Berkshire Hathaway
Annual Report 2018

Plain-text annual report

BERKSHIRE HATHAWAY INC. 2018 ANNUAL REPORT BERKSHIRE HATHAWAY INC. 2018 ANNUAL REPORT TABLE OF CONTENTS Berkshire’s Performance vs. the S&P 500 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Chairman’s Letter* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-15 Form 10-K – Business Description . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Description of Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Management’s Discussion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Management’s Report on Internal Controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Independent Auditor’s Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . K-1 K-22 K-25 K-31 K-32 K-61 K-62 K-64 K-69 Appendices – Operating Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1 Annual Meeting Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-2/A-3 A-3 Stock Transfer Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Inside Back Cover Directors and Officers of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *Copyright© 2019 By Warren E. Buffett All Rights Reserved 1 Berkshire’s Performance vs. the S&P 500 Year 1965 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1966 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1967 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1968 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1969 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1970 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1971 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1972 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1973 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1974 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1975 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1976 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1977 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1978 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1979 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1980 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1981 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1982 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1983 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1984 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1985 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1986 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1987 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1988 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1989 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1990 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1991 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1992 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Compounded Annual Gain – 1965-2018 . . . . . . . . . . . . . . . . . . . . . Overall Gain – 1964-2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Annual Percentage Change in Per-Share Book Value of Berkshire in Per-Share Market Value of Berkshire in S&P 500 with Dividends Included 23.8 20.3 11.0 19.0 16.2 12.0 16.4 21.7 4.7 5.5 21.9 59.3 31.9 24.0 35.7 19.3 31.4 40.0 32.3 13.6 48.2 26.1 19.5 20.1 44.4 7.4 39.6 20.3 14.3 13.9 43.1 31.8 34.1 48.3 0.5 6.5 (6.2) 10.0 21.0 10.5 6.4 18.4 11.0 (9.6) 19.8 13.0 4.6 14.4 18.2 8.3 6.4 10.7 23.0 0.4 18.7% 1,091,899% 49.5 (3.4) 13.3 77.8 19.4 (4.6) 80.5 8.1 (2.5) (48.7) 2.5 129.3 46.8 14.5 102.5 32.8 31.8 38.4 69.0 (2.7) 93.7 14.2 4.6 59.3 84.6 (23.1) 35.6 29.8 38.9 25.0 57.4 6.2 34.9 52.2 (19.9) 26.6 6.5 (3.8) 15.8 4.3 0.8 24.1 28.7 (31.8) 2.7 21.4 (4.7) 16.8 32.7 27.0 (12.5) 23.4 21.9 2.8 20.5% 2,472,627% 10.0 (11.7) 30.9 11.0 (8.4) 3.9 14.6 18.9 (14.8) (26.4) 37.2 23.6 (7.4) 6.4 18.2 32.3 (5.0) 21.4 22.4 6.1 31.6 18.6 5.1 16.6 31.7 (3.1) 30.5 7.6 10.1 1.3 37.6 23.0 33.4 28.6 21.0 (9.1) (11.9) (22.1) 28.7 10.9 4.9 15.8 5.5 (37.0) 26.5 15.1 2.1 16.0 32.4 13.7 1.4 12.0 21.8 (4.4) 9.7% 15,019% Note: Data are for calendar years with these exceptions: 1965 and 1966, year ended 9/30; 1967, 15 months ended 12/31. Starting in 1979, accounting rules required insurance companies to value the equity securities they hold at market rather than at the lower of cost or market, which was previously the requirement. In this table, Berkshire’s results through 1978 have been restated to conform to the changed rules. In all other respects, the results are calculated using the numbers originally reported. The S&P 500 numbers are pre-tax whereas the Berkshire numbers are after-tax. If a corporation such as Berkshire were simply to have owned the S&P 500 and accrued the appropriate taxes, its results would have lagged the S&P 500 in years when that index showed a positive return, but would have exceeded the S&P 500 in years when the index showed a negative return. Over the years, the tax costs would have caused the aggregate lag to be substantial. 2 BERKSHIRE HATHAWAY INC. To the Shareholders of Berkshire Hathaway Inc.: Berkshire earned $4.0 billion in 2018 utilizing generally accepted accounting principles (commonly called “GAAP”). The components of that figure are $24.8 billion in operating earnings, a $3.0 billion non-cash loss from an impairment of intangible assets (arising almost entirely from our equity interest in Kraft Heinz), $2.8 billion in realized capital gains from the sale of investment securities and a $20.6 billion loss from a reduction in the amount of unrealized capital gains that existed in our investment holdings. A new GAAP rule requires us to include that last item in earnings. As I emphasized in the 2017 annual report, neither Berkshire’s Vice Chairman, Charlie Munger, nor I believe that rule to be sensible. Rather, both of us have consistently thought that at Berkshire this mark-to-market change would produce what I described as “wild and capricious swings in our bottom line.” The accuracy of that prediction can be suggested by our quarterly results during 2018. In the first and fourth quarters, we reported GAAP losses of $1.1 billion and $25.4 billion respectively. In the second and third quarters, we reported profits of $12 billion and $18.5 billion. In complete contrast to these gyrations, the many businesses that Berkshire owns delivered consistent and satisfactory operating earnings in all quarters. For the year, those earnings exceeded their 2016 high of $17.6 billion by 41%. Wide swings in our quarterly GAAP earnings will inevitably continue. That’s because our huge equity portfolio – valued at nearly $173 billion at the end of 2018 – will often experience one-day price fluctuations of $2 billion or more, all of which the new rule says must be dropped immediately to our bottom line. Indeed, in the fourth quarter, a period of high volatility in stock prices, we experienced several days with a “profit” or “loss” of more than $4 billion. Our advice? Focus on operating earnings, paying little attention to gains or losses of any variety. My saying that in no way diminishes the importance of our investments to Berkshire. Over time, Charlie and I expect them to deliver substantial gains, albeit with highly irregular timing. * * * * * * * * * * * * Long-time readers of our annual reports will have spotted the different way in which I opened this letter. For nearly three decades, the initial paragraph featured the percentage change in Berkshire’s per-share book value. It’s now time to abandon that practice. The fact is that the annual change in Berkshire’s book value – which makes its farewell appearance on page 2 – is a metric that has lost the relevance it once had. Three circumstances have made that so. First, Berkshire has gradually morphed from a company whose assets are concentrated in marketable stocks into one whose major value resides in operating businesses. Charlie and I expect that reshaping to continue in an irregular manner. Second, while our equity holdings are valued at market prices, accounting rules require our collection of operating companies to be included in book value at an amount far below their current value, a mismark that has grown in recent years. Third, it is likely that – over time – Berkshire will be a significant repurchaser of its shares, transactions that will take place at prices above book value but below our estimate of intrinsic value. The math of such purchases is simple: Each transaction makes per-share intrinsic value go up, while per-share book value goes down. That combination causes the book-value scorecard to become increasingly out of touch with economic reality. 3 In future tabulations of our financial results, we expect to focus on Berkshire’s market price. Markets can be extremely capricious: Just look at the 54-year history laid out on page 2. Over time, however, Berkshire’s stock price will provide the best measure of business performance. * * * * * * * * * * * * Before moving on, I want to give you some good news – really good news – that is not reflected in our financial statements. It concerns the management changes we made in early 2018, when Ajit Jain was put in charge of all insurance activities and Greg Abel was given authority over all other operations. These moves were overdue. Berkshire is now far better managed than when I alone was supervising operations. Ajit and Greg have rare talents, and Berkshire blood flows through their veins. Now let’s take a look at what you own. Focus on the Forest – Forget the Trees Investors who evaluate Berkshire sometimes obsess on the details of our many and diverse businesses – our economic “trees,” so to speak. Analysis of that type can be mind-numbing, given that we own a vast array of specimens, ranging from twigs to redwoods. A few of our trees are diseased and unlikely to be around a decade from now. Many others, though, are destined to grow in size and beauty. Fortunately, it’s not necessary to evaluate each tree individually to make a rough estimate of Berkshire’s intrinsic business value. That’s because our forest contains five “groves” of major importance, each of which can be appraised, with reasonable accuracy, in its entirety. Four of those groves are differentiated clusters of businesses and financial assets that are easy to understand. The fifth – our huge and diverse insurance operation – delivers great value to Berkshire in a less obvious manner, one I will explain later in this letter. Before we look more closely at the first four groves, let me remind you of our prime goal in the deployment of your capital: to buy ably-managed businesses, in whole or part, that possess favorable and durable economic characteristics. We also need to make these purchases at sensible prices. Sometimes we can buy control of companies that meet our tests. Far more often, we find the attributes we seek in publicly-traded businesses, in which we normally acquire a 5% to 10% interest. Our two-pronged approach to huge-scale capital allocation is rare in corporate America and, at times, gives us an important advantage. In recent years, the sensible course for us to follow has been clear: Many stocks have offered far more for our money than we could obtain by purchasing businesses in their entirety. That disparity led us to buy about $43 billion of marketable equities last year, while selling only $19 billion. Charlie and I believe the companies in which we invested offered excellent value, far exceeding that available in takeover transactions. Despite our recent additions to marketable equities, the most valuable grove in Berkshire’s forest remains the many dozens of non-insurance businesses that Berkshire controls (usually with 100% ownership and never with less than 80%). Those subsidiaries earned $16.8 billion last year. When we say “earned,” moreover, we are describing what interest payments, managerial compensation (whether cash or stock-based), remains after all restructuring expenses, depreciation, amortization and home-office overhead. income taxes, That brand of earnings is a far cry from that frequently touted by Wall Street bankers and corporate CEOs. Too often, their presentations feature “adjusted EBITDA,” a measure that redefines “earnings” to exclude a variety of all-too-real costs. 4 For example, managements sometimes assert that their company’s stock-based compensation shouldn’t be counted as an expense. (What else could it be – a gift from shareholders?) And restructuring expenses? Well, maybe last year’s exact rearrangement won’t recur. But restructurings of one sort or another are common in business – Berkshire has gone down that road dozens of times, and our shareholders have always borne the costs of doing so. Abraham Lincoln once posed the question: “If you call a dog’s tail a leg, how many legs does it have?” and then answered his own query: “Four, because calling a tail a leg doesn’t make it one.” Abe would have felt lonely on Wall Street. Charlie and I do contend that our acquisition-related amortization expenses of $1.4 billion (detailed on page K-84) are not a true economic cost. We add back such amortization “costs” to GAAP earnings when we are evaluating both private businesses and marketable stocks. In contrast, Berkshire’s $8.4 billion depreciation charge understates our true economic cost. In fact, we need to spend more than this sum annually to simply remain competitive in our many operations. Beyond those “maintenance” capital expenditures, we spend large sums in pursuit of growth. Overall, Berkshire invested a record $14.5 billion last year in plant, equipment and other fixed assets, with 89% of that spent in America. Berkshire’s runner-up grove by value is its collection of equities, typically involving a 5% to 10% ownership position in a very large company. As noted earlier, our equity investments were worth nearly $173 billion at yearend, an amount far above their cost. If the portfolio had been sold at its yearend valuation, federal income tax of about $14.7 billion would have been payable on the gain. In all likelihood, we will hold most of these stocks for a long time. Eventually, however, gains generate taxes at whatever rate prevails at the time of sale. Our investees paid us dividends of $3.8 billion last year, a sum that will increase in 2019. Far more important than the dividends, though, are the huge earnings that are annually retained by these companies. Consider, as an indicator, these figures that cover only our five largest holdings. Company American Express Apple Bank of America Coca-Cola Wells Fargo Total Yearend Ownership Berkshire’s Share in $ millions of Dividends(1) Retained Earnings(2) 17.9% 5.4% 9.5% 9.4% 9.8% $ 237 745 551 624 809 $2,966 $ 997 2,502 2,096 (21) 1,263 $6,837 (1) Based on current annual rate. (2) Based on 2018 earnings minus common and preferred dividends paid. GAAP – which dictates the earnings we report – does not allow us to include the retained earnings of investees in our financial accounts. But those earnings are of enormous value to us: Over the years, earnings retained by our investees (viewed as a group) have eventually delivered capital gains to Berkshire that totaled more than one dollar for each dollar these companies reinvested for us. All of our major holdings enjoy excellent economics, and most use a portion of their retained earnings to repurchase their shares. We very much like that: If Charlie and I think an investee’s stock is underpriced, we rejoice when management employs some of its earnings to increase Berkshire’s ownership percentage. 5 Here’s one example drawn from the table above: Berkshire’s holdings of American Express have remained unchanged over the past eight years. Meanwhile, our ownership increased from 12.6% to 17.9% because of repurchases made by the company. Last year, Berkshire’s portion of the $6.9 billion earned by American Express was $1.2 billion, about 96% of the $1.3 billion we paid for our stake in the company. When earnings increase and shares outstanding decrease, owners – over time – usually do well. A third category of Berkshire’s business ownership is a quartet of companies in which we share control with other parties. Our portion of the after-tax operating earnings of these businesses – 26.7% of Kraft Heinz, 50% of Berkadia and Electric Transmission Texas, and 38.6% of Pilot Flying J – totaled about $1.3 billion in 2018. In our fourth grove, Berkshire held $112 billion at yearend in U.S. Treasury bills and other cash equivalents, and another $20 billion in miscellaneous fixed-income instruments. We consider a portion of that stash to be untouchable, having pledged to always hold at least $20 billion in cash equivalents to guard against external calamities. We have also promised to avoid any activities that could threaten our maintaining that buffer. Berkshire will forever remain a financial fortress. In managing, I will make expensive mistakes of commission and will also miss many opportunities, some of which should have been obvious to me. At times, our stock will tumble as investors flee from equities. But I will never risk getting caught short of cash. In the years ahead, we hope to move much of our excess liquidity into businesses that Berkshire will permanently own. The immediate prospects for that, however, are not good: Prices are sky-high for businesses possessing decent long-term prospects. That disappointing reality means that 2019 will likely see us again expanding our holdings of marketable equities. We continue, nevertheless, to hope for an elephant-sized acquisition. Even at our ages of 88 and 95 – I’m the young one – that prospect is what causes my heart and Charlie’s to beat faster. (Just writing about the possibility of a huge purchase has caused my pulse rate to soar.) My expectation of more stock purchases is not a market call. Charlie and I have no idea as to how stocks will behave next week or next year. Predictions of that sort have never been a part of our activities. Our thinking, rather, is focused on calculating whether a portion of an attractive business is worth more than its market price. I believe Berkshire’s intrinsic value can be approximated by summing the values of our four asset-laden groves and then subtracting an appropriate amount for taxes eventually payable on the sale of marketable securities. * * * * * * * * * * * * You may ask whether an allowance should not also be made for the major tax costs Berkshire would incur if we were to sell certain of our wholly-owned businesses. Forget that thought: It would be foolish for us to sell any of our wonderful companies even if no tax would be payable on its sale. Truly good businesses are exceptionally hard to find. Selling any you are lucky enough to own makes no sense at all. The interest cost on all of our debt has been deducted as an expense in calculating the earnings at Berkshire’s non-insurance businesses. Beyond that, much of our ownership of the first four groves is financed by funds generated from Berkshire’s fifth grove – a collection of exceptional insurance companies. We call those funds “float,” a source of financing that we expect to be cost-free – or maybe even better than that – over time. We will explain the characteristics of float later in this letter. Finally, a point of key and lasting importance: Berkshire’s value is maximized by our having assembled the five groves into a single entity. This arrangement allows us to seamlessly and objectively allocate major amounts of capital, eliminate enterprise risk, avoid insularity, fund assets at exceptionally low cost, occasionally take advantage of tax efficiencies, and minimize overhead. At Berkshire, the whole is greater – considerably greater – than the sum of the parts. 6 Repurchases and Reporting Earlier I mentioned that Berkshire will from time to time be repurchasing its own stock. Assuming that we buy at a discount to Berkshire’s intrinsic value – which certainly will be our intention – repurchases will benefit both those shareholders leaving the company and those who stay. True, the upside from repurchases is very slight for those who are leaving. That’s because careful buying by us will minimize any impact on Berkshire’s stock price. Nevertheless, there is some benefit to sellers in having an extra buyer in the market. For continuing shareholders, the advantage is obvious: If the market prices a departing partner’s interest at, say, 90¢ on the dollar, continuing shareholders reap an increase in per-share intrinsic value with every repurchase by the company. Obviously, repurchases should be price-sensitive: Blindly buying an overpriced stock is value- destructive, a fact lost on many promotional or ever-optimistic CEOs. When a company says that it contemplates repurchases, it’s vital that all shareholder-partners be given the information they need to make an intelligent estimate of value. Providing that information is what Charlie and I try to do in this report. We do not want a partner to sell shares back to the company because he or she has been misled or inadequately informed. Some sellers, however, may disagree with our calculation of value and others may have found investments that they consider more attractive than Berkshire shares. Some of that second group will be right: There are unquestionably many stocks that will deliver far greater gains than ours. In addition, certain shareholders will simply decide it’s time for them or their families to become net consumers rather than continuing to build capital. Charlie and I have no current interest in joining that group. Perhaps we will become big spenders in our old age. For 54 years our managerial decisions at Berkshire have been made from the viewpoint of the shareholders who are staying, not those who are leaving. Consequently, Charlie and I have never focused on current-quarter results. * * * * * * * * * * * * Berkshire, in fact, may be the only company in the Fortune 500 that does not prepare monthly earnings reports or balance sheets. I, of course, regularly view the monthly financial reports of most subsidiaries. But Charlie and I learn of Berkshire’s overall earnings and financial position only on a quarterly basis. Furthermore, Berkshire has no company-wide budget (though many of our subsidiaries find one useful). Our lack of such an instrument means that the parent company has never had a quarterly “number” to hit. Shunning the use of this bogey sends an important message to our many managers, reinforcing the culture we prize. Over the years, Charlie and I have seen all sorts of bad corporate behavior, both accounting and operational, induced by the desire of management to meet Wall Street expectations. What starts as an “innocent” fudge in order to not disappoint “the Street” – say, trade-loading at quarter-end, turning a blind eye to rising insurance losses, or drawing down a “cookie-jar” reserve – can become the first step toward full-fledged fraud. Playing with the numbers “just this once” may well be the CEO’s intent; it’s seldom the end result. And if it’s okay for the boss to cheat a little, it’s easy for subordinates to rationalize similar behavior. At Berkshire, our audience is neither analysts nor commentators: Charlie and I are working for our shareholder-partners. The numbers that flow up to us will be the ones we send on to you. 7 Non-Insurance Operations – From Lollipops to Locomotives Let’s now look further at Berkshire’s most valuable grove – our collection of non-insurance businesses – keeping in mind that we do not wish to unnecessarily hand our competitors information that might be useful to them. Additional details about individual operations can be found on pages K-5 – K-22 and pages K-40 – K-51. Viewed as a group, these businesses earned pre-tax income in 2018 of $20.8 billion, a 24% increase over 2017. Acquisitions we made in 2018 delivered only a trivial amount of that gain. I will stick with pre-tax figures in this discussion. But our after-tax gain in 2018 from these businesses was far greater – 47% – thanks in large part to the cut in the corporate tax rate that became effective at the beginning of that year. Let’s look at why the impact was so dramatic. Begin with an economic reality: Like it or not, the U.S. Government “owns” an interest in Berkshire’s earnings of a size determined by Congress. In effect, our country’s Treasury Department holds a special class of our stock – call this holding the AA shares – that receives large “dividends” (that is, tax payments) from Berkshire. In 2017, as in many years before, the corporate tax rate was 35%, which meant that the Treasury was doing very well with its AA shares. Indeed, the Treasury’s “stock,” which was paying nothing when we took over in 1965, had evolved into a holding that delivered billions of dollars annually to the federal government. Last year, however, 40% of the government’s “ownership” (14/35ths) was returned to Berkshire – free of charge – when the corporate tax rate was reduced to 21%. Consequently, our “A” and “B” shareholders received a major boost in the earnings attributable to their shares. This happening materially increased the intrinsic value of the Berkshire shares you and I own. The same dynamic, moreover, enhanced the intrinsic value of almost all of the stocks Berkshire holds. Those are the headlines. But there are other factors to consider that tempered our gain. For example, the tax benefits garnered by our large utility operation get passed along to its customers. Meanwhile, the tax rate applicable to the substantial dividends we receive from domestic corporations is little changed at about 13%. (This lower rate has long been logical because our investees have already paid tax on the earnings that they pay to us.) Overall, however, the new law made our businesses and the stocks we own considerably more valuable. Which suggests that we return to the performance of our non-insurance businesses. Our two towering redwoods in this grove are BNSF and Berkshire Hathaway Energy (90.9% owned). Combined, they earned $9.3 billion before tax last year, up 6% from 2017. You can read more about these businesses on pages K-5 – K-10 and pages K-40 – K-45. Our next five non-insurance subsidiaries, as ranked by earnings (but presented here alphabetically), Clayton Homes, International Metalworking, Lubrizol, Marmon and Precision Castparts, had aggregate pre-tax income in 2018 of $6.4 billion, up from the $5.5 billion these companies earned in 2017. The next five, similarly ranked and listed (Forest River, Johns Manville, MiTek, Shaw and TTI) earned $2.4 billion pre-tax last year, up from $2.1 billion in 2017. The remaining non-insurance businesses that Berkshire owns – and there are many – had pre-tax income of $3.6 billion in 2018 vs. $3.3 billion in 2017. 8 Insurance, “Float,” and the Funding of Berkshire Our property/casualty (“P/C”) insurance business – our fifth grove – has been the engine propelling Berkshire’s growth since 1967, the year we acquired National Indemnity and its sister company, National Fire & Marine, for $8.6 million. Today, National Indemnity is the largest property/casualty company in the world as measured by net worth. One reason we were attracted to the P/C business was the industry’s business model: P/C insurers receive premiums upfront and pay claims later. In extreme cases, such as claims arising from exposure to asbestos, or severe workplace accidents, payments can stretch over many decades. This collect-now, pay-later model leaves P/C companies holding large sums – money we call “float” – that will eventually go to others. Meanwhile, insurers get to invest this float for their own benefit. Though individual policies and claims come and go, the amount of float an insurer holds usually remains fairly stable in relation to premium volume. Consequently, as our business grows, so does our float. And how it has grown, as the following table shows: Year 1970 1980 1990 2000 2010 2018 Float (in millions)* $ 39 237 1,632 27,871 65,832 122,732 * Includes float arising from life, annuity and health insurance businesses. We may in time experience a decline in float. If so, the decline will be very gradual – at the outside no more than 3% in any year. The nature of our insurance contracts is such that we can never be subject to immediate or near- term demands for sums that are of significance to our cash resources. That structure is by design and is a key component in the unequaled financial strength of our insurance companies. That strength will never be compromised. If our premiums exceed the total of our expenses and eventual losses, our insurance operation registers an underwriting profit that adds to the investment income the float produces. When such a profit is earned, we enjoy the use of free money – and, better yet, get paid for holding it. Unfortunately, the wish of all insurers to achieve this happy result creates intense competition, so vigorous indeed that it sometimes causes the P/C industry as a whole to operate at a significant underwriting loss. That loss, in effect, is what the industry pays to hold its float. Competitive dynamics almost guarantee that the insurance industry, despite the float income all its companies enjoy, will continue its dismal record of earning subnormal returns on tangible net worth as compared to other American businesses. Nevertheless, I like our own prospects. Berkshire’s unrivaled financial strength allows us far more flexibility in investing our float than that generally available to P/C companies. The many alternatives available to us are always an advantage and occasionally offer major opportunities. When other insurers are constrained, our choices expand. Moreover, our P/C companies have an excellent underwriting record. Berkshire has now operated at an underwriting profit for 15 of the past 16 years, the exception being 2017, when our pre-tax loss was $3.2 billion. For the entire 16-year span, our pre-tax gain totaled $27 billion, of which $2 billion was recorded in 2018. 9 That record is no accident: Disciplined risk evaluation is the daily focus of our insurance managers, who know that the benefits of float can be drowned by poor underwriting results. All insurers give that message lip service. At Berkshire it is a religion, Old Testament style. In most cases, the funding of a business comes from two sources – debt and equity. At Berkshire, we have two additional arrows in the quiver to talk about, but let’s first address the conventional components. * * * * * * * * * * * * We use debt sparingly. Many managers, it should be noted, will disagree with this policy, arguing that significant debt juices the returns for equity owners. And these more venturesome CEOs will be right most of the time. At rare and unpredictable intervals, however, credit vanishes and debt becomes financially fatal. A Russian- roulette equation – usually win, occasionally die – may make financial sense for someone who gets a piece of a company’s upside but does not share in its downside. But that strategy would be madness for Berkshire. Rational people don’t risk what they have and need for what they don’t have and don’t need. Most of the debt you see on our consolidated balance sheet – see page K-65 – resides at our railroad and energy subsidiaries, both of them asset-heavy companies. During recessions, the cash generation of these businesses remains bountiful. The debt they use is both appropriate for their operations and not guaranteed by Berkshire. Our level of equity capital is a different story: Berkshire’s $349 billion is unmatched in corporate America. By retaining all earnings for a very long time, and allowing compound interest to work its magic, we have amassed funds that have enabled us to purchase and develop the valuable groves earlier described. Had we instead followed a 100% payout policy, we would still be working with the $22 million with which we began fiscal 1965. Beyond using debt and equity, Berkshire has benefitted in a major way from two less-common sources of corporate funding. The larger is the float I have described. So far, those funds, though they are recorded as a huge net liability on our balance sheet, have been of more utility to us than an equivalent amount of equity. That’s because they have usually been accompanied by underwriting earnings. In effect, we have been paid in most years for holding and using other people’s money. As I have often done before, I will emphasize that this happy outcome is far from a sure thing: Mistakes in assessing insurance risks can be huge and can take many years to surface. (Think asbestos.) A major catastrophe that will dwarf hurricanes Katrina and Michael will occur – perhaps tomorrow, perhaps many decades from now. “The Big One” may come from a traditional source, such as a hurricane or earthquake, or it may be a total surprise involving, say, a cyber attack having disastrous consequences beyond anything insurers now contemplate. When such a mega- catastrophe strikes, we will get our share of the losses and they will be big – very big. Unlike many other insurers, however, we will be looking to add business the next day. The final funding source – which again Berkshire possesses to an unusual degree – is deferred income taxes. These are liabilities that we will eventually pay but that are meanwhile interest-free. As I indicated earlier, about $14.7 billion of our $50.5 billion of deferred taxes arises from the unrealized gains in our equity holdings. These liabilities are accrued in our financial statements at the current 21% corporate tax rate but will be paid at the rates prevailing when our investments are sold. Between now and then, we in effect have an interest-free “loan” that allows us to have more money working for us in equities than would otherwise be the case. 10 A further $28.3 billion of deferred tax results from our being able to accelerate the depreciation of assets such as plant and equipment in calculating the tax we must currently pay. The front-ended savings in taxes that we record gradually reverse in future years. We regularly purchase additional assets, however. As long as the present tax law prevails, this source of funding should trend upward. Over time, Berkshire’s funding base – that’s the right-hand side of our balance sheet – should grow, primarily through the earnings we retain. Our job is to put the money retained to good use on the left-hand side, by adding attractive assets. GEICO and Tony Nicely That title says it all: The company and the man are inseparable. Tony joined GEICO in 1961 at the age of 18; I met him in the mid-1970s. At that time, GEICO, after a four- decade record of both rapid growth and outstanding underwriting results, suddenly found itself near bankruptcy. A recently-installed management had grossly underestimated GEICO’s loss costs and consequently underpriced its product. It would take many months until those loss-generating policies on GEICO’s books – there were no less than 2.3 million of them – would expire and could then be repriced. The company’s net worth in the meantime was rapidly approaching zero. In 1976, Jack Byrne was brought in as CEO to rescue GEICO. Soon after his arrival, I met him, concluded that he was the perfect man for the job, and began to aggressively buy GEICO shares. Within a few months, Berkshire bought about 1⁄ 3 of the company, a portion that later grew to roughly 1⁄ 2 without our spending a dime. That stunning accretion occurred because GEICO, after recovering its health, consistently repurchased its shares. All told, this half- interest in GEICO cost Berkshire $47 million, about what you might pay today for a trophy apartment in New York. Let’s now fast-forward 17 years to 1993, when Tony Nicely was promoted to CEO. At that point, GEICO’s reputation and profitability had been restored – but not its growth. Indeed, at yearend 1992 the company had only 1.9 million auto policies on its books, far less than its pre-crisis high. In sales volume among U.S. auto insurers, GEICO then ranked an undistinguished seventh. Late in 1995, after Tony had re-energized GEICO, Berkshire made an offer to buy the remaining 50% of the company for $2.3 billion, about 50 times what we had paid for the first half (and people say I never pay up!). Our offer was successful and brought Berkshire a wonderful, but underdeveloped, company and an equally wonderful CEO, who would move GEICO forward beyond my dreams. GEICO is now America’s Number Two auto insurer, with sales 1,200% greater than it recorded in 1995. Underwriting profits have totaled $15.5 billion (pre-tax) since our purchase, and float available for investment has grown from $2.5 billion to $22.1 billion. By my estimate, Tony’s management of GEICO has increased Berkshire’s intrinsic value by more than $50 billion. On top of that, he is a model for everything a manager should be, helping his 40,000 associates to identify and polish abilities they didn’t realize they possessed. Last year, Tony decided to retire as CEO, and on June 30th he turned that position over to Bill Roberts, his long-time partner. I’ve known and watched Bill operate for several decades, and once again Tony made the right move. Tony remains Chairman and will be helpful to GEICO for the rest of his life. He’s incapable of doing less. All Berkshire shareholders owe Tony their thanks. I head the list. 11 Investments Below we list our fifteen common stock investments that at yearend had the largest market value. We exclude our Kraft Heinz holding – 325,442,152 shares – because Berkshire is part of a control group and therefore must account for this investment on the “equity” method. On its balance sheet, Berkshire carries its Kraft Heinz holding at a GAAP figure of $13.8 billion, an amount reduced by our share of the large write-off of intangible assets taken by Kraft Heinz in 2018. At yearend, our Kraft Heinz holding had a market value of $14 billion and a cost basis of $9.8 billion. Shares* Company 12/31/18 Percentage of Company Owned Cost** Market 151,610,700 American Express Company . . . . . . . . . . . . . . . . . 255,300,329 Apple Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 918,919,000 Bank of America Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84,488,751 The Bank of New York Mellon Corp. . . . . . . . . . . . . . . . . 6,789,054 Charter Communications, Inc. 400,000,000 The Coca-Cola Company . . . . . . . . . . . . . . . . . . . . 65,535,000 Delta Air Lines, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,784,698 The Goldman Sachs Group, Inc. 50,661,394 . . . . . . . . . . . . . . . . . . . . . 24,669,778 Moody’s Corporation . . . . . . . . . . . . . . . . . . . . . . . 47,890,899 Southwest Airlines Co. . . . . . . . . . . . . . . . . . . . . . . 21,938,642 United Continental Holdings Inc. . . . . . . . . . . . . . . 146,346,999 U.S. Bancorp . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43,387,980 USG Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . 449,349,102 Wells Fargo & Company . . . . . . . . . . . . . . . . . . . . Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . JPMorgan Chase & Co. 17.9 5.4 9.5 8.8 3.0 9.4 9.6 4.9 1.5 12.9 8.7 8.1 9.1 31.0 9.8 $ (in millions) $ 1,287 36,044 11,650 3,860 1,210 1,299 2,860 2,380 5,605 248 2,005 1,195 5,548 836 10,639 16,201 14,452 40,271 22,642 3,977 1,935 18,940 3,270 3,138 4,946 3,455 2,226 1,837 6,688 1,851 20,706 22,423 Total Common Stocks Carried at Market . . . . . . . . $ 102,867 $ 172,757 * ** Excludes shares held by pension funds of Berkshire subsidiaries. This is our actual purchase price and also our tax basis. Charlie and I do not view the $172.8 billion detailed above as a collection of ticker symbols – a financial dalliance to be terminated because of downgrades by “the Street,” expected Federal Reserve actions, possible political developments, forecasts by economists or whatever else might be the subject du jour. What we see in our holdings, rather, is an assembly of companies that we partly own and that, on a weighted basis, are earning about 20% on the net tangible equity capital required to run their businesses. These companies, also, earn their profits without employing excessive levels of debt. 12 Returns of that order by large, established and understandable businesses are remarkable under any circumstances. They are truly mind-blowing when compared against the return that many investors have accepted on bonds over the last decade – 3% or less on 30-year U.S. Treasury bonds, for example. On occasion, a ridiculously-high purchase price for a given stock will cause a splendid business to become a poor investment – if not permanently, at least for a painfully long period. Over time, however, investment performance converges with business performance. And, as I will next spell out, the record of American business has been extraordinary. The American Tailwind On March 11th, it will be 77 years since I first invested in an American business. The year was 1942, I was 11, and I went all in, investing $114.75 I had begun accumulating at age six. What I bought was three shares of Cities Service preferred stock. I had become a capitalist, and it felt good. Let’s now travel back through the two 77-year periods that preceded my purchase. That leaves us starting in 1788, a year prior to George Washington’s installation as our first president. Could anyone then have imagined what their new country would accomplish in only three 77-year lifetimes? During the two 77-year periods prior to 1942, the United States had grown from four million people – about 1⁄ 2 of 1% of the world’s population – into the most powerful country on earth. In that spring of 1942, though, it faced a crisis: The U.S. and its allies were suffering heavy losses in a war that we had entered only three months earlier. Bad news arrived daily. Despite the alarming headlines, almost all Americans believed on that March 11th that the war would be won. Nor was their optimism limited to that victory. Leaving aside congenital pessimists, Americans believed that their children and generations beyond would live far better lives than they themselves had led. The nation’s citizens understood, of course, that the road ahead would not be a smooth ride. It never had been. Early in its history our country was tested by a Civil War that killed 4% of all American males and led President Lincoln to openly ponder whether “a nation so conceived and so dedicated could long endure.” In the 1930s, America suffered through the Great Depression, a punishing period of massive unemployment. Nevertheless, in 1942, when I made my purchase, the nation expected post-war growth, a belief that proved to be well-founded. In fact, the nation’s achievements can best be described as breathtaking. Let’s put numbers to that claim: If my $114.75 had been invested in a no-fee S&P 500 index fund, and all dividends had been reinvested, my stake would have grown to be worth (pre-taxes) $606,811 on January 31, 2019 (the latest data available before the printing of this letter). That is a gain of 5,288 for 1. Meanwhile, a $1 million investment by a tax-free institution of that time – say, a pension fund or college endowment – would have grown to about $5.3 billion. Let me add one additional calculation that I believe will shock you: If that hypothetical institution had paid only 1% of assets annually to various “helpers,” such as investment managers and consultants, its gain would have been cut in half, to $2.65 billion. That’s what happens over 77 years when the 11.8% annual return actually achieved by the S&P 500 is recalculated at a 10.8% rate. 13 Those who regularly preach doom because of government budget deficits (as I regularly did myself for many years) might note that our country’s national debt has increased roughly 400-fold during the last of my 77-year periods. That’s 40,000%! Suppose you had foreseen this increase and panicked at the prospect of runaway deficits and a worthless currency. To “protect” yourself, you might have eschewed stocks and opted instead to buy 3 1⁄4 ounces of gold with your $114.75. And what would that supposed protection have delivered? You would now have an asset worth about $4,200, less than 1% of what would have been realized from a simple unmanaged investment in American business. The magical metal was no match for the American mettle. Our country’s almost unbelievable prosperity has been gained in a bipartisan manner. Since 1942, we have had seven Republican presidents and seven Democrats. In the years they served, the country contended at various times with a long period of viral inflation, a 21% prime rate, several controversial and costly wars, the resignation of a president, a pervasive collapse in home values, a paralyzing financial panic and a host of other problems. All engendered scary headlines; all are now history. Christopher Wren, architect of St. Paul’s Cathedral, lies buried within that London church. Near his tomb are posted these words of description (translated from Latin): “If you would seek my monument, look around you.” Those skeptical of America’s economic playbook should heed his message. In 1788 – to go back to our starting point – there really wasn’t much here except for a small band of ambitious people and an embryonic governing framework aimed at turning their dreams into reality. Today, the Federal Reserve estimates our household wealth at $108 trillion, an amount almost impossible to comprehend. Remember, earlier in this letter, how I described retained earnings as having been the key to Berkshire’s prosperity? So it has been with America. In the nation’s accounting, the comparable item is labeled “savings.” And save we have. If our forefathers had instead consumed all they produced, there would have been no investment, no productivity gains and no leap in living standards. Charlie and I happily acknowledge that much of Berkshire’s success has simply been a product of what I think should be called The American Tailwind. It is beyond arrogance for American businesses or individuals to boast that they have “done it alone.” The tidy rows of simple white crosses at Normandy should shame those who make such claims. * * * * * * * * * * * * There are also many other countries around the world that have bright futures. About that, we should rejoice: Americans will be both more prosperous and safer if all nations thrive. At Berkshire, we hope to invest significant sums across borders. Over the next 77 years, however, the major source of our gains will almost certainly be provided by The American Tailwind. We are lucky – gloriously lucky – to have that force at our back. 14 The Annual Meeting Berkshire’s 2019 annual meeting will take place on Saturday, May 4th. If you are thinking about attending – and Charlie and I hope you come – check out the details on pages A-2 – A-3. They describe the same schedule we’ve followed for some years. If you can’t join us in Omaha, attend via Yahoo’s webcast. Andy Serwer and his Yahoo associates do an outstanding job, both in covering the entire meeting and interviewing many Berkshire managers, celebrities, financial experts and shareholders from the U.S. and abroad. The world’s knowledge of what goes on in Omaha the first Saturday of every May has grown dramatically since Yahoo came on board. Its coverage begins at 8:45 a.m. CDT and provides Mandarin translation. For 54 years, Charlie and I have loved our jobs. Daily, we do what we find interesting, working with people we like and trust. And now our new management structure has made our lives even more enjoyable. * * * * * * * * * * * * With the whole ensemble – that is, with Ajit and Greg running operations, a great collection of businesses, a Niagara of cash-generation, a cadre of talented managers and a rock-solid culture – your company is in good shape for whatever the future brings. February 23, 2019 Warren E. Buffett Chairman of the Board 15 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K Í ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2018 OR ‘ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 001-14905 BERKSHIRE HATHAWAY INC. (Exact name of Registrant as specified in its charter) Delaware State or other jurisdiction of incorporation or organization 3555 Farnam Street, Omaha, Nebraska (Address of principal executive office) 47-0813844 (I.R.S. Employer Identification Number) 68131 (Zip Code) Registrant’s telephone number, including area code (402) 346-1400 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered Class A common stock, $5.00 Par Value Class B common stock, $0.0033 Par Value New York Stock Exchange New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: NONE the Securities the Registrant to Section 13 or Section 15(d) of the is not required to file reports pursuant is a well-known seasoned issuer, as defined in Rule 405 of Indicate by check mark if Act. Yes Í No ‘ Indicate by check mark if the Registrant Act. Yes ‘ No Í Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes Í No ‘ Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes Í No ‘ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ‘ Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer Í Accelerated filer ‘ Non-accelerated filer ‘ Smaller reporting company ‘ Emerging growth company ‘ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ‘ Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ‘ No Í State the aggregate market value of the voting stock held by non-affiliates of the Registrant as of June 30, 2018: $367,009,000,000* Indicate the number of shares outstanding of each of the Registrant’s classes of common stock: February 14, 2019—Class A common stock, $5 par value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . February 14, 2019—Class B common stock, $0.0033 par value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 725,807 shares 1,372,751,831 shares DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement for the Registrant’s Annual Meeting to be held May 4, 2019 are incorporated in Part III. * This aggregate value is computed at the last sale price of the common stock as reported on the New York Stock Exchange on June 30, 2018. It does not include the value of Class A common stock (294,660 shares) and Class B common stock (57,946,850 shares) held by Directors and Executive Officers of the Registrant and members of their immediate families, some of whom may not constitute “affiliates” for purpose of the Securities Exchange Act of 1934. Table of Contents Part I Item 1. Business Description . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 2. Description of Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 4. Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Part II Item 5. Market for Registrant’s Common Equity, Related Security Holder Matters and Issuer Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . Item 7A. Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 8. Consolidated Balance Sheets— Page No. K-1 K-22 K-25 K-25 K-28 K-28 K-29 K-31 K-32 K-61 K-62 December 31, 2018 and December 31, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . K-64 Consolidated Statements of Earnings— Years Ended December 31, 2018, December 31, 2017, and December 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . . K-66 Consolidated Statements of Comprehensive Income— Years Ended December 31, 2018, December 31, 2017, and December 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . . K-67 Consolidated Statements of Changes in Shareholders’ Equity— Years Ended December 31, 2018, December 31, 2017, and December 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . . K-67 Consolidated Statements of Cash Flows— Years Ended December 31, 2018, December 31, 2017, and December 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . . Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . . . . . . . Item 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Part III Item 10. Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters . . . . Item 13. Certain Relationships and Related Transactions and Director Independence . . . . . . . . . . . . . . . . . . . . . . . . . . Item 14. Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Part IV Item 15. Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . K-68 K-69 K-109 K-109 K-109 K-109 K-109 K-109 K-109 K-109 K-110 K-113 K-114 Item 1. Business Description Part I Berkshire Hathaway Inc. (“Berkshire,” “Company” or “Registrant”) is a holding company owning subsidiaries engaged in a number of diverse business activities. The most important of these are insurance businesses conducted on both a primary basis and a reinsurance basis, a freight rail transportation business and a group of utility and energy generation and distribution businesses. Berkshire also owns and operates a large number of other businesses engaged in a variety of activities, as identified herein. Berkshire is domiciled in the state of Delaware, and its corporate headquarters are located in Omaha, Nebraska. Berkshire’s operating businesses are managed on an unusually decentralized basis. There are essentially no centralized or integrated business functions (such as sales, marketing, purchasing, legal or human resources) and there is minimal involvement by Berkshire’s corporate headquarters in the day-to-day business activities of the operating businesses. Berkshire’s corporate senior management team participates in and is ultimately responsible for significant capital allocation decisions, investment activities and the selection of the Chief Executive to head each of the operating businesses. It also is responsible for establishing and monitoring Berkshire’s corporate governance practices, including, but not limited to, communicating the appropriate “tone at the top” messages to its employees and associates, monitoring governance efforts, including those at the operating businesses, and participating in the resolution of governance-related issues as needed. Berkshire and its consolidated subsidiaries employ approximately 389,000 people worldwide. Insurance and Reinsurance Businesses Berkshire’s insurance and reinsurance business activities are conducted through numerous domestic and foreign-based insurance entities. Berkshire’s insurance businesses provide insurance and reinsurance of property and casualty and life, accident and health risks worldwide. In direct or primary insurance activities, the insurer assumes the risk of loss from persons or organizations that are directly subject to the risks. Such risks may relate to property, casualty (or liability), life, accident, health, financial or other perils that may arise from an insurable event. In reinsurance activities, the reinsurer assumes defined portions of risks that other direct insurers or reinsurers assumed in their own insuring activities. Reinsurance contracts are normally classified as treaty or facultative contracts. Treaty reinsurance refers to reinsurance coverage for all or a portion of a specified group or class of risks ceded by the direct insurer, while facultative reinsurance involves coverage of specific individual underlying risks. Reinsurance contracts are further classified as quota-share or excess. Under quota-share (proportional or pro-rata) reinsurance, the reinsurer shares proportionally in the original premiums and losses of the direct insurer or reinsurer. Excess (or non-proportional) reinsurance provides for the indemnification of the direct insurer or reinsurer for all or a portion of the loss in excess of an agreed upon amount or “retention.” Both quota-share and excess reinsurance contracts may provide for aggregate limits of indemnification. Insurance and reinsurance are generally subject regulatory considerations, there are virtually no barriers to entry into the insurance and reinsurance industry. Competitors may be domestic or foreign, as well as licensed or unlicensed. The number of competitors within the industry is not known. Insurers and reinsurers compete on the basis of reliability, financial strength and stability, financial ratings, underwriting consistency, service, business ethics, price, performance, capacity, policy terms and coverage conditions. to regulatory oversight the world. Except throughout for Insurers based in the United States (“U.S.”) are subject to regulation by their states of domicile and by those states in which they are licensed to write policies on an admitted basis. The primary focus of regulation is to assure that insurers are financially solvent and that policyholder interests are otherwise protected. States establish minimum capital levels for insurance companies and establish guidelines for permissible business and investment activities. States have the authority to suspend or revoke a company’s authority to do business as conditions warrant. States regulate the payment of dividends by insurance companies to their shareholders and other transactions with affiliates. Dividends, capital distributions and other transactions of extraordinary amounts are subject to prior regulatory approval. Insurers may market, sell and service insurance policies in the states where they are licensed. These insurers are referred to as admitted insurers. Admitted insurers are generally required to obtain regulatory approval of their policy forms and premium rates. Non-admitted insurance markets have developed to provide insurance that is otherwise unavailable through admitted insurers. Non-admitted insurance, often referred to as “excess and surplus” lines, is procured by either state-licensed surplus lines brokers who place risks with insurers not licensed in that state or by the insured party’s direct procurement from non-admitted insurers. Non-admitted insurance is subject to considerably less regulation with respect to policy rates and forms. Reinsurers are normally not required to obtain regulatory approval of premium rates or reinsurance contracts. K-1 The insurance regulators of every state participate in the National Association of Insurance Commissioners (“NAIC”). The NAIC adopts forms, instructions and accounting procedures for use by U.S. insurers and reinsurers in preparing and filing annual statutory financial statements. However, an insurer’s state of domicile has ultimate authority over these matters. In addition to its activities relating to the annual statement, the NAIC develops or adopts statutory accounting principles, model laws, regulations and programs for use by its members. Such matters deal with regulatory oversight of solvency, risk management, compliance with financial regulation standards and risk-based capital reporting requirements. Berkshire’s insurance companies maintain capital strength at exceptionally high levels, which differentiates them from their competitors. Collectively, the combined statutory surplus of Berkshire’s U.S. based insurers was approximately $162 billion at December 31, 2018. Berkshire’s major insurance subsidiaries are rated AA+ by Standard & Poor’s and A++ (superior) by A.M. Best with respect to their financial condition and claims paying ability. The Terrorism Risk Insurance Act of 2002 established within the Department of the Treasury a Terrorism Insurance Program (“Program”) for commercial property and casualty insurers by providing federal reinsurance of insured terrorism losses. The Program currently extends to December 31, 2020 through other Acts, most recently the Terrorism Risk Insurance Program Reauthorization Act of 2015 (the “2015 TRIA Reauthorization”). Hereinafter these Acts are collectively referred to as TRIA. Under TRIA, the Department of the Treasury is charged with certifying “acts of terrorism.” Coverage under TRIA occurs if the industry insured loss for certified events occurring during the calendar year exceeds $180 million in 2019 and $200 million in 2020, or any calendar year thereafter. To be eligible for federal reinsurance, insurers must make available insurance coverage for acts of terrorism, by providing policyholders with clear and conspicuous notice of the amount of premium that will be charged for this coverage and of the federal share of any insured losses resulting from any act of terrorism. Assumed reinsurance is specifically excluded from TRIA participation. TRIA currently also excludes certain forms of direct insurance (such as personal and commercial auto, burglary, theft, surety and certain professional liability lines). Reinsurers are not required to offer terrorism coverage and are not eligible for federal reinsurance of terrorism losses. During 2019, in the event of a certified act of terrorism, the federal government will reimburse insurers (conditioned on their satisfaction of policyholder notification requirements) for 81% of their insured losses in excess of an insurance group’s deductible. Under the 2015 TRIA Reauthorization, the federal government’s reimbursement obligation will be reduced to 80% in 2020 and thereafter. Under the Program, the deductible is 20% of the aggregate direct subject earned premium for relevant commercial lines of business in the immediately preceding calendar year. The aggregate deductible in 2019 for Berkshire’s insurance group is expected to approximate $1.3 billion. There is also an aggregate limit of $100 billion on the amount of the federal government coverage for each TRIA year. Regulation of the insurance industry outside of the United States is subject to the laws and regulations of each country in which an insurer has operations or writes premiums. Some jurisdictions impose comprehensive regulatory requirements on insurance businesses, such as in the United Kingdom, where insurers are subject to regulation by the Prudential Regulation Authority and the Financial Conduct Authority in Germany where insurers are subject to regulation by the Federal Financial Supervisory Authority (BaFin) and in Australia where insurers are subject to regulation by the Australian Prudential Regulatory Authority. Other jurisdictions may impose fewer requirements. In certain foreign countries, reinsurers are also required to be licensed by governmental authorities. These licenses may be subject to modification, suspension or revocation dependent on such factors as amount and types of insurance liabilities and minimum capital and solvency tests. The violation of regulatory requirements may result in fines, censures and/or criminal sanctions in various jurisdictions. Berkshire’s insurance underwriting operations include the following groups: (1) GEICO, (2) Berkshire Hathaway Reinsurance Group and (3) Berkshire Hathaway Primary Group. Except for retroactive reinsurance and periodic payment annuity products that generate significant amounts of up-front premiums along with estimated claims expected to be paid over very long periods of time (creating “float,” see Investments section below), Berkshire expects to achieve a net underwriting profit over time and to reject inadequately priced risks. Underwriting profit is defined as earned premiums less associated incurred losses, loss adjustment expenses and underwriting and policy acquisition expenses. Underwriting profit does not include investment income earned from investments. Berkshire’s insurance businesses employ approximately 49,000 people. Additional information related to each of Berkshire’s underwriting groups follows. K-2 GEICO—GEICO is headquartered in Chevy Chase, Maryland. GEICO’s insurance subsidiaries consist of Government Employees Insurance Company, GEICO General Insurance Company, GEICO Indemnity Company, GEICO Casualty Company, GEICO Advantage Insurance Company, GEICO Choice Insurance Company, GEICO Secure Insurance Company, GEICO County Mutual Insurance Company and GEICO Marine Insurance Company. GEICO companies primarily offer private passenger automobile insurance to individuals in all 50 states and the District of Columbia. GEICO also insures motorcycles, all-terrain vehicles, recreational vehicles, boats and small commercial fleets and acts as an agent for other insurers who offer homeowners, renters, boat, life and identity management insurance to individuals who desire insurance coverages other than those offered by GEICO. GEICO’s marketing is primarily through direct response methods in which applications for insurance are submitted directly to the companies via the Internet or by telephone. GEICO conducts business through regional service centers and claims adjustment and other facilities in 39 states. The automobile insurance business is highly competitive in the areas of price and service. GEICO competes for private passenger automobile insurance customers in the preferred, standard and non-standard risk markets with other companies that sell directly to the customer as well as with companies that use agency sales forces, including State Farm, Allstate (including Esurance), Progressive and USAA. Significant advertising campaigns and competitive rates contributed to a cumulative increase in voluntary policies-in-force of approximately 35% over the past five years. According to most recently published A.M. Best data for 2017, the five largest automobile insurers had a combined market share in 2017 of approximately 56%, with GEICO’s market share being second largest at approximately 12.8%. Since the publication of that data, GEICO’s management estimates its current market share is approximately 13.3%. Seasonal variations in GEICO’s insurance business are not significant. However, extraordinary weather conditions or other factors may have a significant effect upon the frequency or severity of automobile claims. State insurance departments stringently regulate private passenger auto insurance. As a result, it is difficult for insurance companies to differentiate their products. Competition for private passenger automobile insurance, which is substantial, tends to focus on price and level of customer service provided. GEICO’s cost-efficient direct response marketing methods and emphasis on customer satisfaction enable it to offer competitive rates and value to its customers. GEICO primarily uses its own claims staff to manage and settle claims. The name and reputation of GEICO is a material asset and management protects it and other service marks through appropriate registrations. Berkshire Hathaway Reinsurance Group—Berkshire’s combined global reinsurance business, referred to as the Berkshire Hathaway Reinsurance Group (“BHRG”), offers a wide range of coverages on property, casualty, life and health risks to insurers and reinsurers worldwide. Reinsurance business is written through National Indemnity Company (“NICO”), domiciled in Nebraska, its subsidiaries and various other insurance subsidiaries wholly owned by Berkshire (collectively, the “NICO Group”) and General Re Corporation, domiciled in Delaware, and its subsidiaries (collectively the “General Re Group”). BHRG’s underwriting operations in the U.S. are based in Stamford, Connecticut. BHRG also conducts business activities globally in 23 countries. The type and volume of business written is dependent on market conditions, including prevailing premium rates and coverage terms. The level of underwriting activities often fluctuates significantly from year to year depending on the perceived level of price adequacy in specific insurance and reinsurance markets as well as from the timing of particularly large reinsurance transactions. Property/casualty The NICO Group offers traditional property/casualty reinsurance on both an excess-of-loss and a quota-share basis, catastrophe excess-of-loss treaty and facultative reinsurance, and primary insurance on an excess-of-loss basis for large or unusual risks for clients worldwide. The NICO Group periodically participates in underwriting placements with major brokers in the London Market through Berkshire Hathaway Insurance International, Ltd., based in Great Britain. Business is written through intermediary brokers or directly with the insured or reinsured. NICO also occasionally writes retroactive reinsurance contracts, which cover past loss events arising from property and casualty contracts written by ceding insurers and reinsurers. The type and volume of business written by the NICO Group may vary significantly from period to period resulting from changes in perceived premium rate adequacy and from unique or large transactions. A significant portion of NICO Group’s annual reinsurance premium volume currently derives from a 10-year, 20% quota-share agreement with Insurance Australia Group Limited (“IAG”) that became effective July 1, 2015. IAG is a multi-line insurer in Australia, New Zealand and other Asia Pacific countries. The General Re Group conducts a global property and casualty reinsurance business. Reinsurance contracts are written on both a quota-share and excess basis for multiple lines of business. Contracts are primarily in the form of treaties, and to a lesser degree, on a facultative basis. General Re Group conducts business in North America primarily through General Reinsurance Corporation (“GRC”), which is licensed in the District of Columbia and all states, except Hawaii, where it is an accredited reinsurer. GRC conducts operations in North America from its headquarters in Stamford, Connecticut and through 13 branch offices in the U.S. and Canada. K-3 In North America, the General Re Group includes General Star National Insurance Company, General Star Indemnity Company and Genesis Insurance Company, which offer a broad array of specialty and surplus lines and property, casualty and professional liability coverages. Such business is marketed through a select group of wholesale brokers, managing general underwriters and program administrators, and offer solutions for the unique needs of public entity, commercial and captive customers. General Re Group’s international reinsurance business is conducted on a direct basis through General Reinsurance AG (“GRAG”), based in Cologne Germany, and through several other subsidiaries and branches in 23 countries. International business is also written through brokers, including Faraday, a wholly-owned subsidiary. Faraday owns the managing agent of Syndicate 435 at Lloyd’s of London, and provides capacity and participates in 100% of the results of Syndicate 435. Retroactive reinsurance Retroactive reinsurance contracts indemnify ceding companies against the adverse development of claims arising from loss events that have already occurred under property and casualty policies issued in prior years. Coverages under such contracts are provided on an excess basis (above a stated retention) or for losses payable immediately after the inception of the contract. Contracts are normally subject to aggregate limits of indemnification and are occasionally exceptionally large in amount. Significant amounts of asbestos, environmental and latent injury claims may arise under these contracts. For instance, in January 2017, NICO entered into a retroactive reinsurance agreement with various subsidiaries of American International Group, Inc. (collectively, “AIG”). Under the agreement, NICO agreed to indemnify AIG for 80% of up to $25 billion in excess of $25 billion retained by AIG, of losses and allocated loss adjustment expenses with respect to certain commercial insurance loss events occurring in years prior to 2016. The concept of time-value-of-money is an important element in establishing retroactive reinsurance contract prices and terms, since loss payments may occur over decades. Normally, expected ultimate losses payable under these policies are expected to exceed premiums, thus producing underwriting losses. Nevertheless, this business is written, in part, because of the large amounts of policyholder funds generated for investment, the economic benefit of which will be reflected through investment results in future periods. Life/health The General Re Group also conducts a global life and health reinsurance business. In the U.S. and internationally, the General Re Group writes life, disability, supplemental health, critical illness and long-term care coverages. The life/health business is marketed on a direct basis. In 2018, the General Re Group wrote approximately 29% of life/health net premiums in the United States, 20% in Western Europe and the remaining 51% throughout the rest of the world. Additionally, Berkshire Hathaway Life Insurance Company of Nebraska (“BHLN”), a subsidiary of NICO, writes reinsurance covering various forms of traditional life insurance exposures. BHLN and its affiliates have also periodically reinsured certain guaranteed minimum death, income, and similar benefit coverages on closed-blocks of variable annuity reinsurance contracts. Periodic payment annuity BHLN writes periodic payment annuity insurance policies and reinsures existing annuity-like obligations. Under these policies, BHLN receives upfront premiums and agrees in the future to make periodic payments that often extend for decades. These policies, generally relate to the settlement of underlying personal injury or workers’ compensation cases of other insurers, known as structured settlements. Similar to retroactive reinsurance contracts, time-value-of-money concepts are an important factor in establishing such premiums and underwriting losses are expected from the periodic accretion of time-value discounted liabilities. Berkshire Hathaway Primary Group—The Berkshire Hathaway Primary Group (“BH Primary”) is a collection of independently managed primary insurers that provide a wide variety of insurance coverages to policyholders located principally in the United States. These various operations are discussed below. NICO and certain affiliates (“NICO Primary”) underwrite commercial motor vehicle and general liability insurance on an admitted basis and on an excess and surplus basis. Insurance coverages are offered nationwide primarily through insurance agents and brokers. The “Berkshire Hathaway Homestate Companies” (“BHHC”) is a group of insurers offering workers’ compensation, commercial auto and commercial property coverages to a diverse client base. BHHC has developed a national reach, with the ability to provide first-dollar and small to large deductible workers’ compensation coverage to employers in all states, except those where coverage is available only through state-operated workers’ compensation funds. NICO Primary and BHHC are each based in Omaha, Nebraska. K-4 Berkshire Hathaway Specialty Insurance (“BH Specialty”) provides commercial property, casualty, healthcare professional liability, executive and professional lines, surety, travel, medical stop loss and homeowners insurance. BH Specialty writes business on both an excess and surplus lines basis and an admitted basis in the U.S., and on a locally admitted basis outside the U.S. BH Specialty is based in Boston, Massachusetts, with regional offices currently in several cities in the U.S. and international offices located in Australia, New Zealand, Canada and several countries in Asia and Europe. BH Specialty currently intends to further expand its operations. BH Specialty writes business through wholesale and retail insurance brokers, as well as managing general agents. MedPro Group (“MedPro”) is a leading provider of customized healthcare liability insurance, claims, patient safety and risk solutions to physicians, surgeons, dentists and other healthcare professionals, as well as hospitals, senior care and other healthcare facilities in the United States. MedPro has provided insurance coverage to protect healthcare providers against losses since 1899. MedPro distributes policies primarily through a nationwide network of appointed agents and brokers. MedPro currently offers coverage options to healthcare providers in the other countries as well as student health insurance, through its subsidiaries and other Berkshire affiliates. MedPro is based in Fort Wayne, Indiana. U.S. Investment Corporation (“USIC”) and its subsidiaries are specialty insurers that underwrite commercial, professional and personal lines insurance on an admitted basis, as well as an excess and surplus basis. USIC markets policies in all 50 states and the District of Columbia through wholesale and retail insurance agents. USIC companies also underwrite and market a wide variety of specialty insurance products. USIC is based in Wayne, Pennsylvania. Applied Underwriters, Inc. (“Applied”) is a provider of payroll and insurance services to small and mid-sized employers. Applied, through its subsidiaries principally markets a product that bundles workers’ compensation and other employment related insurance coverages and business services into a seamless package that is designed to remove the burden of administrative and regulatory requirements faced by small to mid-sized employers. Applied is based in Omaha, Nebraska. The Berkshire Hathaway GUARD Insurance Companies (“Guard”) provide workers’ compensation business owner’s policy and commercial umbrella coverage to over 250,000 small and mid-sized businesses. Guard also provides complementary commercial auto and professional liability in an expanding number of states. Policies are offered through independent agents and brokers. Guard is based in Wilkes-Barre, Pennsylvania. Central States Indemnity Company of Omaha, based in Omaha, Nebraska, primarily writes Medicare Supplement insurance and credit insurance. On October 1, 2018, NICO acquired MLMIC Insurance Company (“MLMIC”). MLMIC has been the leading writer of medical professional liability insurance in New York State for over 40 years. MLMIC distributes its policies on a direct basis to medical and dental professionals, health care providers and hospitals. Investments of insurance businesses—Berkshire’s insurance subsidiaries hold significant levels of invested assets. Investment portfolios are managed by Berkshire’s Chief Executive Officer and other in-house investment managers. Investments include a very large portfolio of publicly traded equity securities, which are concentrated in relatively few issuers, as well as fixed maturity securities and cash and short-term investments. Generally, there are no targeted allocations by investment type or attempts to match investment asset and insurance liability durations. However, investment portfolios have historically included a much greater proportion of equity securities than is customary in the insurance industry. Invested assets derive from shareholder capital as well as funds provided from policyholders through insurance and reinsurance business (“float”). Float is the approximate amount of net policyholder funds generated through underwriting activities that is available for investment. The major components of float are unpaid losses and loss adjustment expenses, life, annuity and health benefit liabilities, unearned premiums and other policyholder liabilities less premium and reinsurance receivables, deferred policy acquisition costs and deferred charges on reinsurance contracts. On a consolidated basis, float has grown from approximately $73 billion at the end of 2012 to approximately $123 billion at the end of 2018, primarily through internal growth. The cost of float can be measured as the net pre-tax underwriting loss as a percentage of average float. Over the past five years, with the exception of 2017, Berkshire’s cost of float was negative, as its insurance businesses produced net underwriting gains. The cost of average float in 2017 was approximately 3%, primarily attributable to sizable catastrophe losses and foreign currency exchange rate losses relating to non-U.S. Dollar denominated reinsurance liabilities. Railroad Business—Burlington Northern Santa Fe Burlington Northern Santa Fe, LLC (“BNSF”) is based in Fort Worth, Texas, and through BNSF Railway Company operates one of the largest railroad systems in North America. BNSF had approximately 45,000 employees at the end of 2018. In serving the Midwest, Pacific Northwest, Western, Southwestern and Southeastern regions and ports of the United States, BNSF transports a range of products and commodities derived from manufacturing, agricultural and natural resource industries. Freight revenues of BNSF are covered by contractual agreements of varying durations or common carrier published prices or quotations offered by BNSF. BNSF’s financial performance is influenced by, among other things, general and industry economic conditions at the international, national and regional levels. K-5 BNSF’s primary routes, including trackage rights, allow it to access major cities and ports in the western and southern United States as well as parts of Canada and Mexico. In addition to major cities and ports, BNSF efficiently serves many smaller markets by working closely with approximately 200 shortline railroads. BNSF has also entered into marketing agreements with other rail carriers, expanding the marketing reach for each railroad and their customers. For the year ending December 31, 2018, approximately 35% of freight revenues were derived from consumer products, 26% from industrial products, 21% from agricultural products and 18% from coal. Regulatory Matters BNSF is subject to federal, state and local laws and regulations generally applicable to all of its businesses. Rail operations are subject to the regulatory jurisdiction of the Surface Transportation Board (“STB”) of the United States Department of Transportation (“DOT”), the Federal Railroad Administration of the DOT, the Occupational Safety and Health Administration (“OSHA”), as well as other federal and state regulatory agencies and Canadian regulatory agencies for operations in Canada. The STB has jurisdiction over disputes and complaints involving certain rates, routes and services, the sale or abandonment of rail lines, applications for line extensions and construction, and the merger with or acquisition of control of rail common carriers. The outcome of STB proceedings can affect the profitability of BNSF’s business. The DOT and OSHA have jurisdiction under several federal statutes over a number of safety and health aspects of rail operations, including the transportation of hazardous materials. BNSF Railway is required to transport these materials to the extent of its common carrier obligation. State agencies regulate some aspects of rail operations with respect to health and safety in areas not otherwise preempted by federal law. Environmental Matters BNSF’s rail operations, as well as those of its competitors, are also subject to extensive federal, state and local environmental regulation covering discharges to water, air emissions, toxic substances and the generation, handling, storage, transportation and disposal of waste and hazardous materials. Such regulations effectively increase the costs and liabilities associated with rail operations. Environmental risks are also inherent in rail operations, which frequently involve transporting chemicals and other hazardous materials. Many of BNSF’s land holdings are or were used for industrial or transportation-related purposes or leased to commercial or industrial companies whose activities may have resulted in discharges onto the property. As a result, BNSF is subject to, and will from time to time continue to be subject to, environmental cleanup and enforcement actions. In particular, the federal Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), also known as the Superfund law, generally imposes joint and several liabilities for the cleanup and enforcement costs on current and former owners and operators of a site, without regard to fault or the legality of the original conduct. Accordingly, BNSF may be responsible under CERCLA and other federal and state statutes for all or part of the costs to clean up sites at which certain substances may have been released by BNSF, its current lessees, former owners or lessees of properties, or other third parties. BNSF may also be subject to claims by third parties for investigation, cleanup, restoration or other environmental costs under environmental statutes or common law with respect to properties they own that have been impacted by BNSF operations. Competition The business environment in which BNSF operates is highly competitive. Depending on the specific market, deregulated motor carriers and other railroads, as well as river barges, ships and pipelines, may exert pressure on price and service levels. The presence of advanced, high service truck lines with expedited delivery, subsidized infrastructure and minimal empty mileage continues to affect the market for non-bulk, time-sensitive freight. The potential expansion of longer combination vehicles could further encroach upon markets traditionally served by railroads. In order to remain competitive, BNSF and other railroads seek to develop and implement operating efficiencies to improve productivity. As railroads streamline, rationalize and otherwise enhance their franchises, competition among rail carriers intensifies. BNSF’s primary rail competitor in the Western region of the United States is the Union Pacific Railroad Company. Other Class I railroads and numerous regional railroads and motor carriers also operate in parts of the same territories served by BNSF. Other BNSF Logistics, LLC, a wholly-owned subsidiary of BNSF, provides non-asset based logistics services to third parties. BNSF Logistics’ services include transportation strategy and execution, managed transportation services, supply chain consulting, project management, engineering, reverse logistics, warehousing and cross-docking, and customs house brokerage services. K-6 Utilities and Energy Businesses—Berkshire Hathaway Energy Berkshire currently owns 90.9% of the outstanding common stock of Berkshire Hathaway Energy Company (“BHE”). BHE is a global energy company with subsidiaries that generate, transmit, store, distribute and supply energy. BHE’s locally managed businesses are organized as separate operating units. BHE’s domestic regulated energy interests are comprised of four regulated utility companies serving approximately 4.9 million retail customers, two interstate natural gas pipeline companies with approximately 16,400 miles of pipeline and a design capacity of approximately 8.2 billion cubic feet of natural gas per day and ownership interests in electricity transmission businesses. BHE’s Great Britain electricity distribution subsidiaries serve about 3.9 million electricity end-users and its electricity transmission-only business in Alberta, Canada serves approximately 85% of Alberta, Canada’s population. BHE’s interests also include a diversified portfolio of independent power projects, the second-largest residential real estate brokerage firm in the United States, and one of the largest residential real estate brokerage franchise networks in the United States. BHE employs approximately 23,000 people in connection with its various operations. General Matters PacifiCorp is a regulated electric utility company headquartered in Oregon, serving electric customers in portions of Utah, Oregon, Wyoming, Washington, Idaho and California. The combined service territory’s diverse regional economy ranges from rural, agricultural and mining areas to urban, manufacturing and government service centers. No single segment of the economy dominates the combined service territory, which helps mitigate PacifiCorp’s exposure to economic fluctuations. In addition to retail sales, PacifiCorp sells electricity on a wholesale basis to other electricity retailers and wholesalers. MidAmerican Energy Company (“MEC”) is a regulated electric and natural gas utility company headquartered in Iowa, serving electric and natural gas customers primarily in Iowa and also in portions of Illinois, South Dakota and Nebraska. MEC has a diverse retail customer base consisting of urban and rural residential customers and a variety of commercial and industrial customers. In addition to retail sales and natural gas transportation, MEC sells electricity principally to markets operated by regional transmission organizations and natural gas on a wholesale basis. NV Energy, Inc. (“NV Energy”) is an energy holding company headquartered in Nevada, primarily consisting of two regulated utility subsidiaries, Nevada Power Company (“Nevada Power”) and Sierra Pacific Power Company (“Sierra Pacific”) (collectively, the “Nevada Utilities”). Nevada Power serves retail electric customers in southern Nevada and Sierra Pacific serves retail electric and natural gas customers in northern Nevada. The Nevada Utilities’ combined service territory’s economy includes gaming, mining, recreation, warehousing, manufacturing and governmental services. In addition to retail sales and natural gas transportation, the Nevada Utilities sell electricity and natural gas on a wholesale basis. As vertically integrated utilities, BHE’s domestic utilities own approximately 29,000 net megawatts of generation capacity in operation and under construction. The domestic utilities business is subject to seasonal variations principally related to the use of electricity for air conditioning and natural gas for heating. Typically, regulated electric revenues are higher in the summer months, while regulated natural gas revenues are higher in the winter months. The Great Britain distribution companies consist of Northern Powergrid (Northeast) Limited and Northern Powergrid (Yorkshire) plc, which own a substantial electricity distribution network that delivers electricity to end-users in northeast England in an area covering approximately 10,000 square miles. The distribution companies primarily charge supply companies regulated tariffs for the use of their distribution systems. BHE acquired AltaLink L.P. (“AltaLink”) on December 1, 2014. AltaLink is a regulated electric transmission-only utility company headquartered in Calgary, Alberta. AltaLink connects generation plants to major load centers, cities and large industrial plants throughout its 87,000 square mile service territory. The natural gas pipelines consist of Northern Natural Gas Company (“Northern Natural”) and Kern River Gas Transmission Company (“Kern River”). Northern Natural, based in Nebraska, owns the largest interstate natural gas pipeline system in the United States, as measured by pipeline miles, reaching from west Texas to Michigan’s Upper Peninsula. Northern Natural’s pipeline system consists of approximately 14,700 miles of natural gas pipelines. Northern Natural’s extensive pipeline system, which is interconnected with many interstate and intrastate pipelines in the national grid system, has access to supplies from multiple major supply basins and provides transportation services to utilities and numerous other customers. Northern Natural also operates three underground natural gas storage facilities and two liquefied natural gas storage peaking units. Northern Natural’s pipeline system experiences significant seasonal swings in demand and revenue, with the highest demand typically occurring during the months of November through March. K-7 Kern River, based in Utah, owns an interstate natural gas pipeline system that consists of approximately 1,700 miles and extends from supply areas in the Rocky Mountains to consuming markets in Utah, Nevada and California. Kern River transports natural gas for electric and natural gas distribution utilities, major oil and natural gas companies or affiliates of such companies, electric generating companies, energy marketing and trading companies, and financial institutions. BHE Renewables is based in Iowa and owns interests in independent power projects having approximately 4,700 net megawatts of generation capacity that are in service in California, Texas, Illinois, Nebraska, New York, Arizona, Minnesota, Kansas, Hawaii and the Philippines. These independent power projects sell power generated primarily from wind, solar, geothermal and hydro sources under long-term contracts. Additionally, BHE Renewables has invested approximately $2 billion in eleven wind projects sponsored by third parties, commonly referred to as tax equity investments. Regulatory Matters PacifiCorp, MEC and the Nevada Utilities are subject to comprehensive regulation by various federal, state and local agencies. The Federal Energy Regulatory Commission (“FERC”) is an independent agency with broad authority to implement provisions of the Federal Power Act, the Natural Gas Act, the Energy Policy Act of 2005 and other federal statutes. The FERC regulates rates for wholesale sales of electricity; transmission of electricity, including pricing and regional planning for the expansion of transmission systems; electric system reliability; utility holding companies; accounting and records retention; securities issuances; construction and operation of hydroelectric facilities; and other matters. The FERC also has the enforcement authority to assess civil penalties of up to $1.2 million per day per violation of rules, regulations and orders issued under the Federal Power Act. MEC is also subject to regulation by the Nuclear Regulatory Commission pursuant to the Atomic Energy Act of 1954, as amended, with respect to its 25% ownership of the Quad Cities Nuclear Station. With certain limited exceptions, BHE’s domestic utilities have an exclusive right to serve retail customers within their service territories and, in turn, have an obligation to provide service to those customers. In some jurisdictions, certain classes of customers may choose to purchase all or a portion of their energy from alternative energy suppliers, and in some jurisdictions retail customers can generate all or a portion of their own energy. Historically, state regulatory commissions have established retail electric and natural gas rates on a cost-of-service basis, designed to allow a utility an opportunity to recover what each state regulatory commission deems to be the utility’s reasonable costs of providing services, including a fair opportunity to earn a reasonable return on its investments based on its cost of debt and equity. The retail electric rates of PacifiCorp, MEC and the Nevada Utilities are generally based on the cost of providing traditional bundled services, including generation, transmission and distribution services; however, rates are available for transmission and distribution-only services. Northern Powergrid (Northeast) and Northern Powergrid (Yorkshire) each charge fees for the use of their distribution systems that are controlled by a formula prescribed by the British electricity regulatory body, the Gas and Electricity Markets Authority. The current eight-year price control period runs from April 1, 2015 through March 31, 2023. AltaLink is regulated by the Alberta Utilities Commission (“AUC”), pursuant to the Electric Utilities Act (Alberta), the Public Utilities Act (Alberta), the Alberta Utilities Commission Act (Alberta) and the Hydro and Electric Energy Act (Alberta). The AUC is an independent quasi-judicial agency with broad authority that may impact many of AltaLink’s activities, including its tariffs, rates, construction, operations and financing. Under the Electric Utilities Act, AltaLink prepares and files applications with the AUC for approval of tariffs to be paid by the Alberta Electric System Operator (“AESO”) for the use of its transmission facilities, and the terms and conditions governing the use of those facilities. The AESO is the independent system operator in Alberta, Canada that oversees Alberta’s integrated electrical system (“AIES”) and wholesale electricity market. The AESO is responsible for directing the safe, reliable and economic operation of the AIES, including long-term transmission system planning. The natural gas pipelines are subject to regulation by various federal, state and local agencies. The natural gas pipeline and storage operations of Northern Natural and Kern River are regulated by the FERC pursuant to the Natural Gas Act and the Natural Gas Policy Act of 1978. Under this authority, the FERC regulates, among other items, (a) rates, charges, terms and conditions of service and (b) the construction and operation of interstate pipelines, storage and related facilities, including the extension, expansion or abandonment of such facilities. Interstate natural gas pipeline companies are also subject to regulations administered by the Office of Pipeline Safety within the Pipeline and Hazardous Materials Safety Administration, an agency within the DOT. Federal pipeline safety regulations are issued pursuant to the Natural Gas Pipeline Safety Act of 1968, as amended, which establishes safety requirements in the design, construction, operation and maintenance of interstate natural gas pipeline facilities. K-8 Environmental Matters BHE and its energy businesses are subject to federal, state, local and foreign laws and regulations regarding air and water quality, renewable portfolio standards, emissions performance standards, climate change, coal combustion byproduct disposal, hazardous and solid waste disposal, protected species and other environmental matters that have the potential to impact current and future operations. In addition to imposing continuing compliance obligations, these laws and regulations, such as the Federal Clean Air Act, provide regulators with the authority to levy substantial penalties for noncompliance, including fines, injunctive relief and other sanctions. The Federal Clean Air Act, as well as state laws and regulations impacting air emissions, provides a framework for protecting and improving the nation’s air quality and controlling sources of air emissions. These laws and regulations continue to be promulgated and implemented and will impact the operation of BHE’s generating facilities and require them to reduce emissions at those facilities to comply with the requirements. Renewable portfolio standards have been established by certain state governments and generally require electricity providers to obtain a minimum percentage of their power from renewable energy resources by a certain date. Utah, Oregon, Washington, California, Iowa and Nevada have adopted renewable portfolio standards. In addition, the potential adoption of state or federal clean energy standards, which include low-carbon, non-carbon and renewable electricity generating resources, may also impact electricity generators and natural gas providers. In December 2015, an international agreement was negotiated by 195 nations to create a universal framework for coordinated action on climate change in what is referred to as the Paris Agreement. The Paris Agreement reaffirms the goal of limiting global temperature increase well below 2 degrees Celsius, while urging efforts to limit the increase to 1.5 degrees Celsius; establishes commitments by all parties to make nationally determined contributions and pursue domestic measures aimed at achieving the commitments; commits all countries to submit emissions inventories and report regularly on their emissions and progress made in implementing and achieving their nationally determined commitments; and commits all countries to submit new commitments every five years, with the expectation that the commitments will get more aggressive. In the context of the Paris Agreement, the United States agreed to reduce greenhouse gas emissions 26% to 28% by 2025 from 2005 levels. The Paris Agreement formally entered into force November 4, 2016. Supporting the United States’ commitment under the Paris Agreement was the Clean Power Plan, which was finalized by the U.S. Environmental Protection Agency (“EPA”) in August 2015. The Clean Power Plan established the Best System of Emission Reduction for fossil-fueled power plants to include: (a) heat rate improvements; (b) increased utilization of existing combined-cycle natural gas-fueled generating facilities; and (c) increased deployment of new and incremental non-carbon generation placed in service after 2012. The final Clean Power Plan compliance obligations were scheduled to begin in 2022, and extend through 2030. When fully implemented, the rule was intended to achieve an overall reduction in carbon dioxide emissions from existing fossil-fueled electric generating units of 32% below 2005 levels. On June 1, 2017, President Trump announced that the United States would begin the process of withdrawing from the Paris Agreement. Under the terms of the Paris Agreement, withdrawal cannot occur until four years after entry into force, making the United States’ withdrawal effective in November 2020. The EPA issued a proposal to repeal the Clean Power Plan on October 10, 2017, which has not yet been finalized. On August 21, 2018, the EPA proposed the Affordable Clean Energy rule, which would replace the Clean Power Plan. The Affordable Clean Energy rule would determine that the best system of emissions reduction for existing coal fueled power plants is heat rate improvements and proposes a set of candidate technologies and measures that could improve heat rates. Measures taken to meet the standards of performance must be achieved at the source itself. The EPA received comments on the proposal through October 2018 and anticipates finishing the rule in spring 2019. The full impacts of the EPA’s recent efforts to repeal and replace the Clean Power Plan are not expected to have a material impact on BHE and its energy subsidiaries. Increasingly, states are adopting legislation and regulations to reduce greenhouse gas emissions, and local governments and consumers are seeking increasing amounts of clean and renewable energy. BHE and its energy subsidiaries continue to focus on delivering reliable, affordable, safe and clean energy to its customers and on actions to mitigate greenhouse gas emissions. For example, through December 31, 2018, BHE’s cumulative investment in wind, solar, geothermal and biomass generation is approximately $25 billion. Non-Energy Businesses HomeServices of America, Inc. (“HomeServices”) is the second-largest residential real estate brokerage firm in the United States. In addition to providing traditional residential real estate brokerage services, HomeServices offers other integrated real estate services, including mortgage originations and mortgage banking, title and closing services, property and casualty insurance, home warranties, relocation services and other home-related services. It operates under 47 brand names with over 42,500 real estate agents in nearly 880 brokerage offices in 30 states and the District of Columbia. K-9 In October 2012, HomeServices acquired a 66.7% interest in one of the largest residential real estate brokerage franchise networks in the United States, which offers and sells independently owned and operated residential real estate brokerage franchises. In April 2018, HomeServices acquired the remaining 33.3% interest. HomeServices’ franchise network currently includes approximately 370 franchisees in nearly 1,600 brokerage offices throughout the United States and Europe with over 51,500 real estate agents under two brand names. In exchange for certain fees, HomeServices provides the right to use the Berkshire Hathaway HomeServices or Real Living brand names and other related service marks, as well as providing orientation programs, training and consultation services, advertising programs and other services. HomeServices’ principal sources of revenue are dependent on residential real estate sales, which are generally higher in the second and third quarters of each year. This business is highly competitive and subject to the general real estate market conditions. Manufacturing Businesses Berkshire’s numerous and diverse manufacturing subsidiaries are grouped into three categories: (1) industrial products, (2) building products and (3) consumer products. Berkshire’s industrial products businesses manufacture specialty chemicals, metal cutting tools, components for aerospace and power generation applications, and a variety of other products primarily for industrial use. The building products group produces prefabricated and site built residential homes, flooring products, insulation, roofing and engineered products, building and engineered components, paint and coatings and bricks and masonry products, which are primarily used in building and construction applications. The consumer products group manufactures recreational vehicles, alkaline batteries, various apparel products, jewelry and custom picture framing products. Information concerning the major activities of these three groups follows. Industrial products Precision Castparts Berkshire acquired Precision Castparts Corp. (“PCC”) on January 29, 2016. PCC manufactures complex metal components and products, provides high-quality investment castings, forgings, fasteners/fastener systems and aerostructures for critical aerospace and power and energy applications. PCC also manufactures seamless pipe for coal-fired, industrial gas turbine (“IGT”) and nuclear power plants; downhole casing and tubing, fittings and various mill forms in a variety of nickel and steel alloys for severe-service oil and gas environments; investment castings and forgings for general industrial, armament, medical and other applications; nickel and titanium alloys in all standard mill forms from large ingots and billets to plate, foil, sheet, strip, tubing, bar, rod, extruded shapes, rod-in-coil, wire and welding consumables, as well as cobalt alloys, for the aerospace, chemical processing, oil and gas, pollution control and other industries; revert management solutions; fasteners for automotive and general industrial markets; specialty alloys for the investment casting and forging industries; heat treating and destructive testing services for the investment cast products and forging industries; refiner plates and other products for the pulp and paper industry; grinder pumps and affiliated components for low-pressure sewer systems; critical auxiliary equipment and gas monitoring systems for the power generation industry; and metalworking tools for the fastener market and other applications. Investment casting technology involves a multi-step process that uses ceramic molds in the manufacture of metal components with more complex shapes, closer tolerances and finer surface finishes than parts manufactured using other methods. PCC uses this process to manufacture products for aircraft engines, IGT’s and other aeroderivative engines, airframes, medical implants, armament, unmanned aerial vehicles and other industrial applications. PCC also manufactures high temperature carbon and ceramic composite components, including ceramic matrix composites, for use in next-generation aerospace engines. PCC uses forging processes to manufacture components for the aerospace and power generation markets, including seamless pipe for coal-fired, industrial gas turbine and nuclear power plants, and downhole casings and tubing pipe for severe service oil and gas markets. PCC manufactures high-performance, nickel-based alloys used to produce forged components for aerospace and non-aerospace applications in such markets as oil and gas, chemical processing and pollution control. The titanium products are used to manufacture components for the commercial and military aerospace, power generation, energy, and industrial end markets. PCC is also a leading developer and manufacturer of highly engineered fasteners, fastener systems, aerostructures and precision components, primarily for critical aerospace applications. These products are produced for the aerospace and power and energy markets, as well as for construction, automotive, heavy truck, farm machinery, mining and construction equipment, shipbuilding, machine tools, medical equipment, appliances and recreation markets. The majority of PCC’s sales are from purchase orders or demand schedules pursuant to long-term agreements. Contractual terms may provide for termination by the customer, subject to payment for work performed. PCC typically does not experience significant order cancellations, although periodically it receives requests for delays in delivery schedules. K-10 PCC is subject to substantial competition in all of its markets. Components and similar products may be produced by competitors, who use either the same types of manufacturing processes as PCC or other processes. Although PCC believes its manufacturing processes, technology and experience provide advantages to its customers, such as high quality, competitive prices and physical properties that often meet more stringent demands, alternative forms of manufacturing can be used to produce many of the same components and products. Despite intense competition, PCC is a leading supplier in most of its principal markets. Several factors, including long-standing customer relationships, technical expertise, state-of-the-art facilities and dedicated employees, aid PCC in maintaining competitive advantages. A number of raw materials in its products, including certain metals such as nickel, titanium, cobalt, tantalum and molybdenum, are found in only a few parts of the world. These metals are required for the alloys used in manufactured products. The availability and costs of these metals may be influenced by private or governmental cartels, changes in world politics, labor relations between the metal producers and their work forces, and/or unstable governments in exporting nations and inflation. Lubrizol Corporation The Lubrizol Corporation (“Lubrizol”) is a specialty chemical company that produces and supplies technologies for the global transportation, industrial and consumer markets. Lubrizol currently operates in two business sectors: (1) Lubrizol Additives, which includes engine additives, driveline additives and industrial specialties products; and (2) Lubrizol Advanced Materials, which includes personal and home care, engineered polymers, performance coatings, skin care and life science solutions. Lubrizol Additives products are used in a broad range of applications including engine oils, transmission fluids, gear oils, specialty driveline lubricants, fuel additives, metalworking fluids, compressor lubricants and greases for transportation and industrial applications. Lubrizol’s Advanced Materials products are used in several different types of applications including over-the-counter pharmaceutical products, performance coatings, personal care products, sporting goods and plumbing and fire sprinkler systems. Lubrizol is an industry leader in many of the markets in which it competes. Lubrizol’s principal lubricant additives competitors are Infineum International Ltd., Chevron Oronite Company and Afton Chemical Corporation. The advanced materials industry is highly fragmented with a