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

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

Railroad (Continued)

The following table summarizes BNSF’s railroad freight volumes by business group (cars/units in thousands).

Cars/UnitsPercentage Change
Third QuarterFirst Nine MonthsThirdFirst Nine
2022202120222021QuarterMonths
Consumer products1,3231,4253,9774,307(7.2)%(7.7)%
Industrial products4134431,2371,280(6.8)(3.4)
Agricultural products2762658848964.2(1.3)
Coal3994041,1581,127(1.2)2.8
2,4112,5377,2567,610(5.0)(4.7)

Railroad operating revenues increased 16.8% in the third quarter and 14.3% in the first nine months of 2022 compared to 2021, attributable to increases in average revenue per car/unit resulting from higher fuel surcharge revenue driven by higher fuel prices, along with increased rates per car/unit, partially offset by lower volumes. BNSF’s pre-tax earnings decreased 7.1% in the third quarter and increased 3.1% in the first nine months of 2022 compared to 2021. Results for the third quarter were impacted by lower freight volumes and higher fuel and other operating costs, partially offset by higher revenue per car.

Operating revenues from consumer products were $2.4 billion in the third quarter and $7.0 billion in the first nine months of 2022, increases of 15.3% and 14.5%, respectively, from 2021. The increases reflected higher average revenue per car/unit, partially offset by volume decreases of 7.2% in the third quarter and 7.7% in the first nine months of 2022 compared to 2021. The volume decreases were primarily due to lower international intermodal shipments resulting from supply chain disruptions. Operating revenues from industrial products were $1.5 billion in the third quarter and $4.2 billion in the first nine months of 2022, increases of 7.1% and 6.9%, respectively, from 2021. The increases reflected higher average revenue per car/unit, partially offset by volume decreases of 6.8% in the third quarter and 3.4% in the first nine months of 2022 compared to 2021. The volume decreases in both the third quarter and first nine months were primarily due to lower petroleum and building products shipments.

Operating revenues from agricultural products were $1.3 billion in the third quarter and $4.1 billion in the first nine months of 2022, increases of 25.7% and 12.0%, respectively, compared to 2021. The increases were primarily attributable to higher average revenue per car/unit. Volumes increased 4.2% in the third quarter due to higher domestic grain shipments and increased renewable diesel and oil feedstock shipments, while volumes decreased 1.3% in the first nine months of 2022, primarily due to lower grain exports, partially offset by higher volumes of domestic grains, renewable diesel and oil feedstocks. Operating revenues from coal were $1.1 billion in the third quarter and $3.0 billion in the first nine months of 2022, increases of 27.0% and 28.8%, respectively, from 2021. The increases were primarily attributable to higher average revenue per car/unit. Volumes decreased 1.2% in the third quarter primarily due to network challenges, while volumes increased 2.8% in the first nine months of 2022 due to increased electricity generation, higher natural gas prices and improved export demand.

Railroad operating expenses were $4.4 billion in the third quarter and $12.2 billion in the first nine months of 2022, increases of $1.1 billion (32.8%) and $2.2 billion (21.8%), respectively, compared to 2021. The increases were primarily due to significant increases in the cost of fuel, as well as higher compensation and benefits expenses. Our ratio of railroad operating expenses to railroad operating revenues increased 8.2 percentage points to 67.7% in the third quarter and 4.0 percentage points to 65.2% in the first nine months of 2022 versus the comparable 2021 periods. Compensation and benefits expenses increased $311 million (26.6%) in the third quarter and $439 million (12.6%) in the first nine months of 2022 compared to 2021, primarily due to wage inflation, including the impact from tentative or ratified union labor agreements, higher health and welfare costs and lower productivity. Fuel expenses increased $567 million (80.4%) in the third quarter and $1.5 billion (75.0%) in the first nine months of 2022 compared to 2021, primarily due to higher fuel prices, partially offset by lower volumes. Equipment rents, materials and other expenses increased $170 million (50.3%) in the third quarter and $232 million (18.4%) in the first nine months of 2022 compared to 2021, primarily due to general inflation, lower gains from land and easement sales and higher casualty costs.

Approximately 30,500 of BNSF’s employees are members of a labor union. The U.S. Class I railroads and rail labor unions were engaged in negotiations from January 2020 through June 2022. Federal mediation was included in that timeframe, followed by a release from the National Mediation Board for a Presidential Emergency Board (PEB). In accordance with the Railway Labor Act (RLA), the PEB issued its report and recommendations to settle the bargaining disputes on August 16, 2022. Tentative agreements based on these recommendations were reached with all labor unions in September 2022. To date, six unions have ratified those agreements. Two labor unions did not ratify their tentative agreement, and the parties have agreed to maintain the status quo as discussions continue. Ratification results for the remaining unions are scheduled to be announced through November 2022. Where settlements have not been successful following the RLA process, Congress may act by extending the status quo period or passing a law imposing a resolution on the parties.

