Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Manufacturing, Service and Retailing (Continued)

Industrial products (Continued)

Revenues of the industrial products group in the first quarter of 2022 increased $803 million (12.0%) compared to 2021 while pre-tax earnings increased $74 million (6.5%). Pre-tax earnings as a percentage of revenues for the group were 16.3% for the first quarter of 2022, a decrease of 0.8 percentage points compared to 2021.

PCC’s revenues were $1.8 billion in the first quarter of 2022, an increase of 12.7% over the first quarter of 2021. PCC derives significant revenues and earnings from sales of aerospace products. The revenue increase in 2022 reflected higher aerospace product revenues and relatively unchanged revenues from power and other industrial products. While commercial air travel continues to increase in both the U.S. and international markets, traffic remains below pre-COVID-19 pandemic levels, especially for international routes. Long-term industry forecasts continue to show growth and strong demand for air travel. However, further recovery likely will continue to be uneven, attributable in part to travel restrictions imposed from time-to-time to control the spread of variants of the virus. Commercial aircraft delivery rates by original equipment manufacturers appear to be increasing, most notably for narrow-body aircraft, although Boeing’s growth is constrained by the lack of certification of the Boeing 737 MAX in China. In addition, the pause in deliveries of the Boeing 787 due to production quality issues further impacts aerospace growth.

PCC’s pre-tax earnings increased $16 million in the first quarter of 2022 compared to 2021, reflecting the impact of increased revenues, partially offset by a $13 million reduction in pension plan income. The improvement in operating results also reflects the continual actions taken by management to improve operations and to prepare for more normalized demand for PCC’s products. We do not currently expect PCC’s aerospace revenues or earnings will increase significantly in the near term, primarily due to the expected lag in recovery of PCC’s manufacturing levels as a result of inventory levels within the supply chain for Boeing, and the potential for delays with the certification of the Boeing 737 MAX in China and the resumption of Boeing 787 production.

Lubrizol’s revenues were approximately $1.65 billion in the first quarter of 2022, a decrease of 2.5% compared to 2021. The decrease reflects lower sales volumes, partially offset by higher average selling prices. Sales volumes in the first quarter of 2022 were restricted by raw material supply constraints and unplanned temporary maintenance shutdowns, which limited Lubrizol’s production capabilities. The increase in average selling prices was due to escalating prices for raw materials, including oil feedstocks, as well as for utilities, packaging, shipping and freight costs.

Lubrizol’s pre-tax earnings decreased 39.8% in the first quarter of 2022 compared to 2021. Earnings in 2022 were negatively impacted by rising raw material costs and lower sales volumes and higher expenses arising from the unplanned temporary shutdowns. Earnings in the first quarter of 2021 were negatively impacted by the weather-related temporary shutdown of Additives facilities in the U.S., which resulted in various incremental and non-recurring operating costs and lost sales margins.

Marmon’s revenues were $2.6 billion in the first quarter of 2022, an increase of 26.2% compared to 2021, with nearly all business groups generating meaningful revenue increases. In particular, aggregate revenues in the first quarter of 2022 from the Electrical, Metal Services and Transportation groups increased 39% compared to 2021, attributable to higher average metals prices and sales volumes. These groups contributed over half of Marmon’s revenue increase.

Marmon’s pre-tax earnings increased 43.8% in the first quarter of 2022 compared to 2021, reflecting higher earnings from most business groups, partially offset by lower earnings from the Rail & Leasing and Medical groups. The Electrical, Transportation and Plumbing & Refrigeration groups generated the largest increases in earnings in the first quarter of 2022, primarily due to higher sales volumes and improved operating margins.

IMC’s revenues were $960 million in the first quarter of 2022, an increase of 8.5% compared to 2021. Revenues in the first quarter of 2022 reflected increased sales in most geographic regions, partially offset by unfavorable foreign currency translation effects. IMC’s pre-tax earnings increased 8.3% in the first quarter of 2022 compared to the first quarter of 2021, attributable to higher customer demand, partially offset by higher raw material costs and other operating expenses and unfavorable foreign currency translation effects.

Building products

The building products group includes manufactured and site-built home construction and related lending and financial services (Clayton Homes), flooring (Shaw), insulation, roofing and engineered products (Johns Manville), bricks and masonry products (Acme Building Brands), paint and coatings (Benjamin Moore) and residential and commercial construction and engineering products and systems (MiTek).