variety of competitors in each product line. From a base of approximately 3,500 patents, Lubrizol uses its technological leadership position in product development and formulation expertise to improve the quality, value and performance of its products, as well as to help minimize the environmental impact of those products. Lubrizol uses many specialty and commodity chemical raw materials in its manufacturing processes and uses base oil in processing and blending additives. Raw materials are primarily feedstocks derived from petroleum and petrochemicals and, generally, are obtainable from several sources. The materials that Lubrizol chooses to purchase from a single source typically are subject to long-term supply contracts to ensure supply reliability. Lubrizol operates facilities in 27 countries (including production facilities in 17 countries and laboratories in 13 countries). Lubrizol markets its products worldwide through a direct sales organization and sales agents and distributors. Lubrizol’s customers principally consist of major global and regional oil companies and industrial and consumer products companies that are located in more than 120 countries. Some of its largest customers also may be suppliers. In 2018, no single customer accounted for more than 10% of Lubrizol’s consolidated revenues. Lubrizol continues to implement a multi-year phased investment plan to upgrade operations, ensure compliance with health, safety and environmental requirements and increase global manufacturing capacity. Lubrizol is subject to foreign, federal, state and local laws to protect the environment and limit manufacturing waste and emissions. The company believes that its policies, practices and procedures are designed to limit the risk of environmental damage and consequent financial liability. Nevertheless, the operation of manufacturing plants entails ongoing environmental risks, and significant costs or liabilities could be incurred in the future. IMC International Metalworking Companies IMC International Metalworking Companies (“IMC”) is one of the world’s three largest multinational manufacturers of consumable precision carbide metal cutting tools for applications in a broad range of industrial end markets. IMC’s principal brand names include ISCAR®, TaeguTec®, Ingersoll®, Tungaloy®, Unitac®, UOP®, It.te.di®, Qutiltec®, Tool—Flo® and PCT. IMC’s primary manufacturing facilities are located in Israel, United States, Germany, Italy, France, Switzerland, South Korea, China, India, Japan and Brazil. K-11 IMC has five primary product lines: milling tools, gripping tools, turning/thread tools, drilling tools and tooling. The main products are split within each product line between consumable cemented tungsten carbide inserts and steel tool holders. Inserts comprise the vast majority of sales and earnings. Metal cutting inserts are used by industrial manufacturers to cut metals and are consumed during their use in cutting applications. IMC manufactures hundreds of types of highly engineered inserts within each product line that are tailored to maximize productivity and meet the technical requirements of customers. IMC’s staff of scientists and engineers continuously develop and innovate products that address end user needs and requirements. IMC’s global sales and marketing network operates in virtually every major manufacturing center around the world staffed with highly skilled engineers and technical personnel. IMC’s customer base is very diverse, with its primary customers being large, multinational businesses in the automotive, aerospace, engineering and machinery industries. IMC operates a regional central warehouse system with locations in Israel, United States, Belgium, Korea, Japan and Brazil. Additional small quantities of products are maintained at local IMC offices in order to provide on-time customer support and inventory management. IMC competes in the metal cutting tools segment of the global metalworking tools market. The segment includes hundreds of participants who range from small, private manufacturers of specialized products for niche applications and markets to larger, global multinational businesses (such as Sandvik and Kennametal, Inc.) with a wide assortment of products and extensive distribution networks. Other manufacturing companies such as Kyocera, Mitsubishi, Sumitomo, Ceratizit and Korloy also play a significant role in the cutting tool market. Marmon Holdings Marmon Holdings, Inc. (“Marmon”) is a global industrial organization comprising 13 diverse business sectors and more than 100 autonomous manufacturing and service businesses. Marmon’s manufacturing and service operations employ over 20,000 employees at approximately 400 manufacturing, distribution, and service facilities located primarily in the United States, as well as 21 other countries worldwide. Marmon’s business sectors are described as follows. Beverage Technologies manufactures beverage dispensing and cooling equipment, and related products for global brand owners and foodservice retailers. Operations are based in the U.S. with manufacturing in China, India, the U.K. and Germany. Products are sold primarily throughout the U.S., Europe, and Asia. Foodservice Technologies manufactures hot and cold food preparation and holding equipment for restaurants, cafeterias, hotels, caterers, and other foodservice providers worldwide. Operations are based in the U.S., with manufacturing in China and Italy. Products are sold primarily throughout the U.S., Europe, and Asia. Water Technologies manufactures water treatment equipment for residential, commercial, and industrial applications worldwide. Operations are based primarily in the U.S., Canada, China, Singapore, India, and Mexico with business centers located in Belgium, France, Poland, Germany, the U.K., Italy, Switzerland, and U.A.E. Transportation Products serves the automotive, heavy-duty highway transportation, and aerospace industries with precision- molded plastic components; fastener thread solutions; metal tubing; auto aftermarket transmission and chassis products; platform trailers; and truck and trailer components. Operations and business are conducted primarily in the U.S., Mexico, Canada, Europe, and Asia. Retail Solutions provides retail environment design services; in-store digital merchandising and display fixtures; shopping, material handling, and security carts; and consumer products, including air compressors and extension cords. Operations are based in the U.S. and conducted primarily in the U.S., U.K., Czech Republic, and China. Metal Services provides specialty metal pipe, tubing, beams and related value-added services to customers across a broad range of industries. Operations are based in the U.S., Canada, and Mexico and conducted primarily in those countries. Engineered Wire & Cable produces electrical and electronic wire and cable for use in energy, transit, aerospace, defense, communication, and other industrial applications. Operations are based in the U.S., Canada, India, and England. Business is conducted globally, primarily in the U.S., Canada, India, U.K., U.A.E., and China. Electrical Products produces electrical wire and cable for use in utility applications and residential and commercial buildings; and portable lighting equipment for mining and safety markets. Operations are based in the U.S. and business is conducted primarily in the U.S. and Canada. Plumbing & Refrigeration supplies copper, aluminum, and stainless steel tubing and fittings for the plumbing, HVAC, and refrigeration markets; and aluminum and brass forgings for many commercial and industrial applications. Business and operations are conducted primarily in the U.S. K-12 Industrial Products supplies construction fasteners; gloves and other protective wear; gear drives, gearboxes, fan drives, and pump drives for various markets; wind machines for agricultural use; and wheels, axles, and gears for rail, mining, and other applications. Operations are based in the U.S. and business is conducted primarily in the U.S., Canada, and China. Rail Products and Services manufactures, leases, and maintains railcars; manufactures mobile railcar movers; provides in-plant rail switching and loading services; performs track construction and maintenance; and manufactures steel tank heads and cylinders. Union Tank Car Company (“UTLX”) is the largest component of Rail Products and Services and is a leading designer, builder, and full-service lessor of railroad tank cars and other specialized railcars. Together with its Canadian affiliate Procor, UTLX owns a fleet of approximately 130,000 railcars for lease to customers in chemical, petrochemical, energy, and agricultural/food industries. UTLX manufactures tank cars at two U.S. plants and performs railcar maintenance services at more than 100 locations across North America. UTLX has a diversified customer base, both geographically and across industries. UTLX, while subject to cyclicality and significant competition in most of its markets, competes by offering a broad range of high-quality products and services targeted at its niche markets. Railcars are typically leased for multiple-year terms and most of the leases are renewed upon expiration. Due to selective ongoing capital investment, utilization rates (the number of railcars on lease to total available) of the railcar fleet are generally high. Following the downturn of oil and gas markets in recent years, renewal rental rates have declined for some railcar types and has resulted in a decline in utilization, which has had a meaningful impact on UTLX’s results. While tank car specifications are highly regulated in North America, regulatory changes are not expected to materially affect UTLX’s operating results, competitive position, or financial strength. Intermodal Containers leases intermodal tank containers through EXSIF Worldwide. EXSIF is a leading international lessor of intermodal tank containers with a fleet of approximately 60,000 units, primarily serving chemical producers and logistics operators. Crane Services is a provider of mobile cranes and operators. Sterling Crane (located in Canada and the U.S.), Freo Group, and WGC Cranes (both located in Australia), operate a combined fleet of approximately 1,000 cranes primarily serving the energy, mining, and petrochemical markets. Other industrial products CTB International Corp. (“CTB”), headquartered in Milford, Indiana, is a leading global designer, manufacturer and marketer of a wide range of agricultural systems and solutions for preserving grain, producing poultry, pigs and eggs, and for processing poultry, fish, vegetables and other foods. CTB operates from facilities located around the globe and supports customers through a worldwide network of independent distributors and dealers. CTB competes with a variety of manufacturers and suppliers, many of which offer only a limited number of the products offered by CTB and two of which offer products across many of CTB’s product lines. Competition is based on the price, value, reputation, quality and design of the products offered and the customer service provided by distributors, dealers and manufacturers of the products. CTB’s leading brand names, distribution network, diversified product line, product support and high-quality products enable it to compete effectively. CTB manufactures its products primarily from galvanized steel, steel wire, stainless steel and polymer materials and supplies of these materials have been sufficient in recent years. In 2014, Berkshire acquired a global supplier of pipeline flow improver products from Phillips 66. The business, headquartered in Houston, Texas, was named Phillips Specialty Products, Inc. at the time of the acquisition and is currently named LiquidPower Specialty Products Inc. (“LSPI”). LSPI specializes in maximizing the flow potential of pipelines, increasing operational flexibility and throughput capacity. The Scott Fetzer companies are a group of businesses that manufacture, distribute, service and finance a wide variety of products for residential, industrial and institutional use. Berkshire’s industrial products manufacturers employ approximately 81,000 persons. K-13 Building Products Clayton Homes Clayton Homes, Inc. (“Clayton”), headquartered near Knoxville, Tennessee, is a vertically integrated housing company utilizing manufactured, modular and site built methods. Clayton’s homes are marketed in 48 states through a network of 2,149 retailers, including 366 company-owned home centers and 280 subdivisions. Home finance and insurance products are offered through its subsidiaries primarily to purchasers of manufactured and modular homes. Clayton acquired its first site builder in 2015 and, thereafter, added seven additional site builders. Clayton delivered 51,569 homes in 2018 at various price points. Clayton competes based on price, service, delivery capabilities and product performance and considers the ability to make financing available to retail purchasers a factor affecting the market acceptance of its products. Clayton’s financing programs support company-owned home centers and select independent retailers. Proprietary loan underwriting guidelines have been developed and include ability to repay calculations, including debt to income limits, consideration of residual income and credit score requirements, which are considered in evaluating loan applicants. Currently, approximately 61% of the loan originations are home-only loans and the remaining 39% have land as additional collateral. The average down payment is approximately 15%, which may be from cash, trade or land equity. Certain loan types require an independent third-party appraisal. Originated loans are at fixed rates and for fixed terms. Loans outstanding include non-government originations, bulk purchases of contracts and notes from banks and other lenders. Clayton also provides inventory financing to certain independent retailers and community operators and services housing contracts and notes that were not purchased or originated. The bulk contract purchases and servicing arrangements may relate to the portfolios of other lenders or finance companies, governmental agencies, or other entities that purchase and hold housing contracts and notes. Clayton also acts as an agent on physical damage insurance policies, homebuyer protection plan policies and other programs. Shaw Industries Shaw Industries Group, Inc. (“Shaw”), headquartered in Dalton, Georgia, is a leading carpet manufacturer based on both revenue and volume of production. Shaw designs and manufactures over 3,900 styles of tufted carpet, wood and resilient flooring for residential and commercial use under about 30 brand and trade names and under certain private labels. Shaw also provides project management and installation services. Shaw’s manufacturing operations are fully integrated from the processing of raw materials used to make fiber through the finishing of carpet. In 2018, Shaw acquired Sanquahar Tile Services in Scotland, which manufactures and distributes carpet tile throughout Europe. Shaw also manufactures or distributes a variety of hardwood, vinyl and laminate floor products (“hard surfaces”). In 2016, Shaw acquired USFloors, Inc., which is a leading innovator and marketer of wood-plastic composite luxury vinyl tile flooring, as well as cork, bamboo and hardwood products. Shaw’s carpet and hard surface products are sold in a broad range of patterns, colors and textures. Shaw operates Shaw Sports Turf and Southwest Greens International, LLC, which provide synthetic sports turf, golf greens and landscape turf products. Shaw products are sold wholesale to over 39,000 retailers, distributors and commercial users throughout the United States, Canada and Mexico and are also exported to various overseas markets. Shaw’s wholesale products are marketed domestically by over 2,700 salaried and commissioned sales personnel directly to retailers and distributors and to large national accounts. Shaw’s seven carpet, seven hard surface and two sample full-service distribution facilities and 26 redistribution centers, along with centralized management information systems, enable it to provide prompt and efficient delivery of its products to both its retail customers and wholesale distributors. Substantially all carpet manufactured by Shaw is tufted carpet made from nylon, polypropylene and polyester. In the tufting process, yarn is inserted by multiple needles into a synthetic backing, forming loops, which may be cut or left uncut, depending on the desired texture or construction. During 2018, Shaw processed approximately 95% of its requirements for carpet yarn in its own yarn processing facilities. The availability of raw materials continues to be good but costs are impacted by petro-chemical and natural gas price changes. Raw material cost changes are periodically factored into selling prices to customers. The floor covering industry is highly competitive with more than 100 companies engaged in the manufacture and sale of carpet in the United States and numerous manufacturers engaged in hard surface floor covering production and sales. According to industry estimates, carpet accounts for approximately 50% of the total United States consumption of all flooring types. The principal competitive measures within the floor covering industry are quality, style, price and service. K-14 Johns Manville Johns Manville (“JM”) is a leading manufacturer and marketer of premium-quality products for building, mechanical and industrial insulation, commercial roofing and roof insulation, as well as engineered fibers and nonwovens for commercial, industrial and residential applications. JM serves markets that include building, flooring, interiors, aerospace, automotive and transportation, air handling, appliance, HVAC, pipe insulation, filtration, waterproofing and wind energy. Fiberglass is the basic material in a majority of JM’s products, although JM also manufactures a significant portion of its products with other materials to satisfy the broader needs of its customers. Raw materials are readily available in sufficient quantities from various sources for JM to maintain and expand its current production levels. JM regards its patents and licenses as valuable, however it does not consider any of its businesses to be materially dependent on any single patent or license. JM is headquartered in Denver, Colorado, and operates 43 manufacturing facilities in North America, Europe and China and conducts research and development at its technical center in Littleton, Colorado and at other facilities in the U.S. and Europe. Fiberglass is made from earthen raw materials and recycled glass, together with proprietary organic and acrylic-based formaldehyde-free agents to bind many of its glass fibers. JM’s products also contain materials other than fiberglass, including various chemical and petro-chemical-based materials used in roofing and other specialized products. JM uses recycled material when available and suitable to satisfy the broader needs of its customers. The raw materials used in these various products are readily available in sufficient quantities from various sources to maintain and expand its current production levels. JM’s operations are subject to a variety of federal, state and local environmental laws and regulations, which regulate the discharge of materials into the air, land and water and govern the use and disposal of hazardous substances. The most relevant of the federal laws are the Federal Clean Air Act, the Clean Water Act, the Toxic Substances Control Act, the Resource Conservation and Recovery Act and the Comprehensive Environmental Response, Compensation and Liability Act of 1980, which are administered by the EPA. In 2015, the EPA revised the hazardous air pollutant rules for the wool fiberglass and mineral wool manufacturing industries, which were further revised in 2017. While the new rules implement new emission standards, they are not expected to require material expenditures to meet the compliance dates in 2020. JM sells its products through a wide variety of channels including contractors, distributors, retailers, manufacturers and fabricators. JM operates in highly competitive markets, with competitors comprised primarily of several large global and national manufacturers and smaller regional manufacturers. JM holds leadership positions in the key markets that it serves. JM’s products compete primarily on value, differentiation and customization, and breadth of product line. Sales of JM’s products are moderately seasonal due to increases in construction activity that typically occur in the second and third quarters of the calendar year. JM sees a marketplace trend in customer purchasing decisions being influenced by the sustainable and energy efficient attributes of its products, services and operations. MiTek Industries, Inc. MiTek Industries, Inc. (“MiTek”), based in Chesterfield, Missouri, operates in three separate markets: residential, commercial and industrial. MiTek operates worldwide with sales in over 100 countries and with manufacturing facilities and/or sales/engineering offices located in 21 countries. MiTek has completed a number of bolt-on acquisitions in the past five years, intended to diversify product offerings and reduce the impact of the cyclical global housing markets. In the residential market, MiTek is a leading supplier of engineered connector products, construction hardware, engineering software and services and computer-driven manufacturing machinery to the truss component market of the building components industry. MiTek’s primary customers are component manufacturers who manufacture prefabricated roof and floor trusses and wall panels for the residential building market. MiTek also sells construction hardware to commercial distributors and do-it-yourself retail stores under the MiTek Builders Products name. MiTek’s commercial market business includes products and services sold to the commercial construction industry offered through its subsidiaries. Commercial products include curtain wall systems (Benson Industries, Inc.), masonry and stone anchoring systems (Hohmann & Barnard, Inc.), light gauge steel framing products (Aegis Metal Framing Division of MiTek USA, Inc.), engineering services for a proprietary high-performance steel frame connection (SidePlate Systems, Inc.) and a comprehensive range of ductwork for the ventilation market (M&M Manufacturing, Inc. and Snappy ADP, Inc.). MiTek’s industrial market business includes products offered through its subsidiaries, including automated machinery used by battery manufacturers (TBS Engineering, Ltd.), customized air handling systems for commercial, institutional and industrial markets (TMI Climate Solutions, Inc.), design and supply of Nuclear Safety Related HVAC systems and components (Ellis & Watts Global Industries, Inc.), energy recovery and dehumidification systems for commercial applications (Heat-Pipe Technology, Inc.) and pre-engineered and pre-fabricated custom structural mezzanines and platforms for distribution and manufacturing facilities (Cubic Designs, Inc. and Mezzanine International, Ltd.). K-15 A significant raw material used by MiTek is hot dipped galvanized sheet steel. While supplies are presently adequate, variations in supply have historically occurred, producing significant variations in cost and availability. MiTek commenced reorganizing efforts in 2019 to focus on a “One MiTek” brand, operating as one global company operating in two sectors, residential and commercial. Within the sectors, the business will be further managed based on market channels or product categories. The reorganization is expected to provide customers with more targeted solutions and produce a more simplified, efficient and better-integrated organizational structure. Benjamin Moore Benjamin Moore & Co. (“Benjamin Moore”), headquartered in Montvale, New Jersey, is a leading formulator, manufacturer and retailer of a broad range of architectural coatings, available principally in the United States and Canada. Products include water-based and solvent-based general-purpose coatings (paints, stains and clear finishes) for use by consumers, contractors and industrial and commercial users. Products are marketed under various registered brand names, including, but not limited to: Aura®, Natura®, Regal Select®, Ultra Spec®, ben®, Eco Spec®, Coronado®, Corotech®, Insl-x®, Lenmar®, Super Kote®, Arborcoat®, Super Hide®, Century®, Ultra Spec®, SCUFF-X® and Notable®™. Benjamin Moore relies primarily on an independent dealer network for distribution of its products. Benjamin Moore’s distribution network includes over 3,300 independent retailers currently representing over 5,000 storefronts in the United States and Canada. The independent dealer channel offers a broad array of products including Benjamin Moore®, Coronado® and Insl-x® brands and other competitor coatings, wall coverings, window treatments and sundries. In addition, Benjamin Moore operates an on-line “pick up in store” program, which allows consumers to place orders via an e-commerce site, or for national accounts and government agencies via its customer information center, for pick-up at the customer’s nearest dealer. Benjamin Moore competes with numerous manufacturers, distributors and paint, coatings and related products retailers. Product quality, product innovation, breadth of product line, technical expertise, service and price determine the competitive advantage. Competitors include other paint and decorating stores, mass merchandisers, home centers, independent hardware stores, hardware chains and manufacturer-operated direct outlets, such as Sherwin-Williams Company, PPG Industries, Inc., The Valspar Corporation, The Home Depot, Inc. and Lowe’s Companies, Inc. The most significant raw materials in Benjamin Moore products are titanium dioxide, monomers, polymers and pigments. Historically, these materials have been generally available, with pricing and availability subject to fluctuation. Acme Brick Acme Brick Company and its subsidiaries (“Acme”), headquartered in Fort Worth, Texas, manufactures and distributes clay bricks (Acme Brick®) and concrete block (Featherlite). In addition, Acme distributes a number of other building products of other manufacturers, including floor and wall tile, wood flooring and other masonry products. Products are sold primarily in the South Central and South Eastern United States through company-operated sales offices. Acme distributes products primarily to homebuilders and masonry and general contractors. In 2018, Acme commenced the closings of two brick plants, three concrete block plants and two limestone fabricating plants. Thereafter, Acme will operate 15 clay brick manufacturing facilities at 12 sites located in seven states and three concrete block facilities in Texas. In addition, Acme operates an aluminum grid fabrication facility and a concrete bagging facility in Texas. The demand for Acme’s products is seasonal, with higher sales in the warmer weather months, and is subject to the level of construction activity, which is cyclical. Acme also owns and leases properties and mineral rights that supply raw materials used in many of its manufactured products. Acme’s raw materials supply is believed to be adequate. The brick industry is subject to the EPA’s Maximum Achievable Control Technology Rule (MACT Rule) finalized in October of 2015 with a deadline for compliance of December 31, 2018. Key elements of the MACT Rule include emission limits established for certain hazardous air pollutants and acidic gases. The MACT Rule also establishes work practices for “periodic” kilns, including using a designed firing time and temperature for each product, labeling maximum loads, keeping a log of each load, and developing and implementing inspection and maintenance procedures. While many of Acme’s facilities are in compliance, additional capital expenditures may be required to bring other facilities into compliance. Acme applied for and was granted an extension of the compliance deadline until the pending state permits are received, or until December 26, 2019, whichever is sooner. Berkshire’s building products manufacturers employ approximately 57,000 people. K-16 Consumer Products Apparel Fruit of the Loom (“FOL”), headquartered in Bowling Green, Kentucky, is primarily a manufacturer and distributor of basic apparel, underwear, casualwear, athletic apparel and sports equipment. Products under the Fruit of the Loom® and JERZEES® labels are primarily sold in the mass merchandise, mid-tier chains and wholesale markets. In the Vanity Fair Brands product line, Vassarette®, Curvation® and Radiant® by Vanity Fair are sold in the mass merchandise market, while Vanity Fair® and Lily of France® products are sold to mid-tier chains and department stores. FOL also markets and sells apparel, sports equipment and balls to team dealers and athletic apparel, sports equipment and balls to sporting goods retailers under the Russell Athletic® and Spalding® brands. Additionally, Spalding® markets and sells balls and sports equipment in the mass merchandise market and dollar store channels. In 2018, approximately 55% of FOL’s sales were to five customers. FOL generally performs its own knitting, cloth finishing, cutting, sewing and packaging for apparel. For the North American market, which is FOL’s predominant sales region, the majority of FOL’s cloth manufacturing is performed in Honduras. Labor- intensive cutting, sewing and packaging operations are located in Central America, the Caribbean and Vietnam. For the European market, products are either sourced from third-party contractors in Europe or Asia or sewn in Morocco from textiles internally produced in Morocco. Manufacturing of bras, athletic equipment, sporting goods and other athletic apparel lines are generally sourced from third-party contractors located primarily in Asia. U.S. grown cotton and polyester fibers are the main raw materials used in the manufacturing of FOL’s apparel products and are purchased from a limited number of third-party suppliers. Additionally in 2015, FOL entered into an eight year agreement with one key supplier to provide the majority of FOL’s yarn. Management currently believes there are readily available alternative sources of raw materials and yarn. However, if relationships with suppliers cannot be maintained or delays occur in obtaining alternative sources of supply, production could be adversely affected, which could have a corresponding adverse effect on results of operations. Additionally, raw materials are subject to price volatility caused by weather, supply conditions, government regulations, economic climate and other unpredictable factors. FOL has secured contracts to purchase cotton, either directly or through the yarn suppliers, to meet the majority of its production plans for 2019. FOL’s markets are highly competitive, consisting of many domestic and foreign manufacturers and distributors. Competition is generally based upon product features, quality, customer service and price. Garan designs, manufactures, imports and sells apparel primarily for children, including boys, girls, toddlers and infants. Products are sold under its own trademark Garanimals® and customer private label brands. Garan also licenses its registered trademark Garanimals® to third parties for apparel and non-apparel products. Garan conducts its business through operating subsidiaries located in the United States, Central America and Asia. Garan’s products are sold through its distribution centers in the United States. Fechheimer Brothers manufactures, distributes and sells uniforms, principally for the public service and safety markets, including police, fire, postal and military markets. Fechheimer Brothers is based in Cincinnati, Ohio. The BH Shoe Holdings Group manufactures and distributes work, rugged outdoor and casual shoes and western-style footwear under a number of brand names, including Justin, Original Work, Tony Lama®, Chippewa®, BØRN® , B(cid:129)Ø(cid:129)C®, Carolina®, EuroSofft, Söfft, Double-H Boots®, Nursemates® and Comfortiva®. Brooks Sports markets and sells performance running footwear and apparel to specialty and national retailers and directly to consumers under the Brooks® brand. A significant volume of the shoes sold by Berkshire’s shoe businesses are manufactured or purchased from sources located outside the United States. Products are sold worldwide through a variety of channels including department stores, footwear chains, specialty stores, catalogs and the Internet, as well as through company-owned retail stores. Other consumer products Forest River, Inc. (“Forest River”) is a manufacturer of recreational vehicles (“RV”), utility cargo trailers, buses and pontoon boats, headquartered in Elkhart, Indiana with products sold in the United States and Canada through an independent dealer network. Forest River has numerous manufacturing facilities located in six states. Forest River is a leading manufacturer of RVs with numerous brand names, including Forest River, Coachman RV and Prime Time. Utility cargo trailers are sold under a variety of brand names. Buses are sold under several brand names, including Starcraft Bus. Pontoon boats are sold under the Berkshire, South Bay and Trifecta brand names. The RV industry is very competitive. Competition is based primarily on price, design, quality and service. The industry has consolidated over the past several years with Forest River holding a market share of approximately 33% in 2018 and its largest competitor holding a market share of approximately 48%. K-17 Berkshire acquired the Duracell Company (“Duracell’), on February 29, 2016 from The Procter & Gamble Company. Duracell, headquartered in Chicago, Illinois, is a leading manufacturer of high performance alkaline batteries. Duracell manufactures batteries in the U.S., Europe and China and provides a network of worldwide sales and distribution centers. Costco and Walmart are significant customers, representing approximately 25% of Duracell’s annual revenue. There are several competitors in the battery manufacturing market with Duracell holding an approximately 34% market share of the global alkaline battery market. Management believes there are sufficient sources of raw materials, which primarily include steel, zinc and manganese. Albecca Inc. (“Albecca”), headquartered in Norcross, Georgia, operates in the U.S., Canada and 13 other countries, with products primarily under the Larson-Juhl® name. Albecca designs, manufactures and distributes a complete line of high quality, branded custom framing products, including wood and metal moulding, matboard, foamboard, glass and framing supplies. Complementary to its framing products, Albecca offers art printing and fulfillment services. Richline Group, Inc. operates four strategic business units: Richline Jewelry, LeachGarner, Rio Grande and Inverness. Each business unit is a manufacturer and distributor of jewelry with precious metal and non-precious metal products to specific target markets including large jewelry chains, department stores, shopping networks, mass merchandisers, e-commerce retailers and artisans plus worldwide manufacturers and wholesalers and the medical, electronic and aerospace industries. Berkshire’s consumer products manufacturers employ approximately 55,000 persons. Service and Retailing Businesses Service Businesses Berkshire’s service businesses provide grocery and foodservice distribution, professional aviation training programs, fractional aircraft ownership programs and distribution of electronic components. Other service businesses include franchising and servicing of quick service restaurants, media businesses (newspaper, television and information distribution), as well as logistics businesses. Berkshire’s service businesses employ approximately 51,000 people. Information concerning these activities follows. McLane Company McLane Company, Inc. (“McLane”) provides wholesale distribution services in all 50 states to customers that include convenience stores, discount retailers, wholesale clubs, drug stores, military bases, quick service restaurants and casual dining restaurants. McLane provides wholesale distribution services to Walmart, which accounts for approximately 22% of McLane’s revenues. McLane’s other significant customers include 7-Eleven and Yum! Brands, each of which accounted for approximately 11% of McLane’s revenues in 2018. A curtailment of purchasing by Walmart or its other significant customers could have a material adverse impact on McLane’s periodic revenues and earnings. McLane’s business model is based on a high volume of sales, rapid inventory turnover and stringent expense controls. Operations are currently divided into three business units: grocery distribution, foodservice distribution and beverage distribution. McLane’s grocery distribution unit, based in Temple, Texas, maintains a dominant market share within the convenience store industry and serves most of the national convenience store chains and major oil company retail outlets. Grocery operations provide products to approximately 50,000 retail locations nationwide, including Walmart. McLane’s grocery distribution unit operates 23 distribution facilities in 20 states. McLane’s foodservice distribution unit, based in Carrollton, Texas, focuses on serving the quick service and casual dining restaurant industry with high quality, timely-delivered products. Operations are conducted through 47 facilities in 22 states. The foodservice distribution unit services approximately 35,200 restaurants nationwide. Through its subsidiaries, McLane also operates several wholesale distributors of distilled spirits, wine and beer. Operations are conducted through 14 distribution centers in Georgia, North Carolina, Tennessee and Colorado. These beverage units operating as Empire Distributors, Empire Distributors of North Carolina, Empire Distributors of Tennessee and Baroness Small Estates, service approximately 25,300 retail locations in the Southeastern United States and Colorado. K-18 FlightSafety International FlightSafety International Inc. (“FlightSafety”), headquartered at New York’s LaGuardia Airport, is an industry leader in professional aviation training services to individuals, businesses (including certain commercial aviation companies) and the U.S. government and certain foreign governments. FlightSafety provides high technology training to pilots, aircraft maintenance technicians, flight attendants and dispatchers who operate and support a wide variety of business, commercial and military aircraft. FlightSafety operates a large fleet of advanced full flight simulators at its learning centers and training locations in the United States, Canada, China, France, Japan, Norway, Singapore, South Africa, the Netherlands, and the United Kingdom. The vast majority of FlightSafety’s instructors, training programs and flight simulators are qualified by the United States Federal Aviation Administration and other aviation regulatory agencies around the world. FlightSafety is also a leader in the design and manufacture of full flight simulators, visual systems, displays and other advanced technology training devices. This equipment is used to support FlightSafety training programs and is offered for sale to airlines and government and military organizations around the world. Manufacturing facilities are located in Oklahoma, Missouri and Texas. FlightSafety strives to maintain and manufacture simulators and develop courseware using state-of-the-art technology and invests in research and development as it builds new equipment and training programs. NetJets NetJets Inc. (“NetJets”) is the world’s leading provider of shared ownership programs for general aviation aircraft. NetJets’ global headquarters is located in Columbus, Ohio, with most of its logistical and flight operations based at Port Columbus International Airport. NetJets’ European operations are based in Lisbon, Portugal. The shared ownership concept is designed to meet the travel needs of customers who require the scale, flexibility and access of a large fleet that whole aircraft ownership cannot deliver. In addition, shared ownership programs are available for corporate flight departments seeking to outsource their general aviation needs or add capacity for peak periods and for others that previously chartered aircraft. With a focus on safety and service, NetJets’ programs are designed to offer customers guaranteed availability of aircraft, predictable operating costs and increased liquidity. NetJets’ shared aircraft ownership programs permit customers to acquire a specific percentage of a certain aircraft type and allows customers to utilize the aircraft for a specified number of flight hours annually. In addition, NetJets offers prepaid flight cards and other aviation solutions and services for aircraft management, customized aircraft sales and acquisition, ground support and flight operation services under a number of programs including NetJets Shares™, NetJets Leases™ and the Marquis Jet Card®. NetJets is subject to the rules and regulations of the United States Federal Aviation Administration, the National Institute of Civil Aviation of Portugal and the European Aviation Safety Agency. Regulations address aircraft registration, maintenance requirements, pilot qualifications and airport operations, including flight planning and scheduling as well as security issues and other matters. TTI, Inc. Inc. TTI, (“TTI”), headquartered in Fort Worth, Texas, interconnect, electromechanical, and discrete components used by customers in the manufacturing and assembling of electronic products. TTI’s customer base includes original equipment manufacturers, electronic manufacturing services, original design manufacturers, military and commercial customers, as well as design and system engineers. TTI’s distribution agreements with the industry’s leading suppliers allow it to uniquely leverage its product cost and to expand its business by providing new lines and products to its customers. TTI operates sales offices and distribution centers from more than 100 locations throughout North America, Europe, Asia and Israel. is a global specialty distributor of passive, TTI services a variety of industries including telecommunications, medical devices, computers and office equipment, military/ aerospace, automotive and industrial electronics. TTI’s core customers include businesses in the design through production stages in the electronic component supply chain, which supports its high volume business, and its Mouser subsidiary, which supports a broader base of customers with lower volume purchases through internet based marketing. K-19 Other XTRA Corporation (“XTRA”), headquartered in St. Louis, Missouri, is a leading transportation equipment lessor operating under the XTRA Lease® brand name. XTRA manages a diverse fleet of approximately 82,000 units located at 51 facilities throughout the United States. The fleet includes over-the-road and storage trailers, chassis, temperature controlled vans and flatbed trailers. XTRA is one of the largest lessors (in terms of units available) of over-the-road trailers in North America. Transportation equipment customers lease equipment to cover cyclical, seasonal and geographic needs and as a substitute for purchasing equipment. Therefore, as a provider of marginal capacity to its customers, XTRA’s utilization rates and operating results tend to be cyclical. In addition, transportation providers often use leasing to maximize their asset utilization and reduce capital expenditures. By maintaining a large fleet, XTRA is able to provide customers with a broad selection of equipment and quick response times. International Dairy Queen develops and services a worldwide system of over 6,900 stores operating primarily under the names DQ Grill and Chill®, Dairy Queen® and Orange Julius® that offer various dairy desserts, beverages, prepared foods and blended fruit drinks. Business Wire provides electronic dissemination of full-text news releases to the media, online services and databases and the global investment community in 150 countries and in 45 languages. Approximately 97% of Business Wire’s revenues derive from its core news distribution business. CORT Business Services Corporation is a leading national provider of rental relocation services including rental furniture, accessories and related services in the “rent-to-rent” market of the furniture rental industry. The Buffalo News and BH Media Group, Inc. are publishers of 31 daily and 43 weekly newspapers. WPLG, Inc. is an ABC affiliate broadcast station in Miami, Florida and Charter Brokerage is a leading non-asset based third party logistics provider to the petroleum and chemical industries. Retailing Businesses Berkshire’s retailing businesses include automotive, home furnishings and several other operations that sell various consumer products to consumers. Information regarding each of these operations follows. Berkshire’s retailing businesses employ approximately 29,000 people. Berkshire Hathaway Automotive Berkshire acquired a group of affiliated companies referred to as the Berkshire Hathaway Automotive Group, Inc. (BHA) in 2015. BHA is one of the largest automotive retailers in the United States, currently operating 108 new vehicle franchises through 82 dealerships located primarily in major metropolitan markets in the United States. The dealerships sell new and used vehicles, vehicle maintenance and repair services, extended service contracts, vehicle protection products and other aftermarket products. BHA also arranges financing for its customers through third-party lenders. BHA operates 29 collision service centers directly connected to the dealerships’ operations and owns and operates two auto auctions and a fluid maintenance products distribution company. Dealership operations are highly concentrated in the Arizona and Texas markets, with approximately 70% of dealership-related revenues derived from sales in these markets. BHA currently maintains franchise agreements with 27 different vehicle manufacturers, although it derives a significant portion of its revenue from the Toyota/Lexus, General Motors, Ford/Lincoln, Nissan/Infiniti and Honda/Acura brands. Approximately 90% of BHA’s annual revenues are from dealerships representing these manufacturers. The retail automotive industry is highly competitive. BHA faces competition from other large public and private dealership groups, as well as individual franchised dealerships and competition via the Internet. Given the pricing transparency available via the Internet, and the fact that franchised dealers acquire vehicles from the manufacturers on the same terms irrespective of volume, the location and quality of the dealership facility, customer service and transaction speed are key differentiators in attracting customers. BHA’s overall relationships with the automobile manufacturers are governed by framework agreements. The framework agreements contain provisions relating to the management, operation, acquisition and the ownership structure of BHA’s dealerships. Failure to meet the terms of these agreements could adversely impact BHA’s ability to acquire additional dealerships representing those manufacturers. Additionally, these agreements contain limitations on the number of dealerships from a specific manufacturer that may be owned by BHA. K-20 Individual dealerships operate under franchise agreements with the manufacturer, which grants the dealership entity a non-exclusive right to sell the manufacturer’s brand of vehicles and offer related parts and service within a specified market area, as well as the right to use the manufacturer’s trademarks. The agreements contain various requirements and restrictions related to the management and operation of the franchised dealership and provide for termination of the agreement by the manufacturer or non-renewal for a variety of causes. The states generally have automotive dealership franchise laws that provide substantial protection to the franchisee, and it is difficult for a manufacturer to terminate or not renew a franchise agreement outside of bankruptcy or with “good cause” under the applicable state franchise law. BHA owns facilities with approximately 6.5 million square feet of space and approximately 950 acres of land that are utilized in its operations. BHA also develops, underwrites and administers various vehicle protection plans as well as life and accident and health insurance plans sold to consumers through BHA’s dealerships and third party dealerships. BHA also develops proprietary training programs and materials, and provides ongoing monitoring and training of the dealership’s finance and insurance personnel. Home furnishings retailing The home furnishings businesses consist of Nebraska Furniture Mart (“NFM”), R.C. Willey Home Furnishings (“R.C. Willey”), Star Furniture Company (“Star”) and Jordan’s Furniture, Inc. (“Jordan’s”). These businesses offer a wide selection of furniture, bedding and accessories. In addition, NFM and R.C. Willey sell a full line of major household appliances, electronics, computers and other home furnishings and offer customer financing to complement their retail operations. An important feature of each of these businesses is their ability to control costs and to produce high business volume by offering significant value to their customers. NFM operates its business from three large retail complexes, which include warehouse and administrative facilities in Omaha, Nebraska, Kansas City, Kansas and The Colony, Texas a suburb of Dallas, which opened in 2015. These three sites include approximately 1.5 million square feet of retail space. NFM is the largest furniture retailer in each of these markets. NFM also owns Homemakers Furniture located in Des Moines, Iowa, which has approximately 215,000 square feet of retail space. R.C. Willey, based in Salt Lake City, Utah, is the dominant home furnishings retailer in the Intermountain West region of the United States. R.C. Willey currently operates 12 retail stores and three distribution centers. These facilities include approximately 1.5 million square feet of retail space with six stores located in Utah, one store in Idaho, three stores in Nevada and two stores in California. Jordan’s operates a retail furniture business from six locations with approximately 770,000 square feet of retail space in stores located in Massachusetts, New Hampshire, Rhode Island and Connecticut. The retail stores are supported by an 800,000 square foot distribution center in Taunton, Massachusetts. Jordan’s is the largest furniture retailer, as measured by sales, in Massachusetts and New Hampshire. Jordan’s is well known in its markets for its unique store arrangements and advertising campaigns. Star’s retail facilities include about 700,000 square feet of retail space in 11 locations in Texas with eight in Houston. Star maintains a dominant position in each of its markets. Other retailing Borsheim Jewelry Company, Inc. (“Borsheims”) operates from a single store in Omaha, Nebraska. Borsheims is a high volume retailer of fine jewelry, watches, crystal, china, stemware, flatware, gifts and collectibles. Helzberg’s Diamond Shops, Inc. (“Helzberg”) is based in North Kansas City, Missouri, and operates a chain of 217 retail jewelry stores in 36 states, which includes approximately 500,000 square feet of retail space. Helzberg’s stores are located in malls, lifestyle centers, power strip centers and outlet malls, and all stores operate under the name Helzberg Diamonds® or Helzberg Diamonds Outlet®. The Ben Bridge Corporation (“Ben Bridge Jeweler”), based in Seattle, Washington, operates a chain of 95 upscale retail jewelry stores located in 11 states primarily in the Western United States and in British Columbia, Canada. Forty-six of its retail locations are concept stores that sell only PANDORA jewelry. Principal products include finished jewelry and timepieces. Ben Bridge Jeweler stores are located primarily in major shopping malls. See’s Candies (“See’s”) produces boxed chocolates and other confectionery products with an emphasis on quality and distinctiveness in two large kitchens in Los Angeles and San Francisco and one smaller facility in Burlingame, California. See’s operates approximately 250 retail and quantity discount stores located mainly in California and other Western states. See’s revenues are highly seasonal with nearly half of its annual revenues earned in the fourth quarter. The Pampered Chef, Ltd. (“Pampered Chef”) is a premier direct seller of distinctive high quality kitchenware products with operations in the United States, Canada and Germany. Pampered Chef’s product portfolio consists of approximately 400 Pampered Chef® branded kitchenware items in categories ranging from stoneware and cutlery to grilling and entertaining. Pampered Chef’s products are available online as well as through a sales force of independent cooking consultants. K-21 Oriental Trading Company (“OTC”) is a leading multi-channel retailer and online destination for value-priced party supplies, arts and crafts, toys and novelties, school supplies, educational games, patient giveaways and personalized products. OTC, headquartered in Omaha, Nebraska, serves a broad base of nearly four million customers annually, including consumers, schools, churches, non-profit organizations, medical and dental offices and other businesses. OTC offers a unique assortment of over 50,000 fun products on its websites, including its flagship orientaltrading.com site and utilizes sophisticated digital and print marketing efforts to drive significant traffic and industry leading customer satisfaction. In April 2015, Berkshire acquired Detlev Louis Motorrad (“Louis”) which is headquartered in Hamburg, Germany. Louis is a leading retailer of motorcycle apparel and equipment in Europe. Louis carries over 32,000 different products from more than 600 manufacturers, primarily covering the clothing, technical equipment and leisure markets. Louis has over 80 stores in Germany, Austria and Switzerland and also sells through catalogs and via the Internet throughout most of Europe. Additional information with respect to Berkshire’s businesses Revenue, earnings before taxes and identifiable assets attributable to Berkshire’s reportable business segments are included in Note 26 to Berkshire’s Consolidated Financial Statements contained in Item 8, Financial Statements and Supplementary Data. Additional information regarding Berkshire’s investments in fixed maturity and equity securities is included in Notes 3 and 4, respectively, to Berkshire’s Consolidated Financial Statements. Since June 2013, Berkshire has maintained a significant investment in H.J. Heinz Holding Corporation (now The Kraft Heinz Company). Information concerning this investment is included in Note 5 to Berkshire’s Consolidated Financial Statements. Kraft Heinz is one of the largest food and beverage companies in the world, with sales in approximately 190 countries and territories. Kraft Heinz