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

Insurance—Underwriting (Continued)

Berkshire Hathaway Primary Group (Continued)

A summary of BH Primary underwriting results follows (dollars in millions).

									First Quarter
									2023								2022
									Amount				%				Amount				%
Premiums written									$	4,158							$	3,392
Premiums earned									$	3,961				100.0			$	3,118				100.0
Losses and loss adjustment expenses										2,656				67.1				2,274				72.9
Underwriting expenses										1,037				26.1				752				24.1
Total losses and expenses										3,693				93.2				3,026				97.0
Pre-tax underwriting earnings									$	268							$	92

Premiums written increased $766 million (22.6%) in the first quarter of 2023 compared to 2022. The increase was primarily due to the inclusion of Alleghany Insurance ($570 million), as well as increased volumes from BH Specialty, BH Direct and USLI.

Losses and loss adjustment expenses increased $382 million (16.8%) in the first quarter of 2023 compared to 2022, primarily due to the impact of Alleghany Insurance ($233 million). BH Primary’s loss ratio decreased 5.8 percentage points in the first quarter of 2023 compared to 2022, reflecting changes in business mix (including the impact of Alleghany Insurance), lower incurred losses from current year catastrophes and increased reductions in loss estimates for prior years’ events. Incurred losses from significant catastrophes during the first quarter were $37 million in 2023 and $75 million in 2022. Incurred losses and loss adjustment expenses reflected net reductions in estimated ultimate liabilities for prior years’ loss events of $41 million in the first quarter of 2023 and $22 million in the first quarter of 2022. BH Primary insurers write significant levels of workers’ compensation, commercial and professional liability insurance and the related claim costs may be subject to high severity and long claim-tails. Claims liabilities could be greater than anticipated due to a variety of factors.

Underwriting expenses increased $285 million (37.9%) in the first quarter of 2023 compared to 2022. Alleghany Insurance underwriting expenses for the first quarter of 2023 were $139 million. Underwriting expenses as percentages of premiums earned increased 2.0 percentage points in the first quarter of 2023 compared to 2022. The increase was primarily attributable to changes in business mix.

Berkshire Hathaway Reinsurance Group

The Berkshire Hathaway Reinsurance Group (“BHRG”) offers excess-of-loss and quota-share reinsurance coverages on property and casualty risks to insurers and reinsurers worldwide through several subsidiaries, led by National Indemnity Company (“NICO”), General Reinsurance Corporation, General Reinsurance AG and, beginning October 19, 2022, Alleghany’s Transatlantic Reinsurance Company and affiliates (“TransRe Group”). We also write life and health reinsurance coverages through General Re Life Corporation, General Reinsurance AG and Berkshire Hathaway Life Insurance Company of Nebraska (“BHLN”). We assume property and casualty risks under retroactive reinsurance contracts written through NICO and we write periodic payment annuity contracts through BHLN.

A summary of BHRG’s premiums and pre-tax underwriting results follows (in millions). Pre-tax underwriting losses in the first quarter of 2022 were increased $14 million for the life and health business and $16 million for the periodic payment annuity business, while earnings from the variable annuity business were increased $175 million from the previously reported amounts due to the retrospective adoption of ASU 2018-12.

									First Quarter
									Premiums earned								Pre-tax underwriting earnings (loss)
									2023				2022				2023				2022
Property/casualty									$	5,149			$	3,399			$	390			$	405
Life/health										1,060				1,248				137				(26	)
Retroactive reinsurance										—				—				(195	)			(190	)
Periodic payment annuity										—				169				(164	)			(119	)
Variable annuity										—				—				63				231
									$	6,209			$	4,816			$	231			$	301

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

Insurance—Underwriting (Continued)

Berkshire Hathaway Reinsurance Group (Continued)

Property/casualty

A summary of property/casualty reinsurance underwriting results follows (dollars in millions).

									First Quarter
									2023								2022
									Amount				%				Amount				%
Premiums written									$	6,268							$	4,386
Premiums earned									$	5,149				100.0			$	3,399				100.0
Losses and loss adjustment expenses										3,387				65.8				2,307				67.9
Underwriting expenses										1,372				26.6				687				20.2
Total losses and expenses										4,759				92.4				2,994				88.1
Pre-tax underwriting earnings									$	390							$	405

Premiums written in the first quarter of 2023 included $1.3 billion from the inclusion of TransRe Group. Otherwise, premiums written increased $542 million (12.4%) in the first quarter of 2023 compared to 2022, primarily due to net increases in new and renewal property business and higher rates, partially offset by unfavorable foreign currency translation effects.

Losses and loss adjustment expenses increased $1.1 billion (46.8%) in the first quarter of 2023 compared to 2022, primarily from the inclusion of TransRe Group ($700 million). The loss ratio decreased 2.1 percentage points in the first quarter of 2023 compared to 2022. Losses incurred from significant catastrophes during the first quarter were $407 million in 2023 and $315 million in 2022. Losses and loss adjustment expenses included reductions in estimated ultimate liabilities for prior years’ events of $361 million in the first quarter of 2023 and $137 million in the first quarter of 2022.

The expense ratio increased 6.4 percentage points in the first quarter of 2023 compared to 2022, primarily attributable to foreign currency exchange rate effects and changes in business mix, including the impact of TransRe Group. Underwriting expenses in the first quarter of 2023 included $385 million related to TransRe Group. Underwriting expenses also included foreign currency exchange losses of $74 million in the first quarter of 2023 compared to gains of $81 million in the first quarter of 2022, related to the remeasurement of certain non-U.S. Dollar denominated liabilities of our U.S. insurance subsidiaries.