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

Utilities and Energy

We currently own 92% of Berkshire Hathaway Energy Company (“BHE”), which operates a global energy business. BHE’s domestic regulated utility interests include PacifiCorp, MidAmerican Energy Company (“MEC”) and NV Energy. BHE subsidiaries also operate two regulated electricity distribution businesses referred to as Northern Powergrid in Great Britain. BHE’s natural gas pipelines consist of five domestic regulated interstate natural gas pipeline systems and a 25% interest in a liquefied natural gas export, import and storage facility (“LNG interest”), which BHE operates and consolidates for financial reporting purposes. Other energy businesses include a regulated electricity transmission-only business in Alberta, Canada (“AltaLink, L.P.”) and a diversified portfolio of mostly renewable independent power projects and investments. BHE also operates a residential real estate brokerage business and a large network of residential real estate brokerage franchises in the United States.

The rates our regulated businesses charge customers for energy and services are largely based on the costs of business operations, including income taxes and a return on capital, and are subject to regulatory approval. To the extent such costs are not allowed in the approved rates, operating results will be adversely affected. A summary of BHE’s net earnings follows (dollars in millions).

Third QuarterFirst Nine Months
2022202120222021
Revenues:
Energy operating revenue$6,095$5,225$15,858$14,375
Real estate operating revenue1,4051,7434,2844,738
Other income (loss)3145(110)(91)
Total revenue7,5317,01320,03219,022
Costs and expense:
Energy cost of sales1,9591,3854,9444,064
Energy operating expense2,3622,1326,8586,302
Real estate operating costs and expense1,3521,6084,0864,312
Interest expense5375131,5831,547
Total costs and expense6,2105,63817,47116,225
Pre-tax earnings1,3211,3752,5612,797
Income tax expense (benefit)*(570)(398)(1,274)(842)
Net earnings after income taxes1,8911,7733,8353,639
Noncontrolling interests of BHE subsidiaries147103376311
Net earnings attributable to BHE1,7441,6703,4593,328
Noncontrolling interests and preferred stock dividends159174358389
Net earnings attributable to Berkshire Hathaway shareholders$1,585$1,496$3,101$2,939
Effective income tax rate(43.1)%(28.9)%(49.7)%(30.1)%
  • Includes significant production tax credits from wind-powered electricity generation.

The discussion of BHE’s operating results that follows is based on after-tax earnings, reflecting how the energy businesses are managed and evaluated. A summary of net earnings attributable to BHE follows (dollars in millions).

Third QuarterFirst Nine MonthsPercentage Change
2022202120222021Third QuarterFirst Nine Months
PacifiCorp$409$333$622$72822.8%(14.6)%
MidAmerican Energy Company300373745728(19.6)2.3
NV Energy270282392416(4.3)(5.8)
Northern Powergrid1008328216220.574.1
Natural gas pipelines23214472962761.116.3
Other energy businesses2432307265215.739.3
Real estate brokerage29102134321(71.6)(58.3)
Corporate interest and other161123(171)(175)30.9(2.3)
$1,744$1,670$3,459$3,3284.43.9

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

Utilities and Energy (Continued)

PacifiCorp operates a regulated electric utility in portions of several Western states, including Utah, Oregon and Wyoming. After-tax earnings increased $76 million in the third quarter and decreased $106 million in the first nine months of 2022 compared to 2021. The changes reflected increases in utility margin (operating revenue less cost of sales) and higher production tax credits recognized in the third quarter and higher operating expenses. The increases in operating expenses reflected higher accruals in the first nine months of 2022 associated with wildfires in 2020, higher general and plant maintenance costs and incremental costs from additional assets placed in-service.

PacifiCorp’s utility margin was $1.1 billion in the third quarter and $2.7 billion in the first nine months of 2022, increases of $68 million and $88 million, respectively, from the comparable periods in 2021. The increases reflected higher operating revenue from favorable retail and wholesale pricing and increases in retail customer volumes, partially offset by higher purchased power and thermal generation costs. Retail customer volumes increased 3.5% in the third quarter and 0.8% in the first nine months of 2022 compared to 2021, primarily due to an increase in the average number of customers and the favorable impact of weather, partially offset by lower customer usage.

MEC operates a regulated electric and natural gas utility primarily in Iowa and Illinois. After-tax earnings decreased $73 million in the third quarter and increased $17 million in the first nine months of 2022 compared to 2021. The changes reflected increases in electric utility margin offset by higher operating expenses and lower other income. Additionally, comparative income tax benefits were lower in the third quarter and higher in the first nine months of 2022, as higher production tax credits recognized on new wind-powered and solar-powered generating facilities placed in-service ($14 million in the third quarter and $106 million in the first nine months) were offset by the impacts of ratemaking. The increase in operating expenses included higher costs associated with certain regulatory mechanisms.