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Manufacturing, Service and Retailing (Continued)

Building products (Continued)

Revenues of the building products group increased $1.1 billion (19.3%) in the first quarter of 2022 and pre-tax earnings increased $374 million (48.6%) compared to 2021. Residential housing construction demand in the U.S. continued to be relatively strong in the first quarter of 2022. We continue to be negatively affected by persistent supply chain disruptions, which limited our sales and contributed to production delays in some areas and contributed to significant cost increases for many raw materials and other inputs, including energy, freight and labor. These effects necessitated sales price increases. In the first quarter of 2022, interest rates in the U.S. increased significantly compared to the previous low-rate environment. Significant increases in mortgage interest rates will likely slow demand for new housing construction, which could adversely impact our businesses.

Clayton Homes’ revenues increased 21.3% to approximately $2.8 billion in the first quarter of 2022 compared to 2021. Revenues from home sales increased $470 million (26.6%), primarily due to higher average selling prices and changes in sales mix. New home unit sales increased 4.3% in the first quarter of 2022, reflecting higher factory-built manufactured home unit and essentially unchanged site-built home unit sales. Financial services revenues, which include mortgage origination and services, insurance and interest income from lending activities, increased 3.8% in the first quarter of 2022 compared to 2021. Loan balances, net of allowances for credit losses, were approximately $19.4 billion as of March 31, 2022, an increase of approximately $600 million from December 31, 2021.

Pre-tax earnings of Clayton Homes increased $94 million (24.0%) in the first quarter of 2022 compared to 2021. Earnings in 2022 reflected higher home sales, gross margins and net interest income and relatively low credit losses, partially offset by the impact of rising manufacturing and supply chain costs.

Aggregate revenues of our other building products businesses were approximately $3.9 billion in the first quarter of 2022, an increase of $592 million (17.8%) versus 2021. The increase was primarily due to higher average selling prices driven by higher input and transportation costs, and to a lesser extent, from higher unit volumes and product mix changes for paint and coatings and commercial flooring, and strength in residential and retail insulation, commercial roofing systems and engineered products. These volume increases were partially offset by lower residential flooring products volumes.

Pre-tax earnings of our other building products businesses increased $280 million (73.9%) in the first quarter of 2022 compared to the first quarter of 2021. Earnings as a percentage of revenues in the first quarter of 2022 increased 5.4 percentage points versus 2021. Earnings in 2022 benefitted from a pre-tax gain of $94 million from a business divestiture. The increase in earnings in 2022 also reflected the impact of severe winter storms in the first quarter of 2021, which reduced sales and produced incremental production and other operating costs. Customer demand was generally strong in 2022. However, earnings were negatively impacted from the lack of availability of certain materials and other product inputs from supply chain disruptions.

Consumer products

The consumer products group includes leisure vehicles (Forest River), several apparel and footwear operations (including Fruit of the Loom, Garan, Fechheimer, H.H. Brown Shoe Group and Brooks Sports) and high-performance batteries (Duracell). This group also includes custom picture framing products (Larson-Juhl) and jewelry products (Richline).

Consumer products revenues increased approximately $621 million (17.2%) in the first quarter of 2022 compared to 2021. Revenues from Forest River increased 40.1% in the first quarter of 2022 compared to 2021, driven by higher average selling prices and a 6.5% increase in unit sales. Revenues of our other consumer products businesses in 2022 were generally lower than the first quarter of 2021, including a 3.5% decrease from apparel and footwear, as well as lower revenues from Duracell. These decreases reflected lower sales volumes, partly attributable to reduced inventory availability arising from production slowdowns in Asia, inbound freight delays and shortages of certain raw materials, partly offset by higher average selling prices.

Pre-tax earnings of our consumer products group declined $60 million (11.5%) in the first quarter of 2022 versus 2021 and pre-tax earnings as a percentage of revenues decreased 3.5 percentage points in 2022 compared to 2021. The decline in earnings reflected lower earnings from the apparel and footwear businesses and Duracell, partially offset by higher earnings from Forest River. Aggregate earnings from Duracell and the apparel and footwear businesses declined about 50% in the first quarter of 2022 compared to 2021. These declines were attributable to significant increases in raw material, freight, labor and other operating costs and the impact of reduced sales volumes.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Manufacturing, Service and Retailing (Continued)

Service and retailing

A summary of revenues and pre-tax earnings of our service and retailing businesses follows (dollars in millions).