Life/health

A summary of our life/health reinsurance underwriting results follows (dollars in millions).

									First Quarter
									2023								2022
									Amount				%				Amount				%
Premiums written									$	1,061							$	1,243
Premiums earned									$	1,060				100.0			$	1,248				100.0
Life and health insurance benefits										678				64.0				1,061				85.0
Underwriting expenses										245				23.1				213				17.1
Total benefits and expenses										923				87.1				1,274				102.1
Pre-tax underwriting earnings (loss)									$	137							$	(26	)

Pre-tax underwriting earnings in the first quarter of 2023 reflected the impact of life insurance contract commutations in 2023, as well as lower claims incurred compared to the first quarter of 2022. The life insurance contract commutations drove most of the comparative decreases in premiums earned and life and health benefits incurred.

Retroactive reinsurance

Retroactive reinsurance underwriting results primarily derive from the runoff of contracts written several years ago. Pre-tax underwriting losses in each period derived from the amortization of deferred charges and changes in the estimated timing and amounts of future claim payments. Underwriting results also include foreign currency exchange gains and losses from the effects of changes in foreign currency exchange rates on non-U.S. Dollar denominated liabilities of our U.S. subsidiaries. Pre-tax underwriting losses were $195 million in the first quarter of 2023 and $190 million in the first quarter of 2022, primarily related to deferred charge amortization. The effects of foreign currency exchange were relatively insignificant in the first quarter of 2023 and 2022.

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

Insurance—Underwriting (Continued)

Berkshire Hathaway Reinsurance Group (Continued)

Retroactive reinsurance (Continued)

Gross unpaid losses assumed under retroactive reinsurance contracts were $35.1 billion at March 31, 2023, a decline of $352 million since December 31, 2022, primarily attributable to paid claims. Unamortized deferred charges related to retroactive reinsurance contracts were $9.7 billion at March 31, 2023, a decline of $171 million since December 31, 2022. Deferred charge amortization will be included in underwriting earnings over the expected remaining claims settlement periods.

Periodic payment annuity

Periodic payment annuity business is both price and demand sensitive and the supply of available business is affected by the timing of underlying legal claim settlements. Our volumes written may change rapidly due to changes in prices, which are affected by prevailing interest rates, the perceived risks and durations associated with the expected annuity payments, as well as the level of competition.

Our periodic payment annuity contracts normally produce pre-tax underwriting losses from the recurring accretion of time-value discounted annuity liabilities, which includes discount accruals on liabilities of contracts without life contingencies. Underwriting results also include gains or losses from foreign currency exchange rate changes on non-U.S. Dollar denominated liabilities of our U.S. subsidiaries. Pre-tax underwriting results included foreign currency losses of $19 million in the first quarter of 2023 and gains of $23 million in the first quarter of 2022.

Pre-tax underwriting losses before foreign currency exchange effects were $145 million in the first quarter of 2023 and $142 million in the first quarter of 2022. Discounted liabilities were $15.1 billion at March 31, 2023, which included $4.0 billion for contracts without life contingencies. We adopted ASU 2018-12 on January 1, 2023. ASU 2018-12 requires that the discount rates on contracts with life-contingent liabilities be adjusted quarterly based upon prevailing interest rates. The effects of discount rate changes are reflected in other comprehensive income.

Variable annuity

The run-off of our variable annuity guarantee reinsurance contracts produced pre-tax gains of $63 million in the first quarter of 2023 and $231 million in the first quarter of 2022. The results from these contracts are affected by changes in securities markets, interest rates and foreign currency exchange rates, which can be volatile, and from the periodic amortization of expected profit margins.

Insurance—Investment Income

A summary of net investment income attributable to our insurance operations follows (dollars in millions).

					First Quarter								Percentage
					2023				2022				Change
Dividend income					$	1,244			$	1,197				3.9	%
Interest and other investment income						1,141				164				595.7
Pre-tax net investment income						2,385				1,361				75.2
Income taxes and noncontrolling interests						416				191
Net investment income					$	1,969			$	1,170
Effective income tax rate						17.4	%			14.1	%

Dividend income increased 3.9% in the first quarter of 2023 compared to 2022. Income in the first quarter included $8 million in 2023 and $16 million in 2022 from BHE preferred stock. Such amounts were deducted from earnings of the BHE segment. Dividend income varies from period to period due to changes in the investment portfolio and the frequency and timing of dividends from certain investees.

Interest and other investment income increased $977 million in the first quarter of 2023 compared to the same period in 2022. The increase was primarily due to increases in short-term interest rates. We continue to hold substantial balances of cash, cash equivalents and short-term U.S. Treasury Bills. We continue to believe that maintaining ample liquidity is paramount and we insist on safety over yield with respect to short-term investments.

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

Insurance—Investment Income (Continued)

Invested assets of our insurance businesses derive from shareholder capital and net liabilities under insurance and reinsurance contracts or “float.” The major components of float are unpaid losses and loss adjustment expenses, including liabilities under retroactive reinsurance contracts, life, annuity and health benefit liabilities, unearned premiums and other liabilities due to policyholders, which are reduced by insurance premiums receivable, reinsurance receivables, deferred charges assumed under retroactive reinsurance contracts and deferred policy acquisition costs. Float approximated $165 billion at March 31, 2023 and $164 billion at December 31, 2022. Our combined insurance operations generated pre-tax underwriting gains of $1.2 billion in the first quarter of 2023 and, consequently, the average cost of float was negative. A summary of cash and investments held in our insurance businesses as of March 31, 2023 and December 31, 2022 follows (in millions).