manufactures and markets food and beverage products, including condiments and sauces, cheese and dairy meals, meats, refreshment beverages, coffee and other grocery products, throughout the world, under a host of iconic brands including Heinz, Kraft, Oscar Mayer, Philadelphia, Velveeta, Lunchables, Planters, Maxwell House, Capri Sun, Ore-Ida, Kool-Aid and Jell-O. Berkshire maintains a website (http://www.berkshirehathaway.com) where its annual reports, certain corporate governance documents, press releases, interim shareholder reports and links to its subsidiaries’ websites can be found. Berkshire’s periodic reports filed with the SEC, which include Form 10-K, Form 10-Q, Form 8-K and amendments thereto, may be accessed by the public free of charge from the SEC and through Berkshire. Electronic copies of these reports can be accessed at the SEC’s website (http:// www.sec.gov) and indirectly through Berkshire’s website (http://www.berkshirehathaway.com). Copies of these reports may also be obtained, free of charge, upon written request to: Berkshire Hathaway Inc., 3555 Farnam Street, Omaha, NE 68131, Attn: Corporate Secretary. Item 1A. Risk Factors Berkshire and its subsidiaries (referred to herein as “we,” “us,” “our” or similar expressions) are subject to certain risks and uncertainties in its business operations which are described below. The risks and uncertainties described below are not the only risks we face. Additional risks and uncertainties that are presently unknown or are currently deemed immaterial may also impair our business operations. We are dependent on a few key people for our major investment and capital allocation decisions. Major investment decisions and all major capital allocation decisions are made by Warren E. Buffett, Chairman of the Board of Directors and Chief Executive Officer, age 88, in consultation with Charles T. Munger, Vice Chairman of the Board of Directors, age 95. If for any reason the services of our key personnel, particularly Mr. Buffett, were to become unavailable, there could be a material adverse effect on our operations. However, Berkshire’s Board of Directors has identified certain current Berkshire subsidiary managers who, in their judgment, are capable of succeeding Mr. Buffett and has agreed on a replacement for Mr. Buffett should a replacement be needed currently. The Board continually monitors this risk and could alter its current view regarding a replacement for Mr. Buffett in the future. We believe that the Board’s succession plan, together with the outstanding managers running our numerous and highly diversified operating units helps to mitigate this risk. In 2018, Berkshire’s Board of Directors appointed Mr. Gregory Abel as Vice Chairman of Berkshire’s non-insurance operations and Mr. Ajit Jain as Vice Chairman of Berkshire’s insurance operations. Mr. Abel and Mr. Jain each report directly to Mr. Buffett and Mr. Buffett continues to be responsible for major capital allocation and investment decisions. K-22 We need qualified personnel to manage and operate our various businesses. In our decentralized business model, we need qualified and competent management to direct day-to-day business activities of our operating subsidiaries and to manage changes in future business operations due to changing business or regulatory environments. Our operating subsidiaries also need qualified and competent personnel in executing their business plans and serving their customers, suppliers and other stakeholders. Our inability to recruit and retain qualified and competent managers and personnel could negatively affect the operating results, financial condition and liquidity of our subsidiaries and Berkshire as a whole. Investments are unusually concentrated and fair values are subject to loss in value. We concentrate a high percentage of the investments of our insurance subsidiaries in a relatively small number of equity securities and diversify our investment portfolios far less than is conventional in the insurance industry. A significant decline in the fair values of our larger investments in equity securities may produce a material decline in our consolidated shareholders’ equity and our consolidated statement of earnings. Since a large percentage of our equity securities are held by our insurance subsidiaries, significant decreases in the fair values of these investments will produce significant declines in their statutory surplus. Our large statutory surplus is a competitive advantage, and a long-term material decline could have an adverse effect on our claims-paying ability ratings and our ability to write new insurance business thus potentially reducing our future underwriting profits. Competition and technology may erode our business franchises and result in lower earnings. Each of our operating businesses face intense competition within markets in which they operate. While we manage our businesses with the objective of achieving long-term sustainable growth by developing and strengthening competitive advantages, many factors, including technological changes, may erode or prevent the strengthening of competitive advantages. Accordingly, our future operating results will depend to some degree on our operating units successfully protecting and enhancing their competitive advantages. If our operating businesses are unsuccessful in these efforts, our periodic operating results in the future may decline. Deterioration of general economic conditions may significantly reduce our operating earnings and impair our ability to access capital markets at a reasonable cost. Our operating businesses are subject to normal economic cycles, which affect the general economy or the specific industries in which they operate. Significant deteriorations of economic conditions over a prolonged period could produce a material adverse effect on one or more of our significant operations. In addition, our utilities and energy businesses and our railroad business regularly utilize debt as a component of their capital structures, and depend on having access to borrowed funds through the capital markets at reasonable rates. To the extent that access to the capital markets is restricted or the cost of funding increases, these operations could be adversely affected. Terrorist acts could hurt our operating businesses. A successful (as defined by the aggressor) cyber, biological, nuclear or chemical attack could produce significant losses to our worldwide operations. Our business operations could be adversely affected from such acts through the loss of human resources or destruction of production facilities and information systems. We share the risk with all businesses. Regulatory changes may adversely impact our future operating results. Over time, in response to financial markets crises, global economic recessions, and social and environmental issues, regulatory initiatives were adopted in the United States and elsewhere. Such initiatives addressed for example, the regulation of banks and other major financial institutions and environmental and global-warming matters. These initiatives impact all of our businesses, albeit in varying ways. Increased regulatory compliance costs could have a significant negative impact on our operating businesses, as well as on the businesses in which we have a significant, but not controlling economic interests. We cannot predict whether such initiatives will have a material adverse impact on our consolidated financial position, results of operations or cash flows. Data privacy regulations have recently been enacted in various jurisdictions in the U.S. and throughout the world. These regulations address numerous aspects related to the security of personal information that is stored in our information systems, networks and facilities. Failure to comply with these regulations could result in reputational damage and significant penalties. K-23 Cyber security risks We rely on technology in virtually all aspects of our business. Like those of many large businesses, certain of our information systems have been subject to computer viruses, malicious codes, unauthorized access, phishing efforts, denial-of-service attacks and other cyber attacks and we expect to be subject to similar attacks in the future as such attacks become more sophisticated and frequent. A significant disruption or failure of our technology systems could result in service interruptions, safety failures, security events, regulatory compliance failures, an inability to protect information and assets against unauthorized users, and other operational difficulties. Attacks perpetrated against our systems could result in loss of assets and critical information and expose us to remediation costs and reputational damage. Although we have taken steps intended to mitigate these risks, including business continuity planning, disaster recovery planning and business impact analysis, a significant disruption or cyber intrusion could adversely affect our results of operations, financial condition and liquidity. Additionally, if we are unable to acquire, develop, implement, adopt or protect rights around new technology, we may suffer a competitive disadvantage, which could also have an adverse effect on our results of operations, financial condition and liquidity. Cyber attacks could further adversely affect our ability to operate facilities, information technology and business systems, or compromise confidential customer and employee information. Political, economic, social or financial market instability or damage to or interference with our operating assets, customers or suppliers from cyber attacks may result in business interruptions, lost revenues, higher commodity prices, disruption in fuel supplies, lower energy consumption, unstable markets, increased security, repair or other costs, or may materially adversely affect us in ways that cannot be predicted at this time. Any of these risks could materially affect our consolidated financial results. Furthermore, instability in the financial markets resulting from terrorism, sustained or significant cyber attacks, or war could also have a material adverse effect on our ability to raise capital. We share these risks with all businesses. Derivative contracts may require significant cash settlement payments and result in significant losses in the future. Over ten years ago, we assumed the risk of potentially significant losses under a number of equity index put option contracts. The contracts remaining at year end 2018 will expire from 2019 through 2025. Risks of losses under these contracts are based on declines in equity prices of stocks comprising certain major U.S. and international stock indexes. We received considerable cash premiums as compensation for accepting these risks. Absent major reductions in future equity securities prices, our ultimate payment obligations are not likely to be significant. Nevertheless, there can be no assurance that equity securities prices will not decline significantly resulting in settlement payments that significantly exceed the year end 2018 intrinsic value of the contracts ($1.7 billion), recorded fair value ($2.45 billion) or the premiums we received at inception ($4.0 billion). Risks unique to our regulated businesses Our tolerance for risk in our insurance businesses may result in significant underwriting losses. When properly paid for the risk assumed, we have been and will continue to be willing to assume more risk from a single event than any other insurer has knowingly assumed. Accordingly, we could incur a significant loss from a single event. We may also write coverages for losses arising from acts of terrorism. We attempt to take into account all possible correlations and avoid writing groups of policies from which pre-tax losses from a single event might aggregate above $10 billion. Currently, we estimate that our aggregate exposure from a single event under outstanding policies is significantly below $10 billion. However, despite our efforts, losses may aggregate in unanticipated ways. Our tolerance for significant insurance losses may result in lower reported earnings in a future period. The degree of estimation error inherent in the process of estimating property and casualty insurance loss reserves may result in significant underwriting losses. The principal cost associated with the property and casualty insurance business is claims. In writing property and casualty insurance policies, we receive premiums today and promise to pay covered losses in the future. However, it will take decades before all claims that have occurred as of any given balance sheet date will be reported and settled. Although we believe that liabilities for unpaid losses are adequate, we will not know whether these liabilities or the premiums charged for the coverages provided were sufficient until well after the balance sheet date. Estimating insurance claim costs is inherently imprecise. Our estimated unpaid losses arising under contracts covering property and casualty insurance risks are large ($110 billion at December 31, 2018), and a small percentage increase to those liabilities can result in materially lower reported earnings. Changes in regulations and regulatory actions can adversely affect our operating results and our ability to allocate capital. Our insurance businesses are subject to regulation in the jurisdictions in which we operate. Such regulations may relate to among other things, the types of business that can be written, the rates that can be charged for coverage, the level of capital that must be maintained, and restrictions on the types and size of investments that can be made. Regulations may also restrict the timing and amount of dividend payments to Berkshire by these businesses. Accordingly, changes in regulations related to these or other matters or regulatory actions imposing restrictions on our insurance companies may adversely impact our results of operations and restrict our ability to allocate capital. K-24 Our railroad business conducted through BNSF is also subject to a significant number of laws and regulations with respect to rates and practices, taxes, railroad operations and a variety of health, safety, labor, environmental and other matters. Failure to comply with applicable laws and regulations could have a material adverse effect on BNSF’s business. Governments may change the legislative and/or regulatory framework within which BNSF operates, without providing any recourse for any adverse effects that the change may have on the business. For example, enacted federal legislation mandated the implementation of positive train control (“PTC”) technology by December 31, 2018, on certain mainline track where inter-city and commuter passenger railroads operate and where toxic-by-inhalation (“TIH”) hazardous materials are transported. Due to the Federal Railroad Administration’s (“FRA”) interpretation of the PTC mandate as requiring all railroads that run on our tracks to be compliant before we can be deemed compliant, the FRA has confirmed an extension of the deadline for the Company to December 31, 2020. Complying with legislative and regulatory changes may pose significant operating and implementation risks and require significant capital expenditures. BNSF derives significant amounts of revenue from the transportation of energy-related commodities, particularly coal. To the extent that changes in government policies limit or restrict the usage of coal as a source of fuel in generating electricity or alternate fuels, such as natural gas, displace coal on a competitive basis, revenues and earnings could be adversely affected. As a common carrier, BNSF is also required to transport TIH chemicals and other hazardous materials. A release of hazardous materials could expose BNSF to significant claims, losses, penalties and environmental remediation obligations. Changes in the regulation of the rail industry could negatively impact BNSF’s ability to determine prices for rail services and to make capital improvements to its rail network, resulting in an adverse effect on our results of operations, financial condition or liquidity. Our utilities and energy businesses operated under BHE are highly regulated by numerous federal, state, local and foreign governmental authorities in the jurisdictions in which they operate. These laws and regulations are complex, dynamic and subject to new interpretations or change. Regulations affect almost every aspect of our utilities and energy businesses. Regulations broadly apply and may limit management’s ability to independently make and implement decisions regarding numerous matters including: acquiring businesses; constructing, acquiring or disposing of operating assets; operating and maintaining generating facilities and transmission and distribution system assets; complying with pipeline safety and integrity and environmental requirements; setting rates charged to customers; establishing capital structures and issuing debt or equity securities; transacting between our domestic utilities and our other subsidiaries and affiliates; and paying dividends or similar distributions. Failure to comply with or reinterpretations of existing regulations and new legislation or regulations, such as those relating to air and water quality, renewable portfolio standards, emissions performance standards, climate change, coal combustion byproduct disposal, hazardous and solid waste disposal, protected species and other environmental matters, or changes in the nature of the regulatory process may have a significant adverse impact on our financial results. Our railroad business requires significant ongoing capital investment to improve and maintain its railroad network so that transportation services can be safely and reliably provided to customers on a timely basis. Our utilities and energy businesses also require significant amounts of capital to construct, operate and maintain generation, transmission and distribution systems to meet their customers’ needs and reliability criteria. Additionally, system assets may need to be operational for long periods of time in order to justify the financial investment. The risk of operational or financial failure of capital projects is not necessarily recoverable through rates that are charged to customers. Further, a significant portion of costs of capital improvements are funded through debt issued by BNSF and BHE and their subsidiaries. Disruptions in debt capital markets that restrict access to funding when needed could adversely affect the results of operations, liquidity and capital resources of these businesses. Item 1B. Unresolved Staff Comments None. Item 2. Description of Properties The properties used by Berkshire’s business segments are summarized in this section. Berkshire’s railroad and utilities and energy businesses, in particular, utilize considerable physical assets in their businesses. Railroad Business—Burlington Northern Santa Fe Through BNSF Railway, BNSF operates approximately 32,500 route miles of track (excluding multiple main tracks, yard tracks and sidings) in 28 states, and also operates in three Canadian provinces. BNSF owns over 23,000 route miles, including easements, and operates over 9,000 route miles of trackage rights that permit BNSF to operate its trains with its crews over other railroads’ tracks. The total BNSF system, including single and multiple main tracks, yard tracks and sidings, consists of over 50,000 operated miles of track, all of which are owned by or held under easement by BNSF except for over 10,000 miles operated under trackage rights. K-25 BNSF operates various facilities and equipment to support its transportation system, including its infrastructure, locomotives and freight cars. It also owns or leases other equipment to support rail operations, such as vehicles. Support facilities for rail operations include yards and terminals throughout its rail network, system locomotive shops to perform locomotive servicing and maintenance, a centralized network operations center for train dispatching and network operations monitoring and management in Fort Worth, Texas, regional dispatching centers, computers, telecommunications equipment, signal systems and other support systems. Transfer facilities are maintained for rail-to-rail as well as intermodal transfer of containers, trailers and other freight traffic and include approximately 25 intermodal hubs located across the system. BNSF owns or holds under non-cancelable leases exceeding one year approximately 8,000 locomotives and 70,000 freight cars, in addition to maintenance of way and other equipment. In the ordinary course of business, BNSF makes significant capital investments to expand and improve its railroad network. BNSF incurs significant costs in repairing and maintaining its properties. In 2018, BNSF recorded approximately $2 billion in repairs and maintenance expense. Utilities and Energy Businesses—Berkshire Hathaway Energy BHE’s energy properties consist of the physical assets necessary to support its electricity and natural gas businesses. Properties of BHE’s electricity businesses include electric generation, transmission and distribution facilities, as well as coal mining assets that support certain of BHE’s electric generating facilities. Properties of BHE’s natural gas businesses include natural gas distribution facilities, interstate pipelines, storage facilities, compressor stations and meter stations. The transmission and distribution assets are primarily within each of BHE’s utility service territories. In addition to these physical assets, BHE has rights-of-way, mineral rights and water rights that enable BHE to utilize its facilities. Pursuant to separate financing agreements, a majority of these properties are pledged or encumbered to support or otherwise provide the security for the related subsidiary debt. BHE or its affiliates own or have interests in the following types of electric generating facilities at December 31, 2018: Entity Location by Significance Energy Source Natural gas Coal Wind Solar PacifiCorp, MEC, NV Energy and BHE Renewables PacifiCorp, MEC and NV Energy PacifiCorp, MEC and BHE Renewables BHE Renewables and NV Energy Hydroelectric PacifiCorp, MEC and BHE Renewables Nuclear Geothermal MEC PacifiCorp and BHE Renewables Nevada, Utah, Iowa, Illinois, Washington, Oregon, Texas, New York, and Arizona Wyoming, Iowa, Utah, Arizona, Nevada, Colorado and Montana Iowa, Wyoming, Texas, Nebraska, Washington, California, Illinois, Oregon and Kansas California, Texas, Arizona, Minnesota and Nevada Washington, Oregon, The Philippines, Idaho, California, Utah, Hawaii, Montana, Illinois and Wyoming Illinois California and Utah Total Facility Net Capacity (MW) (1) Net Owned Capacity (MW) (1) 10,920 10,641 16,181 9,138 7,862 7,853 1,699 1,551 1,299 1,823 370 1,277 456 370 40,154 31,286 (1) Facility Net Capacity (MW) represents the lesser of nominal ratings or any limitations under applicable interconnection, power purchase, or other agreements for intermittent resources and the total net dependable capability available during summer conditions for all other units. An intermittent resource’s nominal rating is the manufacturer’s contractually specified capability (in MW) under specified conditions. Net Owned Capacity indicates BHE’s ownership of Facility Net Capacity. As of December 31, 2018, BHE’s subsidiaries also have electric generating facilities that are under construction in Iowa and Wyoming having total Facility Net Capacity and Net Owned Capacity of 2,390 MW. PacifiCorp, MEC and NV Energy own electric transmission and distribution systems, including approximately 24,800 miles of transmission lines and approximately 1,690 substations, gas distribution facilities, including approximately 27,400 miles of gas mains and service lines, and an estimated 25 million tons of recoverable coal reserves in mines owned or leased in Wyoming and Colorado. The electricity distribution network of Northern Powergrid (Northeast) and Northern Powergrid (Yorkshire) includes approximately 17,400 miles of overhead lines, approximately 42,300 miles of underground cables and approximately 780 major substations. AltaLink’s electricity transmission system includes approximately 8,200 miles of transmission lines and approximately 310 substations. K-26 Northern Natural’s pipeline system consists of approximately 14,700 miles of natural gas pipelines, including approximately 6,300 miles of mainline transmission pipelines and approximately 8,400 miles of branch and lateral pipelines. Northern Natural’s end-use and distribution market area includes points in Iowa, Nebraska, Minnesota, Wisconsin, South Dakota, Michigan and Illinois and its natural gas supply and delivery service area includes points in Kansas, Texas, Oklahoma and New Mexico. Storage services are provided through the operation of one underground natural gas storage field in Iowa, two underground natural gas storage facilities in Kansas and two liquefied natural gas storage peaking units, one in Iowa and one in Minnesota. Kern River’s system consists of approximately 1,700 miles of natural gas pipelines, including approximately 1,400 miles of mainline section, including 100 miles of lateral pipelines, and approximately 300 miles of common facilities. Kern River owns the entire mainline section, which extends from the system’s point of origination in Wyoming through the Central Rocky Mountains into California. Other Segments The physical properties used by Berkshire’s other significant business segments are summarized below: Business Country Locations Property/Facility type Number of Properties Owned Leased 12 — 1 1 9 — 543 240 225 280 241 59 — 19 52 24 40 18 — — 57 32 143 1 — 108 2 28 35 79 12 167 443 226 — 172 540 5 130 207 3 91 35 115 1 33 27 564 12 87 Insurance: GEICO BHRG BH Primary U.S. Non-U.S. U.S. Non-U.S. U.S. Non-U.S. Locations in 39 states Locations in one country Locations in 15 states Locations in 23 countries Locations in 23 states Locations in 8 countries Offices and claims centers Offices Offices Offices Offices Offices Manufacturing U.S. Non-U.S. Locations in 48 states Manufacturing facility Offices/Warehouses Retail/Showroom Housing communities Locations in 65 countries Manufacturing facility Service U.S. Locations in 38 states Non-U.S. Locations in 34 countries Offices/Warehouses Retail/Showroom Training facilities/Hangars Offices/Distribution Production facilities Leasing/Showroom/Retail Training facilities/Hangars Offices/Distribution Leasing/Showroom/Retail McLane Company Retailing U.S. U.S. Locations in 28 states Distribution centers/Offices Offices/Warehouses Retail/Showroom Offices/Warehouses Retail/Offices Locations in 42 states Non-U.S. Locations in 6 countries K-27 Item 3. Legal Proceedings Berkshire and its subsidiaries are parties in a variety of legal actions that routinely arise out of the normal course of business, including legal actions seeking to establish liability directly through insurance contracts or indirectly through reinsurance contracts issued by Berkshire subsidiaries. Plaintiffs occasionally seek punitive or exemplary damages. We do not believe that such normal and routine litigation will have a material effect on our financial condition or results of operations. Berkshire and certain of its subsidiaries are also involved in other kinds of legal actions, some of which assert or may assert claims or seek to impose fines and penalties. We believe that any liability that may arise as a result of other pending legal actions will not have a material effect on our consolidated financial condition or results of operations. Item 4. Mine Safety Disclosures Information regarding the Company’s mine safety violations and other Section 1503 (a) of the Dodd-Frank Reform Act is included in Exhibit 95 to this Form 10-K. legal matters disclosed in accordance with Executive Officers of the Registrant Following is a list of the Registrant’s named executive officers: Name Warren E. Buffett Charles T. Munger Gregory E. Abel Ajit Jain Marc D. Hamburg Age Position with Registrant 88 95 56 67 69 Chairman and Chief Executive Officer Vice Chairman Vice Chairman – Non-Insurance Operations Vice Chairman – Insurance Operations Senior Vice-President – Chief Financial Officer Since 1970 1978 2018 2018 1992 Each executive officer serves, in accordance with the by-laws of the Registrant, until the first meeting of the Board of Directors following the next annual meeting of shareholders and until a successor is chosen and qualified or until such executive officer sooner dies, resigns, is removed or becomes disqualified. 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, 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, 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. K-28 Part II Item 5. Market for Registrant’s Common Equity, Related Security Holder Matters and Issuer Purchases of Equity Securities Market Information Berkshire’s Class A and Class B common stock are listed for trading on the New York Stock Exchange, trading symbol: BRK.A and BRK.B, respectively. Shareholders Berkshire had approximately 2,000 record holders of its Class A common stock and 19,500 record holders of its Class B common stock at February 15, 2019. Record owners included nominees holding at least 417,000 shares of Class A common stock and 1,374,000,000 shares of Class B common stock on behalf of beneficial-but-not-of-record owners. Dividends Berkshire has not declared a cash dividend since 1967. Common Stock Repurchase Program For several years, Berkshire had a common stock repurchase program, which permitted Berkshire to repurchase its Class A and Class B shares at prices no higher than a 20% premium over the book value of the shares. On July 17, 2018, Berkshire’s Board of Directors authorized an amendment to the program, permitting Berkshire to repurchase shares any time that Warren Buffett, Berkshire’s Chairman of the Board and Chief Executive Officer, and Charles Munger, Vice Chairman of the Board, believe that the repurchase price is below Berkshire’s intrinsic value, conservatively determined. Repurchases may be in the open market or through privately negotiated transactions. Information with respect to Berkshire’s Class A and Class B common stock repurchased during the fourth quarter of 2018 follows. Period October 11 through October 18: Total number of shares purchased Average price paid per share Total number of shares purchased as part of publicly announced program Maximum number or value of shares that yet may be repurchased under the program Class A common stock . . . . . . . . . . . . . . . . . . . . . . . . . . Class B common stock . . . . . . . . . . . . . . . . . . . . . . . . . . 202 589,955 $310,762.79 205.09 $ 202 589,955 December 13 through December 24: Class A common stock . . . . . . . . . . . . . . . . . . . . . . . . . . 790 $295,953.99 790 * * * * The program does not specify a maximum number of shares to be repurchased or obligate Berkshire to repurchase any specific dollar amount or number of Class A or Class B shares and there is no expiration date to the repurchase program. Berkshire will not repurchase its common stock if the repurchases reduce the total value of Berkshire’s consolidated cash, cash equivalents and U.S. Treasury Bills holdings to less than $20 billion. K-29 Market for Registrant’s Common Equity, Related Security Holder Matters and Issuer Purchases of Equity Securities (Continued) Stock Performance Graph The following chart compares the subsequent value of $100 invested in Berkshire common stock on December 31, 2013 with a similar investment in the Standard & Poor’s 500 Stock Index and in the Standard & Poor’s Property – Casualty Insurance Index.** 200 180 160 140 120 100 S R A L L O D H E B Berkshire Hathaway Inc. S&P 500 Index* S&P 500 Property & Casualty Insurance Index* 127 116 114 100 147 137 115 129 127 111 180 167 157 172 171 150 * ** 80 2013 2014 2015 2016 2017 2018 Cumulative return for the Standard & Poor’s indices based on reinvestment of dividends. It would be difficult to develop a peer group of companies similar to Berkshire. The Corporation owns subsidiaries engaged in a number of diverse business activities of which the most important is the property and casualty insurance business and, accordingly, management has used the Standard & Poor’s Property—Casualty Insurance Index for comparative purposes. K-30 Item 6. Selected Financial Data Selected Financial Data for the Past Five Years (dollars in millions except per-share data) 2018 2017 2016 2015 2014 Revenues: Insurance premiums earned . . . . . . . . . . . . . . . . . . . . . . . . . . Sales and service revenues . . . . . . . . . . . . . . . . . . . . . . . . . . Leasing revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Railroad, utilities and energy revenues . . . . . . . . . . . . . . . . . Interest, dividend and other investment income . . . . . . . . . . $ 57,418 133,336 5,732 43,673 7,678 $ 60,597 130,243 2,552 40,005 6,536 $ 45,881 123,053 2,553 37,447 6,180 $ 41,294 110,811 1,546 39,923 6,867 $ 41,253 100,606 1,463 40,610 6,484 Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 247,837 $ 239,933 $ 215,114 $ 200,441 $ 190,416 Investment and derivative gains/losses . . . . . . . . . . . . . . . . . . . . . . $ (22,455) $ 2,128 $ 8,304 $ 10,347 $ 4,081 Earnings: Net earnings attributable to Berkshire Hathaway (1) . . . . . . . Net earnings per share attributable to Berkshire Hathaway shareholders (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $ 4,021 $ 44,940 $ 24,074 $ 24,083 $ 19,872 2,446 $ 27,326 $ 14,645 $ 14,656 $ 12,092 Year-end data: Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Notes payable and other borrowings: $ 707,794 $ 702,095 $ 620,854 $ 552,257 $ 525,867 Insurance and other . . . . . . . . . . . . . . . . . . . . . . . . . . Railroad, utilities and energy . . . . . . . . . . . . . . . . . . 34,975 62,515 40,409 62,178 42,559 59,085 26,550 57,739 24,584 55,306 Berkshire Hathaway shareholders’ equity . . . . . . . . . . . . . . . Class A equivalent common shares outstanding, in 348,703 348,296 282,070 254,619 239,239 thousands . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,641 1,645 1,644 1,643 1,643 Berkshire Hathaway shareholders’ equity per outstanding Class A equivalent common share . . . . . . . . . . . . . . . . . . $ 212,503 $ 211,750 $ 171,542 $ 154,935 $ 145,619 (1) (2) Includes after-tax investment and derivative gains/losses of $(17.7) billion in 2018, $1.4 billion in 2017, $6.5 billion in 2016, $6.7 billion in 2015 and $3.3 billion in 2014. Beginning in 2018, investment gains/losses include the changes in fair values of equity securities during the period. Previously, investment gains/losses of equity securities were recognized in earnings when securities were sold or were other-than-temporarily impaired. Net earnings in 2017 includes a one-time net benefit of $29.1 billion attributable to the enactment of the Tax Cuts and Jobs Act of 2017. Represents net earnings per average equivalent Class A share outstanding. Net earnings per average equivalent Class B common share outstanding is equal to 1/1,500 of such amount. K-31 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Net earnings attributable to Berkshire Hathaway shareholders for each of the past three years are disaggregated in the table that follows. Amounts are after deducting income taxes and exclude earnings attributable to noncontrolling interests (in millions). Insurance – underwriting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,566 4,554 Insurance – investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,219 Railroad . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,621 Utilities and energy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,364 Manufacturing, service and retailing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (17,737) Investment and derivative gains/losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,566) Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — Tax Cuts and Jobs Act of 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (2,219) $ 1,370 3,636 3,569 2,230 6,803 6,497 (31) — 3,887 3,959 2,033 7,282 1,377 (485) 29,106 Net earnings attributable to Berkshire Hathaway shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,021 $44,940 $24,074 2018 2017 2016 Through our subsidiaries, we engage in a number of diverse business activities. We manage our operating businesses on an unusually decentralized basis. There are essentially no centralized or integrated business functions and there is minimal involvement by our corporate headquarters in the day-to-day business activities of the operating businesses. Our senior corporate management team participates in and is ultimately responsible for significant capital allocation decisions, investment activities and the selection of the Chief Executive to head each of the operating businesses. The business segment data (Note 26 to the accompanying Consolidated Financial Statements) should be read in conjunction with this discussion. Beginning in 2018, our periodic net earnings include changes in unrealized gains and losses on our investments in equity securities. These gains and losses are likely to be very significant given the size of our current holdings and the inherent volatility in securities prices. Prior to 2018, the changes in unrealized gains and losses pertaining to such investments were recorded in other comprehensive income. The new accounting treatment has no effect on our consolidated shareholders’ equity. After-tax earnings of our business operations in 2018 were favorably affected by lower U.S. income tax expense, primarily attributable to a reduction in the statutory U.S. corporate income tax rate from 35% to 21%. The effect of the lower U.S. statutory income tax rate in 2018 on the comparative after-tax earnings of our various business operations varied, reflecting the differences in the mix of earnings subject to income tax, income tax credits and the effects of state and local income taxes. Net earnings in 2017 included approximately $29.1 billion attributable to a one-time net benefit from the enactment of the Tax Cuts and Jobs Act of 2017 (“TCJA”) on December 22, 2017. See Note 18 to the Consolidated Financial Statements. This benefit included approximately $29.6 billion related to a one-time non-cash reduction of net deferred income tax liabilities from the reduction in the statutory U.S. corporate income tax rate from 35% to 21%, and a net benefit of approximately $900 million primarily attributable to our earnings from Kraft Heinz, partly offset by a one-time income tax expense of approximately $1.4 billion on the deemed repatriation of certain accumulated undistributed earnings of foreign subsidiaries. Due to their significance, we presented these one-time effects as a distinct item in the preceding table. Accordingly, the after-tax figures presented for 2017 in the discussion of our various operating businesses and other activities exclude the one-time effects of the TCJA. After-tax earnings from insurance underwriting were approximately $1.6 billion in 2018 compared to after-tax losses of approximately $2.2 billion in 2017. Results in 2018 included reductions of estimated ultimate liabilities for prior years’ property/ casualty loss events, gains from foreign currency exchange rate changes on certain non-U.S. Dollar denominated liabilities of U.S subsidiaries of $207 million and a lower effective income tax rate, partly offset by losses from significant catastrophe events of approximately $1.6 billion ($1.3 billion after-tax). After-tax losses from insurance underwriting in 2017 included estimated pre-tax losses of approximately $3.0 billion ($1.95 billion after-tax) from significant catastrophe events. Underwriting results in 2017 also included after-tax foreign currency exchange rate losses of $295 million. Our railroad business generated a 31.8% increase in after-tax earnings in 2018 compared to 2017, reflecting an increase in unit volume, higher average revenue per car/unit and a lower effective income tax rate, partly offset by increased fuel and other operating costs. After-tax earnings of our railroad business in 2017 were $4.0 billion, an increase of 10.9% compared to 2016, reflecting increased unit volume. Our utilities and energy businesses produced higher after-tax earnings in 2018 compared to 2017, primarily due to a lower overall effective income tax rate and the effects of losses incurred in 2017 in connection with the prepayment of certain long-term debt, partially offset by lower pre-tax earnings in certain of the regulated utilities. After-tax earnings of our utility and energy businesses in 2017 declined $197 million compared to 2016, reflecting the debt prepayment losses in 2017. K-32 Management’s Discussion and Analysis (Continued) Results of Operations (Continued) After-tax earnings in 2018 of our manufacturing, service and retailing businesses increased 29% over 2017, due to lower effective income tax rates and a 13% increase in pre-tax earnings. After-tax earnings in 2017 of our manufacturing, service and retailing businesses were $7.3 billion, an increase of 7.0% compared to 2016, reflecting comparatively higher earnings from several of our larger operations and the impact of businesses acquired in 2016 and 2017. After-tax losses from investments and derivative contracts were $17.7 billion in 2018, which included after-tax losses of approximately $18 billion from changes in market values of our investments in equity securities held at December 31, 2018. Prior to 2018, after-tax investment gains or losses on equity securities arose from the sale of securities during the period based on the cost of the disposed security or through the recording of other-than-temporary impairment losses. In 2017, we recorded after-tax unrealized gains on our investments in equity securities of approximately $19 billion in other comprehensive income. After-tax investment and derivative gains were approximately $1.4 billion in 2017 and $6.5 billion in 2016. Investment gains in 2016 included approximately $2.7 billion from the redemptions of our Wrigley and Kraft Heinz preferred stock investments, and sales of Dow Chemical common stock we received in the conversion of the Dow Chemical preferred stock investment. Investment gains in 2016 also included a non-cash after-tax gain of approximately $1.9 billion related to the exchange of Procter & Gamble (“P&G”) common stock for 100% of the common stock of Duracell. We believe that investment and derivative gains/losses, whether realized from dispositions or unrealized from changes in market prices of equity securities, are generally meaningless in understanding our reported results or evaluating the economic performance of our businesses. These gains and losses have caused and will continue to cause significant volatility in our periodic earnings. Other earnings included after-tax foreign currency exchange rate gains of $289 million in 2018, losses of $655 million in 2017 and gains of $159 million in 2016 related to parent company Euro-denominated debt. In addition, other earnings in 2018 included losses from equity method investments due to Kraft Heinz, partly offset by earnings from other equity method investments. Other earnings in 2018 also reflected increased interest income from short-term investments. Insurance—Underwriting Our management views our insurance businesses as possessing two distinct activities – underwriting and investing. Underwriting decisions are the responsibility of the unit managers, while investing decisions are the responsibility of Berkshire’s Chairman and CEO, Warren E. Buffett and Berkshire’s corporate investment managers. Accordingly, we evaluate performance of underwriting operations without any allocation of investment income or investment gains/losses. We consider investment income as a component of our aggregate insurance operating results. However, we consider investment gains and losses, whether realized or unrealized as non-operating, based on our long-held philosophy of acquiring securities and holding those securities for long periods. Accordingly, we believe that such gains and losses are not necessarily meaningful in understanding the operating results of our insurance operations. The timing and amount of catastrophe losses can produce significant volatility in our periodic underwriting results, particularly with respect to our reinsurance businesses. Generally, we consider catastrophe losses in excess of $100 million (pre-tax) from a current year event as significant. We incurred estimated pre-tax losses of approximately $1.6 billion in 2018 and $3.0 billion in 2017 from significant catastrophe events. Changes in estimates for unpaid losses and loss adjustment expenses, including amounts established for occurrences in prior years, can also significantly affect our periodic underwriting results. Unpaid loss estimates, including estimates under retroactive reinsurance contracts, were approximately $110 billion as of December 31, 2018. Our periodic underwriting results may also include significant foreign currency transaction gains and losses arising from the changes in the valuation of non-U.S. Dollar denominated reinsurance liabilities of our U.S. based insurance subsidiaries due to foreign currency exchange rate fluctuations. We engage in both primary insurance and reinsurance of property/casualty, life and health risks. In primary insurance activities, we assume defined portions of the risks of loss from persons or organizations that are directly subject to the risks. In reinsurance activities, we assume defined portions of similar or dissimilar risks that other insurers or reinsurers have subjected themselves to in their own insuring activities. Our insurance and reinsurance businesses are GEICO, Berkshire Hathaway Reinsurance Group (“BHRG”) and Berkshire Hathaway Primary Group. K-33 Management’s Discussion and Analysis (Continued) Insurance—Underwriting (Continued) Underwriting results of our insurance businesses are summarized below (dollars in millions). Underwriting gain (loss): GEICO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Berkshire Hathaway Reinsurance Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Berkshire Hathaway Primary Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,449 (1,109) 670 Pre-tax underwriting gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income taxes and noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,010 444 $ (310) $ (3,648) 719 (3,239) (1,020) 462 1,012 657 2,131 761 Net underwriting gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,566 $(2,219) $ 1,370 Effective income tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.4% 32.0% 34.8% 2018 2017 2016 GEICO GEICO writes private passenger automobile insurance, offering coverages to insureds in all 50 states and the District of Columbia. GEICO markets its policies mainly by direct response methods where most customers apply for coverage directly to the company via the Internet or over the telephone. A summary of GEICO’s underwriting results follows (dollars in millions). 2018 2017 2016 Amount % Amount % Amount % Premiums written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 34,123 $ 30,547 $ 26,309 Premiums earned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 33,363 100.0 $ 29,441 100.0 $ 25,483 100.0 Losses and loss adjustment expenses . . . . . . . . . . . . . . . . . . . . . . . . Underwriting expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total losses and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,278 4,636 30,914 78.8 13.9 92.7 25,497 4,254 86.6 14.5 29,751 101.1 21,044 3,977 25,021 82.6 15.6 98.2 Pre-tax underwriting gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,449 $ (310) $ 462 Premiums written were $34.1 billion in 2018, an increase of 11.7% compared to 2017. The increase reflected voluntary auto policies-in-force growth of 3.3% and increased premiums per auto policy of approximately 6.4%. The increase in premiums per policy was attributable to rate increases, coverage changes and changes in state and risk mix. The rate increases were in response to accelerating claim costs in recent years. Although policies-in-force increased 540,000 during 2018, the rate of increase slowed, as voluntary auto new business sales decreased 4.7% compared to 2017. Pre-tax underwriting gains in 2018 were $2,449 million compared to losses of $310 million in 2017. Underwriting results in 2018 reflected the effects of lower losses from significant catastrophe events and from prior years’ loss events, as well as increased average premiums per policy. Losses and loss adjustment expenses were $26.3 billion in 2018, an increase of $781 million (3.1%) compared to 2017. GEICO’s ratio of losses and loss adjustment expenses to premiums earned (the “loss ratio”) for 2018 was 78.8%, a decline of 7.8 percentage points compared to 2017. Losses from significant catastrophe events were $105 million in 2018 (Hurricanes Florence and Michael and the wildfires in California) and approximately $450 million in 2017 (Hurricanes Harvey and Irma). Losses and loss adjustment expenses regularly include gains or losses for the decreases or increases in the ultimate claim loss estimates during the period for prior years’ loss events. These gains or losses produce corresponding increases or decreases to pre-tax underwriting gains. GEICO’s losses and loss adjustment expenses included gains of $222 million in 2018 and losses of $517 million in 2017 with respect to prior years’ loss events. In addition, claims frequencies in 2018 for property damage, collision, and bodily and personal injury protection coverages declined (two to four percent range) compared to 2017. Average claims severities in 2018 increased for property damage and collision coverages (four to six percent range) and bodily injury coverage (five to seven percent range) versus 2017. K-34 Management’s Discussion and Analysis (Continued) Insurance—Underwriting (Continued) GEICO (Continued) Underwriting expenses were approximately $4.6 billion in 2018, an increase of $382 million (9.0%) over 2017. GEICO’s expense ratio (underwriting expenses to premiums earned) in 2018 was 13.9%, a decrease of 0.6 percentage points compared to 2017. The underwriting expense increase was primarily attributable to increases in advertising expenses, insurance premium taxes and employee-related costs, which reflected wage and staffing increases. Premiums written were $30.5 billion in 2017, an increase of 16.1% over 2016, and premiums earned were $29.4 billion, an increase of approximately $4.0 billion (15.5%). During 2017, our voluntary auto policies-in-force grew approximately 8.6% and premiums per auto policy increased 6.9%. The increase in average premiums per policy was attributable to rate increases, coverage changes and changes in state and risk mix. Voluntary auto new business sales in 2017 increased 10.5% compared to 2016. Voluntary auto policies-in-force increased approximately 1,276,000 during 2017. Pre-tax underwriting losses in 2017 were $310 million compared to pre-tax gains of $462 million in 2016. Losses and loss adjustment expenses in 2017 increased approximately $4.5 billion (21.2%) compared to 2016. Our loss ratio in 2017 increased 4.0 percentage points compared to 2016. The increase in losses incurred was attributable to increased average claims severities, losses from significant catastrophe events in 2017 ($450 million) and losses with respect to prior years’ loss events ($517 million). Average claims severities were higher in 2017 for property damage and collision coverages (four to six percent range) and bodily injury coverage (five to seven percent range). Claims frequencies in 2017 were relatively unchanged compared to 2016 for bodily injury coverage, decreased about one percent for property damage and collision coverages and decreased about two to three percent for personal injury protection coverage. Underwriting expenses increased $277 million (7.0%) in 2017 compared to 2016. Our expense ratio in 2017 declined 1.1 percentage points compared to 2016. Berkshire Hathaway Reinsurance Group We offer excess-of-loss and quota-share reinsurance coverages on property and casualty risks and life and health reinsurance to insurers and reinsurers worldwide through several subsidiaries, led by National Indemnity Company (“NICO”), Berkshire Hathaway Life Insurance Company of Nebraska (“BHLN”) and General Reinsurance Corporation, General Reinsurance AG and General Re Life Corporation (collectively, “General Re”). We also periodically assume property and casualty risks under retroactive reinsurance contracts written through NICO. In addition, we write periodic payment annuity contracts predominantly through BHLN. With the exception of our retroactive reinsurance and periodic payment annuity businesses, we strive to generate pre-tax underwriting profits. Time-value-of-money concepts are important elements in establishing prices for retroactive reinsurance and periodic payment annuity businesses due to the expected long durations of the liabilities. We expect to incur pre-tax underwriting losses from such businesses, primarily through deferred charge amortization and discount accretion charges. We receive premiums at the inception of these contracts, which are then available for investment. A summary of BHRG’s premiums and pre-tax underwriting results follows (dollars in millions). Premiums written Premiums earned Pre-tax underwriting gain (loss) 2018 2017 2016 2018 2017 2016 2018 2017 2016 Property/casualty . . . . . . . . . Retroactive reinsurance . . . . Life/health . . . . . . . . . . . . . . Periodic payment annuity . . . $ $ 9,413 517 5,446 1,156 $ 7,713 10,755 4,846 898 6,993 1,254 4,588 1,082 $ 8,928 517 5,343 1,156 $ 7,552 10,755 4,808 898 $ 7,218 1,254 4,587 1,082 $ (207) (778) 216 (340) $ (1,595) $ (1,330) (52) (671) 895 (60) 305 (128) $ 16,532 $ 24,212 $ 13,917 $ 15,944 $ 24,013 $ 14,141 $ (1,109) $ (3,648) $ 1,012 K-35 Management’s Discussion and Analysis (Continued) Insurance—Underwriting (Continued) Berkshire Hathaway Reinsurance Group (Continued) Property/casualty A summary of property/casualty reinsurance underwriting results follows (dollars in millions). 