MEC’s electric utility margin was $774 million in the third quarter and $1.8 billion in the first nine months of 2022, increases of 12% and 15%, respectively, versus 2021. The increases were attributable to higher operating revenue from increased retail and wholesale customer volumes and favorable wholesale pricing, partially offset by higher purchased power costs. Electric retail customer volumes increased 3.1% in the third quarter and 4.0% in the first nine months of 2022 compared to 2021, primarily due to higher customer usage.

NV Energy operates regulated electric and natural gas utilities in Nevada. After-tax earnings decreased $12 million in the third quarter and $24 million in the first nine months of 2022 compared to 2021. The decreases reflected higher operating expenses from increased plant operations and maintenance expenses, higher accruals for earnings sharing and incremental costs from additional assets placed in-service, partially offset by higher interest income from carrying charges on regulatory balances.

NV Energy’s electric utility margin was $622 million in the third quarter and $1.3 billion in the first nine months of 2022, relatively unchanged compared to 2021. Electric retail customer volumes increased 0.3% in the third quarter and 1.3% in the first nine months of 2022 compared to 2021, primarily due to an increase in the average number of customers, partially offset by the unfavorable impact of weather.

Northern Powergrid’s after-tax earnings increased $17 million in the third quarter and $120 million in the first nine months of 2022 compared to 2021. Earnings in the first nine months of 2021 included deferred income tax expense of $109 million related to the enactment in June 2021 of an increase in the United Kingdom income tax rate from 19% to 25%, effective April 1, 2023. In addition, earnings increased at CE Gas from new projects placed in-service in March and July 2022 and improved distribution business results largely from higher tariff rates, which were partially offset by unfavorable foreign currency translation effects in 2022.

Natural gas pipelines’ after-tax earnings increased $88 million in the third quarter and $102 million in the first nine months of 2022 compared to 2021. The increases were primarily due to higher earnings at BHE GT&S, largely from the impacts of a general rate case, favorable income tax adjustments and lower operating expenses. The year-to-date increase was partially offset by reduced margins in 2022 due to higher natural gas sales and higher transportation revenue in 2021, attributable to an increase in demand as a result of the February 2021 winter storms.

Other energy businesses’ after-tax earnings increased $13 million in the third quarter and $205 million in the first nine months of 2022 compared to 2021. The increases in earnings were primarily due to increased wind tax equity investment earnings of $24 million in the third quarter and $182 million in the first nine months of 2022 as well as from higher operating revenue from owned renewable energy projects, partly offset by lower earnings from natural gas generating facilities. The increases in wind tax equity investment earnings reflected increased income tax benefits from projects reaching commercial operation over the past twelve months. The comparative increase in year-to-date earnings also reflected the impact of losses in 2021 on pre-existing tax equity investments due to the February 2021 winter storms.

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

Utilities and Energy (Continued)

Real estate brokerage after-tax earnings decreased $73 million in the third quarter and $187 million in the first nine months of 2022 compared to 2021. The decreases in earnings were primarily attributable to lower earnings from mortgage services due to a decrease in funded volume primarily from a decline in refinancing activity and lower earnings from brokerage and settlement services from a decrease in closed units, partially offset by lower operating expenses.

Corporate interest and other after-tax earnings increased $38 million in the third quarter and was relatively unchanged for the first nine months of 2022 compared to 2021, reflecting higher federal income tax credits recognized, partially offset by higher interest expense and lower earnings from non-regulated energy services in the first nine months.

Manufacturing, Service and Retailing

A summary of revenues and earnings of our manufacturing, service and retailing businesses follows (dollars in millions).

Third QuarterFirst Nine MonthsPercentage Change
2022202120222021Third QuarterFirst Nine Months
Revenues
Manufacturing$19,000$17,496$57,193$50,8218.6%12.5%
Service and retailing23,13621,29167,64562,1438.78.9
$42,136$38,787$124,838$112,964
Pre-tax earnings
Manufacturing$2,883$2,445$8,735$7,59517.9%15.0%
Service and retailing1,3141,1023,8063,41319.211.5
4,1973,54712,54111,008
Income taxes and noncontrolling interests9508413,0202,679
Net earnings*$3,247$2,706$9,521$8,329
Effective income tax rate22.1%22.9%23.6%23.7%
Pre-tax earnings as a percentage of revenues10.0%9.1%10.0%9.7%

** Excludes certain acquisition accounting expenses, primarily related to the amortization of identifiable intangible assets recorded in connection with our business acquisitions. The after-tax acquisition accounting expenses excluded from earnings were $161 million in the third quarter and $484 million in the first nine months of 2022 and $169 million in the third quarter and $532 million in the first nine months of 2021. These expenses are included in “Other” in the summary of earnings on page 26 and in the “Other” earnings section on page 42.*

Manufacturing

Our manufacturing group includes a variety of industrial, building and consumer products businesses. A summary of revenues and pre-tax earnings of these operations follows (dollars in millions).

