 1,057 | 185 | ||||||||||||||||||||||||||||||||||||||||||
| 2020 | 5,030 | 4,881 | 4,775 | 1,858 | 155 | |||||||||||||||||||||||||||||||||||||||||||
| 2021 | 5,899 | 5,856 | 3,105 | 311 | ||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 6,796 | 4,889 | 285 | |||||||||||||||||||||||||||||||||||||||||||||
| Incurred losses and ALAE | $ | 38,027 | ||||||||||||||||||||||||||||||||||||||||||||||
| Cumulative Paid Losses and ALAE through December 31, | ||||||||||||||||||||||||||||||||||||||||||||||||
| Accident Year | 2013* | 2014* | 2015* | 2016* | 2017* | 2018* | 2019* | 2020* | 2021* | 2022 | ||||||||||||||||||||||||||||||||||||||
| 2013 | $ | 210 | $ | 520 | $ | 774 | $ | 941 | $ | 1,049 | $ | 1,111 | $ | 1,147 | $ | 1,173 | $ | 1,194 | $ | 1,209 | ||||||||||||||||||||||||||||
| 2014 | 286 | 683 | 1,002 | 1,269 | 1,407 | 1,504 | 1,557 | 1,600 | 1,617 | |||||||||||||||||||||||||||||||||||||||
| 2015 | 329 | 804 | 1,187 | 1,507 | 1,766 | 1,873 | 1,966 | 2,041 | ||||||||||||||||||||||||||||||||||||||||
| 2016 | 373 | 908 | 1,359 | 1,765 | 1,998 | 2,140 | 2,303 | |||||||||||||||||||||||||||||||||||||||||
| 2017 | 480 | 1,133 | 1,645 | 2,050 | 2,279 | 2,492 | ||||||||||||||||||||||||||||||||||||||||||
| 2018 | 583 | 1,340 | 1,902 | 2,324 | 2,746 | |||||||||||||||||||||||||||||||||||||||||||
| 2019 | 725 | 1,598 | 2,214 | 2,898 | ||||||||||||||||||||||||||||||||||||||||||||
| 2020 | 736 | 1,498 | 2,066 | |||||||||||||||||||||||||||||||||||||||||||||
| 2021 | 869 | 1,751 | ||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 962 | |||||||||||||||||||||||||||||||||||||||||||||||
| Paid losses and ALAE | 20,085 | |||||||||||||||||||||||||||||||||||||||||||||||
| Net unpaid losses and ALAE for 2013 – 2022 accident years | 17,942 | |||||||||||||||||||||||||||||||||||||||||||||||
| Net unpaid losses and ALAE for accident years before 2013 | 549 | |||||||||||||||||||||||||||||||||||||||||||||||
| Net unpaid losses and ALAE | $ | 18,491 |
** Unaudited required supplemental information*
BHRG
We use a variety of methodologies to establish BHRG’s estimates for property and casualty claims liabilities. These methodologies include 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.
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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.
Net 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. IBNR and case development liabilities are as of December 31, 2022. As previously noted, Alleghany was acquired on October 19, 2022. Alleghany’s incurred and paid losses and ALAE are included for all years presented retrospectively in the tables that follow. Dollars are in millions.
Property
| Incurred Losses and ALAE through December 31, | ||||||||||||||||||||||||||||||||||||||||||||
| Accident Year | 2013* | 2014* | 2015* | 2016* | 2017* | 2018* | 2019* | 2020* | 2021* | 2022 | IBNR and Case Development Liabilities | |||||||||||||||||||||||||||||||||
| 2013 | $ | 3,654 | $ | 3,460 | $ | 3,092 | $ | 2,980 | $ | 2,946 | $ | 2,885 | $ | 2,828 | $ | 2,811 | $ | 2,808 | $ | 2,796 | $ | 31 | ||||||||||||||||||||||
| 2014 | 3,088 | 2,847 | 2,724 | 2,566 | 2,509 | 2,433 | 2,399 | 2,393 | 2,373 | 31 | ||||||||||||||||||||||||||||||||||
| 2015 | 3,595 | 3,405 | 2,838 | 3,229 | 3,225 | 3,244 | 3,246 | 3,240 | 116 | |||||||||||||||||||||||||||||||||||
| 2016 | 3,917 | 4,508 | 4,186 | 4,149 | 4,144 | 4,133 | 4,111 | 47 | ||||||||||||||||||||||||||||||||||||
| 2017 | 6,390 | 6,093 | 5,916 | 5,790 | 5,711 | 5,630 | 100 | |||||||||||||||||||||||||||||||||||||
| 2018 | 5,478 | 5,574 | 5,433 | 5,289 | 5,296 | 372 | ||||||||||||||||||||||||||||||||||||||
| 2019 | 4,991 | 5,116 | 4,907 | 4,592 | 245 | |||||||||||||||||||||||||||||||||||||||
| 2020 | 6,937 | 7,217 | 6,857 | 1,025 | ||||||||||||||||||||||||||||||||||||||||
| 2021 | 8,080 | 7,951 | 1,757 | |||||||||||||||||||||||||||||||||||||||||
| 2022 | 8,870 | 4,663 | ||||||||||||||||||||||||||||||||||||||||||
| Incurred losses and ALAE | $ | 51,716 | ||||||||||||||||||||||||||||||||||||||||||
| Cumulative Paid Losses and ALAE through December 31, | ||||||||||||||||||||||||||||||||||||||||||||
| Accident Year | 2013* | 2014* | 2015* | 2016* | 2017* | 2018* | 2019* | 2020* | 2021* | 2022 | ||||||||||||||||||||||||||||||||||
| 2013 | $ | 621 | $ | 1,674 | $ | 2,190 | $ | 2,414 | $ | 2,540 | $ | 2,623 | $ | 2,663 | $ | 2,694 | $ | 2,718 | $ | 2,710 | ||||||||||||||||||||||||
| 2014 | 571 | 1,518 | 1,899 | 2,059 | 2,135 | 2,187 | 2,218 | 2,242 | 2,272 | |||||||||||||||||||||||||||||||||||
| 2015 | 669 | 1,799 | 2,204 | 2,422 | 2,531 | 2,713 | 2,799 | 2,852 | ||||||||||||||||||||||||||||||||||||
| 2016 | 914 | 2,211 | 2,673 | 3,162 | 3,431 | 3,626 | 3,736 | |||||||||||||||||||||||||||||||||||||
| 2017 | 1,347 | 3,508 | 4,583 | 4,936 | 5,171 | 5,364 | ||||||||||||||||||||||||||||||||||||||
| 2018 | 1,208 | 3,089 | 3,733 | 4,019 | 4,265 | |||||||||||||||||||||||||||||||||||||||
| 2019 | 1,010 | 2,852 | 3,578 | 3,905 | ||||||||||||||||||||||||||||||||||||||||
| 2020 | 1,253 | 3,583 | 4,632 | |||||||||||||||||||||||||||||||||||||||||
| 2021 | 1,622 | 4,083 | ||||||||||||||||||||||||||||||||||||||||||
| 2022 | 1,815 | |||||||||||||||||||||||||||||||||||||||||||
| Paid losses and ALAE | 35,634 | |||||||||||||||||||||||||||||||||||||||||||
| Net unpaid losses and ALAE for 2013 – 2022 accident years | 16,082 | |||||||||||||||||||||||||||||||||||||||||||
| Net unpaid losses and ALAE for accident years before 2013 | 470 | |||||||||||||||||||||||||||||||||||||||||||
| Net unpaid losses and ALAE | $ | 16,552 |
** Unaudited required supplemental information*
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Unpaid losses and loss adjustment expenses (Continued)