					First Quarter
					2022				2021
Revenues
Service					$	4,523			$	3,605
Retailing						4,592				4,353
McLane						12,515				11,622
					$	21,630			$	19,580
Pre-tax earnings
Service					$	724			$	590
Retailing						411				348
McLane						82				103
					$	1,217			$	1,041
Pre-tax earnings as a percentage of revenues
Service						16.0	%			16.4	%
Retailing						9.0	%			8.0	%
McLane						0.7	%			0.9	%

Service

Our service group consists of several businesses. The largest of these businesses are NetJets and FlightSafety (aviation services), which offer shared ownership programs for general aviation aircraft and high technology training products and services to operators of aircraft, and TTI, a distributor of electronics components. Our other service businesses franchise and service a network of quick service restaurants (Dairy Queen), lease transportation equipment (XTRA) and furniture (CORT), provide third party logistics services that primarily serve the petroleum and chemical industries (Charter Brokerage), distribute electronic news, multimedia and regulatory filings (Business Wire) and operate a television station in Miami, Florida (WPLG).

Service group revenues increased $918 million (25.5%) in the first quarter of 2022 compared to 2021. Revenues from TTI increased 28.9% in the first quarter of 2022 versus the first quarter of 2021, reflecting strong demand in nearly all significant markets. Revenues from aviation services (NetJets and FlightSafety) increased 23.5% in the first quarter of 2022 compared to 2021, reflecting increased training hours (38%), customer flight hours (36%) and fuel surcharges due to significant increases in fuel prices, partially offset by the effects from changes in sales mix.

Pre-tax earnings of the service group increased $134 million (22.7%) in the first quarter of 2022 compared to 2021. Pre-tax earnings as a percentage of revenues decreased 0.4 percentage points in the first quarter of 2022 compared to 2021. The earnings increase reflected increases from TTI, partially offset by lower earnings from aviation services. The earnings increase from TTI was primarily attributable to the increase in sales and improved operating cost leverage. The earnings decrease from aviation services was attributable to higher subcontracted flight, equipment maintenance and other operating costs, which more than offset the increase in revenues.

Retailing

Our largest retailing business is Berkshire Hathaway Automotive, Inc. (“BHA”), representing 65% of our combined retailing revenue in the first quarter of 2022. BHA consists of over 80 auto dealerships that sell new and pre-owned automobiles and offer repair services and related products. BHA also operates two insurance businesses, two auto auctions and an automotive fluid maintenance products distributor. Our retailing businesses also include four home furnishings retailing businesses (Nebraska Furniture Mart, R.C. Willey, Star Furniture and Jordan’s), which sell furniture, appliances, flooring and electronics. The home furnishings group represented 20% of the combined retailing revenues in the first quarter of 2022.

Other retailing businesses include three jewelry retailing businesses (Borsheims, Helzberg and Ben Bridge), See’s Candies (confectionary products), Pampered Chef (high quality kitchen tools), Oriental Trading Company (party supplies, school supplies and toys and novelties) and Detlev Louis Motorrad (“Louis”), a retailer of motorcycle accessories based in Germany.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Manufacturing, Service and Retailing (Continued)

Retailing (Continued)

Retailing group revenues increased approximately $239 million (5.5%) in the first quarter of 2022 compared to 2021. BHA’s revenues in the first quarter of 2022 increased 9.5% over the first quarter of 2021, with vehicle sales, service and repair, and finance and service contract revenues each increasing versus 2021. The increase in vehicle sales was primarily attributable to higher average vehicle transaction prices, partly offset by lower unit sales. Unit sales continue to be constrained by low new vehicle production by original equipment manufacturers, attributable to the ongoing global computer chip shortages and other supply chain disruptions. Home furnishings group revenues increased 1.6% in the first quarter of 2022 compared to 2021, attributable to higher average selling prices and lower transaction volumes.