Third QuarterFirst Nine Months
2022202120222021
Revenues
Industrial products$7,723$7,192$22,912$21,050
Building products7,5896,37422,01118,404
Consumer products3,6883,93012,27011,367
$19,000$17,496$57,193$50,821
Pre-tax earnings
Industrial products$1,375$1,124$3,861$3,508
Building products1,2368333,6872,576
Consumer products2724881,1871,511
$2,883$2,445$8,735$7,595
Pre-tax earnings as a percentage of revenues
Industrial products17.8%15.6%16.9%16.7%
Building products16.3%13.1%16.8%14.0%
Consumer products7.4%12.4%9.7%13.3%

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

Manufacturing, Service and Retailing (Continued)

Industrial products

The industrial products group includes metal products for aerospace, power and general industrial markets (Precision Castparts Corp. (“PCC”)), specialty chemicals (The Lubrizol Corporation (“Lubrizol”)), metal cutting tools/systems (IMC International Metalworking Companies (“IMC”)) and Marmon, which consists of more than 100 autonomous manufacturing and service businesses, internally aggregated into eleven groups, and includes leasing for the rail, intermodal tank container and mobile crane industries. The industrial products group also includes equipment and systems for the livestock and agricultural industries (CTB International) and a variety of industrial products for diverse markets (Scott Fetzer and LiquidPower Specialty Products).

Revenues of the industrial products group increased $531 million (7.4%) in the third quarter and $1.9 billion (8.8%) in the first nine months of 2022 compared to 2021. Pre-tax earnings increased $251 million (22.3%) in the third quarter and $353 million (10.1%) in the first nine months of 2022 compared to 2021. Pre-tax earnings as a percentage of revenues for the group were 16.9% for the first nine months of 2022, an increase of 0.2 percentage points compared to 2021. Operating results in 2022 were negatively affected by a combination of higher materials and energy costs, manufacturing inefficiencies attributable to supply chain disruptions and labor shortages and asset impairment charges, which largely offset the impacts of increased average selling prices and increased demand for certain product categories. Operating results of this group’s international businesses were also negatively impacted in 2022 by the stronger U.S. Dollar.

PCC’s revenues were $1.9 billion in the third quarter and $5.5 billion in the first nine months of 2022, increases of 17.5% in the third quarter and 14.5% in the first nine months compared to 2021. PCC derives significant revenues and earnings from sales of aerospace products. The revenue increases in 2022 were primarily attributable to higher demand for aerospace products.

While commercial air travel increased in both the U.S. and international markets, traffic remains below pre-COVID-19 pandemic levels, especially for international routes. Further recovery likely will be uneven, attributable in part to travel restrictions imposed from time-to-time to control the spread of variants of COVID-19, as well as from the changes in supply chain conditions, including the availability of workers. Commercial aircraft delivery rates by original equipment manufacturers (“OEMs”) of narrow-body aircraft have rebounded since the onset of the pandemic. However, deliveries of wide-body aircraft remain relatively low, in part attributable to the pause in the Boeing 787 program, which resumed deliveries in the third quarter of 2022. Long-term industry forecasts continue to show growth and strong demand for air travel and aerospace products.

PCC’s pre-tax earnings declined $37 million in the third quarter and $13 million in the first nine months of 2022 compared to 2021, reflecting the impacts of a year-to-date reduction in pension plan income of $43 million, as well as increased costs related to labor, materials and utilities and supply chain disruptions. PCC management continues to take actions to improve operations, maintain safety and prepare for increased demand for PCC’s products. Growth in PCC’s revenues and earnings will be predicated on the ability to successfully increase production levels to match the expected growth in aerospace demand, including managing through the current supply chain and employment environments.

Lubrizol’s revenues were approximately $1.7 billion in the third quarter and $5.1 billion in the first nine months of 2022, increases of 6.5% in the third quarter and 2.4% in the first nine months compared to 2021. The revenue increases reflected higher average selling prices, partially offset by lower volumes and adverse foreign currency translation effects from the stronger U.S. Dollar. Sales volumes through the first nine months of 2022 were restricted by unplanned temporary maintenance shutdowns and raw material supply constraints, which limited Lubrizol’s production capabilities. The increase in average selling prices was driven by escalating prices for raw materials, including oil feedstocks, as well as for utilities, packaging, shipping and freight costs.

Lubrizol’s pre-tax earnings increased $251 million in the third quarter and $249 million in the first nine months of 2022 compared to 2021. The increase in earnings was driven by fire-related insurance recoveries in 2022, while earnings in 2021 were negatively impacted by significant losses related to a fire in June 2021 at a facility located in Rockton, Illinois and impairment charges in the third quarter of 2021 related to an underperforming business in the Advanced Materials product lines. Insurance recoveries related to a fire in 2019 at the Rouen, France facility and the Rockton, Illinois facility fire were $142 million in the third quarter and $242 million in the first nine months of 2022 compared to $10 million of insurance recoveries in the third quarter and $55 million in the first nine months of 2021. The fire losses related to the Rockton, Illinois fire and impairment charges in 2021 aggregated $73 million in the third quarter and $229 million in the first nine months of 2021. Earnings in 2022 were also negatively impacted by rising raw material costs, lower sales volumes, higher expenses from the unplanned temporary maintenance shutdowns and unfavorable foreign currency translation effects, partially offset by higher selling prices. Earnings in 2021 were also negatively impacted by the weather-related temporary shut-down of Additives facilities in the U.S. in the first quarter, which resulted in lost sales and various incremental and non-recurring manufacturing and other operating costs.