Casualty
| Incurred Losses and ALAE through December 31, | ||||||||||||||||||||||||||||||||||||||||||||
| Accident Year | 2013* | 2014* | 2015* | 2016* | 2017* | 2018* | 2019* | 2020* | 2021* | 2022 | IBNR and Case Development Liabilities | |||||||||||||||||||||||||||||||||
| 2013 | $ | 3,752 | $ | 3,897 | $ | 3,894 | $ | 3,703 | $ | 3,634 | $ | 3,571 | $ | 3,453 | $ | 3,345 | $ | 3,301 | $ | 3,235 | $ | 337 | ||||||||||||||||||||||
| 2014 | 3,492 | 3,653 | 3,596 | 3,535 | 3,436 | 3,451 | 3,427 | 3,315 | 3,280 | 480 | ||||||||||||||||||||||||||||||||||
| 2015 | 3,408 | 3,607 | 3,647 | 3,561 | 3,420 | 3,383 | 3,346 | 3,291 | 426 | |||||||||||||||||||||||||||||||||||
| 2016 | 3,775 | 3,980 | 3,884 | 3,854 | 3,803 | 3,760 | 3,731 | 491 | ||||||||||||||||||||||||||||||||||||
| 2017 | 4,026 | 4,453 | 4,332 | 4,226 | 4,158 | 4,147 | 639 | |||||||||||||||||||||||||||||||||||||
| 2018 | 4,871 | 5,515 | 5,457 | 5,328 | 5,257 | 942 | ||||||||||||||||||||||||||||||||||||||
| 2019 | 5,555 | 6,019 | 5,890 | 5,727 | 1,548 | |||||||||||||||||||||||||||||||||||||||
| 2020 | 6,216 | 6,228 | 6,045 | 2,294 | ||||||||||||||||||||||||||||||||||||||||
| 2021 | 6,287 | 6,256 | 3,139 | |||||||||||||||||||||||||||||||||||||||||
| 2022 | 6,063 | 4,726 | ||||||||||||||||||||||||||||||||||||||||||
| Incurred losses and ALAE | $ | 47,032 | ||||||||||||||||||||||||||||||||||||||||||
| Cumulative Paid Losses and ALAE through December 31, | ||||||||||||||||||||||||||||||||||||||||||||
| Accident Year | 2013* | 2014* | 2015* | 2016* | 2017* | 2018* | 2019* | 2020* | 2021* | 2022 | ||||||||||||||||||||||||||||||||||
| 2013 | $ | 576 | $ | 1,120 | $ | 1,585 | $ | 1,881 | $ | 2,088 | $ | 2,284 | $ | 2,396 | $ | 2,492 | $ | 2,563 | $ | 2,598 | ||||||||||||||||||||||||
| 2014 | 428 | 997 | 1,385 | 1,657 | 1,911 | 2,096 | 2,303 | 2,396 | 2,484 | |||||||||||||||||||||||||||||||||||
| 2015 | 445 | 991 | 1,426 | 1,725 | 1,997 | 2,190 | 2,338 | 2,473 | ||||||||||||||||||||||||||||||||||||
| 2016 | 653 | 1,356 | 1,796 | 2,144 | 2,414 | 2,607 | 2,782 | |||||||||||||||||||||||||||||||||||||
| 2017 | 606 | 1,307 | 1,824 | 2,472 | 2,720 | 2,937 | ||||||||||||||||||||||||||||||||||||||
| 2018 | 693 | 1,736 | 2,785 | 3,251 | 3,629 | |||||||||||||||||||||||||||||||||||||||
| 2019 | 840 | 1,865 | 2,415 | 3,182 | ||||||||||||||||||||||||||||||||||||||||
| 2020 | 867 | 1,901 | 2,710 | |||||||||||||||||||||||||||||||||||||||||
| 2021 | 765 | 1,780 | ||||||||||||||||||||||||||||||||||||||||||
| 2022 | 621 | |||||||||||||||||||||||||||||||||||||||||||
| Paid losses and ALAE | 25,196 | |||||||||||||||||||||||||||||||||||||||||||
| Net unpaid losses and ALAE for 2013 – 2022 accident years | 21,836 | |||||||||||||||||||||||||||||||||||||||||||
| Net unpaid losses and ALAE for accident years before 2013 | 9,530 | |||||||||||||||||||||||||||||||||||||||||||
| Net unpaid losses and ALAE | $ | 31,366 |
** Unaudited required supplemental information*
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% | 3% | |||||||||||||||||
| GEICO Auto Liability | 41% | 31% | 13% | 8% | 4% | ||||||||||||||
| BH Primary Medical Professional Liability | 2% | 7% | 12% | 14% | 13% | 11% | 8% | 6% | 4% | 3% | |||||||||
| BH Primary Workers’ Compensation and Other Casualty | 15% | 19% | 15% | 13% | 9% | 5% | 4% | 3% | 1% | 1% | |||||||||
| BHRG Property | 22% | 36% | 15% | 8% | 4% | 4% | 2% | 1% | 1% | 0% | |||||||||
| BHRG Casualty | 14% | 18% | 13% | 11% | 7% | 6% | 5% | 3% | 2% | 1% |
K-98
Notes to Consolidated Financial Statements (Continued)
(17)
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, after 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 reconciliations of incurred losses and loss adjustment expenses to the amounts recorded in the Consolidated Statements of Earnings for each of the three years ended December 31, 2022 follow (in millions).
| 2022 | 2021 | 2020 | |||||||||
| Balances at beginning of year | $ | 37,855 | $ | 40,623 | $ | 41,927 | |||||
| Incurred losses and loss adjustment expenses: | |||||||||||
| Current year contracts | — | 153 | — | ||||||||
| Prior years’ contracts | 86 | (974 | ) | (399 | ) | ||||||
| Total | 86 | (821 | ) | (399 | ) | ||||||
| Paid losses and loss adjustment expenses | (2,358 | ) | (1,889 | ) | (1,076 | ) | |||||
| Foreign currency effect | (168 | ) | (58 | ) | 171 | ||||||
| Balances at December 31 | $ | 35,415 | $ | 37,855 | $ | 40,623 | |||||
| Incurred losses and loss adjustment expenses above | $ | 86 | $ | (821 | ) | $ | (399 | ) | |||
| Deferred charge amortization and adjustments | 769 | 1,802 | 1,306 | ||||||||
| Incurred losses and loss adjustment expenses included in the Consolidated Statements of Earnings | $ | 855 | $ | 981 | $ | 907 |
In the preceding table, classifications of incurred losses and loss adjustment expenses are based on the inception dates of the contracts, which reflect when our exposures to losses began. We believe that analysis of losses incurred and paid by accident year of the underlying event is irrelevant given that our exposure to losses incepts when the contract incepts and that the classification of reported claims and case development liabilities has little or no practical analytical value. Incurred losses and loss adjustment expenses in the Consolidated Statements of Earnings include changes in estimated liabilities and related deferred charge asset amortization and adjustments arising from the changes in estimated timing and amount of future loss payments. Unamortized deferred charges related to retroactive reinsurance contracts were $9.9 billion at December 31, 2022 and $10.6 billion at December 31, 2021.