		March 31, 2023				December 31, 2022
Cash, cash equivalents and U.S. Treasury Bills		$	93,627			$	86,816
Equity securities			319,466				298,934
Fixed maturity securities			22,438				24,998
Other			2,501				3,417
		$	438,032			$	414,165

Fixed maturity securities as of March 31, 2023 were as follows (in millions).

		Amortized Cost				Unrealized Gains (Losses)				Carrying Value
U.S. Treasury, U.S. government corporations and agencies		$	9,578			$	(182	)		$	9,396
Foreign governments			11,106				(95	)			11,011
Corporate bonds			1,525				259				1,784
Other			228				19				247
		$	22,437			$	1			$	22,438

U.S. government obligations are rated AA+ or Aaa by the major rating agencies. Approximately 93% of all foreign government obligations were rated AA or higher by at least one of the major rating agencies as of March 31, 2023.

BNSF

Burlington Northern Santa Fe, LLC (“BNSF”) operates one of the largest railroad systems in North America, with over 32,500 route miles of track in 28 states. BNSF also operates in three Canadian provinces. BNSF classifies its major business groups by type of product shipped including consumer products, industrial products, agricultural products and coal. A summary of BNSF’s earnings follows (dollars in millions).

						First Quarter
						2023				2022
Railroad operating revenues						$	5,888			$	5,777
Railroad operating expenses:
Compensation and benefits							1,313				1,224
Fuel							964				861
Purchased services							511				499
Depreciation and amortization							645				624
Equipment rents, materials and other							593				526
Total							4,026				3,734
Railroad operating earnings							1,862				2,043
Other revenues (expenses):
Other revenues							131				191
Other expenses, net							(87	)			(170	)
Interest expense							(257	)			(255	)
Pre-tax earnings							1,649				1,809
Income taxes							402				438
Net earnings						$	1,247			$	1,371
Effective income tax rate							24.4	%			24.2	%

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

BNSF (Continued)

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

						Cars/Units
						First Quarter								Percentage
						2023				2022				Change
Consumer products							1,066				1,275				(16.4	)%
Industrial products							389				404				(3.7	)
Agricultural products							300				305				(1.6	)
Coal							369				385				(4.2	)
							2,124				2,369				(10.3	)

Railroad operating revenues increased 1.9% in the first quarter of 2023 compared to 2022, primarily attributable to a 14.0% increase in average revenue per car/unit resulting from higher fuel surcharge revenue driven by higher fuel prices and increased rates per car/unit, partially offset by a 10.3% decrease in unit volume. BNSF’s pre-tax earnings were $1.6 billion in the first quarter of 2023, an 8.8% decrease compared to 2022.

Operating revenues from consumer products were $1.9 billion in the first quarter, a 10.4% decrease from 2022, attributable to 16.4% lower volumes, partially offset by higher average revenue per car/unit. The volume decrease was primarily due to lower intermodal shipments resulting from lower west coast imports and the loss of an intermodal customer, partially offset by an increase in automotive volume from higher vehicle production.

Operating revenues from industrial products were $1.4 billion in the first quarter of 2023, a 6.4% increase from 2022, primarily due to higher average revenue per car/unit, partially offset by a 3.7% decrease in volumes. The volume decrease was primarily due to lower demand for chemicals and plastics, lumber and paper shipments.

Operating revenues from agricultural products were $1.5 billion in the first quarter of 2023, an 8.8% increase compared to 2022, reflecting higher average revenue per car/unit, partially offset by a 1.6% decrease in volumes. The volume decrease was primarily due to lower grain exports, partially offset by higher volumes of domestic grains, renewable diesel and feedstocks.

Operating revenues from coal were $1.0 billion in the first quarter of 2023, a 15.7% increase from 2022. The increase was attributable to higher average revenue per car/unit, partially offset by lower volumes of 4.2%. The volume decrease derived from weather related impacts and moderating demand due to lower natural gas prices.

Railroad operating expenses were $4.0 billion in the first quarter of 2023, an increase of $292 million (7.8%) compared to 2022. The increase was primarily due to increases in the cost of fuel, as well as higher compensation and benefits expenses. Our ratio of railroad operating expenses to railroad operating revenues in the first quarter of 2023 increased 3.8 percentage points to 68.4% versus 2022.

Compensation and benefits expenses increased $89 million (7.3%) in the first quarter of 2023 compared to 2022, primarily due to increased headcount, wage inflation, and lower productivity. Fuel expenses increased $103 million (12.0%) in the first quarter of 2023 compared to 2022, primarily due to higher average fuel prices, partially offset by lower volumes. Purchased services expenses increased $12 million (2.4%) in the first quarter of 2023 compared to 2022, primarily due to general inflation. Equipment rents, materials and other expenses increased $67 million (12.7%) in the first quarter of 2023 compared to 2022. The increase was primarily due to general inflation, increased casualty and litigation costs and higher property and other miscellaneous taxes.

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

BHE

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’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 two regulated electricity distribution businesses operated by BHE subsidiaries (referred to as Northern Powergrid) in Great Britain, a regulated electricity transmission-only business in Alberta, Canada (“AltaLink, L.P.”), a diversified portfolio of mostly renewable independent power projects and investments and an unregulated retail energy services company. BHE also operates a residential real estate brokerage business and a large network of real estate brokerage franchises in the United States.

The rates our regulated businesses charge customers for energy and services are based in large part 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).