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

Manufacturing, Service and Retailing (Continued)

Industrial products (Continued)

Marmon’s revenues were $2.7 billion in the third quarter and $8.1 billion in the first nine months of 2022, increases of 4.3% in the third quarter and 12.8% in the first nine months compared to 2021. Nearly all of Marmon’s business groups generated higher revenues in the first nine months of 2022, led by significant increases in the Transportation, Metal Services, Industrial and Electrical products groups, which contributed approximately 76% of the increase. These increases generally reflected favorable volume and sales mix and higher metals prices, partially offset by unfavorable foreign currency translation effects. Metals prices in the third quarter of 2022 began to moderate and in certain instances declined. Revenues of the Rail & Leasing group in the third quarter and first nine months of 2022 declined versus 2021, due primarily to low product sales volumes and declining lease rates.

Marmon’s pre-tax earnings increased 13.3% in the third quarter and 14.1% in the first nine months of 2022 compared to 2021. Earnings in the first nine months of 2022 included losses of approximately $90 million in the Rail & Leasing group related to the shutdown in the second quarter of its business in Russia. In the first nine months of 2022, the Transportation, Metal Services, Plumbing, Electrical, Retail and Industrial Products groups contributed meaningful increases in earnings, due to a combination of higher sales volumes and margins. These increases were partially offset by lower earnings from the Rail & Leasing group.

IMC’s revenues were $905 million in the third quarter and $2.8 billion in the first nine months of 2022, increases of 5.0% compared to the same periods in 2021. Revenues in 2022 reflected increased sales in several geographic regions, partially offset by lower revenues in Asia and effects from foreign currency translation and the Russia-Ukraine conflict. IMC’s pre-tax earnings decreased 1.3% in the first nine months of 2022 compared to 2021, as the revenue increases were more than offset by higher raw material costs, changes in sales mix and unfavorable effects of foreign currency translation and the Russia-Ukraine conflict.

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).

Revenues of the building products group increased $1.2 billion (19.1%) in the third quarter and $3.6 billion (19.6%) in the first nine months of 2022 and pre-tax earnings increased $403 million (48.4%) in the third quarter and $1.1 billion (43.1%) in the first nine months of 2022 compared to 2021. Our building products businesses have benefited in recent years from the low interest rate environment. However, interest rates in the U.S. increased significantly over the first nine months of 2022. As a result, the significant increase in home mortgage interest rates has slowed demand for new home construction. As such, comparative revenues and earnings in the near term will likely decline from current levels.

Clayton Homes’ revenues increased 24.8% to $3.3 billion in the third quarter and 24.9% to $9.5 billion in the first nine months of 2022 compared to 2021. Revenues from home sales increased $1.8 billion (30.2%) in the first nine months of 2022, primarily due to higher average selling prices and increased volume. New home unit sales increased 9.5% in the first nine months of 2022, reflecting a 10.5% increase in factory-built manufactured home unit sales and a 5.4% increase in site-built home unit sales. We expect unit sales will likely decline in the near term, as a consequence of higher interest rates. Financial services revenues, which include mortgage origination and services, insurance and interest income from lending activities, increased 4.1% in the first nine months of 2022 compared to 2021. Loan balances, net of allowances for credit losses, were approximately $20.4 billion as of September 30, 2022, an increase of approximately $1.6 billion from December 31, 2021.

Pre-tax earnings of Clayton Homes increased $249 million (63.8%) in the third quarter and $512 million (41.3%) in the first nine months of 2022 compared to 2021. Earnings in 2022 reflected higher home sales, gross margin rates and net interest income, as well as relatively low credit losses.

Aggregate revenues of our other building products businesses were approximately $4.3 billion in the third quarter and $12.5 billion in the first nine months of 2022, increases of $565 million (15.1%) in the third quarter and $1.7 billion (15.9%) in the first nine months versus 2021. The increases were primarily due to higher average selling prices, and to a lesser extent, from higher unit volumes in certain product lines and product mix changes.

Pre-tax earnings of our other building products businesses increased $154 million (34.9%) in the third quarter and $600 million (44.9%) in the first nine months of 2022 compared to 2021. Earnings as a percentage of revenues in the first nine months of 2022 increased 3.1 percentage points versus 2021. Earnings in 2022 benefitted from higher selling prices and strong demand in certain product categories, as well as a comparative increase in pre-tax gains from business divestitures and asset sales of $58 million in the third quarter and $169 million in the first nine months. The increase in earnings in 2022 also reflected the negative impact of severe winter storms in the first quarter of 2021, which reduced sales and increased production and other operating costs.