Paid losses and loss adjustment expenses include claim payments attributable to a contract between our subsidiary, National Indemnity Company, and certain subsidiaries of American International Group, Inc. (collectively, “AIG”). Claim payments under the AIG contract commenced in 2021 and were $1.5 billion in 2022 and $1.2 billion in 2021. Our estimated unpaid claim liabilities with regard to the AIG contract were approximately $13.9 billion at December 31, 2022 and $15.8 billion at December 31, 2021.
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.
Estimated claim liabilities for retroactive reinsurance included estimates for environmental, asbestos and other latent injury exposures of approximately $12.1 billion at December 31, 2022 and $12.3 billion at December 31, 2021. 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.
K-99
Notes to Consolidated Financial Statements (Continued)
(18)
Notes payable and other borrowings
The carrying value of notes payable and other borrowings is 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, 2022.
| Weighted Average | December 31, | |||||||||||
| Interest Rate | 2022 | 2021 | ||||||||||
| Insurance and other: | ||||||||||||
| Berkshire Hathaway Inc. (“Berkshire”): | ||||||||||||
| U.S. Dollar denominated due 2023-2047 | 3.2 | % | $ | 6,231 | $ | 6,820 | ||||||
| Euro denominated due 2023-2041 | 1.0 | % | 7,344 | 7,792 | ||||||||
| Japanese Yen denominated due 2023-2060 | 0.7 | % | 7,818 | 6,797 | ||||||||
| Berkshire Hathaway Finance Corporation (“BHFC”): | ||||||||||||
| U.S. Dollar denominated due 2027-2052 | 3.6 | % | 14,458 | 10,758 | ||||||||
| Great Britain Pound denominated due 2039-2059 | 2.5 | % | 2,078 | 2,325 | ||||||||
| Euro denominated due 2030-2034 | 1.8 | % | 1,332 | — | ||||||||
| Other subsidiary borrowings due 2023-2051 | 4.3 | % | 5,967 | 4,438 | ||||||||
| Short-term subsidiary borrowings | 5.8 | % | 1,310 | 342 | ||||||||
| $ | 46,538 | $ | 39,272 |
In January 2022, Berkshire issued ¥128.5 billion (approximately $1.1 billion) of senior notes with maturity dates ranging from 2027 to 2052 and a weighted average interest rate of 0.5%. In December 2022, Berkshire issued ¥115.0 billion (approximately $840 million) of senior notes with maturity dates ranging from 2025 to 2052 and a weighted average interest rate of 1.1%. In the first two months of 2023, Berkshire repaid $1.1 billion of maturing senior notes. An additional $3.2 billion of Berkshire senior notes mature in March and April of 2023.
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. In March 2022, BHFC issued $4.5 billion of senior notes with maturity dates ranging from 2027 to 2052 with a weighted average interest rate of 3.4% and €1.25 billion (approximately $1.4 billion) of senior notes maturing in 2030 and 2034 with a weighted average interest rate of 1.8%. Berkshire also guarantees certain debt of other subsidiaries, aggregating approximately $3.7 billion at December 31, 2022, of which $1.0 billion matured in January 2023. 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. Other subsidiary and short-term subsidiary borrowings as of December 31, 2022 includes approximately $2.3 billion attributable to Alleghany Corporation and its subsidiaries.
The carrying values of Berkshire and BHFC non-U.S. Dollar denominated senior notes (€8.15 billion, £1.75 billion and ¥1,029 billion par at December 31, 2022) reflect the applicable exchange rates as of each balance sheet date. The effects of changes in foreign currency exchange rates during the period are recorded in earnings as a component of selling, general and administrative expenses. Changes in the exchange rates resulted in pre-tax gains of $1.7 billion in 2022, $1.3 billion in 2021 and pre-tax losses of $1.0 billion in 2020.
| Weighted Average | December 31, | |||||||||
| Interest Rate | 2022 | 2021 | ||||||||
| Railroad, utilities and energy: | ||||||||||
| Berkshire Hathaway Energy Company (“BHE”) and subsidiaries: | ||||||||||
| BHE senior unsecured debt due 2023-2053 | 4.3 | % | $ | 13,996 | $ | 13,003 | ||||
| Subsidiary and other debt due 2023-2064 | 4.3 | % | 37,639 | 36,759 | ||||||
| Short-term borrowings | 5.2 | % | 1,119 | 2,009 | ||||||
| Burlington Northern Santa Fe (“BNSF”) and subsidiaries due 2023-2097 | 4.5 | % | 23,452 | 23,219 | ||||||
| $ | 76,206 | $ | 74,990 |
K-100
Notes to Consolidated Financial Statements (Continued)
(18)
Notes payable and other borrowings (Continued)
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 2022, BHE issued $1.0 billion of 4.6% senior notes due in 2053. During 2022, BHE subsidiaries issued approximately $3.0 billion of term debt with a weighted average interest rate of 5.2% as of December 31 and maturity dates ranging from 2024 to 2053.
BNSF’s borrowings are primarily senior unsecured debentures. In June 2022, BNSF issued $1.0 billion of 4.45% debentures due in 2053. As of December 31, 2022, 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.
Our subsidiaries had unused lines of credit and commercial paper capacity to support short-term borrowing programs and provide additional liquidity. Unused lines of credit were approximately $11.1 billion at December 31, 2022, which included approximately $9.1 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 2023 include short-term borrowings.
| 2023 | 2024 | 2025 | 2026 | 2027 | ||||||||||||||||
| Insurance and other | $ | 7,080 | $ | 1,975 | $ | 3,122 | $ | 3,454 | $ | 2,870 | ||||||||||
| Railroad, utilities and energy | 5,882 | 4,281 | 3,919 | 1,498 | 1,686 | |||||||||||||||
| $ | 12,962 | $ | 6,256 | $ | 7,041 | $ | 4,952 | $ | 4,556 |
(19)
Income taxes
Liabilities for income taxes reflected in our Consolidated Balance Sheets are as follows (in millions).
| December 31, | ||||||||
| 2022 | 2021 | |||||||
| Currently payable (receivable) | $ | 511 | $ | (482 | ) | |||
| Deferred | 76,069 | 89,679 | ||||||
| Other | 440 | 1,046 | ||||||
| $ | 77,020 | $ | 90,243 |
The tax effects of temporary differences that give rise to significant portions of deferred income tax assets and liabilities are shown below (in millions).
| December 31, | ||||||||
| 2022 | 2021 | |||||||
| Deferred income tax liabilities: | ||||||||
| Investments – unrealized appreciation | $ | 41,150 | $ | 55,437 | ||||
| Deferred charges reinsurance assumed | 2,073 | 2,234 | ||||||
| Property, plant and equipment and equipment held for lease | 32,080 | 31,323 | ||||||
| Goodwill and other intangible assets | 7,010 | 6,748 | ||||||
| Other | 4,695 | 4,094 | ||||||
| 87,008 | 99,836 | |||||||
| Deferred income tax assets: | ||||||||
| Unpaid losses and loss adjustment expenses | (1,290 | ) | (1,091 | ) | ||||
| Unearned premiums | (1,196 | ) | (990 | ) | ||||
| Accrued liabilities | (1,790 | ) | (1,868 | ) | ||||
| Regulatory liabilities | (1,323 | ) | (1,349 | ) | ||||
| Other | (5,340 | ) | (4,859 | ) | ||||
| (10,939 | ) | (10,157 | ) | |||||
| Net deferred income tax liability | $ | 76,069 | $ | 89,679 |
K-101
Notes to Consolidated Financial Statements (Continued)
(19)
Income taxes (Continued)
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 ongoing business operations. Generally, no U.S. federal income taxes will be imposed on future distributions of foreign earnings under current law. However, distributions to the U.S. or other foreign jurisdictions could be subject to withholding and other local taxes.