Retailing group pre-tax earnings increased $63 million (18.1%) in the first quarter of 2022 compared to 2021. BHA’s pre-tax earnings increased 27.4% in the first quarter of 2022 compared to 2021, primarily due to increases in vehicle sales margins and finance and service contract earnings per vehicle sold, lower floorplan interest expense and from operating cost control efforts. Pre-tax earnings from BHA’s dealership operations increased 41.5% in the first quarter of 2022 compared to 2021. Aggregate pre-tax earnings for the remainder of our retailing group increased $18 million in the first quarter of 2022 compared to 2021, primarily due to higher earnings from the jewelry retailers, partly offset by lower earnings from the furniture retailers and Pampered Chef.

McLane Company

McLane operates a wholesale distribution business that provides grocery and non-food consumer products to retailers and convenience stores (“grocery”) and to restaurants (“foodservice”). McLane also operates businesses that are wholesale distributors of distilled spirits, wine and beer (“beverage”). The grocery and foodservice businesses generate high sales and very low profit margins. These businesses have several significant customers, including Walmart, 7-Eleven, Yum! Brands and others. Grocery sales comprised 62% of McLane’s consolidated sales in the first quarter of 2022, with foodservice representing most of the remainder. A curtailment of purchasing by any of its significant customers could have an adverse impact on periodic revenues and earnings.

Revenues increased $893 million (7.7%) in the first quarter of 2022 compared to 2021, reflecting increases of 3.6% from the grocery business and 15.9% from the foodservice business. Pre-tax earnings decreased $21 million (20.4%) in the first quarter of 2022 compared to 2021, which was primarily attributable to higher personnel costs and fuel expense, partly offset by a slight increase in the average gross sales margin rate. McLane’s grocery and food service operating results continue to be adversely affected by upstream supply chain constraints, including the effects of labor and truck driver shortages, higher inventory costs and disruptions in inventory availability. These upstream supply chain effects, together with the personnel shortages that we have been experiencing, adversely affected our customer service levels and reduced our operating efficiencies. The increase in fuel expense was primarily attributable to significant increases in petroleum prices. We expect the current difficult operating environment to continue through 2022.

Investment and Derivative Contract Gains/Losses

A summary of investment and derivative contract gains/losses follows (dollars in millions).

		First Quarter
		2022				2021
Investment gains (losses)		$	(1,735	)		$	5,211
Derivative contract gains (losses)			(243	)			489
Gains (losses) before income taxes and noncontrolling interests			(1,978	)			5,700
Income taxes and noncontrolling interests			(398	)			1,007
Net earnings (loss)		$	(1,580	)		$	4,693
Effective income tax rate			16.0	%			18.8	%

Investment gains/losses

Unrealized gains and losses arising from changes in market prices of investments in equity securities are included in our reported earnings, which significantly increases the volatility of our periodic net earnings due to the magnitude of our equity securities portfolio and the inherent volatility of equity securities prices. Pre-tax investment gains/losses in the first quarter included net unrealized losses of $1.8 billion in 2022 and net unrealized gains of $4.6 billion in 2021 on securities we held at the end of the applicable period. Taxable investment gains/losses on equity securities sold in the first quarter, which is generally the difference between sales proceeds and the original cost basis of the securities sold, were losses of $739 million in 2022 and gains of $1.8 billion in 2021.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Investment and Derivative Contract Gains/Losses (Continued)

Investment gains/losses (Continued)

We believe that investment gains/losses, whether realized from sales or unrealized from changes in market prices, are often meaningless in terms of understanding our reported consolidated earnings or evaluating our periodic economic performance. We continue to believe the investment gains/losses recorded in earnings in any given period has little analytical or predictive value.

Derivative contract gains/losses

Derivative contract gains/losses include the changes in fair value of our equity index put option contract liabilities, which relate to contracts that were originated before March of 2008. As of March 31, 2022, the vast majority of these contracts have expired. The gains and losses from the changes in the fair values of these liabilities are recorded in earnings and can be significant due to the volatility of market prices in the related equity securities markets. As of March 31, 2022, the intrinsic value of our remaining equity index put option contracts was $84 million and our recorded liability at fair value was $121 million. Our ultimate payment obligations, if any, under these contracts will be determined as of the contract expiration dates based on the intrinsic value as defined in the contracts.

Other

A summary of after-tax other earnings/losses follows (in millions).