						First Quarter
						2023				2022
Revenues:
Energy operating revenue						$	5,471			$	4,823
Real estate operating revenue							875				1,207
Other income (loss)							105				(10	)
Total revenue							6,451				6,020
Costs and expense:
Energy cost of sales							1,955				1,460
Energy operating expense							2,790				2,153
Real estate operating costs and expense							920				1,179
Interest expense							563				515
Total costs and expense							6,228				5,307
Pre-tax earnings							223				713
Income tax expense (benefit)*							(363	)			(273	)
Net earnings after income taxes							586				986
Noncontrolling interests of BHE subsidiaries							114				109
Net earnings attributable to BHE							472				877
Noncontrolling interests and preferred stock dividends							56				102
Net earnings attributable to Berkshire Hathaway shareholders						$	416			$	775
Effective income tax rate							(162.8	)%			(38.3	)%

• 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).

						First Quarter								Percentage
						2023				2022				Change
U.S. utilities						$	163			$	400				(59.3	)%
Natural gas pipelines							369				322				14.6
Other energy businesses							183				339				(46.0	)
Real estate brokerage							(34	)			21				(261.9	)
Corporate interest and other							(209	)			(205	)			2.0
						$	472			$	877				(46.2	)

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

BHE (Continued)

Our U.S. utilities operate in several states, including Utah, Oregon and Wyoming (PacifiCorp), Iowa and Illinois (MEC) and Nevada (NV Energy). After-tax earnings decreased $237 million in the first quarter of 2023 compared to 2022. The earnings decrease reflected higher operating expenses, partially offset by higher electric utility margin (operating revenue less cost of sales), higher other income and lower state income taxes. Operating expenses increased primarily due to a pre-tax increase of $359 million in loss accruals (net of expected insurance recoveries) associated with the 2020 wildfires, as well as from increases in general and plant maintenance costs.

The U.S. utilities’ electric utility margin was $1.7 billion in the first quarter of 2023, an increase of $62 million (3.8%) compared to the first quarter of 2022. The increase reflected higher operating revenue from favorable retail and wholesale pricing and increases in retail customer volumes, partially offset by increases in thermal generation and purchased power costs and lower wholesale volumes. Retail customer volumes increased 2.6% (3.3% at PacifiCorp, 1.0% at MEC and 2.9% at NV Energy) in the first quarter of 2023 compared to the first quarter of 2022, primarily due to increases in customer usage and in the average number of customers.

After-tax earnings of natural gas pipelines increased $47 million in the first quarter of 2023 compared to the first quarter of 2022. The increase was primarily due to higher regulated transportation and storage services revenues from certain general rate cases.

After-tax earnings of other energy businesses decreased $156 million in the first quarter of 2023 compared to the first quarter of 2022. The decrease was primarily due to a deferred income tax charge of $82 million recognized in March 2023 related to the enactment of a new Energy Profits Levy income tax in the United Kingdom, lower earnings from changes in unrealized positions on derivative contracts and unfavorable results from natural gas, solar and geothermal generating facilities due to increased maintenance costs and lower solar generation due to weather events in California. Partially offsetting these earnings decreases were increased wind tax equity investment earnings of $36 million.

After-tax earnings of real estate brokerage decreased $55 million in the first quarter of 2023 compared to the first quarter of 2022. The decrease reflected lower brokerage services revenues and margins, primarily due to a 29% reduction in closed brokerage transaction volumes, as well as lower mortgage services revenues and margins from a 41% decrease in closed transaction volumes, attributable to the impact of rising interest rates and a corresponding slowdown in home sales.

Pilot

On January 31, 2023, we acquired an additional 41.4% interest in Pilot Travel Centers, LLC (“Pilot”), and we currently own an 80% controlling interest. Thus, we began consolidating Pilot’s results of operations in our Consolidated Statements of Earnings on February 1, 2023. Through January 31, 2023, we owned a 38.6% interest in Pilot, which we accounted for under the equity method. Our proportionate share of Pilot’s net earnings for the month ending January 31, 2023 and first quarter 2022 are included in equity method earnings in the accompanying Consolidated Statements of Earnings.

Pilot is headquartered in Knoxville, Tennessee and operates travel centers in North America (primarily under the names Pilot or Flying J) with more than 650 travel center locations across the U.S. and in six Canadian provinces. Pilot also has over 150 retail locations in the U.S. and Canada where it sells diesel fuel through various arrangements with third party travel centers. A substantial portion of Pilot’s revenues and earnings derive from marketing fuel on a wholesale and retail basis and from other energy-related activities.

Our earnings from Pilot for the two months ending March 31, 2023 are summarized below (in millions).

		Two months ending
		March 31, 2023
Revenues		$	9,508
Cost of sales			8,805
Operating and other expenses			496
Interest expense			71
Pre-tax earnings			136
Income taxes and noncontrolling interests			53
Net earnings attributable to Berkshire Hathaway shareholders		$	83

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

Pilot (Continued)

Pilot’s revenues and earnings are highly dependent on fuel, prices and margins. Revenues for the two months ending March 31, 2023 were $9.5 billion. Revenues for the first three months of 2023 and 2022 were approximately $14.5 billion and $13.9 billion, respectively. For the first quarter of 2023, Pilot sold approximately 4.7 billion gallons of diesel fuel, gasoline and other fuel-related products.