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

Manufacturing, Service and Retailing (Continued)

Consumer products

The consumer products group includes recreational 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 group revenues decreased $242 million (6.2%) in the third quarter and increased $903 million (7.9%) in the first nine months of 2022 compared to 2021. Forest River’s revenues declined 7.2% in the third quarter and increased 22.1% in the first nine months of 2022 compared to 2021. Forest River’s unit sales declined 27.9% in the third quarter and 5.3% in the first nine months of 2022 versus 2021. The comparative decline in unit volume in the third quarter was attributable to reduced consumer demand. Over the first nine months of 2022, Forest River’s revenues reflected higher average selling prices, resulting from higher material prices and supply chain costs.

Revenues of our apparel and footwear businesses declined $27 million (2.0%) in the third quarter and $165 million (4.2%) in the first nine months of 2022 compared to 2021, reflecting lower revenues from apparel (5.6% in the third quarter and 8.5% in the first nine months), partly offset by higher revenues from footwear. The declines in apparel revenues were driven by lower volumes, as retailers reduced orders in response to rising inventories. Duracell’s revenues in first nine months of 2022 declined 6.9% versus 2021, primarily due to lower volumes and unfavorable foreign currency translation effects of the stronger U.S. Dollar.

Pre-tax earnings of our consumer products group declined $216 million (44.3%) in the third quarter and $324 million (21.4%) in the first nine months of 2022 versus 2021. Pre-tax earnings as a percentage of revenues decreased 3.6 percentage points in the first nine months of 2022 compared to 2021. The declines in earnings in 2022 reflected lower aggregate earnings from the apparel and footwear businesses and from Duracell. The comparative decline in earnings in the first nine months was partially offset by higher earnings from Forest River.

Apparel and footwear earnings declined about 75% in the third quarter and 58% in the first nine months of 2022 compared to 2021. Our apparel businesses continue to be negatively affected by lower sales volumes, reduced manufacturing efficiencies and higher input costs, including raw materials, freight, labor and other operating costs. We expect that the comparative operating earnings will likely be lower in the fourth quarter, due to low customer demand and high costs. Duracell’s earnings in 2022 declined, primarily due to lower sales, cost inflation and foreign currency translation effects.

Earnings from Forest River were essentially unchanged in the third quarter and higher in the first nine months of 2022, primarily due to the increase in unit sales in the first half of the year and higher average selling prices, partly offset by higher materials costs. We currently expect demand for recreational vehicles will continue to slow and Forest River’s comparative revenues and earnings to decline over the remainder of 2022 and into 2023.

Service and retailing

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

Third QuarterFirst Nine Months
2022202120222021
Revenues
Service$4,771$4,131$14,031$11,718
Retailing4,7964,54814,26813,896
McLane13,56912,61239,34636,529
$23,136$21,291$67,645$62,143
Pre-tax earnings
Service$806$696$2,286$2,013
Retailing3964141,2501,221
McLane112(8)270179
$1,314$1,102$3,806$3,413
Pre-tax earnings as a percentage of revenues
Service16.9%16.8%16.3%17.2%
Retailing8.3%9.1%8.8%8.8%
McLane0.8%(0.1)%0.7%0.5%

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

Manufacturing, Service and Retailing (Continued)

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 $640 million (15.5%) in the third quarter and $2.3 billion (19.7%) in the first nine months of 2022 compared to 2021. Revenues from TTI increased 16.6% in the third quarter and 20.3% in the first nine months of 2022 versus 2021, reflecting strong demand in nearly all significant markets. However, during the third quarter of 2022, new orders slowed in certain regions and markets, in part attributable to inventory levels within the supply chain. Revenues from aviation services (NetJets and FlightSafety) increased 14.2% in the third quarter and 19.9% in the first nine months of 2022 compared to 2021. The revenue increases reflected year-to-date increases in training hours (17%), customer flight hours (14%), most of which occurred in the first half of the year, and fuel surcharges to customers due to the increase in customer flight hours and significant increases in fuel prices. These increases were partially offset by the effects from changes in sales mix.

Pre-tax earnings of the service group increased $110 million (15.8%) in the third quarter and $273 million (13.6%) in the first nine months of 2022 compared to 2021. Pre-tax earnings as a percentage of revenues decreased 0.9 percentage points in the first nine months of 2022 compared to 2021. The earnings increase in the third quarter of 2022 was primarily attributable to aviation services, reflecting a significant comparative decline in subcontract aircraft utilization, and to a lesser extent, increased earnings from several of our other businesses. The comparative increase in earnings in the first nine months reflected higher earnings from TTI, primarily attributable to the increases in sales and improved operating cost leverage, partially offset by unfavorable foreign currency effects in 2022 and a favorable legal settlement in 2021. Earnings from aviation services for the first nine months of 2022 decreased compared to 2021, attributable to a significant increase in subcontracted aircraft utilization due to the increase in customer flight hours in the first half of the year, and from higher 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 66% of our combined retailing revenue in the first nine months 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 offers vehicle service contracts and operates two insurance businesses. 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 nine months 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.