Income tax expense (benefit) reflected in our Consolidated Statements of Earnings for each of the three years ending December 31, 2022 was as follows (in millions).
| 2022 | 2021 | 2020 | ||||||||||
| Federal | $ | (10,360 | ) | $ | 20,345 | $ | 10,596 | |||||
| State | 762 | (527 | ) | 1,086 | ||||||||
| Foreign | 1,080 | 1,061 | 758 | |||||||||
| $ | (8,518 | ) | $ | 20,879 | $ | 12,440 | ||||||
| Current | $ | 4,815 | $ | 5,326 | $ | 5,052 | ||||||
| Deferred | (13,333 | ) | 15,553 | 7,388 | ||||||||
| $ | (8,518 | ) | $ | 20,879 | $ | 12,440 |
Income tax expense (benefit) is reconciled to hypothetical amounts computed at the U.S. federal statutory rate for each of the three years ending December 31, 2022 in the table below (in millions).
| 2022 | 2021 | 2020 | ||||||||||
| Earnings (loss) before income taxes | $ | (30,576 | ) | $ | 111,686 | $ | 55,693 | |||||
| Hypothetical income tax expense (benefit) at the U.S. federal statutory rate | $ | (6,421 | ) | $ | 23,454 | $ | 11,696 | |||||
| Dividends received deduction and tax-exempt interest | (512 | ) | (457 | ) | (448 | ) | ||||||
| State income taxes, less U.S. federal income tax effect | 602 | (417 | ) | 858 | ||||||||
| U.S. income tax credits* | (2,187 | ) | (1,860 | ) | (1,519 | ) | ||||||
| Goodwill impairments | — | — | 1,977 | |||||||||
| Other differences, net | — | 159 | (124 | ) | ||||||||
| $ | (8,518 | ) | $ | 20,879 | $ | 12,440 | ||||||
| Effective income tax rate | 27.9 | % | 18.7 | % | 22.3 | % |
*** U.S. income tax credits derive primarily from production tax credits associated with wind-energy generation of BHE and tax credits arising from affordable housing investments.
We file income tax returns in the United States and in state, local and foreign jurisdictions. We have settled income tax liabilities with the U.S. federal taxing authority (“IRS”) for tax years through 2011. The 2012 and 2013 tax years are under review by the IRS’s Independent Office of Appeals, and the IRS is currently auditing tax years 2014 through 2019. We are also under audit or subject to audit with respect to income taxes in state and foreign jurisdictions. It is reasonably possible that certain of these income tax examinations will be settled in 2023. We currently do not believe that the outcome of unresolved issues or claims will be material to our Consolidated Financial Statements.
At December 31, 2022 and 2021, net unrecognized tax benefits were $440 million and $1,046 million, respectively. Included in the balance at December 31, 2022, were $383 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 do not expect material increases to the estimated amount of unrecognized tax benefits during 2023.
K-102
Notes to Consolidated Financial Statements (Continued)
(20)
Fair value measurements
Our financial assets and liabilities are summarized below as of December 31, 2022 and December 31, 2021, with fair values shown according to the fair value hierarchy (in millions). The carrying values of cash and cash equivalents, U.S. Treasury Bills, other receivables and accounts payable, accruals and other liabilities are considered to be reasonable estimates of or otherwise approximate the fair values.
| Carrying Value | Fair Value | Quoted Prices (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||||||
| December 31, 2022 | ||||||||||||||||||||
| Investments in fixed maturity securities: | ||||||||||||||||||||
| U.S. Treasury, U.S. government corporations and agencies | $ | 9,802 | $ | 9,802 | $ | 9,733 | $ | 69 | $ | — | ||||||||||
| Foreign governments | 10,327 | 10,327 | 9,854 | 473 | — | |||||||||||||||
| Corporate bonds | 2,195 | 2,195 | — | 1,546 | 649 | |||||||||||||||
| Other | 2,804 | 2,804 | — | 2,804 | — | |||||||||||||||
| Investments in equity securities | 308,793 | 308,793 | 296,610 | 9 | 12,174 | |||||||||||||||
| Investments in Kraft Heinz & Occidental common stock | 24,421 | 25,491 | 25,491 | — | — | |||||||||||||||
| Loans and finance receivables | 23,208 | 23,428 | — | 1,513 | 21,915 | |||||||||||||||
| Derivative contract assets (1) | 589 | 589 | 56 | 474 | 59 | |||||||||||||||
| Derivative contract liabilities (1) | 242 | 242 | 8 | 122 | 112 | |||||||||||||||
| Notes payable and other borrowings: | ||||||||||||||||||||
| Insurance and other | 46,538 | 41,961 | — | 41,061 | 900 | |||||||||||||||
| Railroad, utilities and energy | 76,206 | 67,651 | — | 67,651 | — | |||||||||||||||
| December 31, 2021 | ||||||||||||||||||||
| Investments in fixed maturity securities: | ||||||||||||||||||||
| U.S. Treasury, U.S. government corporations and agencies | $ | 3,303 | $ | 3,303 | $ | 3,261 | $ | 42 | $ | — | ||||||||||
| Foreign governments | 10,994 | 10,994 | 10,286 | 708 | — | |||||||||||||||
| Corporate bonds | 1,774 | 1,774 | — | 1,774 | — | |||||||||||||||
| Other | 363 | 363 | — | 363 | — | |||||||||||||||
| Investments in equity securities | 350,719 | 350,719 | 339,225 | 8 | 11,486 | |||||||||||||||
| Investment in Kraft Heinz common stock | 13,112 | 11,683 | 11,683 | — | — | |||||||||||||||
| Loans and finance receivables | 20,751 | 22,174 | — | 2,178 | 19,996 | |||||||||||||||
| Derivative contract assets (1) | 329 | 329 | 6 | 230 | 93 | |||||||||||||||
| Derivative contract liabilities (1) | 376 | 376 | 2 | 150 | 224 | |||||||||||||||
| Notes payable and other borrowings: | ||||||||||||||||||||
| Insurance and other | 39,272 | 42,339 | — | 42,292 | 47 | |||||||||||||||
| Railroad, utilities and energy | 74,990 | 87,065 | — | 87,065 | — |
(1)
Assets are included in other assets, and liabilities are included in accounts payable, accruals and other liabilities.
K-103
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 significant 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, 2022 follow (in millions).
| Balance at beginning of year | Gains (losses) included in earnings | Acquisitions, dispositions and settlements | Transfers out of Level 3 | Balance at December 31, | ||||||||||||||||
| Investments in equity securities: | ||||||||||||||||||||
| 2022 | $ | 11,480 | $ | 689 | $ | — | $ | — | $ | 12,169 | ||||||||||
| 2021 | 8,978 | 1,902 | 1,100 | (500 | ) | 11,480 | ||||||||||||||
| 2020 | 10,405 | (1,426 | ) | — | (1 | ) | 8,978 | |||||||||||||
| Equity index put option contract liabilities: | ||||||||||||||||||||
| 2021 | (1,065 | ) | 966 | — | 99 | — | ||||||||||||||
| 2020 | (968 | ) | (159 | ) | 62 | — | (1,065 | ) |
Quantitative information as of December 31, 2022 for the significant assets 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 | $ | 9,964 | Discounted cash flow | Expected duration | 6 years | |||||
| Discount for transferability restrictions and subordination | 372 bps | |||||||||
| Common stock warrants | 2,205 | Warrant pricing model | Expected duration | 6 years | ||||||
| Volatility | 39% |
K-104
Notes to Consolidated Financial Statements (Continued)
(20) Fair value measurements (Continued)
Investments in equity securities in the preceding table include our investments in certain preferred and common stock warrants that do not have readily determinable market values as defined under GAAP. These investments are subject to contractual restrictions on transferability and contain provisions that currently prevent us from economically hedging our investments. We applied discounted cash flow techniques in valuing the preferred stock and we made assumptions regarding the expected duration of the investment and the effects of subordination in liquidation. In valuing the 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.