2018 2017 2016 Amount % Amount % Amount % Premiums written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Premiums earned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Losses and loss adjustment expenses . . . . . . . . . . . . . . . . Underwriting expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . Total losses and expenses . . . . . . . . . . . . . . . . . . . . . . . . . $ $ 9,413 8,928 6,929 2,206 9,135 100.0 77.6 24.7 102.3 $ $ 7,713 7,552 7,217 1,930 9,147 $ $ 6,993 7,218 4,336 1,987 6,323 100.0 60.1 27.5 87.6 100.0 95.6 25.5 121.1 Pre-tax underwriting gain (loss) . . . . . . . . . . . . . . . . . . . . $ (207) $ (1,595) $ 895 Property/casualty premiums earned in 2018 were $8.9 billion, an increase of 18.2% compared to 2017, while premiums earned in 2017 increased 4.6% compared to 2016. These increases were primarily attributable to higher direct and broker markets business, derived primarily from new business and increased participations for renewal business in both property and casualty lines. Premiums earned included approximately $1.8 billion in both 2018 and 2017 and $1.7 billion in 2016 from a 10-year, 20% quota-share contract entered into by NICO with Insurance Australia Group Limited, which expires in 2025. Losses and loss adjustment expenses in 2018 decreased $288 million (4.0%) compared to 2017, and the loss ratio declined 18 percentage points to 77.6%. Losses incurred from significant catastrophe events in 2018 were approximately $1.3 billion, which derived from Hurricanes Florence and Michael, Typhoon Jebi and the wildfires in California, including $1.1 billion in the fourth quarter. Losses from significant catastrophe events in 2017 were approximately $2.4 billion, which derived from Hurricanes Harvey, Irma and Maria, an earthquake in Mexico, a cyclone in Australia and wildfires in California. There were no significant catastrophe loss events in 2016. In addition, losses and loss adjustment expenses reflected net gains of $469 million in 2018, $295 million in 2017 and $874 million in 2016 from reductions of estimated ultimate losses for prior years’ events. The net gain in 2018 was primarily due to lower than expected property losses. The net gain from prior years’ loss events in 2017 reflected losses from higher than expected property claims and increases in certain United Kingdom (“U.K.”) claim liabilities attributable to the U.K. Ministry of Justice’s decision to reduce the fixed discount rate required in lump sum settlement calculations of personal injury claims from 2.5% to negative 0.75%. Retroactive reinsurance Retroactive reinsurance premiums earned in 2018 were $517 million, which derived primarily from one contract. Premiums earned in 2017 included $10.2 billion from an aggregate excess-of-loss retroactive reinsurance agreement with various subsidiaries of American International Group, Inc. (the “AIG Agreement”). At the inception of our retroactive reinsurance contracts, we record the estimated ultimate claim liabilities, and we also record the excess of such claim liabilities over the premiums received as a deferred charge asset. Thus, as of the inception dates of these contracts, there is no net underwriting gain or loss. Deferred charge assets are subsequently amortized over the expected claim settlement period as losses and loss adjustment expenses. Pre-tax underwriting losses from retroactive reinsurance contracts were $778 million in 2018, $1,330 million in 2017 and $60 million in 2016. Certain retroactive reinsurance liabilities of our U.S. subsidiaries are denominated in foreign currencies. Pre-tax underwriting results included gains of $169 million in 2018, losses of $264 million in 2017 and gains of $392 million in 2016 associated with the re-measurement of such liabilities due to currency exchange rate changes. Pre-tax underwriting losses before foreign currency gains/losses were $947 million in 2018, $1,066 million in 2017 and $452 million in 2016, which derived from deferred charge amortization and changes in the estimated timing and amount of future claim payments. Pre-tax underwriting losses related to the AIG Agreement were $611 million in 2018 and $527 million in 2017. In 2018, we decreased estimated ultimate liabilities $341 million for prior years’ retroactive reinsurance contracts, which after adjustments to the related unamortized deferred charges from changes in the estimated timing and amount of the future claim payments, produced pre-tax underwriting gains of approximately $185 million. Changes in estimated ultimate liabilities for prior years’ contracts had a relatively insignificant effect on pre-tax underwriting results in 2017 and 2016. K-36 Management’s Discussion and Analysis (Continued) Insurance—Underwriting (Continued) Berkshire Hathaway Reinsurance Group (Continued) Retroactive reinsurance (Continued) Unpaid losses assumed under retroactive reinsurance contracts were approximately $41.8 billion at December 31, 2018 and $42.9 billion at December 31, 2017. Deferred charge assets related to such contracts were approximately $14.1 billion at December 31, 2018 and $15.3 billion at December 31, 2017. Deferred charge assets will be charged to pre-tax earnings over the expected remaining claims settlement periods through periodic amortization. Life/health A summary of our life/health reinsurance underwriting results follows (dollars in millions). 2018 2017 2016 Amount % Amount % Amount % Premiums written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Premiums earned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Life and health insurance benefits . . . . . . . . . . . . . . . . . . Underwriting expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . Total benefits and expenses . . . . . . . . . . . . . . . . . . . . . . . $ $ 5,446 5,343 4,226 901 5,127 $ $ 4,846 4,808 4,276 584 4,860 100.0 79.1 16.9 96.0 100.0 88.9 12.2 101.1 $ $ 4,588 4,587 3,644 638 4,282 100.0 79.4 13.9 93.3 Pre-tax underwriting gain (loss) . . . . . . . . . . . . . . . . . . . . $ 216 $ (52) $ 305 Life/health premiums earned were $5.3 billion, an increase of $535 million (11.1%) over 2017, which increased $221 million (4.8%) compared to 2016. The increases in each year were primarily attributable to growth in the North America, Asia and Australia life insurance markets. In each of the last three years, premiums earned of approximately $1.0 billion derived from a BHLN reinsurance contract with a major reinsurer covering predominantly life risks in North America. Our life/health business produced pre-tax underwriting gains of $216 million in 2018, losses of $52 million in 2017 and gains of $305 million in 2016. The underwriting gains in 2018 reflected lower losses from the run-off of U.S. long-term care business, partially offset by lower gains from the run-off of variable annuity guarantee contracts. In the fourth quarter of 2017, we recorded pre-tax losses of $450 million from discount rate reductions and changes in other actuarial assumptions associated with long-term care liabilities. Pre-tax gains from variable annuity guarantee reinsurance were $34 million in 2018, $256 million in 2017 and $231 million in 2016. Underwriting results from this business reflect changes in estimated liabilities for guaranteed benefits, which result from changes in securities markets and interest rates and from the periodic amortization of expected profit margins. Periodic payment annuity Periodic payment annuity premiums earned in 2018 were $1,156 million, an increase of $258 million (28.7%) compared to 2017, which declined $184 million (17.0%) from 2016, reflecting a corresponding increase and decrease in new business volumes. Periodic payment business is price sensitive, and the volume we write can 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, and the level of competition. Periodic payment annuity contracts produced pre-tax losses of $340 million in 2018, $671 million in 2017 and $128 million in 2016. Certain contracts written by our U.S. subsidiaries are denominated in foreign currencies and pre-tax underwriting results included gains of $93 million in 2018, losses of $190 million in 2017 and gains of $313 million in 2016 from the re-measurement of such liabilities due to changes in exchange rates. Before foreign currency gains and losses, pre-tax underwriting losses were $433 million in 2018, $481 million in 2017 and $441 million in 2016. These losses primarily derived from the recurring discount accretion of annuity liabilities, as well as the impact of mortality and interest rate changes. Discounted annuity liabilities approximated $12.5 billion at December 31, 2018 and $11.2 billion at December 31, 2017, reflecting a weighted average discount rate of approximately 4.1%. K-37 Management’s Discussion and Analysis (Continued) Insurance—Underwriting (Continued) Berkshire Hathaway Primary Group The Berkshire Hathaway Primary Group (“BH Primary”) provides a variety of commercial insurance solutions, including healthcare malpractice, workers’ compensation, automobile, general liability, property and various specialty coverages for small, medium and large clients. The largest of these insurers are Berkshire Hathaway Specialty Insurance (“BH Specialty”), Berkshire Hathaway Homestate Companies (“BHHC”), MedPro Group, Berkshire Hathaway GUARD Insurance Companies (“GUARD”), and National Indemnity Company (“NICO Primary”). Other BH Primary insurers include U.S. Liability Insurance Company, Applied Underwriters, Central States Indemnity Company and MLMIC Insurance Company, acquired October 1, 2018. A summary of BH Primary underwriting results follows (dollars in millions). 2018 2017 2016 Amount % Amount % Amount % Premiums written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,561 Premiums earned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,111 100.0 Losses and loss adjustment expenses . . . . . . . . . . . . . . . . . . . . . . Underwriting expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total losses and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,261 2,180 7,441 64.9 26.9 91.8 $ $ 7,483 7,143 4,511 1,913 6,424 $ 6,684 100.0 $ 63.1 26.8 89.9 6,257 3,864 1,736 5,600 100.0 61.8 27.7 89.5 Pre-tax underwriting gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 670 $ 719 $ 657 Premiums written and earned in 2018 increased 14.4% and 13.6%, respectively, compared to 2017. The increases in premiums written and earned were primarily attributable to written premium growth at BH Specialty (32.5%), GUARD (19.4%), NICO Primary (14.0%) and BHHC (7.6%). Premiums written and earned in 2017 increased 12.0% and 14.2%, respectively, compared to 2016 reflecting written premium increases from all of the significant BH Primary insurers, led by GUARD (26%), BH Specialty (23%) and BHHC (9%). BH Primary’s loss ratios were 64.9% in 2018, 63.1% in 2017, and 61.8% in 2016. Losses and loss adjustment expenses included losses from significant catastrophe events of $190 million in 2018 from Hurricanes Florence and Michael and the wildfires in California and $225 million in 2017 from Hurricanes Harvey, Irma and Maria. Losses and loss adjustment expenses also included net gains from the reductions of estimated ultimate liabilities for prior years’ loss events of $715 million in 2018, $766 million in 2017 and $503 million in 2016. The liability reductions in each year primarily related to healthcare malpractice and workers’ compensation business. BH Primary writes significant levels of commercial and professional liability and workers’ compensation insurance and the related claim costs may be subject to higher severity and longer claim-tails, which could give rise to significant increases in claims liabilities in the future attributable to higher than expected claim settlements, adverse litigation outcomes or judicial rulings and other factors not currently anticipated. Insurance—Investment Income A summary of net investment income attributable to our insurance operations follows (dollars in millions). Interest and other investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Dividend income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investment income before income taxes and noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . Income taxes and noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2018 2017 2016 1,851 3,652 5,503 949 $ 1,263 3,592 4,855 968 $ 930 3,552 4,482 846 Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,554 $ 3,887 $ 3,636 Effective income tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.2% 19.9% 18.8% K-38 Management’s Discussion and Analysis (Continued) Insurance—Investment Income (Continued) Pre-tax interest and other investment income increased $588 million (46.6%) compared to 2017. The increase reflected the effect of higher short-term interest rates in 2018 and higher other investment income, partly offset by lower interest from lower average investments in fixed maturity securities. Our invested assets continue to include significant levels of short-term investments. We believe that maintaining ample liquidity is paramount and we insist on safety over yield with respect to such investments. Dividend income increased $60 million (1.7%) in 2018 as compared to 2017, reflecting the impact of increased investments in marketable equity securities and higher dividend rates, partially offset by Restaurant Brands International’s redemption of our $3 billion investment in 9% preferred stock in December 2017. Pre-tax investment income increased $373 million (8.3%) in 2017 compared to 2016, attributable to higher interest rates on short-term investments and increased other investment income. Dividend income in 2017 was relatively unchanged compared to 2016 reflecting increased dividend rates and increased overall investment levels, offset by the impact of the conversion of our $3 billion investment in Dow Chemical Company (“Dow”) 8.5% preferred stock into Dow common stock at the end of 2016. Prior to its conversion, we received dividends of $255 million per annum. Invested assets of our insurance businesses derive from shareholder capital, including reinvested earnings, and from 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 insurance benefit liabilities, unearned premiums and other liabilities due to policyholders, less insurance premiums and reinsurance receivables, deferred charges assumed under retroactive reinsurance contracts and deferred policy acquisition costs. Float approximated $123 billion at December 31, 2018, $114 billion at December 31, 2017, and $91 billion at December 31, 2016. The increase in float in 2018 reflected the effects of the acquisition of MLMIC and overall growth of our insurance operations. The significant increase in float in 2017 reflected increases in loss adjustment expenses, including liabilities (net of deferred charges) assumed under retroactive reinsurance contracts written in 2017 and estimated liabilities related to catastrophe events, and overall growth of our insurance operations. Our combined insurance operations generated pre-tax underwriting earnings of approximately $2.0 billion in 2018, and consequently, the average cost of float for the period was negative. Pre-tax underwriting losses were approximately $3.2 billion in 2017 and our average cost of float was approximately 3.0%. A summary of cash and investments held in our insurance businesses as of December 31, 2018 and 2017 follows (in millions). Cash, cash equivalents and U.S. Treasury Bills . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fixed maturity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 64,548 166,385 19,690 $ 73,285 163,134 21,092 December 31, 2018 2017 Fixed maturity investments as of December 31, 2018 were as follows (in millions). $ 250,623 $ 257,511 Amortized cost Unrealized gains/losses Carrying value U.S. Treasury, U.S. government corporations and agencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ States, municipalities and political subdivisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign governments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Corporate bonds, investment grade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Corporate bonds, non-investment grade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mortgage-backed securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,213 177 7,478 6,241 664 443 $ — $ 7 22 361 26 58 4,213 184 7,500 6,602 690 501 $ 19,216 $ 474 $ 19,690 U.S. government obligations are rated AA+ or Aaa by the major rating agencies. Approximately 87% of all state, municipal and political subdivisions, foreign government obligations and mortgage-backed securities were rated AA or higher. Non-investment grade securities represent securities rated below BBB- or Baa3. Foreign government securities include obligations issued or unconditionally guaranteed by national or provincial government entities. K-39 Management’s Discussion and Analysis (Continued) Railroad (“Burlington Northern Santa Fe”) Burlington Northern Santa Fe, LLC (“BNSF”) operates one of the largest railroad systems in North America, with approximately 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 and include consumer products, coal, industrial products and agricultural products. A summary of BNSF’s earnings follows (dollars in millions). Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 23,855 $ 21,387 $ 19,829 2018 2017 2016 Operating expenses: Compensation and benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fuel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purchased services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equipment rents, materials and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Pre-tax earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,394 3,346 2,870 2,317 2,024 15,951 1,041 16,992 6,863 1,644 5,023 2,518 2,514 2,352 1,636 14,043 1,016 15,059 6,328 2,369 4,809 1,934 2,418 2,128 1,855 13,144 992 14,136 5,693 2,124 Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,219 $ 3,959 $ 3,569 Effective income tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24.0% 37.4% 37.3% 2018 versus 2017 BNSF’s revenues were $23.9 billion in 2018, representing an increase of $2.5 billion (11.5%) versus 2017. BNSF’s revenues in 2018 reflected a 6.2% comparative increase in average revenue per car/unit and a 4.1% increase in volume. Combined volume was 10.7 million cars/units compared to 10.3 million in 2017. The increase in average revenue per car/unit was attributable to increased rates per car/unit, higher fuel surcharge revenue driven by higher fuel prices, and business mix changes. Pre-tax earnings were approximately $6.9 billion in 2018, an increase of 8.5% compared to 2017. Revenues from consumer products were $7.9 billion in 2018, an increase of 11.1% compared to 2017, reflecting higher average revenue per car/unit and volume increases of 2.9%. The volume increases were due to higher domestic intermodal volumes, primarily attributable to general economic growth and tight truck capacity leading to conversion from highway to rail, as well as growth in imports and containerized agricultural product exports, partially offset by a sizable contract loss. Revenues from industrial products were $6.0 billion in 2018, an increase of 16.2% from 2017. The increase was attributable to volume increases of 9.8% as well as higher average revenue per car/unit. Volumes in 2018 were higher primarily due to strength in the industrial and energy sectors, which drove higher demand for petroleum products, building products, construction products, and plastics. Revenues from agricultural products increased 8.8% in 2018 to $4.7 billion compared to 2017. The increase was due to higher volumes of 9.0%, partially offset by slightly lower average revenue per car/unit. Volumes increased due to strong export and domestic corn shipments, as well as higher fertilizer and other grain products volumes, partially offset by a reduction in soybean and wheat exports. Revenues from coal in 2018 increased 4.3% to $4.0 billion compared to 2017, attributable to higher average revenue per car/unit, partially offset by lower volumes of 0.8%. The volume decreases in 2018 were due mainly to utility plant retirements combined with competition from natural gas and renewables, mostly offset by market share gains and improved export volumes. Total operating expenses were $16.0 billion in 2018, an increase of $1.9 billion (13.6%) compared to 2017. Our ratio of operating expenses to revenues increased 1.2 percentage points to 66.9% in 2018 versus 2017. Compensation and benefits expenses increased $371 million (7.4%) compared to 2017. The increase was primarily due to wage inflation and increased headcount and associated training costs. Fuel expenses increased $828 million (32.9%) compared to 2017 primarily due to higher average fuel prices and increased volumes. K-40 Management’s Discussion and Analysis (Continued) Railroad (“Burlington Northern Santa Fe”) (Continued) Purchased services expense increased $356 million (14.2%) compared to 2017. The increase was due to higher purchased transportation costs of our logistics services business, as well as increased intermodal ramping, drayage, and other volume-related costs. Equipment rents, materials and other expense increased $388 million (23.7%) compared to 2017. The increase resulted from higher locomotive material, personal injury expenses, derailment-related costs, and property taxes, as well as a benefit of the enactment of the TCJA on an equity method investee in 2017. BNSF’s effective income tax rate was 24.0% for 2018 as compared to 37.4% for 2017 which excludes the effects of the TCJA. The reduction in the U.S. statutory income tax rate under the TCJA, effective January 1, 2018, drove most of the effective income tax rate decrease. 2017 versus 2016 BNSF’s revenues were $21.4 billion in 2017, representing an increase of $1.6 billion (7.9%) versus 2016. Pre-tax earnings increased 11.2% in 2017 compared to 2016. During 2017, BNSF’s revenues reflected a 2.4% comparative increase in average revenue per car/unit and a 5.3% increase in volume. Combined volume was 10.3 million cars/units in 2017 compared to 9.8 million in 2016. The increase in average revenue per car/unit was primarily attributable to higher fuel surcharge revenue, increased rates per car/unit and business mix changes. Revenues from consumer products were $7.1 billion in 2017, representing an increase of 8.8% compared to 2016, reflecting volume increases of 6.3% as well as higher average revenue per car/unit. The volume increases were primarily attributable to improving economic conditions, normalizing of retail inventories, new services and higher market share, which benefited domestic intermodal, international intermodal and automotive volumes. Revenues from industrial products were $5.1 billion in 2017, an increase of 7.7% from 2016, attributable to a volume increase of 5.0% as well as higher average revenue per car/unit. Volumes in 2017 were higher for sand and other commodities that support drilling. In addition, broad strengthening in the industrial sector drove greater demand for steel and taconite. These volume increases were partially offset by lower petroleum products volume due to pipeline displacement of U.S. crude rail traffic. Revenues from agricultural products increased 1.8% to $4.3 billion in 2017 compared to 2016, primarily due to higher average revenue per car/unit. Volumes were relatively flat, primarily due to higher shipments of domestic grain, ethanol and other grain products, offset by lower grain exports. Revenues from coal increased 13.7% to $3.8 billion in 2017 compared to 2016. This increase reflected higher average revenue per car/unit as well as 6.3% higher volumes. The volume increases in 2017 were due to the effects of higher natural gas prices, which led to increased utility coal usage. This was partially offset by the effects of unit retirements at coal generating facilities, increased renewable generation and coal inventory adjustments at customer facilities. Total operating expenses were $14.0 billion in 2017, an increase of $899 million (6.8%) compared to 2016. Our ratio of operating expenses to revenues decreased 0.6 percentage points to 65.7% in 2017 versus 2016. Compensation and benefits expenses increased $214 million (4.4%) compared to 2016. The increase was primarily due to higher health and welfare costs and volume- related increases, partially offset by lower headcount. Fuel expenses increased $584 million (30.2%) compared to 2016 primarily due to higher average fuel prices and increased volumes. Depreciation and amortization expense increased $224 million (10.5%) compared to 2016 due to a larger base of depreciable assets in service. Equipment rents, materials and other expense declined $219 million (11.8%) compared to 2016. These declines resulted from the impact of the enactment of the TCJA on an equity method investee, as well as lower personal injury and casualty costs. Utilities and Energy (“Berkshire Hathaway Energy Company”) We currently own 90.9% of the outstanding common stock of Berkshire Hathaway Energy Company (“BHE”), which operates a global energy business. BHE’s domestic regulated utility interests are comprised of PacifiCorp, MidAmerican Energy Company (“MEC”) and NV Energy. In Great Britain, BHE subsidiaries operate two regulated electricity distribution businesses referred to as Northern Powergrid. BHE also owns two domestic regulated interstate natural gas pipeline companies. 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. In addition, BHE also operates the second-largest residential real estate brokerage firm and one of the largest residential real estate brokerage franchise networks in the United States. K-41 Management’s Discussion and Analysis (Continued) Utilities and Energy (“Berkshire Hathaway Energy Company”) (Continued) 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 these regulated operations are not allowed to include such costs in the approved rates, operating results will be adversely affected. Among its provisions, the TCJA reduced the U.S. federal statutory income tax rate of our domestic regulated utilities from 35% to 21%. In 2018, BHE’s regulated subsidiaries began passing the benefits of lower income tax expense attributable to the TCJA to customers through various regulatory mechanisms, including lower rates, higher depreciation and reductions to rate base, which produced lower revenue and pre-tax earnings in 2018. Revenues and earnings of BHE are summarized below (dollars in millions). Revenues Earnings 2018 2017 2016 2018 2017 2016 PacifiCorp . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . MidAmerican Energy Company . . . . . . . . . . . . . . . . . . . . . . NV Energy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Northern Powergrid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Natural gas pipelines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other energy businesses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Real estate brokerage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Corporate interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $ 5,078 3,117 3,065 1,021 1,226 2,252 4,228 — $ 5,276 2,906 3,048 950 1,009 2,209 3,456 — $ 5,245 2,668 2,925 997 986 2,128 2,815 — $ 19,987 $ 18,854 $ 17,764 Pre-tax earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income tax expense (benefit) . . . . . . . . . . . . . . . . . . . . . . . . . Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 745 407 417 304 507 296 204 (408) 2,472 (452) 2,924 303 $ 1,131 372 567 311 446 296 220 (844) 2,499 148 2,351 318 1,105 392 559 367 413 282 225 (465) 2,878 371 2,507 277 Net earnings attributable to Berkshire Hathaway shareholders . . . . . . . . . . . . . . . . . . . . $ 2,621 $ 2,033 $ 2,230 Effective income tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (18.3)% 5.9% 12.9% PacifiCorp PacifiCorp operates a regulated electric utility in portions of several Western states, including Utah, Oregon and Wyoming. Revenues in 2018 decreased 4% compared to 2017. Retail revenues in 2018 decreased $197 million compared to 2017. The decline reflected the effects of lower average rates ($180 million, including the impact of the TCJA of $152 million), and a reduction in volumes (0.2%), largely attributable to the impacts of weather. Pre-tax earnings decreased $386 million (34%) in 2018 as compared to 2017. Utility margin (operating revenues less cost of fuel and energy) in 2018 was $3,269 million, a decrease of $198 million (6%) versus 2017. The decrease was primarily due to the declines in revenues, which included the effects of the TCJA. In addition, pre-tax earnings were negatively impacted $174 million (offset in income tax expense) due to a state regulatory order that accelerated depreciation expense on certain thermal generation facilities. PacifiCorp’s after-tax earnings in 2018 were $739 million, a decrease of $24 million (3%) from 2017. Revenues increased 1% in 2017 compared to 2016. Wholesale and other revenues increased, reflecting higher volumes and average rates, and retail revenues decreased slightly, attributable to lower average rates, partly offset by higher volumes. Pre-tax earnings increased $26 million (2%) in 2017 as compared to 2016. The increase in earnings reflected higher utility margin, lower operations and maintenance expenses, and increased depreciation and amortization attributable to additional plant in-service. PacifiCorp’s after-tax earnings in 2017 were $763 million, a decrease of $1 million from 2016. K-42 Management’s Discussion and Analysis (Continued) Utilities and Energy (“Berkshire Hathaway Energy Company”) (Continued) MidAmerican Energy Company MEC operates a regulated electric and natural gas utility primarily in Iowa and Illinois. Revenues in 2018 increased $211 million (7%) compared to 2017. Electric operating revenues increased $175 million (8%) and natural gas revenues increased $35 million (5%) in 2018 versus 2017. The increase in electric revenues was primarily attributable to higher retail revenues of $102 million, reflecting higher recoveries through bill riders (substantially offset in cost of sales, operating expenses and income tax expense) and volumes, partially offset by lower average rates, predominantly from the impact of the TCJA, and higher wholesale and other revenues of $73 million from higher volumes and average prices. The increase in natural gas revenues was primarily due to increased volumes, partially offset by a lower average per-unit price and the effects of the TCJA. Pre-tax earnings in 2018 increased $35 million (9%) compared to 2017. Electric utility margin in 2018 was $1,796 million, an increase of $122 million (7%) over 2017, which was primarily due to the net increase in retail revenues. However, the increase in electric utility margin was mostly offset by increased depreciation, maintenance and other operating expenses. The increase in depreciation expense included $65 million from additional wind generation and other plant placed in-service and $44 million from Iowa revenue sharing. MEC’s after-tax earnings in 2018 and 2017 were $669 million and $584 million, respectively, increases of $85 million (15%) and $52 million (10%), respectively, as compared to the corresponding prior years. MEC’s after-tax earnings were significantly greater than pre-tax earnings, primarily due to production income tax credits received relating to wind-powered generating facilities. Revenues increased $238 million (9%) in 2017 as compared to 2016. The increase was primarily attributable to higher electric operating revenues ($123 million) and increased natural gas operating revenues ($82 million). Retail electric revenues increased $84 million in 2017 compared to 2016, primarily attributable to higher recoveries through bill riders and from non-weather usage and growth and rate factors, partially offset by the unfavorable impact of milder temperatures in 2017. Wholesale electric and other revenues increased $39 million in 2017 versus 2016, attributable to comparative increases in volumes, average rates and transmission fees. The natural gas operating revenues increase was primarily due to higher average per-unit costs of gas sold, which was offset by an increase in cost of sales. Pre-tax earnings declined $20 million (5%) in 2017 compared to 2016, reflecting increased depreciation, maintenance and other operating expenses and interest expense and debt extinguishment costs, partially offset by comparative increases in electric utility margins of $76 million. NV Energy NV Energy operates regulated electric and natural gas utilities in Nevada. Revenues in 2018 increased 1% compared to 2017. Electric operating revenues increased $17 million in 2018, reflecting increased pass-through cost adjustments and higher volumes largely attributable to the impacts of weather and retail customer growth, partly offset by reductions from the impact of the TCJA and lower retail rates resulting from a 2017 regulatory rate review. Natural gas operating revenue increased $5 million in 2018, primarily due to a higher average per-unit price, partially offset by lower customer usage. Pre-tax earnings in 2018 decreased $150 million (26%) compared to 2017. The decrease was primarily due to lower electric utility margin and increased depreciation, maintenance and other operating costs. Electric utility margin in 2018 was $1,696 million, representing a $52 million (3%) decrease versus 2017. The decrease was primarily due to the effects of the TCJA, partially offset by the higher sales volumes. NV Energy’s after-tax earnings in 2018 were $317 million, a decline of 13% from 2017. Revenues increased $123 million (4%) in 2017 compared to 2016. The increase was due primarily to an increase in retail electric operating revenues, which included a combination of increased rates from pass-through cost adjustments and higher volumes, partly offset by lower revenues from energy efficiency programs (offset by lower operating expenses). NV Energy also experienced retail electric revenue declines from the transition of certain commercial and industrial customers electing to purchase power from alternative sources and thus becoming distribution service only customers. Natural gas operating revenue declined $11 million in 2017, primarily due to lower rates, partially offset by higher customer usage. Pre-tax earnings increased $8 million (1%) in 2017 compared to 2016, primarily due to lower interest expenses. NV Energy’s after-tax earnings in 2017 were $365 million, an increase of 2% from 2016. K-43 Management’s Discussion and Analysis (Continued) Utilities and Energy (“Berkshire Hathaway Energy Company”) (Continued) Northern Powergrid Revenues increased $71 million (7%) in 2018 compared to 2017, primarily due to the favorable foreign currency translation effects of a weaker average U.S. Dollar in 2018 and increased smart meter and distribution revenues. Pre-tax earnings in 2018 decreased $7 million (2%) compared to 2017, primarily due to higher depreciation and other operating expenses, including higher pension settlement losses, partly offset by favorable foreign currency translation effects and the increases in revenues. Revenues declined $47 million (5%) in 2017 compared to 2016. Foreign currency translation effects of a comparatively stronger average U.S. Dollar in 2017 resulted in a $48 million comparative decline in revenues. In addition, we experienced comparative declines in distribution revenues, which were substantially offset by higher smart metering revenue. Pre-tax earnings declined $56 million (15%) in 2017 compared to 2016. The decline was primarily due to foreign currency translation effects, as well as from increased pension expenses and lower distribution revenues, partially offset by lower asset impairment charges and lower distribution costs. Natural gas pipelines Revenues increased $217 million (22%) in 2018 as compared to 2017, primarily due to higher transportation revenues of $113 million from higher volumes and rates due to unique market opportunities and colder average temperatures and increased sales volumes ($99 million) related to system balancing activities (substantially offset in cost of sales). Pre-tax earnings increased $61 million (14%) in 2018 compared to 2017, primarily due to the increases in transportation revenues and lower depreciation expense, partly offset by comparative increases in operations and maintenance expenses. Revenues increased $23 million (2%) in 2017 compared to 2016. Northern Natural Gas produced higher transportation revenues and higher gas sales, primarily from system balancing activities, which were partly offset by lower transportation revenues at Kern River. Pre-tax earnings increased $33 million (8%) in 2017 compared to 2016. The increase was primarily due to the increase in transportation revenues and a reduction in expenses and regulatory liabilities related to the impact of an alternative rate structure approved by Kern River’s regulators in the first quarter of 2017, partially offset by higher operating expenses. Other energy businesses Revenues in 2018 increased $43 million (2%) compared to 2017, reflecting a comparative increase from renewable energy. Pre-tax earnings in 2018 were unchanged from 2017 as the increased revenues from renewable energy were offset by increased depreciation expense and higher other operating expenses. Revenues increased 4% in 2017 compared to 2016. AltaLink L.P.’s operating revenues increased $197 million (39%) in 2017 compared to 2016, primarily due to effects of a decision in 2016 by its regulator, which changed the timing of when construction-in-progress expenditures included in the rate base are billable to customers and earned in revenues. The decision resulted in a one-time net reduction in revenue in 2016, with offsetting reductions in expenses. In 2017, we also experienced a comparative revenue increase of 13% from renewable energy and a comparative decline of 12% from the unregulated retail services business. Pre-tax earnings in 2017 increased 5% compared to 2016, as increased earnings from renewable energy and AltaLink L.P. were partly offset by lower earnings from the unregulated retail services business and other energy ventures. Real estate brokerage Revenues in 2018 increased 22% as compared to 2017, primarily due to recent business acquisitions. Pre-tax earnings decreased $16 million in 2018 compared to 2017, as higher operating costs and interest expense more than offset the revenue increase. Revenues increased 23% in 2017 compared to 2016, primarily due to business acquisitions and an increase in average home sales prices. Pre-tax earnings decreased 2% in 2017 as compared to 2016. Earnings in 2017 included increased earnings from franchise businesses, partially offset by lower earnings from brokerage businesses, primarily due to higher operating expenses. Corporate interest and income taxes Corporate interest includes interest on unsecured debt issued by the BHE holding company and borrowings from Berkshire insurance subsidiaries in connection with certain of BHE’s business acquisitions. The borrowings from Berkshire insurance subsidiaries were repaid in the third quarter of 2017. Corporate interest in 2017 also included pre-tax charges of $410 million from a tender offer completed in December 2017 to redeem certain long-term debt of BHE. Otherwise, corporate interest declined 6% and 7%, respectively, in 2018 and 2017 as compared to the corresponding prior years, primarily due to lower average borrowings. K-44 Management’s Discussion and Analysis (Continued) Utilities and Energy (“Berkshire Hathaway Energy Company”) (Continued) Corporate interest and income taxes (Continued) BHE’s consolidated effective income tax rates were (18.3)% in 2018, 5.9% in 2017 and 12.9% in 2016. BHE’s effective income tax rates regularly reflect significant production tax credits from wind-powered electricity generation placed in service by our domestic regulated utilities and other energy businesses. The decrease in the effective income tax rate in 2018 compared to 2017 was attributable to the reduction in the U.S. Federal corporate income tax rate, the impacts of rate making, adjustments to the amounts recorded for the repatriation tax on foreign earnings, higher production tax credits and lower U.S. income taxes on foreign earnings. The effective income tax rate in 2017 decreased versus 2016 primarily due to an increase in production tax credits. Manufacturing, Service and Retailing A summary of revenues and earnings of our manufacturing, service and retailing businesses follows (dollars in millions). Manufacturing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Service and retailing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 61,883 78,926 $ 57,645 76,994 $ 52,969 74,467 $ 9,366 2,942 $ 8,324 2,603 $ 7,735 2,489 $ 140,809 $ 134,639 $ 127,436 Revenues Earnings * 2018 2017 2016 2018 2017 2016 Pre-tax earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income taxes and noncontrolling interests . . . . . . . . . . . . Effective income tax rate . . . . . . . . . . . . . . . . . . . . . . . . . 12,308 2,944 10,927 3,645 10,224 3,421 $ 9,364 $ 7,282 $ 6,803 23.4% 32.8% 33.0% * Excludes certain acquisition accounting expenses, which primarily related to the amortization of identified intangible assets recorded in connection with our business acquisitions. The after-tax acquisition accounting expenses excluded from earnings above were $932 million in 2018, $937 million in 2017 and $814 million in 2016. These expenses are included in “Other” in the summary of earnings on page K-32 and in the “Other” earnings section on page K-53. Manufacturing Our manufacturing group includes a variety of industrial, building and consumer products businesses. Industrial products group includes specialty chemicals (The Lubrizol Corporation (“Lubrizol”)), complex metal products for aerospace, power and general industrial markets (Precision Castparts Corp. (“PCC”)), metal cutting tools/systems (IMC International Metalworking Companies (“IMC”)), equipment and systems for the livestock and agricultural industries (CTB International (“CTB”)), and a variety of industrial products for diverse markets (Marmon, Scott Fetzer and LiquidPower Specialty Products (“LSPI”)). Marmon includes UTLX Company (“UTLX”), which provides various products and services (including equipment leasing) for the rail and mobile crane industries. The building products group includes homebuilding and manufactured housing finance (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). The consumer products group includes leisure vehicles (Forest River), several apparel and footwear operations (including Fruit of the Loom, Garan, H.H. Brown Shoe Group and Brooks Sports) and the Duracell Company (“Duracell”), a manufacturer of high performance alkaline batteries. This group also includes custom picture framing products (Larson Juhl) and jewelry products (Richline). A summary of revenues and pre-tax earnings of our manufacturing operations follows (dollars in millions). Industrial products . . . . . . . . . . . . . . . . . . . . . . . . Building products . . . . . . . . . . . . . . . . . . . . . . . . . Consumer products . . . . . . . . . . . . . . . . . . . . . . . . 2018 $ 30,679 18,677 12,527 $ 61,883 Revenues 2017 $ 28,566 16,946 12,133 $ 57,645 Pre-tax earnings 2016 2018 2017 2016 $ 26,935 15,002 11,032 $ 52,969 $ 5,822 2,336 1,208 $ 9,366 $ 5,065 2,147 1,112 $ 8,324 $ 4,989 1,922 824 $ 7,735 K-45 Management’s Discussion and Analysis (Continued) Manufacturing, Service and Retailing (Continued) Industrial products 2018 versus 2017 Revenues from industrial products businesses were approximately $30.7 billion in 2018, an increase of approximately $2.1 billion (7.4%) compared to 2017. PCC’s revenues in 2018 were $10.2 billion, an increase of 7.2% compared to 2017. The increase reflected increased demand in aerospace markets in connection with new aircraft programs, partly offset by lower demand for industrial gas turbine products. PCC is in the process of repurposing certain manufacturing assets previously used to support industrial gas turbine business to accommodate aerospace products. In addition, PCC experienced lower sales of certain pipe products in 2018, primarily attributable to the U.S tariffs. Lubrizol’s revenues in 2018 were $6.8 billion, an increase of 5.9% compared to 2017 due to higher average sales prices, favorable changes in product mix and foreign currency translation effects, and a 2% increase in aggregate unit volumes. Lubrizol experienced significant increases in average material unit costs during 2018 and 2017, necessitating increases in sales prices. Lubrizol’s consolidated volume included increases in the Advanced Materials (5%) and the Additives (1%) product lines. Marmon’s revenues in 2018 were $8.2 billion, an increase of 5.5% as compared to 2017. The revenue increase was primarily attributable to volume increases in the Transportation Products sector, higher average metals prices in the Plumbing & Refrigeration, Electrical Products, and Metal Services sectors, and business acquisitions in the Transportation Products, Crane Services, and Engineered Wire & Cable sectors. These increases were partially offset by revenue decreases in the Beverage Technologies and Rail Products and Services sectors. Rail Products and Services sector revenues decreased due to lower railcar lease revenues, partly offset by increased railcar equipment sales and repair services. Throughout 2018, the railcar leasing business experienced the negative effects of lower lease renewal rates for railcars versus the rates on expiring leases. IMC’s revenues increased 16.1% in 2018 compared to 2017, due to a combination of factors, including higher unit sales, the effects of business acquisitions during 2017 and 2018, and foreign currency translation effects from a weaker average U.S. Dollar in the first half of 2018. CTB’s revenues increased 4.0% in 2018 versus 2017, due to favorable foreign currency translation effects and modest sales growth in protein production and processing systems. Pre-tax earnings of the industrial products group were approximately $5.8 billion in 2018, an increase of $757 million (14.9%) compared to 2017. Pre-tax earnings as a percentage of revenues were 19.0% in 2018 and 17.7% in 2017. The comparative earnings increase was partially attributable to certain one-time charges at PCC and Lubrizol in 2017. PCC’s pre-tax earnings increased 16.0% in 2018 compared to 2017. PCC’s earnings in 2017 included certain one-time inventory and impairment charges of $272 million. Results in 2018 were negatively affected by costs associated with the temporary unplanned shut-down of certain metals facilities, metal press outages and lower earnings from the industrial gas turbine business. The facilities that were shut-down gradually resumed production and were approximately 80% operational at the end of 2018. These facilities are expected to resume normal production in early 2019. In addition, the aforementioned new aircraft programs involve relatively complex manufacturing processes and manufacturing costs to-date have been relatively high, negatively affecting earnings. However, we expect costs will decline as processes improve and efficiencies develop. Lubrizol’s pre-tax earnings in 2018 increased 43.5% compared to earnings in 2017, which included pre-tax losses of approximately $190 million related to Lubrizol’s disposition of an underperforming bolt-on business and related intangible asset impairments and restructuring charges. Before such charges, Lubrizol’s earnings increased 17%, reflecting the previously mentioned increases in sales volumes and selling prices, as well as lower other restructuring charges, lower net interest expense, and the favorable effects of foreign currency translation and ongoing expense control efforts, partly offset by higher raw material costs. Marmon’s pre-tax earnings in 2018 decreased 5.6% compared to 2017. The decrease was primarily due to lower pre-tax earnings from the Rail Products and Services sector ($126 million) and the Foodservice Technologies and Retail Solutions sectors ($33 million), partially offset by increased earnings from the Transportation Products sector and a non-recurring gain of $42 million in 2018 from the sale of certain assets of the Beverage Technologies sector. The Rail Products and Services earnings decline was attributable to lower railcar leasing revenues and higher lease fleet repair costs. K-46 Management’s Discussion and Analysis (Continued) Manufacturing, Service and Retailing (Continued) Industrial products (Continued) IMC’s pre-tax earnings increased significantly in 2018 compared to 2017, reflecting a combination of higher sales, increased manufacturing efficiencies, the effects of business acquisitions and ongoing expense control efforts, partly offset by higher raw material costs. CTB’s pre-tax earnings in 2018 were lower, primarily due to lower gross sales margins attributable to raw material cost increases and higher other operating expenses. 2017 versus 2016 Industrial products revenues were approximately $28.6 billion in 2017, an increase of approximately $1.6 billion (6.1%) versus 2016, reflecting increased revenues at several of our businesses. PCC’s revenues increased $754 million (8.6%) in 2017 compared to the eleven-month post-acquisition period in 2016. On a comparable full year-to-date basis, PCC’s revenues increased approximately 2.3% compared to 2016. In 2017, PCC generated revenue increases from structural castings, airfoils and forged products and from business acquisitions, partly offset by lower revenues from airframe products and industrial gas turbine products used in power markets. Revenue increases associated with PCC’s transition into products for new aerospace programs were partly offset by revenue decreases from the winding down of prior programs. Lubrizol’s revenues increased $165 million (2.6%) compared to 2016, primarily due to higher unit volumes, partly offset by effects of the disposition of an underperforming business. Marmon’s revenues increased $305 million (4.1%) in 2017 versus 2016, primarily due to business acquisitions and higher average metal prices, partly offset by lower overall volumes, changes in mix and lower leasing revenues from the Rail Products and Services sector. Railcar leasing revenues declined due to fewer railcars on lease at lower rates. During 2017, railcars available for lease exceeded demand, which contributed to the lower lease rates. IMC’s revenues increased 13.3%, primarily due to increased customer demand and from business acquisitions. The global demand for cutting tools was generally higher in 2017. CTB’s revenues increased 5.3% in 2017 compared to 2016. The increase reflected the impact of a bolt-on business acquisition, partly offset by weak demand in the U.S. egg and poultry production markets and selling price pressures for grain storage systems. Industrial products pre-tax earnings were approximately $5.1 billion in 2017, an increase of $76 million (1.5%) compared to 2016. Overall, pre-tax earnings as a percentage of revenues were 17.7% in 2017 and 18.5% in 2016. PCC’s pre-tax earnings declined 12.5% in 2017 compared to the post-acquisition period in 2016, primarily due to certain one-time inventory and impairment charges. Lubrizol’s pre-tax earnings increased 17.3% in 2017 compared to 2016, due to the disposition in 2016 of an underperforming bolt-on business and ongoing cost containment efforts, partly offset by lower gross sales margins, which were primarily attributable to higher average raw material prices. In 2017, average raw material prices at Lubrizol, including base oil feedstock and petrochemicals, increased about 9% versus 2016. Marmon’s earnings in 2017 declined 3.5% compared to 2016, primarily due to lower earnings of the Rail Products and Services sector, partially offset by the effects of business acquisitions and ongoing cost control efforts. Building products 2018 versus 2017 Revenues of the building products group in 2018 were approximately $18.7 billion, an increase of 10.2% compared to 2017. Pre-tax earnings of the building products group were approximately $2.3 billion in 2018, an increase of 8.8% versus 2017. Overall, pre-tax earnings as a percentage of revenues were 12.5% in 2018 and 12.7% in 2017. The pre-tax earnings increase was primarily due to higher earnings from Clayton Homes and Shaw, partly offset by lower earnings from Johns Manville. Clayton Homes’ revenues were $6,046 million in 2018, an increase of $1,036 million (20.7%) over 2017. The increase was driven by an increase in revenues from home sales of $971 million (28.2%), primarily due to a 105% increase in unit sales of site built homes attributable to businesses acquired over the last two years. Unit sales of manufactured homes in 2018 also increased 4.9% compared to 2017. Average unit prices of site built homes are considerably higher than traditional manufactured homes. In addition, interest income from lending activities increased 4% in 2018 compared to 2017 primarily due to increased average outstanding loan balances. K-47 Management’s Discussion and Analysis (Continued) Manufacturing, Service and Retailing (Continued) Building products (Continued) Clayton Homes pre-tax earnings were $911 million in 2018, an increase of $145 million (19.0%) compared to 2017. The increase in earnings in 2018 was primarily attributable to a significant increase in earnings from home building (manufactured housing and site built homes) activities, which reflected the impact of increased home sales and margins, as well as increased earnings from lending activities. A significant part of Clayton Homes’ earnings derives from manufactured housing lending activities. Pre-tax earnings from lending activities in 2018 declined 2% compared to 2017, reflecting increased interest expense, attributable to higher average debt balances and interest rates and higher operating costs, which more than offset the increase in interest income. As of December 31, 2018 and 2017, aggregate loan balances outstanding were approximately $14.7 billion and $13.7 billion, respectively. Revenues of our other building products businesses increased 5.8% in 2018 to approximately $12.6 billion compared to 2017. In 2018, Shaw’s sales increased 7.9% and Johns Manville’s sales increased 7.2% as compared to 2017. The increases reflected higher average selling prices, product mix changes and overall unit volume increases. Raw material and production costs of our building products businesses were generally higher in 2018. In particular, costs for steel, titanium dioxide and petrochemicals were substantially higher in 2018 than in 2017, as were product delivery costs, due in part to the shortage of truck drivers in the U.S. These cost increases precipitated sales price increases, although such increases have lagged the increases in raw materials costs. As a result, the increase in pre-tax earnings in 2018 of our other building products businesses ($43 million or 3.1%) lagged the 5.8% increase in revenues. 