Pilot’s pre-tax earnings for the two months ending March 31, 2023 were $136 million. Operating and other expenses included depreciation and amortization expense of $168 million, a significant portion of which derived from depreciation of property, plant and equipment assets and amortization of intangible assets that were remeasured to fair value in connection with the application of the acquisition accounting method in 2023. Fuel prices and margins were elevated in 2022 and remained elevated during the first quarter of 2023.

Pilot’s consolidated pre-tax earnings for the three months ending March 31, 2023 and 2022 are summarized below. Revenues, costs and expenses for the first quarter of 2022 and first month of 2023 are based on Pilot’s historical accounting and are not included in our Consolidated Financial Statements, whereas such information for the two months ending March 31, 2023 was included in our Consolidated Financial Statements. Dollars are in millions.

		First Quarter								Percentage
		2023				2022				Change
Revenues		$	14,528			$	13,910				4.4	%
Cost of sales			13,499				12,962				4.1
Operating and other expenses			709				605				17.2
Interest expense			95				42				126.2
Earnings before income taxes and noncontrolling interests		$	225			$	301				(25.2	)

Manufacturing, Service and Retailing

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

					First Quarter								Percentage
					2023				2022				Change
Revenues
Manufacturing					$	18,289			$	18,421				(0.7	)%
Service and retailing						22,990				21,630				6.3
					$	41,279			$	40,051
Pre-tax earnings
Manufacturing					$	2,611			$	2,824				(7.5	)%
Service and retailing						1,334				1,217				9.6
						3,945				4,041
Income taxes and noncontrolling interests						963				1,016
Net earnings*					$	2,982			$	3,025
Effective income tax rate						23.7	%			24.6	%
Pre-tax earnings as a percentage of revenues						9.6	%			10.1	%

** 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 $202 million in the first quarter of 2023 and $161 million in the first quarter of 2022. These expenses are included in “Other” in the summary of earnings on page 28 and in the “Other” earnings section on page 44.*

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

Manufacturing, Service and Retailing (Continued)

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).

					First Quarter
					2023				2022
Revenues
Industrial products					$	8,863			$	7,475
Building products						6,010				6,712
Consumer products						3,416				4,234
					$	18,289			$	18,421
Pre-tax earnings
Industrial products					$	1,441			$	1,216
Building products						895				1,144
Consumer products						275				464
					$	2,611			$	2,824
Pre-tax earnings as a percentage of revenues
Industrial products						16.3	%			16.3	%
Building products						14.9	%			17.0	%
Consumer products						8.1	%			11.0	%

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). Beginning October 19, 2022, this group also includes businesses acquired in connection with Alleghany consisting of the structural steel fabrication products business conducted through W&W|AFCO Steel, as well as other businesses that became part of Marmon.

Revenues of the industrial products group increased $1.4 billion (18.6%) in the first quarter of 2023 compared to 2022 and pre-tax earnings increased $225 million (18.5%). Pre-tax earnings as a percentage of revenues for the group were 16.3% for the first quarters of 2023 and 2022. Operating results of the group in the first quarter of 2023 reflected the impact of business acquisitions and overall improved operating results at our pre-existing businesses.

PCC’s revenues were $2.25 billion in the first quarter of 2023, an increase of 28.1% compared to 2022. PCC derives significant revenues and earnings from sales of aerospace products. The revenue increase in 2023 was primarily attributable to higher demand for aerospace products, while power/energy and general and industrial products also contributed to the overall revenue increase. Long-term industry forecasts continue to show growth and strong demand for air travel and aerospace products.

PCC’s pre-tax earnings increased 23.0% in the first quarter of 2023 compared to 2022. Results in 2023 reflected improving manufacturing and operating efficiencies. We are continuing to strive to improve manufacturing efficiencies, maintain safety and prepare for increasing demand for PCC’s products. Continued 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 products demand.

Lubrizol’s revenues were approximately $1.7 billion in the first quarter of 2023, an increase of 5.2% compared to 2022. The revenue increase reflected higher average selling prices, partially offset by lower volumes and unfavorable foreign currency translation effects from the stronger U.S. Dollar. Lower sales volumes in the first quarter of 2023 were attributable to general market weakness in the global economy, resulting in lower demand in certain product lines.

Lubrizol’s pre-tax earnings increased 34.7% in the first quarter of 2023 compared to 2022. Earnings in 2023 were favorably impacted by higher selling prices and favorable product mix, partially offset by the continued rise of raw material costs, lower sales volumes, higher operating expenses, and unfavorable foreign currency translation effects.

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 $3.1 billion in the first quarter of 2023, an increase of 16.4% compared to 2022. Business acquisitions including AP Emissions Technologies and three former Alleghany businesses: Kentucky Trailer, Wilbert Funeral Services, Inc. and Wilbert Plastics Services, accounted for nearly 70% of the growth. Nearly all of Marmon’s business groups generated higher revenues in 2023, led by significant increases in the Rail & Leasing, Transportation, Metal Services and Crane groups, due to higher volumes and pricing improvements. Our Electrical, Metal Services and Plumbing & Refrigeration groups faced headwinds in revenue in 2023 attributed to lower steel and copper prices and slowing residential construction activity. Our international businesses were challenged by foreign currency translations as a result of the stronger U.S. Dollar.

Marmon’s pre-tax earnings in the first quarter of 2023 increased 13.5% compared to 2022, with business acquisitions accounting for 27% of the increase. Most of Marmon’s business groups generated higher comparative first quarter earnings in 2023, led by the Transportation group, as well as from the Water Technologies, Retail Solutions, Metals Services and Crane Services groups, primarily attributable to revenue growth. The first quarter earnings increase was partly offset by lower earnings in the Electrical group driven by falling demand and compressing margins in the building wire business and the Rail & Leasing group attributable to higher repair costs and lower railcar disposal gains.