(21)
Common stock
Changes in Berkshire’s issued, treasury and outstanding common stock during the three years ending December 31, 2022 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, 2019 | 719,307 | (17,337 | ) | 701,970 | 1,408,183,852 | (23,702,319 | ) | 1,384,481,533 | ||||||||||||||||
| Conversions of Class A to Class B common stock | (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 | ||||||||||||||||
| Conversions of Class A to Class B common stock | (12,622 | ) | — | (12,622 | ) | 18,933,000 | — | 18,933,000 | ||||||||||||||||
| Treasury stock acquired | — | (14,196 | ) | (14,196 | ) | — | (78,501,968 | ) | (78,501,968 | ) | ||||||||||||||
| Balance December 31, 2021 | 665,901 | (48,788 | ) | 617,113 | 1,488,292,852 | (197,818,349 | ) | 1,290,474,503 | ||||||||||||||||
| Conversions of Class A to Class B common stock | (14,451 | ) | — | (14,451 | ) | 21,676,500 | — | 21,676,500 | ||||||||||||||||
| Treasury stock acquired | — | (11,098 | ) | (11,098 | ) | — | (9,896,927 | ) | (9,896,927 | ) | ||||||||||||||
| Balance December 31, 2022 | 651,450 | (59,886 | ) | 591,564 | 1,509,969,352 | (207,715,276 | ) | 1,302,254,076 |
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 equal 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 1,459,733 shares outstanding as of December 31, 2022 and 1,477,429 shares outstanding as of December 31, 2021.
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 $30 billion. The repurchase program does not obligate Berkshire to repurchase any specific dollar amount or number of Class A or Class B shares and there is no expiration date to the program.
K-105
Notes to Consolidated Financial Statements (Continued)
(22)
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. 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, 2022 (in millions). Other revenues, which are not considered to be revenues from contracts with customers under GAAP, are primarily insurance premiums earned, interest, dividend and other investment income and leasing revenues.
| 2022 | Manufacturing | McLane | Service and Retailing | BNSF | Berkshire Hathaway Energy | Insurance, Corporate and other | Total | |||||||||||||||||||||
| Manufactured products: | ||||||||||||||||||||||||||||
| Industrial and commercial products | $ | 24,566 | $ | — | $ | 199 | $ | — | $ | — | $ | — | $ | 24,765 | ||||||||||||||
| Building products | 22,762 | — | — | — | — | — | 22,762 | |||||||||||||||||||||
| Consumer products | 19,912 | — | — | — | — | — | 19,912 | |||||||||||||||||||||
| Grocery and convenience store distribution | — | 32,599 | — | — | — | — | 32,599 | |||||||||||||||||||||
| Food and beverage distribution | — | 19,388 | — | — | — | — | 19,388 | |||||||||||||||||||||
| Auto sales | — | — | 10,486 | — | — | — | 10,486 | |||||||||||||||||||||
| Other retail and wholesale distribution | 3,195 | — | 16,931 | — | — | — | 20,126 | |||||||||||||||||||||
| Service | 1,199 | 1,103 | 4,439 | 25,742 | 4,933 | — | 37,416 | |||||||||||||||||||||
| Electricity and natural gas | — | — | — | — | 20,317 | — | 20,317 | |||||||||||||||||||||
| Total | 71,634 | 53,090 | 32,055 | 25,742 | 25,250 | — | 207,771 | |||||||||||||||||||||
| Other revenues | 4,016 | 119 | 6,154 | 60 | 1,097 | 82,872 | 94,318 | |||||||||||||||||||||
| $ | 75,650 | $ | 53,209 | $ | 38,209 | $ | 25,802 | $ | 26,347 | $ | 82,872 | $ | 302,089 | |||||||||||||||
| 2021 | ||||||||||||||||||||||||||||
| Manufactured products: | ||||||||||||||||||||||||||||
| Industrial and commercial products | $ | 22,184 | $ | — | $ | 159 | $ | — | $ | — | $ | — | $ | 22,343 | ||||||||||||||
| Building products | 19,604 | — | — | — | — | — | 19,604 | |||||||||||||||||||||
| Consumer products | 18,540 | — | — | — | — | — | 18,540 | |||||||||||||||||||||
| Grocery and convenience store distribution | — | 31,245 | — | — | — | — | 31,245 | |||||||||||||||||||||
| Food and beverage distribution | — | 17,332 | — | — | — | — | 17,332 | |||||||||||||||||||||
| Auto sales | — | — | 9,966 | — | — | — | 9,966 | |||||||||||||||||||||
| Other retail and wholesale distribution | 2,997 | — | 15,898 | — | — | — | 18,895 | |||||||||||||||||||||
| Service | 1,486 | 751 | 4,123 | 23,120 | 5,583 | — | 35,063 | |||||||||||||||||||||
| Electricity and natural gas | — | — | — | — | 18,264 | — | 18,264 | |||||||||||||||||||||
| Total | 64,811 | 49,328 | 30,146 | 23,120 | 23,847 | — | 191,252 | |||||||||||||||||||||
| Other revenues | 3,766 | 122 | 4,601 | 57 | 1,205 | 75,200 | 84,951 | |||||||||||||||||||||
| $ | 68,577 | $ | 49,450 | $ | 34,747 | $ | 23,177 | $ | 25,052 | $ | 75,200 | $ | 276,203 | |||||||||||||||
| 2020 | ||||||||||||||||||||||||||||
| 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 | 1,422 | 69,817 | 78,846 | |||||||||||||||||||||
| $ | 58,978 | $ | 46,840 | $ | 28,111 | $ | 20,750 | $ | 21,083 | $ | 69,817 | $ | 245,579 |
K-106
Notes to Consolidated Financial Statements (Continued)
(22)
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, 2022 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 | $ | 3,514 | $ | 20,619 | $ | 24,133 | ||||||
| Other sales and service contracts | 1,856 | 3,176 | 5,032 |
(23)
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, 2022 follow (in millions).
| 2022 | 2021 | 2020 | ||||||||||
| Service cost | $ | 181 | $ | 257 | $ | 235 | ||||||
| Interest cost | 482 | 410 | 510 | |||||||||
| Expected return on plan assets | (975 | ) | (1,008 | ) | (955 | ) | ||||||
| Amortization of actuarial losses and other | 156 | 203 | 171 | |||||||||
| Net periodic pension expense | $ | (156 | ) | $ | (138 | ) | $ | (39 | ) |
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 $1.1 billion and $1.4 billion as of December 31, 2022 and 2021, respectively. The cost of certain BHE pension plans are expected to be recoverable through the regulated rate making process.