Retailing group revenues increased $248 million (5.5%) in the third quarter and $372 million (2.7%) in the first nine months of 2022 compared to 2021 reflecting increases at BHA, partially offset by combined lower revenues from our other retailers. BHA’s revenues in the third quarter and first nine months of 2022 increased 11.3% and 6.3%, respectively, compared to the same periods in 2021. Revenues from new and used vehicle sales increased 10.9% in the third quarter and 5.4% in the first nine months of 2022 compared to 2021. Revenues from vehicle sales reflected higher average vehicle transaction prices, partly offset by lower unit sales on a year-to-date comparative basis. Unit sales continue to be constrained by low new vehicle production by OEMs, attributable to the ongoing global computer chip shortages and other supply chain disruptions. Revenues from service and repair and finance and service contract revenues each increased versus 2021.

Retailing group pre-tax earnings decreased $18 million (4.3%) in the third quarter and increased $29 million (2.4%) in the first nine months of 2022 compared to 2021. BHA’s pre-tax earnings increased 24.7% in the third quarter and 22.7% in the first nine months of 2022 compared to 2021, primarily due to increases in vehicle gross profit margins and finance and service contract earnings per vehicle sold and from operating cost control efforts. BHA’s comparative new vehicle gross profit margin rates began to accelerate during the second half of 2021, as a consequence of low available inventory attributable to supply chain constraints impacting the OEMs. Aggregate pre-tax earnings for the remainder of our retailing group decreased $68 million (32.2%) in the third quarter and $103 million (15.9%) in the first nine months of 2022 compared to 2021, primarily due to declining earnings from the furniture retailers and Pampered Chef.

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

Manufacturing, Service and Retailing (Continued)

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 61% of McLane’s consolidated sales in the first nine months 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 McLane’s periodic revenues and earnings.

Revenues increased $957 million (7.6%) in the third quarter and $2.8 billion (7.7%) in the first nine months of 2022 compared to 2021, reflecting year-to-date increases of 3.9% from the grocery business and 15.2% from the foodservice business. Pre-tax earnings increased $120 million in the third quarter and $91 million (50.8%) in the first nine months of 2022 compared to 2021. The increases in earnings reflected slightly higher gross margin rates in the grocery and foodservice businesses, partly offset by higher personnel costs, fuel expense and insurance costs. McLane’s grocery and food service operating results continue to be adversely affected by supply chain constraints, including the effects of labor and truck driver shortages and higher inventory costs. We expect the current difficult operating environment to continue for the remainder of 2022.

Investment and Derivative Contract Gains/Losses

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

Third QuarterFirst Nine Months
2022202120222021
Investment gains (losses)$(13,500)$4,851$(82,089)$37,235
Derivative contract gains (losses)3570(273)780
Gains (losses) before income taxes and noncontrolling interests(13,465)4,921(82,362)38,015
Income taxes and noncontrolling interests(3,016)1,043(17,295)8,036
Net earnings (loss)$(10,449)$3,878$(65,067)$29,979
Effective income tax rate20.9%20.7%20.8%20.9%

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. Unrealized gains and losses also include the effects of changes in foreign currency exchange rates on investments in non-U.S. issuers that are held by our U.S. based subsidiaries. Pre-tax investment gains/losses included net unrealized losses of $12.9 billion in the third quarter and $80.5 billion in the first nine months of 2022 compared to net unrealized gains of $4.8 billion in the third quarter and $36.2 billion in the first nine months of 2021 on securities we held at the end of the applicable period. Taxable investment gains/losses on equity securities sold is generally the difference between sales proceeds and the original cost of the securities sold. Sales of equity securities produced taxable gains of $3 million in the third quarter and taxable losses of $660 million in the first nine months of 2022 compared to taxable gains of $0.9 billion in the third quarter and $2.9 billion in the first nine months of 2021.

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 few remaining equity index put option contract liabilities. The gains and losses from the changes in the fair values of these liabilities are recorded in earnings. As of September 30, 2022, our recorded liability at fair value was less than $1 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.

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

Other

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

Third QuarterFirst Nine Months
2022202120222021
Equity method earnings$362$310$874$665
Acquisition accounting expenses(161)(169)(484)(532)
Corporate interest expense, before foreign currency effects(66)(75)(203)(232)
Foreign currency exchange rate gains on Berkshire and BHFC non-U.S. Dollar senior notes8581962,441676
Other488720776
$1,041$349$2,835$653

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. Equity method earnings increased $209 million in the first nine months of 2022 versus 2021, primarily due to higher earnings from Kraft Heinz and Pilot. Beginning in the fourth quarter of 2022, equity method earnings will also include Occidental Petroleum. See Note 5 to the Consolidated Financial Statements.