					First Quarter
					2022				2021
Equity method earnings					$	307			$	214
Acquisition accounting expenses						(161	)			(180	)
Corporate interest expense, before foreign currency effects						(70	)			(80	)
Foreign currency exchange rate gains (losses) on Berkshire and BHFC non-U.S. Dollar senior notes						522				525
Other Berkshire corporate						79				(6	)
					$	677			$	473

After-tax equity method earnings include our proportionate share of earnings attributable to our investments in Kraft Heinz, Pilot, Berkadia, Electric Transmission of Texas and Iroquois Gas Transmission Systems. Earnings in the first quarter of 2022 increased $93 million versus 2021, primarily due to higher earnings attributable to Kraft Heinz and Pilot.

After-tax acquisition accounting expenses include charges arising from the application of the acquisition method in connection with certain of Berkshire’s past business acquisitions. Such charges arise primarily from the amortization of intangible assets recorded in connection with those business acquisitions

Foreign currency exchange rate gains and losses pertain to Berkshire’s Euro and Japanese Yen denominated debt and BHFC’s Euro and Great Britain Pound denominated debt. Changes in foreign currency exchange rates produce unrealized gains and losses from the periodic revaluation of these liabilities into U.S. Dollars. The gains and losses recorded in any given period can be significant due to the magnitude of the borrowings and the inherent volatility in foreign currency exchange rates. Berkshire corporate items consist primarily of Berkshire parent company investment income and corporate expenses, other intercompany interest income where the interest expense is included in earnings of the operating businesses and unallocated income taxes.

Financial Condition

Our consolidated balance sheet continues to reflect very significant liquidity and a very strong capital base. Consolidated shareholders’ equity attributable to Berkshire shareholders at March 31, 2022 was $508.1 billion, an increase of $1.9 billion since December 31, 2021. Net earnings attributable to Berkshire shareholders was $5.5 billion in the first quarter of 2022, which included after-tax losses on our investments of $1.4 billion. Investment gains and losses from changes in the market prices of our investments in equity securities will produce significant volatility in our earnings.

Berkshire’s common stock repurchase program, as amended, permits Berkshire to repurchase its Class A and Class B shares at prices below Berkshire’s intrinsic value, as conservatively determined by Warren Buffett, Berkshire’s Chairman of the Board and Chief Executive Officer, and Charlie Munger, Vice Chairman of the Board. The program does not specify a maximum number of shares to be repurchased and does not require any specified repurchase amount. The program is expected to continue indefinitely. We will not repurchase our stock if it reduces the total amount of Berkshire’s consolidated cash, cash equivalents and U.S. Treasury Bills holdings below $30 billion. Financial strength and redundant liquidity will always be of paramount importance at Berkshire. Berkshire paid $3.2 billion in the first quarter of 2022 to repurchase shares of its Class A and B common stock.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Financial Condition (Continued)

At March 31, 2022, our insurance and other businesses held cash, cash equivalents and U.S. Treasury Bills of $102.7 billion, which included $74.1 billion in U.S. Treasury Bills. Investments in equity and fixed maturity securities (excluding our investment in Kraft Heinz) were $412.3 billion. During the first quarter of 2022, we paid cash of $51.1 billion to acquire equities securities and we received proceeds of $9.7 billion from sales of equity securities.

Our consolidated borrowings at March 31, 2022 were $119.7 billion, of which over 95% were by the Berkshire parent company, BHFC, BNSF and BHE and its subsidiaries. In the first quarter of 2022, Berkshire and certain of its subsidiaries issued term debt of approximately $7.4 billion in the aggregate.

Berkshire parent company outstanding debt outstanding at March 31, 2022 was $21.3 billion, a decrease of $122 million since December 31, 2021. In January 2022, Berkshire repaid $600 million of maturing senior notes and 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%. Berkshire’s borrowings decreased $650 million in the first quarter of 2022 from changes in foreign currency exchange rates on its non-U.S. Dollar denominated debt. Aggregate maturities of Berkshire parent company debt over the next twelve months approximates $3.9 billion, all of which is in the first quarter of 2023.