The funded status reflected in the Consolidated Balance Sheet at year end 2022 and 2021 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, 2022 follow (in millions).
| 2022 | 2021 | |||||||||||||||||||||||
| BHE | Other | Total | BHE | Other | Total | |||||||||||||||||||
| Benefit obligations | ||||||||||||||||||||||||
| PBO beginning of year | $ | 4,780 | $ | 14,012 | $ | 18,792 | $ | 5,282 | $ | 15,147 | $ | 20,429 | ||||||||||||
| Service cost | 36 | 145 | 181 | 46 | 211 | 257 | ||||||||||||||||||
| Interest cost | 118 | 364 | 482 | 109 | 301 | 410 | ||||||||||||||||||
| Benefits paid | (250 | ) | (585 | ) | (835 | ) | (214 | ) | (795 | ) | (1,009 | ) | ||||||||||||
| Settlements paid | (164 | ) | (678 | ) | (842 | ) | (185 | ) | (22 | ) | (207 | ) | ||||||||||||
| Business acquisition | — | 58 | 58 | — | — | — | ||||||||||||||||||
| Actuarial gains and other | (1,305 | ) | (3,793 | ) | (5,098 | ) | (258 | ) | (830 | ) | (1,088 | ) | ||||||||||||
| PBO end of year | $ | 3,215 | $ | 9,523 | $ | 12,738 | $ | 4,780 | $ | 14,012 | $ | 18,792 | ||||||||||||
| Plan assets | ||||||||||||||||||||||||
| Plan assets beginning of year | $ | 5,158 | $ | 13,462 | $ | 18,620 | $ | 5,158 | $ | 12,780 | $ | 17,938 | ||||||||||||
| Employer contributions | 29 | 133 | 162 | 41 | 124 | 165 | ||||||||||||||||||
| Benefits paid | (250 | ) | (585 | ) | (835 | ) | (214 | ) | (795 | ) | (1,009 | ) | ||||||||||||
| Settlements paid | (164 | ) | (678 | ) | (842 | ) | (185 | ) | (22 | ) | (207 | ) | ||||||||||||
| Business acquisition | — | 51 | 51 | — | — | — | ||||||||||||||||||
| Actual return on plan assets | (1,162 | ) | (2,971 | ) | (4,133 | ) | 382 | 1,401 | 1,783 | |||||||||||||||
| Foreign currency translation and other | (235 | ) | (196 | ) | (431 | ) | (24 | ) | (26 | ) | (50 | ) | ||||||||||||
| Plan assets end of year | $ | 3,376 | $ | 9,216 | $ | 12,592 | $ | 5,158 | $ | 13,462 | $ | 18,620 | ||||||||||||
| Funded status – net (asset) liability | $ | (161 | ) | $ | 307 | $ | 146 | $ | (378 | ) | $ | 550 | $ | 172 |
K-107
Notes to Consolidated Financial Statements (Continued)
(23)
Pension plans (Continued)
The funded status reflected in assets was $1,510 million and in liabilities was $1,656 million at December 31, 2022. The funded status included in assets was $1,954 million and in liabilities was $2,126 million at December 31, 2021.
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 $12.2 billion at December 31, 2022 and $17.9 billion at December 31, 2021. Information for plans with PBOs and ABOs in excess of plan assets as of December 31, 2022 and 2021 follows (in millions).
| 2022 | 2021 | |||||
| PBOs | $ | 6,422 | $ | 9,643 | ||
| Plan assets | 4,766 | 7,518 | ||||
| ABOs | 5,594 | 9,111 | ||||
| Plan assets | 4,234 | 7,429 |
Weighted average assumptions used in determining PBOs and net periodic pension expense follow.
| 2022 | 2021 | 2020 | ||||||||||
| Discount rate applicable to PBOs | 5.2 | % | 2.7 | % | 2.3 | % | ||||||
| Expected long-term rate of return on plan assets | 5.9 | 6.1 | 6.2 | |||||||||
| Rate of compensation increase | 2.5 | 2.6 | 2.6 | |||||||||
| Discount rate applicable to net periodic pension expense | 2.9 | 2.4 | 3.1 |
Pension benefit payments expected over the next ten years are as follows (in millions): in 2023 – $1,259; in 2024 – $902; in 2025 – $896; in 2026 – $894; in 2027 – $900; and in 2028 to 2032 – $4,438. Sponsoring subsidiaries expect to contribute $176 million to the plans in 2023.
Fair value measurements of plan assets as of December 31, 2022 and 2021 follow (in millions).
| Fair Value | Investments carried at net | |||||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | asset value | ||||||||||||||||
| December 31, 2022 | ||||||||||||||||||||
| Cash and cash equivalents | $ | 602 | $ | 523 | $ | 79 | $ | — | $ | — | ||||||||||
| Equity securities | 7,673 | 7,112 | 321 | 240 | — | |||||||||||||||
| Fixed maturity securities | 2,152 | 1,328 | 824 | — | — | |||||||||||||||
| Investment funds and other | 2,165 | 198 | 394 | 42 | 1,531 | |||||||||||||||
| $ | 12,592 | $ | 9,161 | $ | 1,618 | $ | 282 | $ | 1,531 | |||||||||||
| December 31, 2021 | ||||||||||||||||||||
| Cash and cash equivalents | $ | 992 | $ | 901 | $ | 91 | $ | — | $ | — | ||||||||||
| Equity securities | 11,343 | 10,358 | 660 | 325 | — | |||||||||||||||
| Fixed maturity securities | 3,422 | 2,226 | 1,168 | 28 | — | |||||||||||||||
| Investment funds and other | 2,863 | 180 | 361 | 57 | 2,265 | |||||||||||||||
| $ | 18,620 | $ | 13,665 | $ | 2,280 | $ | 410 | $ | 2,265 |
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-108
Notes to Consolidated Financial Statements (Continued)
(23)
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, 2022 follows (in millions).
| 2022 | 2021 | |||||||
| Balance beginning of year | $ | (485 | ) | $ | (2,251 | ) | ||
| Amount included in net periodic pension expense | 123 | 170 | ||||||
| Actuarial gains (losses) and other | (376 | ) | 1,596 | |||||
| Balance end of year | $ | (738 | ) | $ | (485 | ) |
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 $0.8 billion in 2022, $1.0 billion in 2021 and $1.4 billion in 2020.
(24)
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, 2022 follows (in millions).