2017 versus 2016 Building products revenues were approximately $16.9 billion in 2017, an increase of approximately $1.9 billion (13.0%) compared to 2016. The increase was primarily attributable to bolt-on business acquisitions by Clayton, Shaw and MiTek. The remainder of the increase reflected sales volume increases at MiTek, Benjamin Moore and Johns Manville, partly offset by changes in prices and product mix. Clayton Homes’ revenues were approximately $5.0 billion in 2017, an increase of $780 million (18%) compared to 2016. The increase was primarily due to sales from newly-acquired site built home businesses, an increase in overall unit sales (9%) and higher average prices. Interest income from lending activities and other and financial services revenues increased 2% in 2017 compared to 2016. Building products pre-tax earnings were $2.1 billion in 2017, an increase of $225 million (11.7%) compared to 2016. Pre-tax earnings as a percentage of revenues were 12.7% in 2017 and 12.8% in 2016. Clayton Homes’ pre-tax earnings increased $21 million (2.8%) in 2017 compared to 2016. Pre-tax earnings in 2017 from manufacturing, retailing and site built activities increased, while earnings from finance activities declined slightly. Clayton Homes’ earnings in 2017 also included a gain from a legal settlement, offset by increased employee healthcare, technology, marketing and other expenses. The comparative earnings increase reflected the effects of asset impairment, pension settlement and environmental claim charges of $107 million recorded in 2016 by Shaw and Benjamin Moore. The comparative earnings increase also was a result of bolt-on acquisitions, partly offset by comparative declines in average gross sales margin rates due to higher raw material and other production costs. Consumer products 2018 versus 2017 Consumer products revenues were approximately $12.5 billion in 2018, an increase of $394 million (3.2%) compared to 2017, which was primarily due to revenue increases of Forest River and of our apparel and footwear businesses. Forest River’s revenues increased 2.6% in 2018, reflecting relatively unchanged unit sales versus 2017. However, over the second half of the year, comparative sales declined 5%, reflecting a 7% decline in units sold. Management attributes the slowing of sales, in part, to the effects of U.S. tariffs on steel products. Apparel and footwear revenues increased 4.6% to approximately $4.3 billion, primarily due to increased sales volume at Brooks Sports and Garan. Pre-tax earnings were $1,208 million in 2018, an increase of $96 million (8.6%) compared to 2017. Pre-tax earnings as a percentage of revenues were 9.6% in 2018 and 9.2% in 2017. The increase in earnings reflected increases from Duracell and the apparel and footwear businesses, partly offset by lower earnings from Forest River and Larson Juhl. K-48 Management’s Discussion and Analysis (Continued) Manufacturing, Service and Retailing (Continued) Consumer products (Continued) Forest River’s pre-tax earnings in 2018 declined 9.0% compared to 2017. Operating results were adversely affected over the second half of 2018, and in the fourth quarter in particular, by higher material costs, which, together with the effects of lower sales volumes, contributed to a 28% reduction in fourth quarter pre-tax earnings. Pre-tax earnings of the apparel and footwear businesses increased 6.4% in 2018 compared to 2017, primarily attributable to the overall increase in revenues and sales mix changes. Duracell’s pre-tax earnings increased in 2018 compared to 2017, reflecting the favorable effects of ongoing operational improvement efforts and a comparative decline in restructuring charges. Since its acquisition in 2016, Duracell has undertaken significant transition and restructuring initiatives intended to restore and maintain adequate profit levels over the long-term. 2017 versus 2016 Consumer products revenues were approximately $12.1 billion in 2017, an increase of $1.1 billion (10%) compared to 2016, driven by increases from Duracell and Forest River. Duracell’s revenues increased 25.3% in 2017 compared to the ten-month post- acquisition period in 2016. Forest River’s revenues increased 13.7% in 2017 compared to 2016, reflecting a 13.5% comparative increase in units sold. Apparel and footwear revenues were approximately $4.2 billion in 2017, an increase of 1.6% compared to 2016. Consumer products pre-tax earnings increased $288 million (35%) in 2017 compared to 2016. The increase in earnings was primarily due to increased earnings from Duracell and Forest River. The improvement in Duracell’s operating results in 2017 reflects an overall reduction in transition costs and the positive effects of ongoing restructuring and business development efforts. Forest River’s earnings increased 23% in 2017, primarily attributable to the increase in sales and lower manufacturing overhead rates. Earnings from apparel and footwear businesses increased 5% in 2017 compared to 2016, primarily due to increased earnings from the footwear businesses. Service and retailing A summary of revenues and pre-tax earnings of our service and retailing businesses follows (dollars in millions). Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Retailing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . McLane Company . . . . . . . . . . . . . . . . . . . . . . . . Service 2018 $ 13,333 15,606 49,987 $ 78,926 Revenues 2017 $ 12,155 15,064 49,775 $ 76,994 Pre-tax earnings 2016 2018 2017 2016 $ 11,300 15,092 48,075 $ 74,467 $ 1,836 860 246 $ 2,942 $ 1,519 785 299 $ 2,603 $ 1,399 659 431 $ 2,489 Our service business group offers fractional ownership programs for general aviation aircraft (NetJets) and high technology training to operators of aircraft (FlightSafety). We also distribute electronic components (TTI) and franchise and service a network of quick service restaurants (Dairy Queen). Other service businesses include transportation equipment leasing (XTRA) and furniture leasing (CORT), electronic news distribution, multimedia and regulatory filings (Business Wire), publication of newspapers and other publications (Buffalo News and the BH Media Group) and operation of a television station in Miami, Florida (WPLG). We also offer third party logistics services that primarily serve the petroleum and chemical industries (Charter Brokerage). K-49 Management’s Discussion and Analysis (Continued) Manufacturing, Service and Retailing (Continued) Service (Continued) 2018 versus 2017 Revenues of the service group were approximately $13.3 billion in 2018, an increase of approximately $1.2 billion (9.7%) compared to 2017. TTI’s revenues in 2018 increased approximately 33.7% compared to 2017, reflecting industry-wide increases in demand for electronic components in many geographic markets around the world, and the effects of recent business acquisitions and favorable foreign currency translation effects. While TTI’s revenue increase in 2018 was significant, revenue growth began to moderate in the fourth quarter, in part attributable to the impact of U.S. trade tariffs. WPLG generated a revenue increase of 20.8% in 2018 over 2017, primarily due to increased political advertising revenue. Revenues of Charter Brokerage increased 53.3%, reflecting increased fees and product mix changes. Revenues of our leasing businesses increased 8.4% in 2018 compared to 2017 due to increased over-the road trailer units on lease (XTRA) and increased furniture rental income (CORT). Pre-tax earnings of the service group in 2018 were approximately $1.8 billion, an increase of $317 million (20.9%) compared to 2017. The comparative earnings increase was primarily due to TTI, which accounted for almost 84% of the increase. The earnings increase of TTI was primarily due to the effects of the sales volume increases. In addition, XTRA, Charter Brokerage and NetJets each generated increased earnings in 2018 compared to 2017. The increases in earnings of these businesses were partly offset by lower earnings at FlightSafety, primarily due to reduced margins from sales of flight simulators and impairment charges of $41 million related to certain fixed assets. 2017 versus 2016 Service business revenues were approximately $12.2 billion in 2017, an increase of $855 million (7.6%) compared to 2016. The increase was primarily attributable to TTI and NetJets. TTI’s revenues increased 16.4% in 2017 compared to 2016, primarily due to higher customer demand. NetJets’ revenues increased due to an increase in revenue flight hours and increased aircraft management services. Pre-tax earnings were approximately $1.5 billion in 2017, an increase of $120 million (8.6%) compared to 2016. The comparative increase in earnings was primarily attributable to increased earnings of NetJets and TTI, partly offset by comparatively lower earnings from FlightSafety, and from our leasing, media and logistics businesses. Retailing Our retailers include Berkshire Hathaway Automotive (“BHA”). BHA includes over 80 auto dealerships that sell new and pre-owned automobiles, and offer repair services and related products. BHA also operates two insurance businesses, two auto auctions and an automotive fluid maintenance products distributor. Our retailing businesses also include four home furnishings retailing businesses (Nebraska Furniture Mart, R.C. Willey, Star Furniture and Jordan’s), which sell furniture, appliances, flooring and electronics. 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 Germany-based retailer of motorcycle accessories. 2018 versus 2017 Revenues of the retailing group were approximately $15.6 billion in 2018, an increase of $542 million (3.6%) compared to 2017. BHA’s revenues, which represented approximately 63% of the aggregate retailing revenues in each of the past three years, increased 4.0% in 2018 as compared to 2017. The increase derived primarily from increased pre-owned vehicle sales and service contract revenues. Revenues from new vehicle sales were relatively unchanged. Louis revenues increased 7.8% in 2018 versus 2017, primarily due to the translation effects of a weaker average U.S. Dollar. Home furnishings revenues increased 4.7% in 2018 over 2017, reflecting increased sales in certain geographic markets and the effect of a new store. Pre-tax earnings of the retailing group were $860 million in 2018, an increase of $75 million (9.6%) over 2017. The earnings increase included higher earnings from BHA and Louis, partly offset by lower earnings from the home furnishings retailers. The earnings increase of BHA was primarily from finance and service contract activities, partly offset by higher floorplan interest expense. The earnings increase at Louis reflected the revenues increase and an increase in operating margin rate. Earnings of the home furnishings businesses declined 2.4% in 2018 compared to 2017, partly due to increased inventory liquidation, delivery and occupancy costs at Star Furniture. K-50 Management’s Discussion and Analysis (Continued) Manufacturing, Service and Retailing (Continued) Retailing (Continued) 2017 versus 2016 Retailing revenues were $15.1 billion in 2017, slightly lower than in 2016. BHA’s aggregate revenues declined 1.3% in 2017 compared to 2016, due primarily due to a 3.7% decline in new and used cars sold, partly offset by higher service and finance revenues. Revenues of our other retailers increased 1.7% in 2017 compared to 2016. Pre-tax earnings increased $126 million (19.1%) in 2017 as compared to 2016. The increase reflected comparatively higher earnings from BHA, primarily due to increased earnings from service contract and finance activities and lower selling and administrative expenses, partly offset by lower auto sales volumes and margins. Pre-tax earnings of our home furnishings retailers increased 6.5% in 2017 compared to 2016. Pampered Chef also produced comparatively higher earnings in 2017, primarily attributable to revenue increases and expense management efforts. 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 approximately 67% of McLane’s consolidated sales in 2018 with food service comprising most of the remainder. A curtailment of purchasing by any of its significant customers could have an adverse impact on periodic revenues and earnings. McLane’s revenues were approximately $50.0 billion in 2018, slightly higher than 2017, reflecting a slight increase in grocery sales (1%) and a slight decrease in foodservice sales (1%). The decline in foodservice revenues was primarily due to a net loss of customers. Pre-tax earnings were $246 million in 2018, a decline of $53 million (17.7%), compared to 2017. McLane’s grocery and foodservice businesses continue to operate in a highly competitive business environment, which is negatively affecting its current operating results. While gross margin rates increased slightly over 2018, increases in fuel, depreciation and certain other operating expenses more than offset the increase, producing a decline in pre-tax earnings compared to 2017. We expect the current unfavorable operating conditions will continue in 2019. McLane’s revenues were approximately $49.8 billion in 2017, an increase of 3.5% compared to 2016. The increase in revenues was primarily due to a 4.7% increase in grocery business sales. Pre-tax earnings in 2017 were $299 million, a decrease of $132 million (30.6%) compared to 2016. The earnings decline reflected a 57% decline in earnings from our grocery operations, partly offset by a $39 million increase in gains from asset sales. Throughout 2017, significant pricing pressures and an increasingly competitive business environment negatively affected McLane’s operating results, particularly with respect to the grocery business. Investment and Derivative Gains (Losses) A summary of investment and derivative gains and losses follows (dollars in millions). Investment gains (losses) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Derivative gains (losses) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gains (losses) before income taxes and noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . Income taxes and noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2018 $ (22,155) (300) (22,455) (4,718) 2017 $ 1,410 718 2,128 751 2016 $7,553 751 8,304 1,807 Net gains (losses) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (17,737) $ 1,377 $6,497 Effective income tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20.8% 34.9% 21.8% K-51 Management’s Discussion and Analysis (Continued) Investment and Derivative Gains (Losses) (Continued) Investment gains (losses) As discussed in Note 1(w) to the accompanying Consolidated Financial Statements, on January 1, 2018, we adopted a new accounting pronouncement (“ASU 2016-01”), which requires the recognition of unrealized gains and losses arising from changes in market values of investments in equity securities in the Consolidated Statements of Earnings. Prior to 2018, investment gains/losses related to equity securities were generally recorded as the securities were sold, redeemed or exchanged based on the cost of the disposed securities. While ASU 2016-01 does not affect our consolidated shareholders’ equity or total comprehensive income, it has significantly increased the volatility of our periodic net earnings due to the magnitude of our equity securities portfolio and the inherent volatility of equity securities prices. Investment gains and losses from periodic changes in securities prices will continue to cause significant volatility in our consolidated earnings. Pre-tax investment gains/losses reflected in earnings in 2018 included net unrealized losses of approximately $22.7 billion from investments in equity securities still held at December 31, 2018, reflecting the declines in securities prices in the fourth quarter. Prior to the adoption of ASU 2016-01, such unrealized gains and losses were included in other comprehensive income. Pre-tax net unrealized gains on equity securities recorded in other comprehensive income were approximately $29 billion in 2017 and $7 billion in 2016. Pre-tax investment gains were approximately $1.4 billion in 2017 and $7.6 billion in 2016. Investment gains in 2016 included $4.2 billion from the redemptions of our Wrigley and Kraft Heinz preferred stock investments and from the sales of Dow Chemical common stock that was received upon the conversion of our Dow Chemical preferred stock investment. We also realized pre-tax gains of $1.1 billion in connection with the tax-free exchange of our shares of P&G common stock for 100% of the common stock of Duracell. Income tax expense allocated to investment gains in 2016 included a benefit from the reduction of certain deferred income tax liabilities in connection with the exchange of P&G common stock for Duracell. Our after-tax gain from this transaction was approximately $1.9 billion. 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 amount of investment gains/losses included in earnings, including the changes in market prices for equity securities, in any given period has little analytical or predictive value. Derivative gains (losses) Derivative contract gains/losses include the changes in fair value of our equity index put option contract liabilities. These liabilities relate to contracts entered into before March 2008. Substantially all of these contracts will expire between April 2019 and February 2023. The periodic changes in the fair values of these liabilities are recorded in earnings and can be significant, reflecting the volatility of underlying equity markets and the changes in the inputs used to measure such liabilities. As of December 31, 2018, the intrinsic value of our equity index put option contracts was approximately $1,653 million and our recorded liabilities at fair value were approximately $2,452 million. Our ultimate payment obligations, if any, under our contracts will be determined as of the contract expiration dates based on the intrinsic value as defined under the contracts. Contracts with an aggregate notional value of approximately $12.2 billion will expire in 2019. Derivative contracts produced pre-tax losses in 2018 of $300 million, which were primarily due to lower index values. Equity index put option contracts produced pre-tax gains of $718 million in 2017 and $662 million in 2016, which reflected the effects of shorter remaining contract durations and overall higher index values. In July 2016, our last credit default contract was terminated by mutual agreement with the counterparty and we paid the counterparty $195 million. This contract produced pre-tax earnings of $89 million in 2016. K-52 Management’s Discussion and Analysis (Continued) Other A summary of after-tax other earnings (losses) follows (in millions). Equity method earnings (losses) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Acquisition accounting expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Corporate interest expense, before foreign currency effects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Euro note foreign exchange gains (losses) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Corporate interest and dividend income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (1,419) (1,111) (311) 289 530 456 $ 1,111 (936) (266) (655) 232 29 Net earnings (losses) attributable to Berkshire Hathaway shareholders . . . . . . . . . . . . . . . . . . . . . $ (1,566) $ (485) $ 707 (846) (256) 159 288 (83) $ (31) 2018 2017 2016 After-tax equity method earnings includes Berkshire’s share of earnings attributable to Kraft Heinz, Pilot Flying J, Berkadia and Electric Transmission of Texas. Our after-tax equity method losses in 2018 included approximately $2.7 billion from intangible asset impairment charges recorded by Kraft Heinz. Our after-tax equity method earnings in 2017 excluded approximately $1.1 billion from the net effects of the TCJA on Kraft Heinz’s net earnings. Corporate interest and dividend income in 2016 included pre-tax dividend income of $180 million from our Kraft Heinz preferred stock investment, which Kraft Heinz redeemed in June 2016. After-tax other earnings (losses) also include charges arising from the application of the acquisition method in connection with certain of Berkshire’s past business acquisitions. Such charges were primarily from the amortization or impairment of intangible assets recorded in connection with those business acquisitions. Berkshire issued Euro denominated debt in 2015, 2016 and 2017 and the aggregate par amount outstanding was €6.85 billion at December 31, 2018. Changes in foreign currency exchange rates produced sizable non-cash unrealized gains and losses in each of the past three years from the periodic revaluation of these liabilities into U.S. Dollars. Financial Condition Our consolidated balance sheet continues to reflect significant liquidity and a strong capital base. Consolidated shareholders’ equity at December 31, 2018 was approximately $349 billion, a decrease of $26.9 billion since September 30, 2018 and an increase of $407 million since December 31, 2017. Net earnings attributable to Berkshire shareholders in 2018 were $4.0 billion, which included after-tax losses on our investments of approximately $17.5 billion. After-tax losses on investments were approximately $27.6 billion in the fourth quarter of 2018, reflecting the declines in market prices of the equity securities we owned at December 31, 2018. At December 31, 2018, our insurance and other businesses held cash, cash equivalents and U.S. Treasury Bills of approximately $109 billion, which included $85 billion in U.S. Treasury Bills. Investments in equity and fixed maturity securities (excluding our investment in Kraft Heinz) were approximately $193 billion. Berkshire parent company debt outstanding at December 31, 2018 was approximately $16.9 billion, a decrease of $1.9 billion since December 31, 2017, reflecting term debt maturities of $1.55 billion and a $366 million decrease attributable to foreign currency exchange rate changes applicable to the €6.85 billion par amount of Euro denominated senior notes. Berkshire parent company debt of $750 million matures in 2019. Borrowings of Berkshire’s insurance and other subsidiaries declined $3.5 billion in 2018 to approximately $18.1 billion at December 31, 2018, primarily attributable to a net decrease in borrowings of Berkshire Hathaway Finance Corporation (“BHFC”), a wholly-owned financing subsidiary. During 2018, BHFC repaid $4.6 billion of maturing senior notes and issued $2.35 billion of 4.2% senior notes due in 2048. BHFC’s senior note borrowings are used to fund loans originated and acquired by Clayton Homes and a portion of assets held for lease by our UTLX railcar leasing business. In January 2019, BHFC repaid $950 million of maturing senior notes and issued $1.25 billion of 4.25% senior notes due in 2049. An additional $3.0 billion of BHFC senior notes will mature in 2019. Berkshire guarantees the full and timely payment of principal and interest with respect to BHFC’s senior notes. Our railroad, utilities and energy businesses (conducted by BNSF and BHE) maintain very large investments in capital assets (property, plant and equipment) and will regularly make significant capital expenditures in the normal course of business. We forecast capital expenditures of these two operations will approximate $10.5 billion for the year ending December 31, 2019. K-53 Management’s Discussion and Analysis (Continued) Financial Condition (Continued) BNSF’s outstanding debt approximated $23.2 billion as of December 31, 2018, an increase of $727 million since December 31, 2017. In 2018, BNSF issued $1.5 billion of senior unsecured debentures due in 2048 with a weighted average interest rate of 4.1%. BNSF debentures of $750 million will mature in 2019. Outstanding borrowings of BHE and its subsidiaries were approximately $39.3 billion at December 31, 2018, a decrease of $390 million since December 31, 2017. In 2018, BHE issued $3.2 billion of senior unsecured debt with maturities ranging from 2021 to 2049 with a weighted average interest rate of 3.6%. BHE subsidiaries also issued debt in 2018, aggregating $2.3 billion with maturity dates ranging from 2020 to 2049. The proceeds from these financings were used to repay borrowings, to fund capital expenditures and for other general corporate purposes. Approximately $2.1 billion of BHE subsidiary term debt will mature in 2019. Berkshire does not guarantee the repayment of debt issued by BNSF, BHE or any of their subsidiaries and is not committed to provide capital to support BNSF, BHE or any of their subsidiaries. Berkshire’s common stock repurchase program was amended on July 17, 2018, permitting 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 allows share repurchases in the open market or through privately negotiated transactions and does not specify a maximum number of shares to be repurchased. 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 $20 billion. Financial strength and redundant liquidity will always be of paramount importance at Berkshire. Subsequent to the program amendment, in 2018, Berkshire repurchased shares of Class A and B common stock for an aggregate cost of approximately $1.3 billion. Contractual Obligations We are party to contracts associated with ongoing business and financing activities, which will result in cash payments to counterparties in future periods. Certain obligations are included in our Consolidated Balance Sheets, such as notes payable, which require future payments on contractually specified dates and in fixed and determinable amounts. Other obligations pertaining to the acquisition of goods or services in the future, such as minimum rentals under operating leases and certain purchase obligations not currently reflected in the financial statements, will be recognized in future periods as the goods are delivered or services are provided. Beginning in 2019, operating lease obligations will be included in the consolidated balance sheet upon the adoption of a new accounting pronouncement. The timing and amount of the payments under certain contracts, such as insurance and reinsurance contracts, are contingent upon the outcome of future events. Actual payments will likely vary, perhaps materially, from the estimated liabilities currently recorded in our Consolidated Balance Sheet. A summary of our contractual obligations as of December 31, 2018 follows (in millions). Actual payments will likely vary, perhaps significantly, from estimates reflected in the table. Estimated payments due by period Total 2019 2020-2021 2022-2023 After 2023 Notes payable and other borrowings, including interest . . . . . . . Operating leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purchase obligations (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unpaid losses and loss adjustment expenses (2) Life, annuity and health insurance benefits (3) . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 153,059 9,013 47,264 110,292 34,362 15,589 $ 15,840 1,360 15,709 22,204 1,461 628 $ 17,777 2,415 8,181 25,329 (82) 1,748 $ 20,341 1,580 6,078 14,613 322 4,876 $ 99,101 3,658 17,296 48,146 32,661 8,337 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 369,579 $ 57,202 $ 55,368 $ 47,810 $ 209,199 (1) (2) (3) Primarily related to fuel, capacity, transmission and maintenance contracts and capital expenditure commitments of BHE and BNSF and aircraft purchase commitments of NetJets. Includes unpaid losses and loss adjustment expenses under retroactive reinsurance contracts. Amounts represent estimated undiscounted benefits, net of estimated future premiums, as applicable. K-54 Management’s Discussion and Analysis (Continued) Critical Accounting Policies Certain accounting policies require us to make estimates and judgments in determining the amounts reflected in the Consolidated Financial Statements. Such estimates and judgments necessarily involve varying, and possibly significant, degrees of uncertainty. Accordingly, certain amounts currently recorded in the financial statements will likely be adjusted in the future based on new available information and changes in other facts and circumstances. A discussion of our principal accounting policies that required the application of significant judgments as of December 31, 2018 follows. Property and casualty losses We record liabilities for unpaid losses and loss adjustment expenses (also referred to as “gross unpaid losses” or “claim liabilities”) based upon estimates of the ultimate amounts payable for losses occurring on or before the balance sheet date. The timing and amount of ultimate loss payments are contingent upon, among other things, the timing of claim reporting from insureds and ceding companies and the final determination of the loss amount through the loss adjustment process. We use a variety of techniques in establishing claim liabilities and all techniques require significant judgments and assumptions. As of the balance sheet date, recorded claim liabilities include provisions for reported claims, as well as claims not yet reported and the development of reported claims. The period between the loss occurrence date and loss settlement date is the “claim-tail.” Property claims usually have relatively short claim-tails, absent litigation. Casualty claims usually have longer claim-tails, occasionally extending for decades. Casualty claims may be more susceptible to litigation and the impact of changing contract interpretations. The legal environment and judicial process further contribute to extending claim-tails. Our consolidated claim liabilities as of December 31, 2018 were approximately $110 billion, of which 84% related to GEICO and the Berkshire Hathaway Reinsurance Group. Additional information regarding significant uncertainties inherent in the processes and techniques of these businesses follows. GEICO GEICO predominantly writes private passenger auto insurance. As of December 31, 2018, GEICO’s gross unpaid losses were $19.5 billion. Claim liabilities, net of reinsurance recoverable were $18.6 billion. GEICO’s claim reserving methodologies produce liability estimates based upon the individual claims. The key assumptions affecting our liability estimates include projections of ultimate claim counts (“frequency”) and average loss per claim (“severity”). We utilize a combination of several actuarial estimation methods, including Bornhuetter-Ferguson and chain-ladder methodologies. Claim liability estimates for automobile liability coverages (such as bodily injury (“BI”), uninsured motorists, and personal injury protection) are more uncertain due to the longer claim-tails, so we establish additional case development estimates. As of December 31, 2018, case development liabilities averaged approximately 30% of the case reserves. We select case development factors through analysis of the overall adequacy of historical case liabilities. For incurred-but-not-reported (“IBNR”) claims, liabilities are based on projections of the ultimate number of claims expected (reported and unreported) for each significant coverage. We use historical claim count data to develop age-to-age projections of the ultimate counts by quarterly accident period, from which we deduct reported claims to produce the number of unreported claims. We estimate the average costs per unreported claim and apply such estimates to the unreported claim counts, producing an IBNR liability estimate. We may record additional IBNR estimates when actuarial techniques are difficult to apply. We test the adequacy of the aggregate claim liabilities using one or more actuarial projections based on claim closure models, and paid and incurred loss triangles. Each type of projection analyzes loss occurrence data for claims occurring in a given period and projects the ultimate cost. Our claim liability estimates recorded at the end of 2017 decreased $222 million during 2018, which produced a corresponding increase to pre-tax earnings. We modified the assumptions used to estimate liabilities at December 31, 2018 to reflect the most recent frequency and severity results. Future development of recorded liabilities will depend on whether actual frequency and severity are more or less than anticipated. With respect to liabilities for BI claims, our most significant claim category, we believe it is reasonably possible that average severities will change by at least one percentage point from the severities used in establishing the recorded liabilities at December 31, 2018. We estimate that a one percentage point increase or decrease in BI severities would produce a $275 million increase or decrease in recorded liabilities, with a corresponding decrease or increase in pre-tax earnings. Many of the economic forces that would likely cause BI severity to differ from expectations would likely also cause severities for other injury coverages to differ in the same direction. K-55 Management’s Discussion and Analysis (Continued) Property and casualty losses (Continued) Berkshire Hathaway Reinsurance Group (“BHRG”) BHRG’s liabilities for unpaid losses and loss adjustment expenses derive primarily from reinsurance contracts issued through NICO and General Re. In connection with reinsurance contracts, the nature, extent, timing and perceived reliability of premium and loss information received from ceding companies varies widely depending on the type of coverage and the contractual reporting terms. Contract terms, conditions and coverages also tend to lack standardization and may evolve more rapidly than primary insurance policies. The nature and extent of loss information provided under many facultative (individual risk), per occurrence excess or retroactive reinsurance contracts may not differ significantly from the information received under a primary insurance contract if reinsurer personnel either work closely with the ceding company in settling individual claims or manage the claims themselves. However, loss information is often less detailed with respect to aggregate excess-of-loss and quota-share contracts. Additionally, loss information we receive through periodic reports is often in a summary format rather than on an individual claim basis. Loss data includes recoverable paid losses, as well as case loss estimates. Ceding companies infrequently provide reliable IBNR estimates to reinsurers. Loss reporting to reinsurers is typically slower in comparison to primary insurers. Periodic premium and claims reports are required from ceding companies. In the U.S., such reports are generally required at quarterly intervals ranging from 30 to 90 days after the end of the quarterly period. Outside of the U.S., reinsurance reporting practices may vary further. In certain countries, clients report annually, often 90 to 180 days after the end of the annual period. In some instances, reinsurers assume and cede underlying risks thereby creating multiple contractual parties between us and the primary insured, potentially compounding the claim reporting delays. The relative impact of reporting delays on the reinsurer may vary depending on the type of coverage, contractual reporting terms, the magnitude of the claim relative to the attachment point of the reinsurance coverage, and for other reasons. As reinsurers, the premium and loss data we receive is at least one level removed from the underlying claimant, so there is a risk that the loss data reported is incomplete, inaccurate or the claim is outside the coverage terms. When received, we review the information for completeness and compliance with the contract terms. Generally, our reinsurance contracts permit us to access the ceding company’s books and records with respect to the subject business, thus providing the ability to audit the reported information. In the normal course of business, disputes occasionally arise concerning whether claims are covered by our reinsurance policies. We resolve most coverage disputes through negotiation with the client. If disputes cannot be resolved, our contracts generally provide arbitration or alternative dispute resolution processes. There are no coverage disputes at this time for which an adverse resolution would likely have a material impact on our consolidated results of operations or financial condition. A summary of BHRG’s property and casualty unpaid losses and loss adjustment expenses, other than retroactive reinsurance losses and loss adjustment expenses, as of December 31, 2018 follows (in millions). General Re NICO Total Property Casualty Total Property Casualty Total Property Casualty Total Reported case liabilities . . . . . . . . . . . . . . . . IBNR liabilities . . . . . . . . . . . . . . . . . . . . . . $ 1,682 1,657 $ 6,310 7,126 $ 7,992 8,783 $ 3,903 2,550 $3,194 4,440 $ 7,097 6,990 $ 5,585 4,207 $ 9,504 11,566 $15,089 15,773 Gross unpaid losses and loss adjustment expenses . . . . . . . . . . . . . . . . . . . . . . . . . Reinsurance recoverable . . . . . . . . . . . . . . . 3,339 285 13,436 668 16,775 953 6,453 27 7,634 182 14,087 209 9,792 312 21,070 850 30,862 1,162 Net unpaid losses and loss adjustment expenses . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,054 $12,768 $15,822 $ 6,426 $7,452 $13,878 $ 9,480 $20,220 $29,700 Gross unpaid losses and loss adjustment expenses in the table above consist primarily of traditional property and casualty coverages written primarily under excess-of-loss and quota-share treaties. Under certain contracts, coverage can apply to multiple lines of business written and the ceding company may not report loss data by such lines consistently, if at all. In those instances, we allocated losses to property and casualty coverages based on internal estimates. K-56 Management’s Discussion and Analysis (Continued) Property and casualty losses (Continued) Berkshire Hathaway Reinsurance Group (“BHRG”) (Continued) With respect to General Re, we use a variety of actuarial methodologies to establish unpaid losses and loss adjustment expenses. Certain methodologies, such as paid and incurred loss development techniques, incurred and paid loss Bornhuetter-Ferguson techniques and frequency and severity techniques, are utilized, as well as ground-up techniques when appropriate. The critical processes involved in estimating unpaid losses and loss adjustment expenses include the establishment of case liability estimates, the determination of expected loss ratios and loss reporting patterns, which drive IBNR liability estimates, and the comparison of reported activity to the expected loss reporting patterns. General Re’s process for estimating unpaid losses and loss adjustment expenses starts with case loss estimates reported by ceding companies. We independently evaluate certain reported case losses and if appropriate, we use our own case liability estimate. As of December 31, 2018, our case loss estimates exceeded ceding company estimates by approximately $2.0 billion, which were concentrated in legacy workers’ compensation claims occurring over 10 years ago. We also periodically conduct detailed reviews of individual client claims, which may cause us to adjust our case estimates. In estimating IBNR liabilities, General Re considers expected case loss emergence and development patterns, together with expected loss ratios by year. In this process, we classify all loss and premium data into groups or portfolios of policies based primarily on product type (e.g., treaty, facultative and program), line of business (e.g., auto liability, property and workers’ compensation) and/or geographic jurisdiction, and in some cases contractual features or market segment. For each portfolio, we aggregate premiums and losses by accident year or coverage period and analyze the paid and incurred loss data over time. We estimate the expected development of reported claims, which, together with the expected loss ratios, are used to calculate IBNR liability estimates. Factors affecting our loss development analysis include, but are not limited to, changes in the following: client claims reporting and settlement practices; the frequency of client company claim reviews; policy terms and coverage (such as loss retention levels and occurrence and aggregate policy limits); loss trends; and legal trends that result in unanticipated losses. Collectively, these factors influence our selections of expected case loss emergence patterns. NICO generally establishes reinsurance claim liabilities on a contract-by-contract basis determined from case loss estimates reported by ceding companies and IBNR liabilities that are primarily a function of an anticipated loss ratio for the contract and the reported case loss estimates. Liabilities are adjusted upward or downward over time to reflect case losses reported versus expected case losses, which we use to form revised judgments on the adequacy of the expected loss ratio and the level of IBNR liabilities required for unreported claims. Anticipated loss ratios are also revised to include estimates of known major catastrophe events. Certain catastrophe, individual risk and aviation excess-of-loss contracts tend to generate low frequency/high severity losses. Our processes and techniques for estimating liabilities under such contracts generally rely more on a per-policy assessment of the ultimate cost associated with the individual loss event rather than with an analysis of the historical development patterns of past losses. BHRG’s estimated ultimate net losses for prior years’ loss events were reduced $469 million in 2018, which produced a corresponding increase in pre-tax earnings. Reported claims for prior years’ property loss events were less than anticipated and we reduced our estimated ultimate liabilities by $365 million. Property losses incurred during any given period may be more volatile because of the effect of catastrophe and large individual property loss events. In addition, we lowered estimated ultimate losses for prior years’ casualty events $104 million in 2018, reflecting reduced estimates for workers’ compensation and other casualty coverages, partially offset by an increase in estimates for asbestos, environmental and other latent injury claims. General Re’s reported losses for prior years’ workers’ compensation claims were less than expected. After reevaluating expected remaining IBNR estimates, liabilities were reduced by $117 million. An increase of ten percent in the tail of the expected loss emergence pattern and an increase of ten percent in the expected loss ratios would produce a net increase of approximately $1 billion in General Re’s workers’ compensation IBNR liabilities, producing a corresponding decrease in pre-tax earnings. We believe it is reasonably possible for these assumptions to increase at these rates. We reduced estimated ultimate losses for prior years’ events for other casualty losses, excluding asbestos, environmental, and other latent injury claims, by $132 million in 2018, reflecting lower than expected reported losses. For General Re’s significant casualty and general liability portfolios, we estimate that an increase of five percent in the claim-tails of the expected loss emergence patterns and a five percent increase in expected loss ratios would produce a net increase in our nominal IBNR liabilities and a corresponding reduction in pre-tax earnings of approximately $800 million. While we believe it is reasonably possible for these assumptions to increase at these rates, more likely outcomes are less than $800 million given the diversification in worldwide business. K-57 Management’s Discussion and Analysis (Continued) Property and casualty losses (Continued) Berkshire Hathaway Reinsurance Group (“BHRG”) (Continued) Estimated ultimate liabilities for asbestos, environmental and other latent injury claims were increased approximately $145 million in 2018, which produced a corresponding reduction in pre-tax earnings. Net liabilities for such claims, excluding amounts assumed under retroactive reinsurance contracts, were approximately $1.7 billion at December 31, 2018. We may use industry-wide loss experience data and informed judgment when internal loss data is of limited reliability in making estimates for such losses. Loss estimations for these exposures are difficult to determine due to the changing legal environment, and increases may be required in the future if new exposures or claimants are identified, new claims are reported or new theories of liability emerge. In addition to the previously described methodologies, we consider “survival ratios,” which is the average net claim payments in recent years in relation to net unpaid losses, as a rough guide to reserve adequacy. Our survival ratio was approximately 16 years as of December 31, 2018. Retroactive reinsurance Our retroactive reinsurance contracts cover loss events occurring before the contract inception dates. Claim liabilities relating to our retroactive reinsurance contracts are predominately related to casualty or liability exposures. We expect the claim-tails to be very long. Our gross unpaid losses, deferred charge assets, and net liabilities at December 31, 2018 were as follows (in millions). Gross unpaid losses Deferred charges Liabilities, net of deferred charges December 31, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . $41,834 $14,104 $27,730 Our contracts are generally subject to maximum limits of indemnifications. We currently expect that maximum remaining gross losses payable under our retroactive policies will not exceed $55 billion due to the applicable aggregate contract limits. Absent significant judicial or legislative changes affecting asbestos, environmental or latent injury exposures, we also currently believe it unlikely that losses will develop upward to the maximum losses payable or downward by more than 15% of our $41.8 billion estimated liability at December 31, 2018. We establish liability estimates by individual contract, considering exposure and development trends. In establishing our liability estimates, we often analyze historical aggregate loss payment patterns and project expected ultimate losses under various scenarios. We assign judgmental probability factors to these scenarios and an expected outcome is determined. We then monitor subsequent loss payment activity and review ceding company reports and other available information concerning the underlying losses. We re-estimate the expected ultimate losses when significant events or significant deviations from expected results are revealed. Certain of our retroactive reinsurance contracts include asbestos, environmental and other latent injury claims. Our estimated liabilities for such claims were approximately $13.1 billion at December 31, 2018. We do not consistently receive reliable detailed data regarding asbestos, environmental and latent injury claims from all ceding companies, particularly with respect to multi-line or aggregate excess-of-loss policies. When possible, we conduct a detailed analysis of the underlying loss data to make an estimate of ultimate reinsured losses. When detailed loss information is unavailable, we develop estimates by applying recent industry trends and projections to aggregate client data. Judgments in these areas necessarily consider the stability of the legal and regulatory environment under which we expect these claims will be adjudicated. Legal reform and legislation could also have a significant impact on our ultimate liabilities. We reduced estimated ultimate liabilities for prior years’ retroactive reinsurance contracts by $341 million in 2018, which after the changes in related deferred charge assets, resulted in pre-tax earnings of $185 million. In 2018, we paid losses and loss adjustment expenses of approximately $1.4 billion with respect to these contracts. In connection with our retroactive reinsurance contracts, we also record deferred charge assets, which at contract inception represents the excess, if any, of the estimated ultimate liability for unpaid losses over premiums. We amortize deferred charge assets, which produces charges to pre-tax earnings in future periods based on the expected timing and amount of loss payments. We also adjust deferred charge balances due to changes in the expected timing and ultimate amount of claim payments. Significant changes in such estimates may have a significant effect on unamortized deferred charge balances and the amount of periodic amortization. Based on the contracts in effect as of December 31, 2018, we currently estimate that amortization expense in 2019 will approximate $1.2 billion. K-58 Management’s Discussion and Analysis (Continued) Other Critical Accounting Policies Our Consolidated Balance Sheet at December 31, 2018 included goodwill of acquired businesses of $81.0 billion. We evaluate goodwill for impairment at least annually and we conducted our most recent annual review during the fourth quarter of 2018. Our review includes determining the estimated fair values of our reporting units. There are several methods of estimating a reporting unit’s fair value, including market quotations, underlying asset and liability fair value determinations and other valuation techniques, such as discounted projected future net earnings or net cash flows and multiples of earnings. We primarily use discounted projected future earnings or cash flow methods. The key assumptions and inputs used in such methods may include forecasting revenues and expenses, operating cash flows and capital expenditures, as well as an appropriate discount rate and other inputs. A significant amount of judgment is required in estimating the fair value of a reporting unit and in performing goodwill impairment tests. Due to the inherent uncertainty in forecasting cash flows and earnings, actual results may vary significantly from the forecasts. If the carrying amount of a reporting unit, including goodwill, exceeds the estimated fair value, then, as required by GAAP, we estimate the fair values of the identifiable assets and liabilities of the reporting unit. The excess of the estimated fair value of the reporting unit over the estimated fair value of its net assets establishes the implied value of goodwill. The excess of the recorded amount of goodwill over the implied goodwill value is charged to earnings as an impairment loss. Market Risk Disclosures Our Consolidated Balance Sheets include substantial amounts of assets and liabilities whose fair values are subject to market risks. Our significant market risks are primarily associated with equity prices, interest rates, foreign currency exchange rates and commodity prices. The fair values of our investment portfolios and equity index put option contracts remain subject to considerable volatility. The following sections address the significant market risks associated with our business activities. Equity Price Risk Equity securities represent a significant portion of our investment portfolio. Strategically, we strive to invest in businesses that possess excellent economics and able and honest management, and we prefer to invest a meaningful amount in each investee. Consequently, equity investments are concentrated in relatively few issuers. At December 31, 2018, approximately 68% of the total fair value of equity securities was concentrated in five issuers. We often hold our equity investments for long periods and short-term price volatility has occurred in the past and will occur in the future. We also strive to maintain significant levels of shareholder capital and ample liquidity to provide a margin of safety against short-term price volatility. We are also subject to equity price risk with respect to our equity index put option contracts. While our ultimate liability with respect to these contracts is determined from the movement of the underlying stock index between the contract inception date and expiration date, fair values of these contracts are also affected by changes in other factors such as interest rates, expected dividend rates and the remaining duration of the contracts. The following table summarizes our equity securities and derivative contract liabilities with significant equity price risk as of December 31, 2018 and 2017 and the estimated effects of a hypothetical 30% increase and a 30% decrease in market prices as of those dates. The selected 30% hypothetical increase and decrease does not reflect the best or worst case scenario. Indeed, results from declines could be far worse due both to the nature of equity markets and the aforementioned concentrations existing in our equity investment portfolio. Dollar amounts are in millions. Fair Value Hypothetical Price Change Estimated Fair Value after Hypothetical Change in Prices Hypothetical Percentage Increase (Decrease) in Shareholders’ Equity (1) December 31, 2018 Investments in equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 172,757 Equity index put option contract liabilities . . . . . . . . . . . . . . . . . . . . . 2,452 December 31, 2017 Investments in equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 170,540 Equity index put option contract liabilities . . . . . . . . . . . . . . . . . . . . . 2,172 30% increase 30% decrease 30% increase 30% decrease 30% increase 30% decrease 30% increase 30% decrease $ 224,584 120,930 1,131 5,362 $ 221,702 119,378 1,036 4,804 11.7% (11.7) 0.3 (0.7) 11.6% (11.6) 0.3 (0.6) (1) The hypothetical percentage increase (decrease) is after income taxes at the statutory rate in effect as of the balance sheet date. K-59 Management’s Discussion and Analysis (Continued) Interest Rate Risk We may also invest in bonds, loans or other interest rate sensitive instruments. Our strategy is to acquire or originate such instruments at prices considered appropriate relative to the perceived credit risk. We also issue debt in the ordinary course of business to fund business operations, business acquisitions and for other general purposes. We attempt to maintain high credit ratings, in order to minimize the cost of our debt. We infrequently utilize derivative products, such as interest rate swaps, to manage interest rate risks. The fair values of our fixed maturity investments, loans and finance receivables, and notes payable and other borrowings will fluctuate in response to changes in market interest rates. In addition, changes in interest rate assumptions used in our equity index put option contract models cause changes in reported liabilities with respect to those contracts. Increases and decreases in interest rates generally translate into decreases and increases in fair values of these instruments. Additionally, fair values of interest rate sensitive instruments may be affected by the creditworthiness of the issuer, prepayment options, relative values of alternative investments, the liquidity of the instrument and other general market conditions. The following table summarizes the estimated effects of hypothetical changes in interest rates on our significant assets and liabilities that are subject to significant interest rate risk at December 31, 2018 and 2017. We assumed that the interest rate changes occur immediately and uniformly to each category of instrument and that there were no significant changes to other factors used to determine the value of the instrument. The hypothetical changes in interest rates do not reflect the best or worst case scenarios. Actual results may differ from those reflected in the table. Dollars are in millions. Estimated Fair Value after Hypothetical Change in Interest Rates (bp=basis points) Fair Value 100 bp decrease 100 bp increase 200 bp increase 300 bp increase December 31, 2018 Assets: Investments in fixed maturity securities . . . . . . . . . . . . . . . . . . Loans and finance receivables . . . . . . . . . . . . . . . . . . . . . . . . . . $ 19,898 16,377 $ 20,260 17,006 $ 19,549 15,844 $ 19,214 15,318 $ 18,891 14,823 Liabilities: Notes payable and other borrowings: Insurance and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . Railroad, utilities and energy . . . . . . . . . . . . . . . . . . . . . Equity index put option contracts . . . . . . . . . . . . . . . . . . . . . . . 