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. In 2022, we recorded significant foreign currency exchange rate gains on these debt issues, due to strengthening of the U.S. Dollar, which reduced the U.S Dollar carrying value of the debt. These gains were largely offset by losses included in investment gains/losses, pertaining to non-U.S. Dollar denominated investments held by our U.S. based subsidiaries. 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. Other earnings/losses 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 September 30, 2022 was $455.4 billion, a decrease of $50.8 billion since December 31, 2021. Net loss attributable to Berkshire shareholders was $41.0 billion in the first nine months of 2022, which included after-tax losses on our investments of $64.9 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 $5.2 billion in the first nine months of 2022 to repurchase shares of its Class A and B common stock.

At September 30, 2022, our insurance and other businesses held cash, cash equivalents and U.S. Treasury Bills of $105.2 billion, which included $77.9 billion in U.S. Treasury Bills. Investments in equity and fixed maturity securities (excluding our investments in Kraft Heinz and Occidental common stock) were $324.8 billion. During the first nine months of 2022, we paid cash of $66.2 billion to acquire equities securities and we received proceeds of $17.3 billion from sales of equity securities. On October 19, 2022, we acquired Alleghany Corporation for cash consideration of $11.6 billion, which was funded by existing cash balances.

Our consolidated borrowings at September 30, 2022 were $116.5 billion, of which over 95% were by the Berkshire parent company, BHFC, BNSF and BHE and its subsidiaries. In the first nine months of 2022, Berkshire and certain of its subsidiaries issued term debt of approximately $10.2 billion in the aggregate and paid approximately $3.3 billion on maturing term debt.

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

Financial Condition (Continued)

Berkshire parent company outstanding debt at September 30, 2022 was $19.2 billion, a decrease of $2.2 billion 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 $2.7 billion in the first nine months of 2022 from changes in foreign currency exchange rates on its non-U.S. Dollar denominated debt. Berkshire parent company debt maturities over the next twelve months approximate $4.2 billion, all of which is in the first six months of 2023.

Berkshire’s insurance and other subsidiary outstanding borrowings were $22.3 billion at September 30, 2022, which included senior note borrowings of BHFC, a wholly-owned financing subsidiary, of approximately $17.6 billion. BHFC’s borrowings are used to fund a portion of loans originated 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 first nine months of 2022 were $775 million. Berkshire guarantees BHFC’s senior notes for the full and timely payment of principal and interest.

BNSF’s outstanding debt was $23.3 billion as of September 30, 2022, an increase of $83 million from December 31, 2021. In June 2022, BNSF issued $1.0 billion of 4.45% debentures due in 2053. During the first nine months of 2022, BNSF repaid approximately $900 million of term debt. Outstanding borrowings of BHE and its subsidiaries were $51.7 billion at September 30, 2022, a decrease of $112 million from December 31, 2021. In April 2022, BHE issued $1.0 billion of 4.6% senior notes due in 2053, and during the first nine months of 2022, subsidiaries issued approximately $1.3 billion of fixed and variable rate term debt with a weighted average interest rate of 3.9% as of September 30, 2022 and maturity dates ranging from 2024 to 2052. Aggregate debt maturities for BHE and BNSF over the next twelve months approximate $3.6 billion. Berkshire does not guarantee the repayment of debt issued by BNSF, BHE or any of their subsidiaries.

In the first nine months of 2022, our diverse group of businesses generated net operating cash flows of approximately $27.0 billion. Our consolidated capital expenditures for property, plant and equipment and equipment held for lease were $10.9 billion in the first nine months of 2022, which included capital expenditures by our railroad, utilities and energy businesses (BNSF and BHE) of $7.9 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. Forecasted capital expenditures for BHE and BNSF over the remainder of 2022 approximate $3.7 billion.

On August 16, 2022, the Inflation Reduction Act of 2022 (“the 2022 act”) was signed into law. The 2022 act contains numerous provisions, including a 15% corporate alternative minimum income tax on “adjusted financial statement income”, expanded tax credits for clean energy incentives and a 1% excise tax on corporate stock repurchases. The provisions of the 2022 act become effective for tax years beginning after December 31, 2022. We currently do not expect a material impact on our consolidated financial statements. However, we expect future guidance from the Treasury Department and will continue to evaluate the impact of the Act as more guidance becomes available.

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 $128.3 billion at September 30, 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 September 30, 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 20, 2022, we agreed to acquire all of the outstanding shares of Alleghany common stock for cash consideration of approximately $11.6 billion. On October 19, 2022, the acquisition of Alleghany closed. 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 as 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 September 30, 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 September 30, 2022 includes estimated liabilities of $128.3 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 September 30, 2022 included goodwill of acquired businesses of $73.3 billion and indefinite-lived intangible assets of $18.4 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 that annual goodwill impairment review, 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 September 30, 2022, we concluded it is more likely than not that goodwill recorded in our Consolidated Balance Sheet was not impaired. The long-term adverse consequences of the COVID-19 pandemic, geopolitical conflicts and changes in business conditions 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 continue to be significantly affected by assumptions on the severity, duration or long-term effects of adverse events 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.

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