| Unrealized gains (losses) on investments | Foreign currency translation | Defined benefit pension plans | Other | Total | ||||||||||||||||
| Balance December 31, 2019 | $ | 481 | $ | (4,346 | ) | $ | (1,369 | ) | $ | (9 | ) | $ | (5,243 | ) | ||||||
| Other comprehensive income | 78 | 1,264 | (385 | ) | (52 | ) | 905 | |||||||||||||
| Reclassifications into net earnings | (23 | ) | — | 109 | 9 | 95 | ||||||||||||||
| Balance December 31, 2020 | 536 | (3,082 | ) | (1,645 | ) | (52 | ) | (4,243 | ) | |||||||||||
| Other comprehensive income | (123 | ) | (1,021 | ) | 1,163 | 80 | 99 | |||||||||||||
| Reclassifications into net earnings | (44 | ) | 11 | 135 | 15 | 117 | ||||||||||||||
| Balance December 31, 2021 | 369 | (4,092 | ) | (347 | ) | 43 | (4,027 | ) | ||||||||||||
| Other comprehensive income | (991 | ) | (2,045 | ) | (298 | ) | 283 | (3,051 | ) | |||||||||||
| Reclassifications into net earnings | 435 | (3 | ) | 93 | (38 | ) | 487 | |||||||||||||
| Balance December 31, 2022 | $ | (187 | ) | $ | (6,140 | ) | $ | (552 | ) | $ | 288 | $ | (6,591 | ) |
K-109
Notes to Consolidated Financial Statements (Continued)
(25)
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 | |
| Railroad (“BNSF”) | Operation of one of the largest railroad systems in North America through Burlington Northern Santa Fe LLC | |
| Utilities and energy (“BHE”) | Regulated electric and gas utility, including power generation and distribution activities and real estate brokerage activities through Berkshire Hathaway Energy Company and affiliates | |
| Manufacturing | Manufacturers of numerous products including industrial, consumer and building products, including home building and related financial services | |
| McLane Company (“McLane”) | 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-110
Notes to Consolidated Financial Statements (Continued)
(25)
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 (loss) before income taxes | |||||||||||||||||||||||
| 2022 | 2021 | 2020 | 2022 | 2021 | 2020 | |||||||||||||||||||
| Operating Businesses | ||||||||||||||||||||||||
| Insurance: | ||||||||||||||||||||||||
| Underwriting: | ||||||||||||||||||||||||
| GEICO | $ | 38,984 | $ | 37,706 | $ | 35,093 | $ | (1,880 | ) | $ | 1,259 | $ | 3,428 | |||||||||||
| Berkshire Hathaway Primary Group | 13,746 | 11,575 | 9,615 | 393 | 607 | 110 | ||||||||||||||||||
| Berkshire Hathaway Reinsurance Group | 21,915 | 20,197 | 18,693 | 1,389 | (930 | ) | (2,700 | ) | ||||||||||||||||
| Insurance underwriting | 74,645 | 69,478 | 63,401 | (98 | ) | 936 | 838 | |||||||||||||||||
| Investment income | 7,734 | 5,662 | 5,960 | 7,724 | 5,649 | 5,949 | ||||||||||||||||||
| Total insurance | 82,379 | 75,140 | 69,361 | 7,626 | 6,585 | 6,787 | ||||||||||||||||||
| BNSF | 25,888 | 23,282 | 20,869 | 7,708 | 7,861 | 6,792 | ||||||||||||||||||
| BHE | 26,393 | 25,096 | 21,100 | 3,146 | 3,293 | 2,548 | ||||||||||||||||||
| Manufacturing | 75,781 | 68,730 | 59,079 | 11,177 | 9,841 | 8,010 | ||||||||||||||||||
| McLane | 53,209 | 49,450 | 46,840 | 271 | 230 | 251 | ||||||||||||||||||
| Service and retailing | 38,303 | 34,832 | 28,178 | 4,771 | 4,481 | 2,628 | ||||||||||||||||||
| 301,953 | 276,530 | 245,427 | 34,699 | 32,291 | 27,016 | |||||||||||||||||||
| Reconciliation to consolidated amount | ||||||||||||||||||||||||
| Investment and derivative gains (losses) | — | — | — | (67,899 | ) | 78,542 | 40,746 | |||||||||||||||||
| Interest expense, not allocated to segments | — | — | — | (420 | ) | (455 | ) | (483 | ) | |||||||||||||||
| Equity method investments | — | — | — | 1,863 | 886 | 657 | ||||||||||||||||||
| Goodwill and intangible asset impairments | — | — | — | — | — | (10,671 | ) | |||||||||||||||||
| Corporate, eliminations and other | 136 | (327 | ) | 152 | 1,181 | 422 | (1,572 | ) | ||||||||||||||||
| $ | 302,089 | $ | 276,203 | $ | 245,579 | $ | (30,576 | ) | $ | 111,686 | $ | 55,693 |
| Interest expense | Income tax expense (benefit) | |||||||||||||||||||||||
| 2022 | 2021 | 2020 | 2022 | 2021 | 2020 | |||||||||||||||||||
| Operating Businesses | ||||||||||||||||||||||||
| Insurance | $ | — | $ | — | $ | — | $ | 1,231 | $ | 1,050 | $ | 1,089 | ||||||||||||
| BNSF | 1,025 | 1,032 | 1,037 | 1,763 | 1,871 | 1,631 | ||||||||||||||||||
| BHE | 2,140 | 2,054 | 1,941 | (1,629 | ) | (1,153 | ) | (996 | ) | |||||||||||||||
| Manufacturing | 739 | 704 | 737 | 2,403 | 2,193 | 1,795 | ||||||||||||||||||
| McLane | — | — | — | 66 | 61 | 71 | ||||||||||||||||||
| Service and retailing | 42 | 38 | 61 | 1,131 | 1,086 | 669 | ||||||||||||||||||
| 3,946 | 3,828 | 3,776 | 4,965 | 5,108 | 4,259 | |||||||||||||||||||
| Reconciliation to consolidated amount | ||||||||||||||||||||||||
| Investment and derivative gains (losses) | — | — | — | (14,166 | ) | 16,025 | 8,855 | |||||||||||||||||
| Interest expense, not allocated to segments | 420 | 455 | 483 | (88 | ) | (96 | ) | (102 | ) | |||||||||||||||
| Equity method investments | — | — | — | 334 | 82 | 43 | ||||||||||||||||||
| Corporate, eliminations and other | (14 | ) | (111 | ) | (176 | ) | 437 | (240 | ) | (615 | ) | |||||||||||||
| $ | 4,352 | $ | 4,172 | $ | 4,083 | $ | (8,518 | ) | $ | 20,879 | $ | 12,440 |
K-111
Notes to Consolidated Financial Statements (Continued)
(25)
Business segment data (Continued)
| Capital expenditures | Depreciation of tangible assets | |||||||||||||||||||||||
| 2022 | 2021 | 2020 | 2022 | 2021 | 2020 | |||||||||||||||||||
| Operating Businesses | ||||||||||||||||||||||||
| Insurance | $ | 82 | $ | 62 | $ | 50 | $ | 69 | $ | 72 | $ | 74 | ||||||||||||
| BNSF | 3,532 | 2,910 | 3,063 | 2,479 | 2,406 | 2,423 | ||||||||||||||||||
| BHE | 7,505 | 6,611 | 6,765 | 3,702 | 3,584 | 3,376 | ||||||||||||||||||
| Manufacturing | 2,477 | 2,100 | 2,133 | 2,021 | 2,037 | 2,026 | ||||||||||||||||||
| McLane | 93 | 106 | 98 | 176 | 189 | 204 | ||||||||||||||||||
| Service and retailing | 1,775 | 1,487 | 903 | 1,219 | 1,177 | 1,216 | ||||||||||||||||||
| $ | 15,464 | $ | 13,276 | $ | 13,012 | $ | 9,666 | $ | 9,465 | $ | 9,319 |
| Goodwill at year-end | Identifiable assets at year-end | |||||||||||||||||||||||
| 2022 | 2021 | 2020 | 2022 | 2021 | 2020 | |||||||||||||||||||
| Operating Businesses | ||||||||||||||||||||||||
| Insurance | $ | 16,548 | $ | 15,181 | $ | 15,224 | $ | 459,904 | $ | 482,813 | $ | 399,169 | ||||||||||||
| BNSF | 14,852 | 14,852 | 14,851 | 77,752 | 76,586 | 73,809 | ||||||||||||||||||
| BHE | 11,745 | 11,906 | 11,763 | 118,114 | 113,447 | 109,880 | ||||||||||||||||||
| Manufacturing | 28,460 | 25,463 | 25,512 | 113,578 | 107,231 | 104,318 | ||||||||||||||||||
| McLane | 232 | 232 | 232 | 7,049 | 6,841 | 6,771 | ||||||||||||||||||
| Service and retailing | 6,282 | 6,241 | 6,152 | 31,291 | 28,221 | 26,173 | ||||||||||||||||||
| $ | 78,119 | $ | 73,875 | $ | 73,734 | 807,688 | 815,139 | 720,120 | ||||||||||||||||
| Reconciliation to consolidated amount | ||||||||||||||||||||||||
| Corporate and other | 62,645 | 69,770 | 79,875 | |||||||||||||||||||||
| Goodwill | 78,119 | 73,875 | 73,734 | |||||||||||||||||||||
| $ | 948,452 | $ | 958,784 | $ | 873,729 |
Property/casualty and life/health insurance premiums written and earned are summarized below (in millions).