35,361 66,422 2,452 37,559 73,063 2,669 33,380 60,840 2,249 31,691 56,107 2,057 30,208 52,063 1,877 December 31, 2017 Assets: Investments in fixed maturity securities . . . . . . . . . . . . . . . . . . Loans and finance receivables . . . . . . . . . . . . . . . . . . . . . . . . . . $ 21,353 14,136 $ 22,053 14,655 $ 20,742 13,652 $ 20,200 13,199 $ 19,717 12,774 Liabilities: Notes payable and other borrowings: . . . . . . . . . . . . . . . . . . . . Insurance and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . Railroad, utilities and energy . . . . . . . . . . . . . . . . . . . . . Equity index put option contracts . . . . . . . . . . . . . . . . . . . . . . . 41,762 70,538 2,172 43,937 77,091 2,460 39,844 64,582 1,911 38,140 59,730 1,676 36,619 55,581 1,465 K-60 Management’s Discussion and Analysis (Continued) Foreign Currency Risk Certain of our subsidiaries operate in foreign jurisdictions and we transact business in foreign currencies. In addition, we hold investments in common stocks of major multinational companies, such as The Coca-Cola Company, who have significant foreign business and foreign currency risk of their own. We generally do not attempt to match assets and liabilities by currency and do not use derivative contracts to hedge or manage foreign currency price changes in any meaningful way. Our net assets subject to financial statement translation into U.S. Dollars are primarily in our insurance, utilities and energy and certain manufacturing and services subsidiaries. This translation related impact may be offset by gains or losses included in net earnings related to net liabilities of Berkshire and certain of its U.S. subsidiaries that are denominated in foreign currencies, due to changes in exchange rates. A summary of these gains (losses), after-tax, for each of the years ending December 31, 2018 and 2017 follows (in millions). Euro-denominated debt included in net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net liabilities under certain reinsurance contracts included in net earnings . . . . . . . . . . . . . . . . . . . . . . . . . Foreign currency translation included in other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 289 207 (1,424) 2018 $ 2017 (655) (295) 2,151 Commodity Price Risk Our subsidiaries use commodities in various ways in manufacturing and providing services. As such, we are subject to price risks related to various commodities. In most instances, we attempt to manage these risks through the pricing of our products and services to customers. To the extent that we are unable to sustain price increases in response to commodity price increases, our operating results will likely be adversely affected. We may utilize derivative contracts to manage a portion of commodity price risks at BHE. Item 7A. Quantitative and Qualitative Disclosures About Market Risk See “Market Risk Disclosures” contained in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Management’s Report on Internal Control Over Financial Reporting Management of Berkshire Hathaway Inc. is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in the Securities Exchange Act of 1934 Rule 13a-15(f). Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2018 as required by the Securities Exchange Act of 1934 Rule 13a-15(c). In making this assessment, we used the criteria set forth in the framework in Internal Control— Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control—Integrated Framework (2013), our management concluded that our internal control over financial reporting was effective as of December 31, 2018. The effectiveness of our internal control over financial reporting as of December 31, 2018 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report which appears on page K-62. Berkshire Hathaway Inc. February 23, 2019 K-61 Item 8. Financial Statements and Supplementary Data REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and the Board of Directors of Berkshire Hathaway Inc. Omaha, Nebraska Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of Berkshire Hathaway Inc. and subsidiaries (the “Company”) as of December 31, 2018 and 2017, the related consolidated statements of earnings, comprehensive income, changes in shareholders’ equity, and cash flows, for each of the three years in the period ended December 31, 2018, and the related notes (collectively referred to as the “financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO. Change in Accounting Principle As discussed in Note 1 to the financial statements, the Company has changed its method of accounting for investments in equity securities (excluding equity method investments) in 2018 due to the adoption of ASU 2016-01 “Financial Instruments – Recognition and Measurement of Financial Assets and Financial Liabilities.” Basis for Opinions The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on these financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. K-62 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (Continued) Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Deloitte & Touche LLP Omaha, Nebraska February 23, 2019 We have served as the Company’s auditor since 1985. K-63 BERKSHIRE HATHAWAY INC. and Subsidiaries CONSOLIDATED BALANCE SHEETS (dollars in millions) ASSETS Insurance and Other: $ Cash and cash equivalents* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Short-term investments in U.S. Treasury Bills . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investments in fixed maturity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investments in equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equity method investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loans and finance receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equipment held for lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Goodwill Other intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred charges under retroactive reinsurance contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Railroad, Utilities and Energy: Cash and cash equivalents* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Regulatory assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . December 31, 2018 2017 27,749 81,506 19,898 172,757 17,325 16,280 31,564 19,069 20,628 14,298 56,323 31,499 14,104 9,307 532,307 2,612 3,666 131,780 24,702 3,067 9,660 175,487 $ 28,673 84,371 21,353 170,540 21,024 13,748 29,392 17,366 19,868 10,167 56,478 32,518 15,278 9,391 530,167 2,910 3,531 128,184 24,780 2,950 9,573 171,928 * Cash and cash equivalents includes U.S. Treasury Bills with maturities of three months or less when purchased of $3.9 billion at December 31, 2018 and $5.7 billion at December 31, 2017. $ 707,794 $ 702,095 See accompanying Notes to Consolidated Financial Statements K-64 BERKSHIRE HATHAWAY INC. and Subsidiaries CONSOLIDATED BALANCE SHEETS (dollars in millions) LIABILITIES AND SHAREHOLDERS’ EQUITY Insurance and Other: Unpaid losses and loss adjustment expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unpaid losses and loss adjustment expenses under retroactive reinsurance contracts . . . . . . . . . . . . Unearned premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Life, annuity and health insurance benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other policyholder liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accounts payable, accruals and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Derivative contract liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Aircraft repurchase liabilities and unearned lease revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Notes payable and other borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Railroad, Utilities and Energy: Accounts payable, accruals and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Regulatory liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Notes payable and other borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income taxes, principally deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . December 31, 2018 2017 $ $ 68,458 41,834 18,093 18,632 7,675 25,776 2,452 4,593 34,975 61,122 42,937 16,040 17,608 7,654 24,569 2,172 — 40,409 222,488 212,511 11,410 7,506 62,515 81,431 51,375 11,334 7,511 62,178 81,023 56,607 Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 355,294 350,141 Shareholders’ equity: Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capital in excess of par value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accumulated other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Treasury stock, at cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Berkshire Hathaway shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 35,707 (5,015) 321,112 (3,109) 348,703 3,797 352,500 8 35,694 58,571 255,786 (1,763) 348,296 3,658 351,954 $ 707,794 $ 702,095 See accompanying Notes to Consolidated Financial Statements K-65 BERKSHIRE HATHAWAY INC. and Subsidiaries CONSOLIDATED STATEMENTS OF EARNINGS (dollars in millions except per share amounts) Revenues: Insurance and Other: Insurance premiums earned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sales and service revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Leasing revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest, dividend and other investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Railroad, Utilities and Energy: Freight rail transportation revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Energy operating revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Service revenues and other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Year Ended December 31, 2018 2017 2016 $ 57,418 133,336 5,732 7,678 204,164 23,703 15,555 4,415 43,673 $ 60,597 130,343 2,452 6,536 199,928 21,080 15,155 3,770 40,005 45,881 123,053 2,553 6,180 177,667 19,683 14,621 3,143 37,447 Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 247,837 239,933 215,114 Investment and derivative contract gains (losses): Investment gains (losses) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Derivative contract gains (losses) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Costs and expenses: Insurance and Other: Insurance losses and loss adjustment expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Life, annuity and health insurance benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Insurance underwriting expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost of sales and services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost of leasing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Selling, general and administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Railroad, Utilities and Energy: Freight rail transportation expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Utilities and energy cost of sales and other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total costs and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Earnings before income taxes and equity method earnings (losses) . . . . . . . . . . . . . . . . . . Equity method earnings (losses) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Earnings before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income tax expense (benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Earnings attributable to noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net earnings attributable to Berkshire Hathaway shareholders . . . . . . . . . . . . . . . . . . . . $ (22,155) (300) (22,455) 39,906 5,699 9,793 106,083 4,061 18,238 1,035 184,815 16,045 11,641 3,895 2,818 34,399 219,214 6,168 (2,167) 4,001 (321) 4,322 301 4,021 1,410 718 2,128 48,891 5,618 9,321 104,343 1,455 19,189 1,132 189,949 14,031 10,772 3,231 3,254 31,288 221,237 20,824 3,014 23,838 (21,515) 45,353 413 $ 44,940 $ 7,553 751 8,304 30,906 5,131 7,713 97,867 1,335 17,973 1,099 162,024 13,134 10,471 2,589 2,642 28,836 190,860 32,558 1,109 33,667 9,240 24,427 353 24,074 Net earnings per average equivalent Class A share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net earnings per average equivalent Class B share* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Average equivalent Class A shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Average equivalent Class B shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $ 2,446 1.63 1,643,795 2,465,692,368 $ $ 27,326 18.22 1,644,615 2,466,923,163 $ $ 14,645 9.76 1,643,826 2,465,739,654 * Class B shares are economically equivalent to one-fifteen-hundredth of a Class A share. Accordingly, net earnings per average equivalent Class B share outstanding is equal to one-fifteen-hundredth of the equivalent Class A amount. See Note 21. See accompanying Notes to Consolidated Financial Statements K-66 BERKSHIRE HATHAWAY INC. and Subsidiaries CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (dollars in millions) Year Ended December 31, 2018 2017 2016 Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,322 $ 45,353 $ 24,427 Other comprehensive income: Net change in unrealized appreciation of investments . . . . . . . . . . . . . . . . . . . . . . Applicable income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reclassification of investment appreciation in net earnings . . . . . . . . . . . . . . . . . . Applicable income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign currency translation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Applicable income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Prior service cost and actuarial gains/losses of defined benefit pension plans . . . . Applicable income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other comprehensive income, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Comprehensive income attributable to noncontrolling interests . . . . . . . . . . . . . . . . . . . . (185) 31 (253) 53 (1,531) 62 (571) 143 (12) (2,263) 2,059 249 30,450 (10,566) (1,399) 490 2,364 (95) 225 (45) (9) 21,415 66,768 555 13,858 (4,846) (6,820) 2,387 (1,541) 66 354 (187) (17) 3,254 27,681 291 Comprehensive income attributable to Berkshire Hathaway shareholders . . . . . . . . . . . . $ 1,810 $ 66,213 $ 27,390 BERKSHIRE HATHAWAY INC. and Subsidiaries CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (dollars in millions) Berkshire Hathaway shareholders’ equity Common stock and capital in excess of par value Accumulated other comprehensive income Balance December 31, 2015 . . . . . . . . . . . . . . . . . . Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other comprehensive income, net . . . . . . . . . . . . Issuance of common stock . . . . . . . . . . . . . . . . . . Transactions with noncontrolling interests . . . . . $ Balance December 31, 2016 . . . . . . . . . . . . . . . . . . Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other comprehensive income, net . . . . . . . . . . . . Issuance of common stock . . . . . . . . . . . . . . . . . . Transactions with noncontrolling interests . . . . . Balance December 31, 2017 . . . . . . . . . . . . . . . . . . Adoption of new accounting pronouncements . . Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other comprehensive income, net . . . . . . . . . . . . Issuance (acquisition) of common stock . . . . . . . Transactions with noncontrolling interests . . . . . 35,628 — — 119 (58) 35,689 — — 76 (63) 35,702 — — — 59 (46) $ 33,982 — 3,316 — — 37,298 — 21,273 — — 58,571 (61,375) — (2,211) — — Retained earnings $ 186,772 24,074 — — — 210,846 44,940 — — — 255,786 61,305 4,021 — — — Treasury stock $ (1,763) — — — — (1,763) — — — — (1,763) — — — (1,346) — Non- controlling interests $ 3,077 353 (62) — (10) 3,358 413 142 — (255) 3,658 — 301 (52) — (110) Total $ 257,696 24,427 3,254 119 (68) 285,428 45,353 21,415 76 (318) 351,954 (70) 4,322 (2,263) (1,287) (156) Balance December 31, 2018 . . . . . . . . . . . . . . . . . . $ 35,715 $ (5,015) $ 321,112 $ (3,109) $ 3,797 $ 352,500 See accompanying Notes to Consolidated Financial Statements K-67 BERKSHIRE HATHAWAY INC. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in millions) Cash flows from operating activities: Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Adjustments to reconcile net earnings to operating cash flows: Investment gains/losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Changes in operating assets and liabilities: Losses and loss adjustment expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred charges reinsurance assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unearned premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Receivables and originated loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Year Ended December 31, 2018 2017 2016 $ 4,322 $ 45,353 $ 24,427 22,155 9,779 2,957 3,449 1,174 1,794 (3,443) (1,832) 2,002 (4,957) (1,410) 9,188 458 25,027 (7,231) 1,761 (1,990) (1,665) 1,194 (24,957) (7,553) 8,901 (161) 4,372 (360) 968 (3,302) (373) 1,684 4,044 Net cash flows from operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,400 45,728 32,647 Cash flows from investing activities: Purchases of U.S. Treasury Bills and fixed maturity securities . . . . . . . . . . . . . . . . . . . . Purchases of equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sales of U.S. Treasury Bills and fixed maturity securities . . . . . . . . . . . . . . . . . . . . . . . . Redemptions and maturities of U.S. Treasury Bills and fixed maturity securities . . . . . . Sales and redemptions of equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purchases of loans and finance receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Collections of loans and finance receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Acquisitions of businesses, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purchases of property, plant and equipment and equipment held for lease . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (141,844) (43,210) 39,693 113,045 18,783 (1,771) 342 (3,279) (14,537) (71) (158,492) (20,326) 49,327 86,727 19,512 (1,435) 1,702 (2,708) (11,708) (3,608) (96,568) (16,508) 18,757 26,177 28,464 (307) 490 (31,399) (12,954) (377) Net cash flows from investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (32,849) (41,009) (84,225) Cash flows from financing activities: Proceeds from borrowings of insurance and other businesses . . . . . . . . . . . . . . . . . . . . . Proceeds from borrowings of railroad, utilities and energy businesses . . . . . . . . . . . . . . Repayments of borrowings of insurance and other businesses . . . . . . . . . . . . . . . . . . . . . Repayments of borrowings of railroad, utilities and energy businesses . . . . . . . . . . . . . . Changes in short term borrowings, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Acquisition of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net cash flows from financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Effects of foreign currency exchange rate changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Increase (decrease) in cash and cash equivalents and restricted cash . . . . . . . . . . . . . . . . . . . . . Cash and cash equivalents and restricted cash at beginning of year . . . . . . . . . . . . . . . . . . . . . . 2,409 7,019 (7,395) (4,213) (1,943) (1,346) (343) (5,812) (140) (1,401) 32,212 2,645 3,013 (5,465) (3,549) 2,079 — (121) 14,172 3,077 (2,577) (2,123) 130 — 112 (1,398) 12,791 248 3,569 28,643 (172) (38,959) 67,602 Cash and cash equivalents and restricted cash at end of year * . . . . . . . . . . . . . . . . . . . . . . $ 30,811 $ 32,212 $ 28,643 * Cash and cash equivalents and restricted cash at end of year are comprised of the following: Insurance and Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Railroad, Utilities and Energy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Restricted cash, included in other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 27,749 2,612 450 $ 28,673 2,910 629 $ 24,109 3,939 595 $ 30,811 $ 32,212 $ 28,643 See accompanying Notes to Consolidated Financial Statements K-68 BERKSHIRE HATHAWAY INC. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2018 (1) Significant accounting policies and practices (a) Nature of operations and basis of consolidation Berkshire Hathaway Inc. (“Berkshire”) is a holding company owning subsidiaries engaged in a number of diverse business activities, including insurance and reinsurance, freight rail transportation, utilities and energy, manufacturing, service, retailing and finance. In these notes the terms “us,” “we,” or “our” refer to Berkshire and its consolidated subsidiaries. Further information regarding our reportable business segments is contained in Note 26. Information concerning significant business acquisitions completed over the past three years appears in Note 2. The Consolidated Financial Statements for periods before 2018 reflect reclassifications to conform to 2018 presentations. Most significantly, line items previously reported under the sub-caption Finance and Financial Products in our Consolidated Financial Statements were reclassified to corresponding line items in the Insurance and Other section. We continue to believe that reporting the Railroad, Utilities and Energy subsidiaries separately is appropriate given relative significance of long-lived assets, capital expenditures and debt, which is not guaranteed by Berkshire. In addition, certain amounts related to equity method investments were reclassified to conform to current year presentations. The accompanying Consolidated Financial Statements include the accounts of Berkshire consolidated with the accounts of all subsidiaries and affiliates in which we hold a controlling financial interest as of the financial statement date. Normally a controlling financial interest reflects ownership of a majority of the voting interests. We consolidate variable interest entities (“VIE”) when we possess both the power to direct the activities of the VIE that most significantly affect its economic performance, and we (a) are obligated to absorb the losses that could be significant to the VIE or (b) hold the right to receive benefits from the VIE that could be significant to the VIE. Intercompany accounts and transactions have been eliminated. (b) Use of estimates in preparation of financial statements The preparation of our Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. In particular, estimates of unpaid losses and loss adjustment expenses are subject to considerable estimation error due to the inherent uncertainty in projecting ultimate claim costs. In addition, estimates and assumptions associated with the amortization of deferred charges on retroactive reinsurance contracts, determinations of fair values of certain financial instruments and evaluations of goodwill and identifiable intangible assets for impairment require considerable judgment. Actual results may differ from the estimates used in preparing our Consolidated Financial Statements. (c) Cash and cash equivalents and short-term investments in U.S. Treasury Bills Cash equivalents consist of demand deposit and money market accounts and investments with maturities of three months or less when purchased. Short-term investments in U.S. Treasury Bills with remaining maturities exceeding three months at the time of purchase are stated at amortized cost, which approximates fair value. (d) Investments in fixed maturity securities We classify investments in fixed maturity securities at the acquisition date and re-evaluate the classification at each balance sheet date. We carry held-to-maturity investments at amortized cost, reflecting the ability and intent to hold the securities to maturity. Trading investments are securities acquired with the intent to sell in the near term and are carried at fair value with changes in fair value reported in earnings. All other fixed maturity securities are classified as available-for-sale and are carried at fair value with net unrealized gains or losses reported as a component of accumulated other comprehensive income. As of December 31, 2018, substantially all of our investments in fixed maturity securities were classified as available-for-sale. We amortize the difference between the original cost and maturity value of a fixed maturity security to earnings using the interest method. K-69 Notes to Consolidated Financial Statements (Continued) (1) Significant accounting policies and practices (Continued) (d) Investments in fixed maturity securities (Continued) Investment gains and losses arise when fixed maturity securities are sold (as determined on a specific identification basis) or are other-than-temporarily impaired with respect to securities classified as available-for-sale. If the value of a fixed maturity investment declines to below amortized cost and the decline is deemed to be other than temporary, the amortized cost of the investment is reduced to fair value, with a corresponding charge to earnings. We recognize an other-than- temporary impairment if we (a) intend to sell or expect to be required to sell the security before its amortized cost is recovered or (b) do not expect to ultimately recover the amortized cost basis even if we do not intend to sell the security. Under scenario (a), we recognize the loss in earnings and under scenario (b), we recognize the credit loss component in earnings and the difference between fair value and the amortized cost basis net of the credit loss in other comprehensive income. (e) Investments in equity securities We carry substantially all of our investments in equity securities at fair value and record the subsequent changes in fair values in the Consolidated Statement of Earnings as a component of investment gains/losses. Prior to January 1, 2018, substantially all of our equity security investments were classified as available-for-sale and were also carried at fair value. However, we recorded the periodic changes in fair value of these securities as components of other comprehensive income and we recorded gains and losses in the Consolidated Statements of Earnings when equity securities were sold (on a specific identification basis) or were other-than-temporarily impaired. (f) Investments under the equity method We utilize the equity method to account for investments when we possess the ability to exercise significant influence, but not control, over the operating and financial policies of the investee. The ability to exercise significant influence is presumed when the investor possesses more than 20% of the voting interests of the investee. This presumption may be overcome based on specific facts and circumstances that demonstrate that the ability to exercise significant influence is restricted. We apply the equity method to investments in common stock and to other investments when such other investments possess substantially identical subordinated interests to common stock. In applying the equity method, we record the investment at cost and subsequently increase or decrease the carrying amount of the investment by our proportionate share of the net earnings or losses and other comprehensive income of the investee. We record dividends or other equity distributions as reductions in the carrying value of the investment. In the event that net losses of the investee reduce the carrying amount to zero, additional net losses may be recorded if other investments in the investee are at-risk, even if we have not committed to provide financial support to the investee. Such additional equity method losses, if any, are based upon the change in our claim on the investee’s book value. (g) Receivables insurance premiums receivable and reinsurance Receivables primarily consists of balances due from customers, recoverable on unpaid losses. Receivables are stated net of estimated allowances for uncollectible balances. Allowances for uncollectible balances are provided when it is probable counterparties or customers will be unable to pay all amounts due based on the contractual terms. We write-off receivables against the allowances after all reasonable collection efforts are exhausted. (h) Loans and finance receivables Loans and finance receivables are predominantly manufactured housing installment loans. We carry these loans at amortized cost, net of allowances for uncollectible accounts, based on our ability and intent to hold such loans to maturity. Acquisition costs and loan origination and commitment costs paid or fees received along with acquisition premiums or discounts are amortized as yield adjustments over the lives of the loans. Substantially all of our loans and finance receivables are secured by real or personal property or by other assets of the borrower. Allowances for credit losses on loans include estimates of losses on loans currently in foreclosure and losses on loans not currently in foreclosure. We estimate losses on loans in foreclosure based on historical experience and collateral recovery rates. Estimates of losses on loans not currently in foreclosure consider historical default rates, collateral recovery rates and prevailing economic conditions. Allowances for credit losses also incorporate the historical average time elapsed from the last payment until foreclosure. K-70 Notes to Consolidated Financial Statements (Continued) (1) Significant accounting policies and practices (Continued) (h) Loans and finance receivables (Continued) Loans are considered delinquent when payments are more than 30 days past due. We place loans over 90 days past due on nonaccrual status and accrued but uncollected interest is reversed. Subsequent collections on the loans are first applied to the principal and interest owed for the most delinquent amount. We resume interest income accrual once a loan is less than 90 days delinquent. Loans in the foreclosure process are considered non-performing. Once a loan is in foreclosure, interest income is not recognized unless the foreclosure is cured or the loan is modified. Once a modification is complete, interest income is recognized based on the terms of the new loan. Foreclosed loans are charged off when the collateral is sold. Loans not in foreclosure are evaluated for charge off based on individual circumstances concerning the future collectability of the loan and the condition of the collateral securing the loan. (i) Derivatives We carry derivative contracts in our Consolidated Balance Sheets at fair value, net of reductions permitted under master netting agreements with counterparties. We record the changes in fair value of derivative contracts that do not qualify as hedging instruments for financial reporting purposes in earnings or by our regulated utilities businesses as regulatory assets or liabilities, as applicable, when inclusion in regulated rates is probable. (j) Fair value measurements As defined under GAAP, fair value is the price that would be received to sell an asset or paid to transfer a liability between market participants in the principal market or in the most advantageous market when no principal market exists. Adjustments to transaction prices or quoted market prices may be required in illiquid or disorderly markets in order to estimate fair value. Alternative valuation techniques may be appropriate under the circumstances to determine the value that would be received to sell an asset or paid to transfer a liability in an orderly transaction. Market participants are assumed to be independent, knowledgeable, able and willing to transact an exchange and not acting under duress. Our nonperformance or credit risk is considered in determining the fair value of liabilities. Considerable judgment may be required in interpreting market data used to develop the estimates of fair value. Accordingly, estimates of fair value presented herein are not necessarily indicative of the amounts that could be realized in a current or future market exchange. (k) Inventories Inventories consist of manufactured goods, goods acquired for resale, homes constructed for sale, and materials consumed in business operations. Manufactured inventory costs include raw materials, direct and indirect labor and factory overhead. We used the last-in-first-out (“LIFO”) method to value approximately 39% of consolidated inventories at December 31, 2018 with the remainder primarily determined under first-in-first-out and average cost methods. Non-LIFO inventories are stated at the lower of cost or net realizable value. The excess of current or replacement costs over costs determined under LIFO were approximately $1.0 billion as of December 31, 2018. (l) Property, plant and equipment We record additions to property, plant and equipment used in operations at cost, which includes asset additions, improvements and betterments. With respect to constructed assets, all materials, direct labor and contract services as well as certain indirect costs are capitalized. Indirect costs include interest over the construction period. With respect to constructed assets of our utility and energy subsidiaries that are subject to authoritative guidance for regulated operations, capitalized costs also include an equity allowance for funds used during construction, which represents the cost of equity funds used to finance the construction of the regulated facilities. See Note 1(t). Normal repairs and maintenance and other costs that do not improve the property, extend the useful life or otherwise do not meet capitalization criteria are charged to expense as incurred. Rail grinding costs related to our railroad properties are expensed as incurred. Depreciation of assets of our regulated utilities and railroad is generally determined using group depreciation methods where rates are based on periodic depreciation studies approved by the applicable regulator. Under group depreciation, a single depreciation rate is applied to the gross investment in a particular class of property, despite differences in the service life or salvage value of individual property units within the same class. When such assets are retired or sold, no gain or loss is recognized. Gains or losses on disposals of all other assets are recorded through earnings. K-71 Notes to Consolidated Financial Statements (Continued) (1) Significant accounting policies and practices (Continued) (l) Property, plant and equipment (Continued) We depreciate property, plant and equipment used by our other businesses to estimated salvage value primarily using the straight-line method over estimated useful lives. Ranges of estimated useful lives of depreciable assets used in our other businesses are as follows: buildings and improvements – 5 to 50 years, machinery and equipment – 3 to 25 years and furniture, fixtures and other – 3 to 15 years. Ranges of estimated useful lives of depreciable assets unique to our railroad business are as follows: track structure and other roadway – 9 to 100 years and locomotives, freight cars and other equipment – 6 to 41 years. Ranges of estimated useful lives of assets unique to our regulated utilities and energy businesses are as follows: utility generation, transmission and distribution systems – 5 to 80 years, interstate natural gas pipeline assets – 3 to 80 years and independent power plants and other assets – 3 to 30 years. We evaluate property, plant and equipment for impairment when events or changes in circumstances indicate that the carrying value of such assets may not be recoverable or when the assets are held for sale. Upon the occurrence of a triggering event, we assess whether the estimated undiscounted cash flows expected from the use of the asset and the residual value from the ultimate disposal of the asset exceeds the carrying value. If the carrying value exceeds the estimated recoverable amounts, we reduce the carrying value to fair value and record an impairment loss in earnings, except with respect to impairment of assets of our regulated utility and energy subsidiaries where the impacts of regulation are considered in evaluating the carrying value. (m) Equipment held for lease We record additions to equipment held for lease at cost. We depreciate equipment held for lease to estimated salvage value primarily using the straight-line method over estimated useful lives ranging from 6 to 35 years. We also evaluate equipment held for lease for impairment consistent with policies for property, plant and equipment. (n) Goodwill and other intangible assets Goodwill represents the excess of the acquisition price of a business over the fair value of identified net assets of that business. We evaluate goodwill for impairment at least annually. When evaluating goodwill for impairment, we estimate the fair value of the reporting unit. There are several methods that may be used to estimate a reporting unit’s fair value, including market quotations, asset and liability fair values and other valuation techniques, including, but not limited to, discounted projected future net earnings or net cash flows and multiples of earnings. If the carrying amount of a reporting unit, including goodwill, exceeds the estimated fair value, then the identifiable assets and liabilities of the reporting unit are estimated at fair value as of the current testing date. The excess of the estimated fair value of the reporting unit over the current estimated fair value of net assets establishes the implied value of goodwill. The excess of the recorded goodwill over the implied goodwill value is charged to earnings as an impairment loss. Significant judgment is required in estimating the fair value of the reporting unit and performing goodwill impairment tests. We amortize intangible assets with finite lives in a pattern that reflects the expected consumption of related economic benefits or on a straight-line basis over the estimated economic lives. Intangible assets with finite lives are reviewed for impairment when events or changes in circumstances indicate that the carrying amount may not be recoverable. Intangible assets with indefinite lives are tested for impairment at least annually and when events or changes in circumstances indicate that, more-likely-than-not, the asset is impaired. (o) Revenue recognition We earn insurance premiums on prospective property/casualty insurance and reinsurance contracts over the loss exposure or coverage period in proportion to the level of protection provided. In most cases, such premiums are earned ratably over the term of the contract with unearned premiums computed on a monthly or daily pro-rata basis. Premiums on retroactive property/casualty reinsurance contracts are earned at the inception of the contracts, as all of the underlying loss events covered by the policies occurred prior to inception. Premiums for life reinsurance and annuity contracts are earned when due. Premiums earned are stated net of amounts ceded to reinsurers. Premiums earned on contracts with experience-rating provisions reflect estimated loss experience under such contracts. K-72 Notes to Consolidated Financial Statements (Continued) (1) Significant accounting policies and practices (Continued) (o) Revenue recognition (Continued) On January 1, 2018, we adopted Accounting Standards Codification (“ASC”) 606 “Revenues from Contracts with Customers.” Except as described in Note 1(w), our revenue recognition practices for contracts with customers under ASC 606 do not differ significantly from prior practices. Under ASC 606, revenues are recognized when a good or service is transferred to a customer. A good or service is transferred when (or as) the customer obtains control of that good or service. Revenues are based on the consideration we expect to receive in connection with our promises to deliver goods and services to our customers. We manufacture and/or distribute a wide variety of industrial, building and consumer products. Our sales contracts provide customers with these products through wholesale and retail channels in exchange for consideration specified under the contracts. Contracts generally represent customer orders for individual products at stated prices. Sales contracts may contain either single or multiple performance obligations. In instances where contracts contain multiple performance obligations, we allocate the revenue to each obligation based on the relative stand-alone selling prices of each product or service. Sales revenue reflects reductions for returns, allowances, volume discounts and other incentives, some of which may be contingent on future events. In certain customer contracts, sales revenue includes certain state and local excise taxes billed to customers on specified products when those taxes are levied directly upon us by the taxing authorities. Sales revenue excludes sales taxes and value-added taxes collected on behalf of taxing authorities. Sales revenue includes consideration for shipping and other fulfillment activities performed prior to the customer obtaining control of the goods. We also elect to treat consideration for such services performed after control has passed to the customer as sales revenue. Our product sales revenues are generally recognized at a point in time when control of the product transfers to the customer, which coincides with customer pickup or product delivery or acceptance, depending on terms of the arrangement. We recognize sales revenues and related costs with respect to certain contracts over time, primarily from certain castings, forgings and aerostructures contracts. Control of the product units under these contracts transfers continuously to the customer as the product is manufactured. These products generally have no alternative use and the contract requires the customer to provide reasonable compensation if terminated for reasons other than breach of contract. Our energy revenue derives primarily from tariff based sales arrangements approved by various regulatory commissions. These tariff based revenues are mainly comprised of energy, transmission, distribution and natural gas and have performance obligations to deliver energy products and services to customers which are satisfied over time as energy is delivered or services are provided. Our nonregulated energy revenue primarily relates to our renewable energy business. Energy revenues are equivalent to the amounts we have the right to invoice and correspond directly with the value to the customer of the performance to date and include billed and unbilled amounts. Payments from customers are generally due from the customer within 30 days of billing. Rates charged for energy products and services are established by regulators or contractual arrangements that establish the transaction price, as well as the allocation of price amongst the separate performance obligations. When preliminary regulated rates are permitted to be billed prior to final approval by the applicable regulator, certain revenue collected may be subject to refund and a liability for estimated refunds is accrued. The primary performance obligation under our freight rail transportation service contracts is to move freight from a point of origin to a point of destination. The performance obligations are represented by bills of lading which create a series of distinct services that have a similar pattern of transfer to the customer. The revenues for each performance obligation are based on various factors including the product being shipped, the origin and destination pair, and contract incentives which are outlined in various private rate agreements, common carrier public tariffs, interline foreign road agreements and pricing quotes. The transaction price is generally a per car amount to transport railcars from a specified origin to a specified destination. Freight revenues are recognized over time as the service is performed because the customer simultaneously receives and consumes the benefits of the service. Revenues recognized represent the proportion of the service completed as of the balance sheet date. Invoices for freight transportation services are generally issued to customers and paid within 30 days or less. Customer incentives, which are primarily provided for shipping a specified cumulative volume or shipping to/from specific locations, are recorded as a reduction to revenue on a pro-rata basis based on actual or projected future customer shipments. K-73 Notes to Consolidated Financial Statements (Continued) (1) Significant accounting policies and practices (Continued) (o) Revenue recognition (Continued) Other service revenues derive from contracts with customers in which performance obligations are satisfied over time, where customers receive and consume benefits as we perform the services, or at a point in time when the services are provided. Other service revenues primarily derive from real estate brokerage, automotive repair, aircraft management, aviation training, franchising and news distribution services. Leasing revenue is generally recognized ratably over the term of the lease or based on usage, if applicable under the terms of the contract. A substantial portion of our leases are classified as operating leases. Prior to January 1, 2018, we recognized revenues from the sales of fractional ownership interests in aircraft over the term of the related management services agreements, as the transfers of the ownership interests were inseparable from the management services agreements. These agreements also include provisions that require us to repurchase the fractional interest at fair market value at contract termination or upon the customer’s request following the end of a minimum commitment period. ASC 606 provides that such contracts are subject to accounting guidance for lease contracts and not ASC 606. The re-characterization of these fractional ownership interests as operating leases did not have a significant effect on our consolidated revenues or earnings. (p) Losses and loss adjustment expenses We record liabilities for unpaid losses and loss adjustment expenses assumed under short duration property/casualty insurance and reinsurance contracts for loss events that have occurred on or before the balance sheet date. Such liabilities represent the estimated ultimate payment amounts without discounting for time value. We base liability estimates on (1) reports of losses from policyholders, (2) individual case estimates and (3) estimates of incurred but not reported losses. Losses and loss adjustment expenses in the Consolidated Statements of Earnings include paid claims, claim settlement costs and changes in estimated claim liabilities. Losses and loss adjustment expenses charged to earnings are net of amounts recovered and estimates of recoverable amounts under ceded reinsurance contracts. Reinsurance contracts do not relieve the ceding company of its obligations to indemnify policyholders with respect to the underlying insurance and reinsurance contracts. (q) Retroactive reinsurance contracts We record liabilities for unpaid losses and loss adjustment expenses assumed under retroactive reinsurance of short duration contracts consistent with other short duration property/casualty insurance and reinsurance contracts discussed in Note 1(p). With respect to retroactive reinsurance contracts, we also record deferred charge assets at the inception of the contracts, representing the excess, if any, of the estimated ultimate claim liabilities over the premiums earned. We subsequently amortize the deferred charge assets over the expected claim settlement periods using the interest method. Changes to the estimated timing or amount of future loss payments also produce changes in deferred charge balances. We apply changes in such estimates retrospectively and the resulting changes in deferred charge balances, together with periodic amortization, are included in insurance losses and loss adjustment expenses in the Consolidated Statements of Earnings. (r) Insurance policy acquisition costs We capitalize the incremental costs that directly relate to the successful sale of insurance contracts, subject to ultimate recoverability, and we subsequently amortize such costs to underwriting expenses as the related premiums are earned. Direct incremental acquisition costs include commissions, premium taxes and certain other costs associated with successful efforts. We expense all other underwriting costs as incurred. The recoverability of capitalized insurance policy acquisition costs generally reflects anticipation of investment income. The unamortized balances are included in other assets and were $2,658 million and $2,529 million at December 31, 2018 and 2017, respectively. K-74 Notes to Consolidated Financial Statements (Continued) (1) Significant accounting policies and practices (Continued) (s) Life and annuity insurance benefits We compute our liabilities for insurance benefits under life contracts based upon estimated future investment yields, expected mortality, morbidity, and lapse or withdrawal rates as well as estimates of premiums we expect to receive and expenses we expect to incur in the future. These assumptions, as applicable, also include a margin for adverse deviation and may vary with the characteristics of the contract’s date of issuance, policy duration and country of risk. The interest rate assumptions used may vary by contract or jurisdiction. We discount periodic payment annuity liabilities based on the implicit rate as of the inception of the contracts such that the present value of the liabilities equals the premiums. Discount rates range from less than 1% to 7%. (t) Regulated utilities and energy businesses Certain energy subsidiaries prepare their financial statements in accordance with authoritative guidance for regulated operations, reflecting the economic effects of regulation from the ability to recover certain costs from customers and the requirement to return revenues to customers in the future through the regulated rate-setting process. Accordingly, certain costs are deferred as regulatory assets and certain income is accrued as regulatory liabilities. Regulatory assets and liabilities will be amortized into operating expenses and revenues over various future periods. Regulatory assets and liabilities are continually assessed for probable future inclusion in regulatory rates by considering factors such as applicable regulatory or legislative changes and recent rate orders received by other regulated entities. If future inclusion in regulatory rates ceases to be probable, the amount no longer probable of inclusion in regulatory rates is charged or credited to earnings (or other comprehensive income, if applicable) or returned to customers. (u) Foreign currency The accounts of our non-U.S. based subsidiaries are measured, in most instances, using functional currencies other than the U.S. Dollar. Revenues and expenses of these subsidiaries are translated into U.S. Dollars at the average exchange rate for the period and assets and liabilities are translated at the exchange rate as of the end of the reporting period. Gains or losses from translating the financial statements of these subsidiaries are included in shareholders’ equity as a component of accumulated other comprehensive income. Gains and losses arising from transactions denominated in a currency other than the functional currency of the reporting entity, including gains and losses from the remeasurement of assets and liabilities due to changes in currency exchange rates, are included in earnings. (v) Income taxes Berkshire files a consolidated federal income tax return in the United States, which includes eligible subsidiaries. In addition, we file income tax returns in state, local and foreign jurisdictions as applicable. Provisions for current income tax liabilities are calculated and accrued on income and expense amounts expected to be included in the income tax returns for the current year. Income taxes reported in earnings also include deferred income tax provisions. Deferred income tax assets and liabilities are computed on differences between the financial statement bases and tax bases of assets and liabilities at the enacted tax rates. Changes in deferred income tax assets and liabilities associated with components of other comprehensive income are charged or credited directly to other comprehensive income. Otherwise, changes in deferred income tax assets and liabilities are included as a component of income tax expense. The effect on deferred income tax assets and liabilities attributable to changes in enacted tax rates are charged or credited to income tax expense in the period of enactment. Valuation allowances are established for certain deferred tax assets when realization is not likely. Assets and liabilities are established for uncertain tax positions taken or positions expected to be taken in income tax returns when such positions, in our judgment, do not meet a more-likely-than-not threshold based on the technical merits of the positions. Estimated interest and penalties related to uncertain tax positions are included as a component of income tax expense. K-75 Notes to Consolidated Financial Statements (Continued) (1) Significant accounting policies and practices (Continued) (w) New accounting pronouncements adopted in 2018 On January 1, 2018, we adopted Accounting Standards Update (“ASU”) 2016-01 “Financial Instruments—Recognition and Measurement of Financial Assets and Financial Liabilities,” ASU 2018-02 “Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income” and ASC 606. Prior year financial statements were not restated. A summary of the effects of the initial adoption of ASU 2016-01, ASU 2018-02 and ASC 606 follows (in millions). ASU 2016-01 ASU 2018-02 ASC 606 Total Increase (decrease): $ Assets . . . . . . . . . . . . . . . . . . Liabilities . . . . . . . . . . . . . . . Accumulated other comprehensive income . . Retained earnings . . . . . . . . Shareholders’ equity . . . . . . — $ — (61,459) 61,459 — — $ — 84 (84) — 3,382 $ 3,453 — (70) (70) 3,382 3,453 (61,375) 61,305 (70) With respect to ASU 2016-01, beginning in 2018, unrealized gains and losses from the changes in the fair values of our equity securities during the period are included within investment gains (losses) in the Consolidated Statements of Earnings. For periods ending prior to January 1, 2018, we recognized gains and losses in earnings when we sold equity securities and for other-than-temporary impairment losses and we recorded unrealized gains and losses from the changes in fair value of such securities in other comprehensive income. As of January 1, 2018, we reclassified net after-tax unrealized gains on equity securities from accumulated other comprehensive income to retained earnings. In adopting ASU 2018-02, we reclassified the stranded deferred income tax effects arising from the reduction in the U.S. statutory income tax rate under the U.S. Tax Cuts and Jobs Act that were included in accumulated other comprehensive income as of January 1, 2018 to retained earnings. The effect of the reduction in the U.S statutory income tax rate on other comprehensive income items was recorded in earnings in December 2017. In adopting ASC 606, we recorded increases to certain assets and other liabilities, with the cumulative net effect recorded to retained earnings. Prior to January 1, 2018, we recognized revenues from the sales of fractional