Berkshire’s insurance and other subsidiary outstanding borrowings were $23.6 billion at March 31, 2022, which included senior note borrowings of BHFC, a wholly-owned financing subsidiary, of approximately $18.9 billion. BHFC’s borrowings are used to fund a portion of loans originated and acquired by Clayton Homes and equipment held for lease by our railcar leasing business. In March 2022, BHFC issued $4.5 billion of senior notes with maturity dates ranging from 2027 to 2052 and a weighted average interest rate of 3.4% and issued €1.25 billion of senior notes maturing in 2030 and 2034 with a weighted average interest rate of 1.8%. Aggregate maturities of BHFC debt in the second quarter of 2022 are $775 million. Berkshire guarantees BHFC’s senior notes for the full and timely payment of principal and interest.

BNSF’s outstanding debt was $23.0 billion as of March 31, 2022, a decrease of $201 million from December 31, 2021. Outstanding borrowings of BHE and its subsidiaries were $51.8 billion at March 31, 2022, substantially unchanged from December 31, 2021. In April 2022, BHE issued $1.0 billion of 4.6% senior notes due in 2053 and a subsidiary issued £350 million of 3.25% notes due in 2052. Aggregate debt maturities for BHE and BNSF over the next twelve months approximate $2.6 billion. Berkshire does not guarantee the repayment of debt issued by BNSF, BHE or any of their subsidiaries and is not committed to provide capital to support BNSF, BHE or any of their subsidiaries.

In the first quarter of 2022, our diverse group of businesses generated net operating cash flows of approximately $6.8 billion. Our consolidated capital expenditures for property, plant and equipment and equipment held for lease were $3.1 billion in the first quarter of 2022, which included capital expenditures by our railroad, utilities and energy businesses (BNSF and BHE) of $2.2 billion. BNSF and BHE maintain very large investments in capital assets (property, plant and equipment) and will regularly make significant capital expenditures in the normal course of business. We forecast additional capital expenditures of approximately $9.4 billion over the remainder of 2022.

Contractual Obligations

We are party to other contracts associated with ongoing business activities, which will result in cash payments to counterparties in future periods. Certain obligations are included in our Consolidated Balance Sheets, such as operating lease liabilities and shared aircraft repurchase liabilities of NetJets.

We are also obligated to pay claims arising from property and casualty insurance companies. Such liabilities, including amounts from retroactive reinsurance, were approximately $125 billion at March 31, 2022. However, the timing and amount of the payments under insurance and reinsurance contracts are contingent upon the outcome of future events. Actual payments will likely vary, perhaps materially, from any forecasted payments, as well as from the liabilities currently recorded in our Consolidated Balance Sheet. We anticipate that these payments will be funded by operating cash flows.

Other obligations pertaining to the acquisition of goods or services in the future, such as certain purchase obligations, are not currently reflected in the Consolidated Financial Statements and will be recognized in future periods as the goods are delivered or services are provided. As of March 31, 2022, the largest categories of our long-term contractual obligations primarily related to fuel, capacity, transmission and maintenance contracts and capital expenditure commitments of BHE and BNSF and aircraft purchase commitments of NetJets.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Contractual Obligations (Continued)

On March 21, 2022, we agreed to acquire all of the outstanding shares of Alleghany Corporation (“Alleghany”) common stock for cash consideration of approximately $11.6 billion, subject to Alleghany shareholder approval and receipt of various regulatory approvals. We currently anticipate this acquisition will close in the fourth quarter of 2022. We also have an agreement to acquire an additional 41.4% of Pilot in 2023 and agreements to acquire certain non-controlling interests of consolidated subsidiaries, which are described in Note 26 to the Consolidated Financial Statements included in Item 8 of Berkshire’s Annual Report on Form 10-K for the year ended December 31, 2021.

Except as otherwise disclosed in this Quarterly Report, our contractual obligations as of March 31, 2022 were, in the aggregate, not materially different from those disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in Berkshire’s Annual Report on Form 10-K for the year ended December 31, 2021.

Critical Accounting Policies

Certain accounting policies require us to make estimates and judgments that affect the amounts reflected in the Consolidated Financial Statements. Such estimates and judgments necessarily involve varying, and possibly significant, degrees of uncertainty. Accordingly, certain amounts recorded in the financial statements will likely be adjusted in the future based on new available information and changes in other facts and circumstances. Reference is made to “Critical Accounting Policies” discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Berkshire’s Annual Report on Form 10-K for the year ended December 31, 2021.