| Property/Casualty | Life/Health | ||||||||||||||||||||||
| 2022 | 2021 | 2020 | 2022 | 2021 | 2020 | ||||||||||||||||||
| Premiums Written: | |||||||||||||||||||||||
| Direct | $ | 56,700 | $ | 53,829 | $ | 47,838 | $ | 582 | $ | 649 | $ | 510 | |||||||||||
| Assumed | 15,143 | 12,461 | 11,533 | 5,235 | 5,685 | 5,960 | |||||||||||||||||
| Ceded | (1,155 | ) | (1,015 | ) | (898 | ) | (37 | ) | (40 | ) | (42 | ) | |||||||||||
| $ | 70,688 | $ | 65,275 | $ | 58,473 | $ | 5,780 | $ | 6,294 | $ | 6,428 | ||||||||||||
| Premiums Earned: | |||||||||||||||||||||||
| Direct | $ | 55,879 | $ | 52,139 | $ | 46,418 | $ | 582 | $ | 649 | $ | 510 | |||||||||||
| Assumed | 14,184 | 12,072 | 11,449 | 5,332 | 5,713 | 5,973 | |||||||||||||||||
| Ceded | (1,293 | ) | (1,054 | ) | (907 | ) | (39 | ) | (41 | ) | (42 | ) | |||||||||||
| $ | 68,770 | $ | 63,157 | $ | 56,960 | $ | 5,875 | $ | 6,321 | $ | 6,441 |
Insurance premiums written by geographic region (based upon the domicile of the insured or reinsured) are summarized below (in millions).
| Property/Casualty | Life/Health | ||||||||||||||||||
| 2022 | 2021 | 2020 | 2022 | 2021 | 2020 | ||||||||||||||
| United States | $ | 59,648 | $ | 55,451 | $ | 50,250 | $ | 2,120 | $ | 2,161 | $ | 2,820 | |||||||
| Western Europe | 4,901 | 4,613 | 3,751 | 1,235 | 1,298 | 1,120 | |||||||||||||
| Asia Pacific | 4,699 | 3,822 | 3,410 | 1,704 | 2,030 | 1,652 | |||||||||||||
| All other | 1,440 | 1,389 | 1,062 | 721 | 805 | 836 | |||||||||||||
| $ | 70,688 | $ | 65,275 | $ | 58,473 | $ | 5,780 | $ | 6,294 | $ | 6,428 |
K-112
Notes to Consolidated Financial Statements (Continued)
(25)
Business segment data (Continued)
Consolidated sales, service and leasing revenues were $165.0 billion in 2022, $151.0 billion in 2021 and $132.3 billion in 2020. Sales, service and leasing revenues attributable to the United States were 86% in 2022, 85% in 2021 and 86% in 2020 of such amounts. The remainder of sales, service and leasing revenues were primarily in Europe, Canada and the Asia Pacific region. Railroad, utilities and energy revenues were $52.1 billion in 2022, $48.2 billion in 2021 and $41.8 billion in 2020. In each of the three years, approximately 96% of such revenues were attributable to the United States. At December 31, 2022, approximately 90% 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.
(26)
Contingencies and Commitments
We are parties in a variety of legal actions that routinely arise out of the normal course of business, including legal actions seeking to establish liability directly through insurance contracts or indirectly through reinsurance contracts issued by Berkshire subsidiaries. Plaintiffs occasionally seek punitive or exemplary damages. We do not believe that such normal and routine litigation will have a material effect on our financial condition or results of operations. Berkshire and certain of its subsidiaries are also involved in other kinds of legal actions, some of which assert or may assert claims or seek to impose fines and penalties. We currently 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 for the future purchase of goods and services used in their businesses, which are not yet reflected in our Consolidated Financial Statements. The most significant of our long-term commitments relate to our railroad, utilities and energy businesses, our shared aircraft ownership and leasing business and certain raw materials purchase commitments. As of December 31, 2022, estimated future payments under those arrangements were as follows: $12 billion in 2023, $5 billion in 2024, $3 billion in 2025, $2 billion in 2026, $2 billion in 2027 and $18 billion after 2027.
Since October 2017, we have owned a 38.6% interest in Pilot, headquartered in Knoxville, Tennessee. Pilot is the largest operator of travel centers in North America (primarily under the names Pilot or Flying J) with more than 650 travel center locations across 44 U.S. states and six Canadian provinces. Pilot also has over 150 retail locations in the U.S. and Canada where it sells diesel fuel through various arrangements with third party travel centers. Through December 31, 2022, we accounted for our investment in Pilot under the equity method and the carrying value of our investment was $3.2 billion as of December 31, 2022. On January 31, 2023, we acquired an additional 41.4% interest for approximately $8.2 billion. This amount is based on a contractual agreement that is dependent on Pilot’s earnings for 2022 and its net debt at the end of 2022, and is subject to post-closing adjustments following the completion of Pilot’s independent public accountant’s audit of its 2022 financial statements. We obtained control of Pilot for financial reporting purposes on January 31, 2023 and, consequently, we will discontinue the use of the equity method and include Pilot’s financial statements in our Consolidated Financial Statements at that date.
In applying the acquisition method of accounting, we are required to remeasure our previously held 38.6% interest in Pilot to fair value as of January 31, 2023. The excess of the fair value of that interest over the carrying value under the equity method will be recorded as a remeasurement gain.
Given the proximity of the acquisition date of the additional Pilot interest to the date these Consolidated Financial Statements are issued, it was impracticable to provide an initial estimate of the fair values of identifiable assets acquired, liabilities assumed and residual goodwill or proforma information. We expect to provide such disclosures in our Consolidated Financial Statements beginning with our interim report for the quarterly period ending March 31, 2023.
We may be obligated to acquire certain noncontrolling interests in less-than-wholly-owned subsidiaries in the future, pursuant to the terms of agreements with the noncontrolling shareholders for cash or other assets. The timing and the amount of any future payments that might be required to such noncontrolling shareholders are contingent on future actions of the noncontrolling owners and the value of the interest being acquired.
In June 2022, BHE acquired the BHE common stock held by Gregory Abel, Berkshire’s Vice Chairman - non-insurance operations, for $870 million. The purchase was pursuant to the terms of a shareholder agreement between Berkshire, BHE and BHE’s noncontrolling shareholders. Berkshire recorded a charge of $362 million to capital in excess of par value for the excess of the consideration paid over the carrying value of the acquired noncontrolling interest.
K-113
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