IMC’s revenues were $1.0 billion in the first quarter of 2023, an increase of 5.2% compared to 2022. Revenues in 2023 reflected increased organic sales in North America and from business acquisitions, partially offset by lower revenues in Asia, unfavorable foreign currency translation from a stronger U.S. Dollar and the impact of the Russia-Ukraine conflict. IMC’s pre-tax earnings increased 3.5% in the first quarter of 2023 compared to 2022. The impact of higher revenues was partially offset by higher raw material costs, changes in sales mix and the impact of 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 decreased $702 million (10.5%) in the first quarter of 2023 and pre-tax earnings decreased $249 million (21.8%) compared to 2022. Our building products businesses have benefited in recent years from the low interest rate environment and strong residential and commercial construction markets. The effects of significant increases in interest rates, including home mortgage interest rates in the U.S. over the past year, has slowed demand for our home building businesses and certain of our other building products businesses. As such, our businesses are likely to experience declines in comparative revenues and earnings over the remainder of 2023.

Clayton Homes’ revenues decreased 10.7% to $2.5 billion in the first quarter of 2023 compared to 2022. Revenues from home sales decreased $353 million (15.8%) in the first quarter of 2023, reflecting lower unit sales partially offset by higher average selling prices. New home unit sales decreased 18.0% in the first quarter of 2023, including a 16.9% decrease in factory-built manufactured homes and a 23.1% decrease in site-built home unit sales. We expect unit sales will continue to remain below 2022 in the near term. Financial services revenues, which include mortgage origination and services, insurance and interest income from lending activities, increased 8.8% in the first quarter of 2023 compared to 2022. Loan balances, net of allowances for credit losses, were approximately $21.8 billion as of March 31, 2023, an increase of 2.3% from December 31, 2022.

Pre-tax earnings of Clayton Homes decreased $78 million (16.1%) in the first quarter 2023 compared to 2022, primarily attributable to lower sales volumes. Earnings from financial services declined 9.3% in the first quarter of 2023 versus 2022, reflecting increased expected loan loss provisions and higher operating and interest expenses.

Aggregate revenues of our other building products businesses were approximately $3.5 billion in the first quarter of 2023, a decrease of $401 million (10.3%) versus 2022. Comparative revenues were lower at all our other building products businesses, generally due to lower sales volumes, partly offset by higher average prices.

Pre-tax earnings of our other building products businesses decreased $170 million (25.8%) in the first quarter of 2023 compared to 2022. Earnings as a percentage of revenues in the first quarter of 2023 decreased 2.9 percentage points versus 2022. Earnings in 2023 at certain of our businesses were negatively impacted by lower sales and reduced gross sales margins. Earnings in 2022 benefitted from higher selling prices and strong demand in certain product categories, as well as a pre-tax gain from a business divestiture of $94 million.

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), jewelry products (Richline) and beginning October 19, 2022, Jazwares, LLC (Jazwares), a global toy company acquired in connection with the Alleghany acquisition.

Consumer products group revenues decreased $818 million (19.3%) in the first quarter of 2023 compared to 2022. The decline reflected lower revenues at Forest River and certain of our apparel and footwear operations, partially offset by the impact of the Jazwares acquisition.

Forest River’s revenues declined 38.6% in the first quarter of 2023 compared to 2022, reflecting an overall 44% decline in unit sales. Forest River experienced strong unit sales in recent years and through the first half of 2022. Since then, volumes have declined, attributable in part to the impact of rising interest rates, inflation and other macroeconomic conditions.

Revenues of our apparel and footwear businesses declined $68 million (5.7%) in the first quarter of 2023 compared to 2022, reflecting lower revenues from apparel (12.1%), partly offset by higher revenues from footwear. The decline in apparel revenue was driven by lower volume, as order delays and cancellations persisted in response to the elevated inventory levels of retail business customers. Duracell’s revenues in first quarter of 2023 declined 4.5% versus 2022, primarily due to lower volume and unfavorable foreign currency translation effects of the stronger U.S. Dollar.

Pre-tax earnings of our consumer products group declined $189 million (40.7%) in the first quarter of 2023 versus 2022, primarily attributable to lower earnings from Forest River and the apparel and footwear businesses. Pre-tax earnings as a percentage of revenues decreased 2.9 percentage points in the first quarter of 2023 compared to 2022.

Apparel and footwear earnings declined 18% in the first quarter of 2023 compared to 2022. Our apparel businesses continue to be negatively affected by lower sales volumes, reduced manufacturing efficiencies and higher manufacturing costs. We expect that comparative operating earnings of these businesses will be lower in the near term.

Earnings from Forest River declined 57%, primarily due to the decrease in unit sales, which reduced manufacturing efficiencies, and from unfavorable changes in product mix. We currently expect demand for recreational vehicles will remain relatively low and Forest River’s earnings in the near term to decline versus 2022.

Service and retailing

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

				First Quarter
				2023			2022
Revenues
Service				$	5,319		$	4,523
Retailing					4,612			4,592
McLane					13,059			12,515
				$	22,990		$	21,630
Pre-tax earnings
Service				$	837		$	724
Retailing					384			411
McLane					113			82
				$	1,334		$	1,217
Pre-tax earnings as a percentage of revenues
Service					15.7	%		16.0	%
Retailing					8.3	%		9.0	%
McLane					0.9	%		0.7	%

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 services and products 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). Beginning October 19, 2022, this group includes IPS Integrated Project Services, LLC (IPS), a provider of various services in facilities construction management.