Our Consolidated Balance Sheet as of March 31, 2022 includes estimated liabilities of $125.4 billion for unpaid losses and loss adjustment expenses from property and casualty insurance and reinsurance contracts. Due to the inherent uncertainties in the processes of establishing these liabilities, the actual ultimate claim amounts will likely differ from the currently recorded amounts. A very small percentage change in estimates of this magnitude can result in a material effect on periodic earnings. The effects from changes in these estimates are recorded as a component of insurance losses and loss adjustment expenses in the period of the change.

Our Consolidated Balance Sheet as of March 31, 2022 included goodwill of acquired businesses of $73.8 billion and indefinite-lived intangible assets of $18.5 billion. We evaluate these assets for impairment at least annually and we conducted our most recent annual review during the fourth quarter of 2021. In connection with the annual goodwill impairment review conducted in the fourth quarter of 2021, the estimated fair values of five reporting units did not exceed our carrying values by at least 20%. The most significant of these reporting units was Precision Castparts Corp. (“PCC”). The estimated fair value of PCC was approximately $34.5 billion, exceeding our carrying value of approximately $31.1 billion by 10.7%. Our carrying value of PCC included goodwill of approximately $7.5 billion. For the four other reporting units, our aggregate estimated fair value was approximately $2.5 billion, which exceeded our aggregate carrying value of approximately $2.3 billion by 9.2%. Our carrying value of these units included goodwill of approximately $1.2 billion.

Goodwill and indefinite-lived intangible asset impairment reviews include determining the estimated fair values of our reporting units and assets. The key assumptions and inputs used in such determinations may include forecasting revenues and expenses, cash flows and capital expenditures, as well as an appropriate discount rate and other inputs. Significant judgment by management is required in estimating the fair value of a reporting unit and in performing impairment tests. Due to the inherent subjectivity and uncertainty in forecasting future cash flows and earnings over long periods of time, actual results may vary materially from the forecasts.

As of March 31, 2022, we concluded it is more likely than not that goodwill recorded in our Consolidated Balance Sheet was not impaired. The long-term adverse effects of the COVID-19 pandemic on certain of our reporting units may prove to be worse than we currently anticipate, and we may need to record goodwill or indefinite-lived intangible asset impairment charges in future periods. Making estimates of the fair value of reporting units and judgments on goodwill impairments at this time are and will likely be significantly affected by assumptions on the severity, duration or long-term effects of the pandemic on a reporting unit’s business, which we cannot reliably predict. Consequently, any fair value estimates in such instances can be subject to wide variations.

Information concerning new accounting pronouncements is included in Note 2 to the accompanying Consolidated Financial Statements.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

Investors are cautioned that certain statements contained in this document as well as some statements in periodic press releases and some oral statements of Berkshire officials during presentations about Berkshire or its subsidiaries are “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Act”). Forward-looking statements include statements which are predictive in nature, which depend upon or refer to future events or conditions, or which include words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates” or similar expressions. In addition, any statements concerning future financial performance (including future revenues, earnings or growth rates), ongoing business strategies or prospects and possible future Berkshire actions, which may be provided by management, are also forward-looking statements as defined by the Act. Forward-looking statements are based on current expectations and projections about future events and are subject to risks, uncertainties and assumptions about Berkshire and its subsidiaries, economic and market factors and the industries in which we do business, among other things. These statements are not guarantees of future performance and we have no specific intention to update these statements.

Actual events and results may differ materially from those expressed or forecasted in forward-looking statements due to a number of factors. The principal risk factors that could cause our actual performance and future events and actions to differ materially from such forward-looking statements include, but are not limited to, changes in market prices of our investments in fixed maturity and equity securities; losses realized from derivative contracts; the occurrence of one or more catastrophic events, such as an earthquake, hurricane, act of terrorism or cyber-attack that causes losses insured by our insurance subsidiaries and/or losses to our business operations; the frequency and severity of epidemics, pandemics or other outbreaks, including COVID-19, that negatively affect our operating results and restrict our access to borrowed funds through the capital markets at reasonable rates; the adverse impacts from geopolitical events; changes in laws or regulations affecting our insurance, railroad, utilities and energy and finance subsidiaries; changes in federal income tax laws; and changes in general economic and market factors that affect the prices of securities or the industries in which we do business.