Service group revenues increased $796 million (17.6%) in the first quarter of 2023 compared to 2022. The increase was primarily due to increased revenues from aviation services, the impact of the IPS acquisition ($302 million), and increased revenues from TTI. Revenues of TTI increased 5.8% in the first quarter of 2023 compared to 2022. TTI sales levels during 2022 were relatively strong. However, beginning in the third quarter of 2022, new orders slowed in certain regions and markets, in part attributable to elevated inventory levels within the supply chain. These conditions are expected to continue in 2023 and we may experience comparative revenue declines in future periods. Revenues from aviation services increased 18.8% in the first quarter of 2023 compared to 2022. The revenue increase was primarily due to increases in the number of aircraft in shared aircraft ownership programs and in flight hours across NetJets’ various programs, as well as higher average rates.

Pre-tax earnings of the service group increased $113 million (15.6%) in the first quarter of 2023 compared to 2022. Pre-tax earnings as a percentage of revenues decreased 0.3 percentage points in the first quarter of 2023 compared to 2022. The earnings increase was primarily attributable to higher overall margin rates in aviation services businesses, primarily due to changes in business mix, and to the impact of the IPS acquisition.

Retailing

Our largest retailing business is Berkshire Hathaway Automotive, Inc. (“BHA”), representing 67% of our combined retailing revenue in the first quarter of 2023. 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 18% of the combined retailing revenues in the first quarter of 2023.

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 were relatively unchanged in the first quarter of 2023 compared to 2022, reflecting an increase at BHA, offset by lower revenues from our other retailers. BHA’s revenues in the first quarter of 2023 increased 3.6% compared to 2022. Revenues from new vehicle sales increased 6.9% in the first quarter of 2023 compared to 2022 while revenues from pre-owned vehicle sales declined 4.0%. Unit sales in the first quarter of 2023 increased 0.9%, primarily from new vehicles. While new vehicle levels remain well below historical levels, supplies continue to gradually increase. Revenues from BHA’s service/repair operations in the first quarter of 2023 increased 11.1% versus 2022. Other retailing revenues declined 5.5% in the first quarter of 2023 versus 2022, primarily due to lower sales volumes at our home furnishings businesses.

Retailing group pre-tax earnings decreased $27 million (6.6%) in the first quarter of 2023 compared to 2022. BHA’s pre-tax earnings increased 30.9% in the first quarter of 2023 compared to 2022. BHA’s earnings increase reflected higher earnings from service/repair and finance/service contract operations and lower operating expenses, partially offset by lower vehicle sales margins and higher floor plan interest expense. BHA’s comparative vehicle gross profit margin rates, before the effects of LIFO, peaked in the first half of 2022 and have since declined. Aggregate pre-tax earnings for the remainder of our retailing group decreased $91 million (45.1%) in the first quarter of 2023 compared to 2022, primarily due to a 49.6% decrease in earnings from the home furnishings businesses, and the impact of a gain in 2022 related to the divestiture of certain jewelry stores.

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 and operate in a highly competitive environment. 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 quarter of 2023, 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 $544 million (4.3%) in the first quarter of 2023 compared to 2022, reflecting an increase of 3.5% from the grocery business and 5.7% from the foodservice business. Pre-tax earnings increased $31 million (37.8%) in the first quarter of 2023 compared to 2022. The increase in earnings reflected a slight increase in the gross sales margin rate, partly offset by higher personnel expenses.

Non-Controlled Businesses

After-tax earnings of our non-controlled businesses include our proportionate share of earnings attributable to our investments in Kraft Heinz, Occidental Petroleum, Pilot and Berkadia. Earnings attributable to these businesses increased $286 million in the first quarter of 2023 versus 2022, primarily due to earnings from the inclusion of Occidental Petroleum in 2023. As of January 31, 2023, Berkshire acquired a controlling interest in Pilot. We applied the equity method through the end of January 2023 on our pre-existing 38.6% interest and began consolidating Pilot’s financial statements in our Consolidated Financial Statements on February 1, 2023. See Notes 3 and 6 to the Consolidated Financial Statements.

Investment and Derivative Contract Gains (Losses)

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

		First Quarter
		2023				2022
Investment gains (losses)		$	34,758			$	(1,735	)
Derivative contract gains (losses)			—				(243	)
Gains (losses) before income taxes and noncontrolling interests			34,758				(1,978	)
Income taxes and noncontrolling interests			7,319				(398	)
Net earnings (loss)		$	27,439			$	(1,580	)
Effective income tax rate			20.9	%			16.0	%

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 and losses in the first quarter included net unrealized gains of $31.3 billion in 2023 compared to net unrealized losses of $1.8 billion in 2022 on securities we held at the end of the applicable period. Taxable investment gains and losses on equity securities sold is generally the difference between sales proceeds and the original cost of the securities sold. Sales of equity securities in the first quarter produced taxable gains of $2.2 billion in 2023 compared to taxable losses of $739 million in 2022. Pre-tax investment gains in the first quarter of 2023 included a non-cash gain of $3 billion related to the remeasurement of our pre-existing interest in Pilot to fair value through the application of acquisition accounting upon attaining control of Pilot for financial reporting purposes.

We believe that investment gains and 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 and losses recorded in earnings in any given period has little analytical or predictive value.

Derivative contract gains (losses)

Derivative contract gains and losses include the changes in fair value of our few remaining equity index put option contract liabilities. The periodic changes in the fair values of these liabilities are recorded in earnings. Substantially all of our contracts have expired and our exposure to loss in the future is insignificant.

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).

					First Quarter
					2023				2022
Acquisition accounting expenses					$	(202	)		$	(161	)
Corporate interest expense, before foreign currency effects						(64	)			(70	)
Foreign currency exchange rate gains (losses) on Berkshire and BHFC non-U.S. Dollar senior notes						(17	)			522
Other earnings						172				79
					$	(111	)		$	370

After-tax acquisition accounting expenses include charges arising from the application of the acquisition method in connection with certain of Berkshire’s 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 and BHFC’s Euro, Great Britain Pound and Japanese Yen 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. 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 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 significant liquidity and a very strong capital base. Our Consolidated shareholders’ equity at March 31, 2023 was $504.6 billion, an increase of $31.1 billion since December 31, 2022. Net earnings attributable to Berkshire shareholders was $35.5 billion in the first quarter of 2023, which included after-tax gains on our investments of $27.4 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 $4.4 billion in the first quarter of 2023 to repurchase shares of its Class A and B common stock.

At March 31, 2023, our insurance and other businesses held cash, cash equivalents and U.S. Treasury Bills of $127.7 billion, which included $106.9 billion in U.S. Treasury Bills. Investments in equity and fixed maturity securities (excluding our investments in Kraft Heinz and Occidental common stock) were $350.7 billion. During the first quarter of 2023, we paid cash of $2.9 billion to acquire equity securities and we received proceeds of $13.3 billion from sales of equity securities. On January 31, 2023, we acquired an additional 41.4% interest in Pilot for approximately $8.2 billion.

Our consolidated borrowings at March 31, 2023 were $123.6 billion, of which over 95% were by the Berkshire parent company, BHFC, BNSF, BHE and its subsidiaries and Pilot. In the first quarter of 2023, we paid approximately $6.2 billion on maturing term debt and increased short-term borrowings by approximately $1.1 billion.

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

Financial Condition (Continued)

Berkshire parent company outstanding debt at March 31, 2023 was $17.5 billion, a decrease of $3.9 billion since December 31, 2022 due to repayments of maturing debt during the first quarter. In April 2023, Berkshire issued ¥164.4 billion (approximately $1.2 billion) of senior notes and repaid ¥56.3 billion of maturing notes.

Senior note borrowings of BHFC, a wholly-owned financing subsidiary, were approximately $17.9 billion at March 31, 2023, substantially unchanged from December 31, 2022. 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. Berkshire guarantees BHFC’s senior notes for the full and timely payment of principal and interest.

BNSF’s outstanding debt was $22.7 billion as of March 31, 2023, a decrease of $705 million from December 31, 2022. Outstanding borrowings of BHE and its subsidiaries were $53.0 billion at March 31, 2023, an increase of $215 million from December 31, 2022. Aggregate debt maturities for BHE and BNSF over the next twelve months approximate $3.9 billion. Borrowings of Pilot were $6.5 billion as of March 31,2023, of which $5.9 billion was outstanding as of the January 31, 2023 acquisition date. Berkshire does not guarantee the repayment of debt or other borrowings issued by BNSF, BHE, Pilot or any of their subsidiaries or affiliates.

In the first quarter of 2023, our diverse group of businesses generated net operating cash flows of $8.7 billion. Our consolidated capital expenditures for property, plant and equipment and equipment held for lease were $3.7 billion in the first quarter of 2023, which included capital expenditures by our railroad, utilities and energy businesses (BNSF, BHE and Pilot) of $2.6 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 2023 approximate $11.7 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. On December 27, 2022, the IRS and Department of Treasury issued initial guidance for taxpayers subject to the corporate alternative minimum tax. The guidance addresses several, but not all, issues that needed clarification. The IRS and Department of Treasury intend to release additional guidance in the future. We will continue to evaluate the impact of the 2022 act as more guidance becomes available. We currently do not expect a material impact on our Consolidated Financial Statements.

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 $143 billion at March 31, 2023. 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, 2023, 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, aircraft purchase commitments of NetJets and certain raw materials purchase commitments.

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

Contractual Obligations (Continued)

Except as otherwise disclosed in this Quarterly Report, our contractual obligations as of March 31, 2023 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, 2022.

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, 2022.

Our Consolidated Balance Sheet as of March 31, 2023 includes estimated liabilities of $143 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, 2023 included goodwill of acquired businesses of approximately $83 billion and indefinite-lived intangible assets of $21 billion, which included $9.5 billion of goodwill associated with the Alleghany and Pilot acquisitions. We evaluate these assets for impairment at least annually and we conducted our most recent annual review during the fourth quarter of 2022. In connection with the annual goodwill impairment review conducted in the fourth quarter of 2022, the estimated fair values of six reporting units did not exceed our carrying values by at least 20%. The most significant of these reporting units was Precision Castparts Corp. (“PCC”). Our estimated fair value of PCC was approximately $31.5 billion, exceeding our carrying value of approximately $30.3 billion by 4.0%. Our carrying value of PCC included goodwill of approximately $7.5 billion. For the five other reporting units, our aggregate estimated fair value was approximately $4.5 billion, which exceeded our aggregate carrying value of approximately $4.1 billion by 9.9%. Our carrying value of these units included goodwill of approximately $1.4 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, 2023, 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 general 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 are inherently subjective 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 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, that negatively affect our operating results and restrict our access to borrowed funds through the capital markets at reasonable rates; 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.