ownership interests in aircraft over the term of the related management services agreements, as the transfers of the ownership interests were inseparable from the management services agreements. These agreements also include provisions that require us to repurchase the fractional interest at fair market value at contract termination or upon the customer’s request following the end of a minimum commitment period. ASC 606 provides that such contracts are subject to accounting guidance for lease contracts. The principal effects of this re-characterization were to increase equipment held for lease and aircraft repurchase liabilities and unearned lease revenues by approximately $3.5 billion. (x) New accounting pronouncements to be adopted subsequent to December 31, 2018 In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02 “Leases,” which together with subsequent amendments is included in ASC 842 “Leases.” Most significantly, ASC 842 requires a lessee to recognize a liability to make lease payments and an asset with respect to its right to use the underlying asset for the lease term. ASC 842 also addresses accounting and reporting by lessors, which is not significantly different from current accounting and reporting, and further provides for qualitative and quantitative disclosures. We adopted ASC 842 as of January 1, 2019 under the modified retrospective method with respect to lease contracts in effect as of the adoption date. We are party to contracts where we are the lessee and other contracts where we are the lessor. For contracts where we are the lessee, our consolidated assets and liabilities increased by approximately $6 billion as of January 1, 2019, primarily due to the recognition of right-of-use assets and lease liabilities with respect to operating leases. We do not believe the adoption of ASC 842 will have a material effect on our consolidated financial position, results of operations or cash flows. K-76 Notes to Consolidated Financial Statements (Continued) (1) Significant accounting policies and practices (Continued) (x) New accounting pronouncements to be adopted subsequent to December 31, 2018 (Continued) In June 2016, the FASB issued ASU 2016-13 “Financial Instruments—Credit Losses,” which provides for the recognition and measurement at the reporting date of all expected credit losses for financial assets held at amortized cost and for available-for-sale debt securities. Currently, credit losses are recognized and measured when such losses become probable based on the prevailing facts and circumstances. ASU 2016-13 is effective for reporting periods beginning after December 15, 2019. We are currently evaluating the effect this standard will have on our Consolidated Financial Statements. In January 2017, the FASB issued ASU 2017-04 “Simplifying the Test for Goodwill Impairment.” ASU 2017-04 eliminates the requirement to determine the implied value of goodwill in measuring an impairment loss. Upon adoption of ASU 2017-04, the measurement of a goodwill impairment will represent the excess of the reporting unit’s carrying value over its fair value and will be limited to the carrying value of goodwill. ASU 2017-04 is effective for goodwill impairment tests in fiscal years beginning after December 15, 2019, with early adoption permitted. In August 2018, the FASB issued ASU 2018-12 “Targeted Improvements to the Accounting for Long-Duration Contracts.” ASU 2018-12 requires periodic reassessment of actuarial and discount rate assumptions used in the valuation of policyholder liabilities and deferred acquisition costs arising from the issuance of long-duration insurance and reinsurance contracts, with the effects of changes in cash flow assumptions reflected in earnings and the effects of changes in discount rate assumptions reflected in other comprehensive income. Under current accounting guidance, the actuarial and discount rate assumptions are set at the contract inception date and not subsequently changed, except under limited circumstances. ASU 2018-12 also requires new disclosures and is effective for fiscal years beginning after December 15, 2020, with early adoption permitted. We are evaluating the effect this standard will have on our Consolidated Financial Statements. (2) Significant business acquisitions Our long-held acquisition strategy is to acquire businesses that have consistent earning power, good returns on equity and able and honest management. Financial results attributable to business acquisitions are included in our Consolidated Financial Statements beginning on their respective acquisition dates. In 2016, National Indemnity Company (“NICO”), a wholly-owned subsidiary, entered into a definitive agreement to acquire Medical Liability Mutual Insurance Company (“Medical Liability Mutual”), a writer of medical professional liability insurance domiciled in New York. The acquisition price was approximately $2.5 billion. The acquisition closed on October 1, 2018, at which time, Medical Liability Mutual’s name was changed to MLMIC Insurance Company (“MLMIC”). As of the acquisition date, the fair value of MLMIC’s assets was approximately $6.1 billion, including cash ($230 million) and investments ($5.2 billion), and liabilities were approximately $3.6 billion, consisting primarily of unpaid losses and loss adjustment expenses ($3.2 billion). MLMIC premiums earned for the year ending December 31, 2018 were approximately $400 million. In each of the past three years, we also completed several smaller-sized business acquisitions, which we consider as “bolt-ons” to several of our existing business operations. Aggregate consideration paid for bolt-on acquisitions was approximately $1.0 billion in 2018, $2.7 billion in 2017 and $1.4 billion in 2016. We do not believe that these acquisitions are material, individually or in the aggregate to our Consolidated Financial Statements. On January 29, 2016, Berkshire acquired all outstanding common stock of Precision Castparts Corp. (“PCC”) for cash of approximately $32.7 billion, which included the value of PCC shares we already owned. We funded the acquisition with a combination of existing cash balances and proceeds from a temporary credit facility. PCC is a worldwide, diversified manufacturer of complex metal components and products, serving the aerospace, power and general industrial markets. PCC also produces titanium and nickel superalloy melted and mill products for the aerospace, chemical processing, oil and gas and pollution control industries, and manufactures extruded seamless pipe, fittings and forgings for power generation and oil and gas applications. K-77 Notes to Consolidated Financial Statements (Continued) (2) Significant business acquisitions (Continued) On February 29, 2016, we acquired a recapitalized Duracell Company (“Duracell”) from The Procter & Gamble Company (“P&G”) in exchange for shares of P&G common stock held by Berkshire subsidiaries, which had a fair value of approximately $4.2 billion. Duracell manufactures high-performance alkaline batteries and wireless charging technologies. Goodwill from these acquisitions is not amortizable for income tax purposes. The fair values of identified assets acquired and liabilities assumed and residual goodwill at their respective acquisition dates are summarized as follows (in millions). PCC Duracell Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Property, plant and equipment Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 250 $ 3,430 2,765 16,011 23,527 1,916 Assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 47,899 $ Accounts payable, accruals and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Notes payable and other borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income taxes, principally deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,442 $ 5,251 7,548 Liabilities assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 15,241 $ 1,807 319 359 866 1,550 242 5,143 410 — 494 904 Net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 32,658 $ 4,239 (3) Investments in fixed maturity securities Investments in fixed maturity securities as of December 31, 2018 and 2017 are summarized by type below (in millions). December 31, 2018 U.S. Treasury, U.S. government corporations and agencies . . . . . . . . . . . . States, municipalities and political subdivisions . . . . . . . . . . . . . . . . . . . . Foreign governments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Corporate bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mortgage-backed securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . December 31, 2017 U.S. Treasury, U.S. government corporations and agencies . . . . . . . . . . . . States, municipalities and political subdivisions . . . . . . . . . . . . . . . . . . . . Foreign governments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Corporate bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mortgage-backed securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amortized Cost Unrealized Gains Unrealized Losses Fair Value $ $ $ $ 4,223 182 7,480 7,055 487 $ 19,427 $ 3,975 847 8,572 6,279 772 $ 20,445 $ 22 7 50 408 59 546 4 19 274 588 92 977 $ $ $ $ (22) — (28) (23) (2) (75) (26) (12) (24) (5) (2) (69) $ 4,223 189 7,502 7,440 544 $ 19,898 $ 3,953 854 8,822 6,862 862 $ 21,353 Investments in foreign governments include securities issued by national and provincial government entities as well as instruments that are unconditionally guaranteed by such entities. As of December 31, 2018, approximately 88% of our foreign government holdings were rated AA or higher by at least one of the major rating agencies. K-78 Notes to Consolidated Financial Statements (Continued) (3) Investments in fixed maturity securities (Continued) The amortized cost and estimated fair value of fixed maturity securities at December 31, 2018 are summarized below by contractual maturity dates. Amounts are in millions. Actual maturities may differ from contractual maturities due to early call or prepayment rights held by issuers. Due in one year or less Due after one year through five years Due after five years through ten years Due after ten years Mortgage-backed securities Total Amortized cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,973 6,982 Fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,937 10,994 $ $ 438 494 592 $ 884 487 544 $ 19,427 19,898 (4) Investments in equity securities Investments in equity securities as of December 31, 2018 and 2017 are summarized based on the primary industry of the investee in the table below (in millions). December 31, 2018 * Banks, insurance and finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consumer products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commercial, industrial and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net Unrealized Gains Fair Value Cost Basis $ 44,332 38,783 19,752 $ 38,260 22,838 8,792 $ 82,592 61,621 28,544 $ 102,867 $ 69,890 $ 172,757 * Approximately 68% of the aggregate fair value was concentrated in five companies (American Express Company – $14.5 billion; Apple Inc. – $40.3 billion; Bank of America Corporation – $22.6 billion; The Coca-Cola Company – $18.9 billion and Wells Fargo & Company – $20.7 billion). December 31, 2017 * Banks, insurance and finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consumer products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commercial, industrial and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net Unrealized Gains Fair Value Cost Basis $ 25,783 25,177 23,716 $ 55,026 25,698 15,140 $ 80,809 50,875 38,856 $ 74,676 $ 95,864 $ 170,540 * Approximately 65% of the aggregate fair value was concentrated in five companies (American Express Company – $15.1 billion; Apple Inc. – $28.2 billion; Bank of America Corporation – $20.7 billion; The Coca-Cola Company – $18.4 billion and Wells Fargo & Company – $29.3 billion). In 2011, we acquired 50,000 shares of 6% Non-Cumulative Perpetual Preferred Stock of Bank of America Corporation (“BAC”) with a liquidation value of $100,000 per share (“BAC Preferred”) and warrants to purchase up to 700,000,000 shares of common stock of BAC (“BAC Warrants”) at $7.142857 per share (up to $5 billion in the aggregate). On August 24, 2017, we exercised all of our BAC Warrants and acquired 700,000,000 shares of BAC common stock. We also surrendered substantially all of our BAC Preferred as payment of the $5 billion cost to exercise the BAC Warrants and acquire the BAC common stock. Our investment in BAC is included in the banks, insurance and finance category. K-79 Notes to Consolidated Financial Statements (Continued) (5) Equity method investments Berkshire and its subsidiaries hold investments in certain businesses that are accounted for pursuant to the equity method. Currently, the most significant of these is our investment in the common stock of The Kraft Heinz Company (“Kraft Heinz”). Kraft Heinz is one of the world’s largest manufacturers and marketers of food and beverage products, including condiments and sauces, cheese and dairy, meals, meats, refreshment beverages, coffee and other grocery products. Berkshire currently owns 325,442,152 shares of Kraft Heinz common stock representing 26.7% of the outstanding shares. Shares of Kraft Heinz common stock are publicly-traded and the fair value of our investment at December 31, 2018 and 2017 was approximately $14.0 billion and $25.3 billion, respectively. Our carrying value of this investment at December 31, 2018 and 2017 was approximately $13.8 billion and $17.6 billion, respectively. We recorded equity method losses in 2018 of approximately $2.7 billion compared to earnings of $2.9 billion in 2017 and $923 million in 2016. Our losses in 2018 included our share of intangible asset impairment losses recorded by Kraft Heinz. In 2017, our earnings reflected our share of certain one-time effects of the Tax Cuts and Jobs Act of 2017 on Kraft Heinz’s net earnings. We received dividends on the common stock of $814 million and $797 million in 2018 and 2017, respectively, which we recorded as reductions of our investment. Summarized unaudited financial information of Kraft Heinz follows (in millions). December 29, 2018 December 30, 2017 Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 103,627 51,721 $ 120,232 53,985 Year ending December 29, 2018 Year ending December 30, 2017 Year ending December 31, 2016 Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 26,259 $ 26,085 $ 26,335 Net earnings (losses) attributable to Kraft Heinz common shareholders . . . . . . . . . . . . $ (10,229) $ 10,999 $ 3,452 Other investments accounted for pursuant to the equity method include our investments in Berkadia Commercial Mortgage LLC (“Berkadia”), Pilot Travel Centers LLC, d/b/a Pilot Flying J (“Pilot Flying J”), and Electric Transmission Texas, LLC (“ETT”). The carrying value of our investments in these entities was approximately $3.5 billion as of December 31, 2018 and $3.4 billion as of December 31, 2017. Our equity method earnings in these entities were $563 million in 2018, $76 million in 2017 and $186 million in 2016. Additional information concerning these investments follows. We own a 50% interest in Berkadia, with Jefferies Financial Group Inc. (“Jefferies”), formerly known as Leucadia National Corporation, owning the other 50% interest. Berkadia is a servicer of commercial real estate loans in the U.S., performing primary, master and special servicing functions for U.S. government agency programs, commercial mortgage-backed securities transactions, banks, insurance companies and other financial institutions. A source of funding for Berkadia’s operations is through its issuance of commercial paper, which is currently limited to $1.5 billion. On December 31, 2018, Berkadia’s commercial paper outstanding was $1.47 billion. The commercial paper is supported by a surety policy issued by a Berkshire insurance subsidiary. Jefferies is obligated to indemnify us for one-half of any losses incurred under the policy. In addition, a Berkshire Hathaway Energy Company subsidiary owns a 50% interest in ETT, an owner and operator of electric transmission assets in the Electric Reliability Council of Texas footprint. American Electric Power owns the other 50% interest. On October 3, 2017, we entered into an investment agreement and an equity purchase agreement whereby we acquired a 38.6% interest in Pilot Flying J, headquartered in Knoxville, Tennessee. Pilot Flying J is one of the largest operators of travel centers in North America, with more than 28,000 team members, 750 locations across the U.S. and Canada, and more than $20 billion in annual revenues. The Haslam family currently owns a 50.1% interest in Pilot Flying J and a third party owns the remaining 11.3% interest. We also entered into an agreement to acquire in 2023 an additional 41.4% interest in Pilot Flying J with the Haslam family retaining a 20% interest. As a result, Berkshire will become the majority owner of Pilot Flying J in 2023. K-80 Notes to Consolidated Financial Statements (Continued) (6) Investment gains/losses Investment gains/losses for each of the three years ending December 31, 2018 are summarized below (in millions). Equity securities: Unrealized investment gains/losses on securities held at the end of the period . . . . . . . . . . . Investment gains/losses during 2018 on securities sold in 2018 . . . . . . . . . . . . . . . . . . . . . . . Gross realized gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gross realized losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(22,729) 291 — — $ — $ — — 7,853 (415) — 2,237 (919) 2018 2017 2016 (22,438) 1,318 7,438 Fixed maturity securities: Gross realized gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gross realized losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 480 (227) 30 103 (22) 11 58 (51) 108 $(22,155) $ 1,410 $ 7,553 Prior to 2018, we recognized investment gains and losses in earnings when we sold or otherwise disposed of equity securities based on the difference between the proceeds from the sale and the cost of the securities and also when we recognized other-than- temporary impairment losses. Beginning in 2018, equity securities gains and losses include unrealized gains and losses from changes in fair values during the period on equity securities we still own. See Note 1(w). Prior to 2018, we recorded the changes in unrealized gains and losses on our investments in equity securities in other comprehensive income. During 2018, as reflected in the Consolidated Statement of Cash Flows, we received proceeds of approximately $18.8 billion from sales of equity securities. In the preceding table, investment gains/losses on equity securities sold during 2018 reflect the difference between proceeds from sales and the fair value of the equity security sold at the beginning of the period or the purchase date, if later. Our taxable gains on equity securities sold during 2018, which are generally the difference between the proceeds from sales and our original cost, were $3.3 billion. Net gains from equity securities in 2017 included approximately $1.0 billion related to the surrender of substantially all of our BAC Preferred as described in Note 4. Gross gains from equity securities in 2016 included approximately $4.2 billion from the redemptions of our investments in Wm. Wrigley Jr. Company and Kraft Heinz preferred stock and from the sale of Dow Chemical Company common stock received in the conversion of our Dow Chemical preferred stock investment. In 2016, we also recorded a non-cash holding gain of approximately $1.1 billion from the exchange of P&G common stock in connection with the acquisition of Duracell. See Note 2. (7) Loans and finance receivables Loans and finance receivables are summarized as follows (in millions). December 31, 2018 2017 Loans and finance receivables before allowances and discounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Allowances for uncollectible loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unamortized acquisition discounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 16,622 (177) (165) $ 14,126 (180) (198) $ 16,280 $ 13,748 Loans and finance receivables are predominantly installment loans originated or acquired by our manufactured housing business. Provisions for loan losses for 2018 and 2017 were $141 million and $160 million, respectively. Loan charge-offs, net of recoveries, were $144 million in 2018 and $162 million in 2017. At December 31, 2018, approximately 98% of the manufactured housing loan balances were evaluated collectively for impairment, with the remainder evaluated individually. As part of the evaluation process, credit quality indicators are reviewed and loans are designated as performing or non-performing. At December 31, 2018, we considered approximately 99% of the loan balances to be performing and approximately 95% of the loan balances to be current as to payment status. Additionally, during 2018, an insurance subsidiary entered into an agreement with Seritage Growth Properties to provide a $2.0 billion term loan facility, which matures on July 31, 2023. As of December 31, 2018, the outstanding loans under the facility were approximately $1.6 billion. K-81 Notes to Consolidated Financial Statements (Continued) (8) Other receivables Other receivables of insurance and other businesses are comprised of the following (in millions). Insurance premiums receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reinsurance recoverable on unpaid losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Trade receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Allowances for uncollectible accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . December 31, 2018 2017 $ 12,452 3,060 12,617 3,823 (388) $ 11,058 3,201 12,031 3,464 (362) $ 31,564 $ 29,392 Receivables of our railroad and our utilities and energy businesses are comprised of the following (in millions). Trade receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Allowances for uncollectible accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $ 3,433 362 (129) 3,346 313 (128) $ 3,666 $ 3,531 Trade receivables include unbilled revenue of $554 million and $665 million as of December 31, 2018 and 2017, respectively, December 31, 2018 2017 attributable to the regulated utility businesses. (9) Inventories Inventories are comprised of the following (in millions). Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Work in process and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Finished manufactured goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Goods acquired for resale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,182 2,625 4,541 7,721 $ 3,479 2,568 4,505 6,814 December 31, 2018 2017 (10) Property, plant and equipment A summary of property, plant and equipment of our insurance and other businesses follows (in millions). $ 19,069 $ 17,366 December 31, 2018 2017 Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Furniture, fixtures and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,536 9,959 22,574 4,758 $ 2,523 9,409 21,190 4,519 Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39,827 (19,199) 37,641 (17,773) $ 20,628 $ 19,868 K-82 Notes to Consolidated Financial Statements (Continued) (10) Property, plant and equipment (Continued) A summary of property, plant and equipment of our railroad and our utilities and energy businesses follows (in millions). The utility generation, transmission and distribution systems and interstate natural gas pipeline assets are owned by regulated public utility and natural gas pipeline subsidiaries. December 31, 2018 2017 Railroad: Land, track structure and other roadway . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Locomotives, freight cars and other equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 59,509 13,016 664 73,189 (10,004) 63,185 Utilities and energy: Utility generation, transmission and distribution systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interstate natural gas pipeline assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Independent power plants and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77,288 7,524 8,324 3,110 57,408 12,543 989 70,940 (8,627) 62,313 74,660 7,176 7,499 2,556 Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96,246 (27,651) 91,891 (26,020) 68,595 65,871 $ 131,780 $ 128,184 Depreciation expense for each of the three years ending December 31, 2018 is summarized below (in millions). Insurance and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Railroad, utilities and energy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,186 5,098 $ 2,116 4,852 $ 2,017 4,639 2018 2017 2016 $ 7,284 $ 6,968 $ 6,656 (11) Equipment held for lease Equipment held for lease is summarized below (in millions). Equipment held for lease includes railcars, aircraft, over-the-road trailers, intermodal tank containers, cranes, storage units and furniture. In conjunction with the adoption of ASC 606, we recorded a net asset of approximately $3.5 billion related to aircraft sold under fractional aircraft ownership programs in aircraft. Such amount included cost of approximately $5.3 billion, net of accumulated depreciation of $1.8 billion. We also recorded other liabilities of approximately $3.5 billion for estimated aircraft repurchase liabilities and unearned lease revenues, substantially offsetting the amount recorded in aircraft. See Note 1(w). Railcars . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Aircraft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other equipment held for lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $ 8,862 7,376 4,379 8,352 1,456 3,967 Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,617 (6,319) 13,775 (3,608) $ 14,298 $ 10,167 Depreciation expense for equipment held for lease was $1,102 million in 2018, $751 million in 2017 and $755 million in 2016. As of December 31, 2018, the minimum future lease rentals to be received on equipment held for lease were as follows (in millions): 2019 – $2,493; 2020 – $1,771; 2021 – $1,222; 2022 – $779; 2023 – $421; and thereafter – $377. December 31, 2018 2017 K-83 Notes to Consolidated Financial Statements (Continued) (12) Goodwill and other intangible assets Reconciliations of the changes in the carrying value of goodwill during 2018 and 2017 follows (in millions). Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Acquisitions of businesses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other, including foreign currency translation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 81,258 376 (609) $ 79,486 1,545 227 Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 81,025 $ 81,258 Our other intangible assets and related accumulated amortization are summarized as follows (in millions). December 31, 2018 2017 Insurance and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Railroad, utilities and energy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Trademarks and trade names . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Patents and technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Customer relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other December 31, 2018 December 31, 2017 Gross carrying amount Accumulated amortization Gross carrying amount Accumulated amortization $ 40,493 1,011 $ 41,504 $ 5,368 4,446 28,375 3,315 $ $ $ 8,994 362 9,356 750 2,790 4,573 1,243 $ $ $ 40,225 988 41,213 5,381 4,341 28,322 3,169 $ 7,707 324 $ 8,031 $ 692 2,493 3,722 1,124 $ 41,504 $ 9,356 $ 41,213 $ 8,031 Intangible asset amortization expense was $1,393 million in 2018, $1,469 million in 2017 and $1,490 million in 2016. Estimated amortization expense over the next five years is as follows (in millions): 2019 – $1,318; 2020 – $1,224; 2021 – $1,136; 2022 – $1,063 and 2023 – $1,018. Intangible assets with indefinite lives as of December 31, 2018 and 2017 were $18.9 billion and primarily related to certain customer relationships and trademarks and trade names. (13) Derivative contracts We are party to derivative contracts through certain of our subsidiaries. Currently, the most significant derivative contracts consist of equity index put option contracts. The liabilities and related notional values of these contracts follows (in millions). December 31, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . December 31, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Liabilities $ 2,452 2,172 Notional Value $ 26,759 28,753 Notional value represents the aggregate undiscounted amounts payable assuming that the value of each index is zero at each contract’s expiration date. Certain of these contracts are denominated in foreign currencies. Notional amounts are based on the foreign currency exchange rates as of each balance sheet date. K-84 Notes to Consolidated Financial Statements (Continued) (13) Derivative contracts (Continued) We recorded derivative contract losses of $300 million in 2018 and gains of $718 million in 2017, with respect to our equity index put option contracts. The losses in 2018 were primarily due to decreases in equity index values during the fourth quarter. Derivative contract gains in 2016 were $751 million, which included $662 million related to equity index put option contracts and $89 million related to a credit default contract that was terminated. The equity index put option contracts are European style options written prior to March 2008 on four major equity indexes. The remaining contracts expire between April 2019 and October 2025. At December 31, 2018, the remaining weighted average life of all contracts was approximately 1.9 years. In 2018, one equity index put option contract expired and another contract was terminated by mutual agreement with the counterparty. These contracts had an aggregate notional value of approximately $1.2 billion. Contracts with notional values of $12.2 billion will expire in 2019. Future payments, if any, under any given contract will be required if the prevailing index value is below the contract strike price at the expiration date. We received aggregate premiums of $4.0 billion on the remaining contracts at the contract inception dates and we have no counterparty credit risk. The aggregate intrinsic value (the undiscounted liability assuming the contracts are settled based on the index values and foreign currency exchange rates as of the balance sheet date) was $1,653 million at December 31, 2018 and $789 million at December 31, 2017. These contracts may not be unilaterally terminated or fully settled before the expiration dates and the ultimate amount of cash basis gains or losses on these contracts will not be determined until the contract expiration dates. A limited number of our equity index put option contracts contain collateral posting requirements with respect to changes in the fair value or intrinsic value of the contracts and/or a downgrade of Berkshire’s credit ratings. As of December 31, 2018, we did not have any collateral posting requirements. If Berkshire’s credit ratings (currently AA from Standard & Poor’s and Aa2 from Moody’s) are downgraded below either A- by Standard & Poor’s or A3 by Moody’s, collateral of up to $1.1 billion could be required to be posted. Our regulated utility subsidiaries are exposed to variations in the prices of fuel required to generate electricity, wholesale electricity purchased and sold and natural gas supplied for customers. We may use forward purchases and sales, futures, swaps and options to manage a portion of these price risks. Most of the net derivative contract assets or liabilities of our regulated utilities are probable of recovery through rates and are offset by regulatory liabilities or assets. Derivative contract assets are included in other assets and were $172 million as of December 31, 2018 and $142 million as of December 31, 2017. Derivative contract liabilities are included in accounts payable, accruals and other liabilities and were $111 million as of December 31, 2018 and $82 million as of December 31, 2017. (14) Supplemental cash flow information A summary of supplemental cash flow information for each of the three years ending December 31, 2018 is presented in the following table (in millions). Cash paid during the period for: Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest: Insurance and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Railroad, utilities and energy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-cash investing and financing activities: Liabilities assumed in connection with business acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equity securities exchanged in connection with business acquisitions . . . . . . . . . . . . . . . . . . . . . . . Conversions and other exchanges of investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equity securities surrendered in connection with warrant exercise . . . . . . . . . . . . . . . . . . . . . . . . . . 2018 2017 2016 $4,354 $ 3,286 $4,719 1,111 2,867 3,735 — — — 1,260 2,828 747 — — 4,965 944 2,788 16,555 4,239 4,154 — K-85 Notes to Consolidated Financial Statements (Continued) (15) Unpaid losses and loss adjustment expenses Our liabilities for unpaid losses and loss adjustment expenses (also referred to as “claim liabilities”) under short duration property and casualty insurance and reinsurance contracts are based upon estimates of the ultimate claim costs associated with claim occurrences as of the balance sheet date and include estimates for incurred-but-not-reported (“IBNR”) claims. A reconciliation of the changes in claim liabilities, excluding liabilities under retroactive reinsurance contracts (see Note 16), for each of the three years ending December 31, 2018 is as follows (in millions). 2018 2017 2016 Balances – beginning of year: Gross liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reinsurance recoverable on unpaid losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 61,122 (3,201) $ 53,379 (3,338) $ 50,519 (3,307) Net liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57,921 50,041 47,212 Incurred losses and loss adjustment expenses: Current accident year events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Prior accident years’ events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39,876 (1,406) Total incurred losses and loss adjustment expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,470 37,702 (544) 37,158 30,636 (1,443) 29,193 Paid losses and loss adjustment expenses: Current accident year events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Prior accident years’ events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (18,391) (15,452) (17,425) (12,507) (14,898) (10,929) Total payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (33,843) (29,932) (25,827) Foreign currency translation adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Business acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (331) 3,181 654 — (537) — Balances – end of year: Net liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reinsurance recoverable on unpaid losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65,398 3,060 57,921 3,201 50,041 3,338 Gross liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 68,458 $ 61,122 $ 53,379 Incurred losses and loss adjustment expenses in the preceding table were recorded in earnings in each period and related to insured events occurring in the current year (“current accident year”) and events occurring in all prior years (“prior accident years”). Current accident year losses in 2018 included $1.6 billion from four significant catastrophe events, while current accident year losses in 2017 included approximately $3 billion from six significant catastrophe events during that year. As discussed in Note 2, NICO acquired MLMIC, a writer of medical professional liability insurance, on October 1, 2018. Incurred losses and loss adjustment expenses from the net reductions of estimated ultimate liabilities for prior accident years were $1,406 million in 2018, $544 million in 2017 and $1,443 million in 2016. These reductions, as percentages of the net liabilities at the beginning of each year, were 2.4% in 2018, 1.1% in 2017 and 3.1% in 2016. Estimated ultimate liabilities for prior years’ loss events related to primary insurance were decreased $937 million in 2018, $249 million in 2017 and $569 million in 2016. These decreases were primarily attributable to lower than anticipated medical malpractice and workers’ compensation losses. Liabilities for prior years’ private passenger auto claims were also reduced in 2018 and 2016, but were increased in 2017. Estimated ultimate liabilities for prior years’ loss events related to property and casualty reinsurance were reduced $469 million in 2018, $295 million in 2017 and $874 million in 2016. The decrease in 2017 was net of increased losses from a United Kingdom government-mandated change to the computation of certain personal injury lump sum settlements and higher than expected property losses. Estimated claim liabilities for environmental, asbestos and other latent injury exposures, net of reinsurance recoverable, were approximately $1.7 billion at December 31, 2018 and $1.6 billion at December 31, 2017. These liabilities are subject to change due to changes in the legal and regulatory environment as described in Note 16. We are unable to reliably estimate additional losses or a range of losses that are reasonably possible for these claims. K-86 Notes to Consolidated Financial Statements (Continued) (15) Unpaid losses and loss adjustment expenses (Continued) A reconciliation of the disaggregated net unpaid losses and allocated loss adjustment expenses (the latter referred to as “ALAE”) of GEICO, Berkshire Hathaway Reinsurance Group (“BHRG”) and Berkshire Hathaway Primary Group (“BH Primary”) to our consolidated unpaid losses and loss adjustment expenses as of December 31, 2018, follows (in millions). GEICO BHRG Property BHRG Casualty BH Primary Medical Professional Liability BH Primary Workers’ Compensation and Other Casualty 8,694 . . . . . . . . . . . . . . . . . . . . . . . . Unpaid losses and ALAE, net Reinsurance recoverable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 940 Unpaid unallocated loss adjustment expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other unpaid losses and loss adjustment expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 17,318 896 $ 19,966 850 $ 7,288 53 $ 9,395 312 $ Total $ 62,661 3,051 2,015 731 Unpaid losses and loss adjustment expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 68,458 GEICO GEICO’s claim liabilities predominantly relate to various types of private passenger auto liability and physical damage claims. For such claims, we establish and evaluate unpaid claim liabilities using standard actuarial loss development methods and techniques. The actuarial methods utilize historical claims data, adjusted when deemed appropriate to reflect perceived changes in loss patterns. Claim liabilities include average, case, case development and IBNR estimates. We establish average liabilities based on expected severities for newly reported physical damage and liability claims prior to establishing an individual case reserve when we have insufficient time or information to make specific claim estimates and for a large number of minor physical damage claims that once reported are quickly settled. We establish liability case loss estimates, which includes loss adjustment expenses, once the facts and merits of the claim are evaluated. Estimates for liability coverages are more uncertain primarily due to the longer claim-tails, the greater chance of protracted litigation and the incompleteness of facts at the time the case estimate is first established. The “claim-tail” is the time period between the claim occurrence date and settlement date. Consequently, we establish additional case development liabilities, which are usually percentages of the case liabilities. For unreported claims, IBNR liabilities are estimated by projecting the ultimate number of claims expected (reported and unreported) for each significant coverage and deducting reported claims to produce estimated unreported claims. The product of the average cost per unreported claim and the number of unreported claims produces the IBNR liability estimate. We may record supplemental IBNR liabilities in certain situations when actuarial techniques are difficult to apply. K-87 Notes to Consolidated Financial Statements (Continued) (15) Unpaid losses and loss adjustment expenses (Continued) GEICO’s incurred and paid losses and ALAE, net of reinsurance, are summarized by accident year below. IBNR and case development liabilities are as of December 31, 2018. Claim counts are established when accidents that may result in a liability are reported and are based on policy coverage. Each claim event may generate claims under multiple coverages, and thus may result in multiple counts. The “Cumulative Number of Reported Claims” includes the combined number of reported claims for all policy coverages and excludes projected IBNR claims. Dollars are in millions. IBNR and Case Development Liabilities Cumulative Number of Reported Claims (in thousands) $ 148 319 823 2,208 4,659 7,976 8,926 9,633 10,816 10,968 Accident Year 2014 2015 2016 2017 2018 Accident Year 2014 2015 2016 2017 2018 Incurred Losses and ALAE through December 31, 2014* $ 14,680 2015* $ 14,572 16,887 2016* $ 14,559 16,875 19,106 2017* $ 14,589 16,993 19,390 22,675 Incurred losses and ALAE Cumulative Paid Losses and ALAE through December 31, 2014* $ 9,199 2015* $ 12,036 10,606 2016* $ 13,140 13,858 12,020 2017* $ 13,850 15,285 15,862 13,878 Net unpaid losses and ALAE for 2014 – 2018 accident years Net unpaid losses and ALAE for accident years before 2014 Paid losses and ALAE 2018 $ 14,651 17,039 19,364 22,257 24,120 $ 97,431 2018 $ 14,273 16,186 17,493 18,249 14,498 80,699 16,732 586 Net unpaid losses and ALAE $ 17,318 * Unaudited supplemental information BHRG We use a variety of actuarial methodologies to establish BHRG’s property and casualty claims liabilities. We use certain methodologies, such as paid and incurred loss development techniques, incurred and paid loss Bornhuetter-Ferguson techniques and frequency and severity techniques, as well as ground-up techniques when appropriate. Our claims liabilities are principally a function of reported losses from ceding companies, case development and IBNR liability estimates. Case loss estimates are reported under our contracts either individually or in bulk as provided under the terms of the contracts. We may independently evaluate case losses reported by the ceding company, and if deemed appropriate, we may establish case liabilities based on our estimates. Estimated IBNR liabilities are driven by expected case loss emergence patterns and expected loss ratios, which may be evaluated as groups or portfolios of contracts with similar exposures, or on an individual contract-by-contract basis. Case and IBNR liability estimates for major catastrophe events may be based on a per-contract assessment of the ultimate cost associated with the individual loss event. Claim count data is not provided, as such information is not provided consistently by ceding companies under our contracts or is otherwise considered unreliable. K-88 Notes to Consolidated Financial Statements (Continued) (15) Unpaid losses and loss adjustment expenses (Continued) Incurred and paid losses and ALAE of BHRG are disaggregated based on losses that are expected to have shorter claim-tails (property) and losses expected to have longer claim-tails (casualty). Under certain contracts, the coverage can apply to multiple lines of business written by the ceding company, whether property, casualty or combined, and the ceding company may not report loss data by such lines consistently, if at all. In those instances, we allocated losses to property and casualty coverages based on internal estimates. BHRG’s disaggregated incurred and paid losses and ALAE are summarized by accident year, net of reinsurance. IBNR and case development liabilities are as of December 31, 2018. Dollars are in millions. BHRG Property Accident Year 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Accident Year 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Incurred Losses and ALAE through December 31, 2009* 2010* 2011* 2012* 2013* 2014* 2015* 2016* 2017* 2018 $ 2,366 $2,037 2,523 $2,232 2,380 4,300 $2,154 2,408 4,084 3,144 $2,058 2,274 3,810 2,833 3,196 $2,031 2,180 3,720 2,629 3,039 2,621 $1,990 2,145 3,719 2,389 2,695 2,427 3,244 $1,985 2,126 3,689 2,336 2,604 2,315 3,088 3,267 $1,984 2,106 3,666 2,333 2,584 2,171 2,531 3,906 5,248 $ 1,984 2,114 3,652 2,315 2,524 2,115 2,938 3,625 4,958 4,373 Incurred losses and ALAE $30,598 Cumulative Paid Losses and ALAE through December 31, 2009* 2010* 2011* 2012* 2013* 2014* 2015* 2016* 2017* 2018 IBNR and Case Development Liabilities $ 7 23 52 65 105 120 136 583 600 2,125 $ 402 $1,110 336 $1,613 1,024 701 $1,777 1,506 2,282 266 $1,846 1,772 2,931 1,222 516 $1,916 1,931 3,200 1,801 1,427 465 $1,950 1,987 3,310 1,939 1,866 1,244 569 $1,959 2,033 3,398 2,028 2,063 1,569 1,590 703 $1,961 2,058 3,440 2,103 2,184 1,708 1,940 1,792 1,026 $ 1,963 2,065 3,485 2,123 2,264 1,773 2,135 2,187 2,713 910 Paid losses and ALAE 21,618 Net unpaid losses and ALAE for 2009 – 2018 accident years Net unpaid losses and ALAE for accident years before 2009 8,980 415 Net unpaid losses and ALAE $ 9,395 * Unaudited supplemental information K-89 IBNR and Case Development Liabilities $ 213 228 363 514 544 611 647 818 1,141 1,856 Notes to Consolidated Financial Statements (Continued) (15) Unpaid losses and loss adjustment expenses (Continued) BHRG Casualty Accident Year 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Accident Year 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2009* 2010* 2011* 2012* 2013* 2014* 2015* 2016* 2017* 2018 Incurred Losses and ALAE through December 31, $ 2,375 $2,687 2,301 $2,546 2,387 2,609 $2,476 2,322 2,696 2,789 $2,414 2,258 2,567 2,964 2,130 $2,339 2,139 2,508 2,799 2,259 1,867 $2,292 2,090 2,418 2,864 2,290 2,061 1,875 $2,231 2,044 2,327 2,793 2,134 2,029 2,072 1,903 $2,192 1,883 2,320 2,682 2,082 1,991 2,099 2,107 2,189 $ 2,209 1,963 2,282 2,615 2,028 1,905 2,000 2,014 2,676 2,917 Incurred losses and ALAE $ 22,609 Cumulative Paid Losses and ALAE through December 31, 2009* 2010* 2011* 2012* 2013* 2014* 2015* 2016* 2017* 2018 $ 247 $ 852 118 $ 940 546 292 $1,211 838 817 309 $1,430 1,026 1,160 749 291 $1,586 1,278 1,400 1,140 521 150 $1,622 1,374 1,489 1,370 807 478 196 $1,658 1,437 1,581 1,527 935 644 491 253 $1,684 1,482 1,659 1,651 1,039 753 714 556 231 Net unpaid losses and ALAE for 2009 – 2018 accident years Net unpaid losses and ALAE for accident years before 2009 Paid losses and ALAE $ 1,716 1,531 1,698 1,750 1,140 875 834 734 568 267 11,113 11,496 8,470 Net unpaid losses and ALAE $ 19,966 * Unaudited supplemental information BH Primary BH Primary’s liabilities for unpaid losses and loss adjustment expenses primarily derive from medical professional liability and workers’ compensation and other casualty insurance, including commercial auto and general liability insurance. Incurred and paid losses and ALAE are summarized by accident year in the following tables, disaggregated by medical professional liability and workers’ compensation and other casualty coverages. IBNR and case development liabilities are as of December 31, 2018. The cumulative number of reported claims reflects the number of individual claimants, and includes claims that ultimately result in no liability or payment. Dollars are in millions. K-90 Notes to Consolidated Financial Statements (Continued) (15) Unpaid losses and loss adjustment expenses (Continued) BH Primary Medical Professional Liability We estimate the ultimate expected incurred losses and loss adjustment expenses for medical professional claim liabilities using commonly accepted actuarial methodologies such as the paid and incurred development method, Bornhuetter-Ferguson based methods, hindsight outstanding severity method, trended severity method and trended pure premium method. Using a combination of these methodologies produces a range of loss estimates from which we determine our best estimate. Periodically, we study developments in older accident years and adjust initial loss estimates to reflect recent development based upon claim age, coverage and litigation experience. As previously noted, MLMIC was acquired on October 1, 2018. MLMIC’s incurred and paid losses and ALAE are included for all years presented retrospectively. Accident Year 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Accident Year 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Incurred Losses and ALAE through December 31, 2009* 2010* 2011* 2012* 2013* 2014* 2015* 2016* 2017* 2018 IBNR and Case Development Liabilities Cumulative Number of Reported Claims (in thousands) $1,423 $1,349 1,399 $1,294 1,346 1,346 $1,251 1,348 1,334 1,336 $1,153 1,329 1,321 1,306 1,328 $1,060 1,234 1,262 1,277 1,296 1,370 $ 988 1,140 1,173 1,223 1,261 1,375 1,374 $ 941 1,085 1,115 1,168 1,195 1,305 1,342 1,392 $ 922 1,031 1,050 1,078 1,127 1,246 1,269 1,416 1,466 $ 904 1,006 1,004 1,035 1,086 1,218 1,290 1,414 1,499 1,602 $ 22 43 71 108 160 296 450 641 1,011 1,410 Incurred losses and ALAE $12,058 13 13 13 13 12 13 14 14 18 15 Cumulative Paid Losses and ALAE through December 31, 2009* 2010* 2011* 2012* 2013* 2014* 2015* 2016* 2017* 2018 $ 5 $ 90 15 $ 203 95 16 $ 350 224 82 15 $ 480 377 200 93 15 $ 619 526 356 218 90 21 $ 699 654 517 377 219 106 23 $ $ 753 745 632 522 368 238 108 22 $ 789 810 711 642 518 396 218 115 27 Net unpaid losses and ALAE for 2009 – 2018 accident years Net unpaid losses and ALAE for accident years before 2009 Paid losses and ALAE 810 853 767 725 635 540 382 274 128 35 5,149 6,909 379 Net unpaid losses and ALAE $ 7,288 * Unaudited supplemental information K-91 Notes to Consolidated Financial Statements (Continued) (15) Unpaid losses and loss adjustment expenses (Continued) BH Primary Workers’ Compensation and Other Casualty We periodically evaluate ultimate loss and loss adjustment expense estimates for the workers’ compensation and other casualty claims using a combination of commonly accepted actuarial methodologies such as the Bornhuetter-Ferguson and chain-ladder approaches using paid and incurred loss data. Paid and incurred loss data is segregated and analyzed by state due to the different state regulatory frameworks that may impact certain factors including the duration and amount of loss payments. We also separately study the various components of liabilities, such employee lost wages, medical expenses and the costs of claims investigations and administration. We establish case liabilities for reported claims based upon the facts and circumstances of the claim. The excess of the ultimate projected losses, including the expected development of case estimates, and the case-basis liabilities is included in IBNR liabilities. Accident Year 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Accident Year 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Incurred Losses and ALAE through December 31, 2009* 2010* 2011* 2012* 2013* 2014* 2015* 2016* 2017* 2018 IBNR and Case Development Liabilities Cumulative Number of Reported Claims (in thousands) $ 732 $673 715 $676 $ 632 $ 609 $ 595 $ 589 $ 585 $ 576 $ 589 675 657 786 876 1,310 1,866 609 709 887 1,339 644 706 907 584 653 828 1,257 1,737 2,314 576 647 815 1,210 1,716 2,244 2,656 562 632 792 1,173 1,641 2,156 2,561 3,262 562 553 622 779 1,148 1,572 2,124 2,475 3,122 3,761 $ 40 42 72 105 188 287 445 833 1,395 2,459 46 47 51 63 83 112 133 127 143 142 Incurred losses and ALAE $16,718 Cumulative Paid Losses and ALAE through December 31, 2009* 2010* 2011* 2012* 2013* 2014* 2015* 2016* 2017* 2018 $ 99 $228 106 $328 $ 389 $ 434 $ 464 $ 488 $ 499 $ 503 $ 437 250 415 114 422 452 247 393 344 301 193 327 222 101 465 470 515 650 581 297 479 498 576 776 837 715 332 484 512 607 842 1,046 1,044 792 467 Net unpaid losses and ALAE for 2009 – 2018 accident years Net unpaid losses and ALAE for accident years before 2009 Paid losses and ALAE 507 491 522 627 887 1,155 1,328 1,181 1,078 570 8,346 8,372 322 * Unaudited supplemental information Net unpaid losses and ALAE $ 8,694 K-92 Notes to Consolidated Financial Statements (Continued) (15) Unpaid losses and loss adjustment expenses (Continued) Supplemental unaudited average historical claims duration information based on the net losses and ALAE incurred and paid accident year data in the preceding tables follows. The percentages show the average portions of net losses and ALAE paid by each succeeding year, with year 1 representing the current accident year. Average Annual Percentage Payout of Incurred Losses by Age, Net of Reinsurance 1 In Year 6 5 4 2 3 7 8 9 10 GEICO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61.7% 19.6% 8.1% 4.9% 2.8% BHRG Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.0% 36.1% 18.3% 7.9% 4.3% 3.0% 1.5% 1.0% 0.2% 0.1% BHRG Casualty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.4% 17.8% 11.5% 8.5% 7.4% 5.1% 3.0% 1.9% 1.8% 1.4% BH Primary Medical Professional Liability . . . . . . . . . . . . . . . 1.6% 7.3% 11.5% 14.5% 14.1% 12.4% 8.4% 6.0% 4.1% 2.3% BH Primary Workers’ Compensation and Other Casualty . . . . 15.8% 21.5% 16.5% 12.0% 7.6% 4.6% 2.9% 1.5% 1.0% 0.7% (16) Retroactive reinsurance contracts Retroactive reinsurance policies provide indemnification of losses and loss adjustment expenses of short-duration insurance contracts with respect to underlying loss events that occurred prior to the contract inception date. Claims payments may commence immediately after the contract date or, if applicable, once a contractual retention amount has been reached. Reconciliations of the changes in estimated liabilities for retroactive reinsurance unpaid losses and loss adjustment expenses (“claim liabilities”) and related deferred charge reinsurance assumed assets for each of the three years ended December 31, 2018 follows (in millions). 2018 2017 2016 Unpaid losses and loss adjustment expenses Deferred charges reinsurance assumed Unpaid losses and loss adjustment expenses Deferred charges reinsurance assumed Unpaid losses and loss adjustment expenses Deferred charges reinsurance assumed Balances – beginning of year . . . . . . . . . . . . . . . . . $ 42,937 $ (15,278) $ 24,972 $ (8,047) $ 24,058 $ (7,687) Incurred losses and loss adjustment expenses Current year contracts . . . . . . . . . . . . . . . . . . . Prior years’ contracts . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 603 (341) 262 Paid losses and loss adjustment expenses . . . . . . . . (1,365) (86) 1,260 1,174 — Balances – end of year . . . . . . . . . . . . . . . . . . . . . . $ 41,834 $ (14,104) Incurred losses and loss adjustment expenses, net of deferred charges . . . . . . . . . . . . . . . . . . . . . . . $ 1,436 19,005 (41) 18,964 (999) (7,730) 499 (7,231) — 42,937 $ (15,278) 11,733 $ $ $ $ 2,136 (63) 2,073 (1,159) (874) 514 (360) — 24,972 $ (8,047) 1,713 In the preceding table, classifications of incurred losses and loss adjustment expenses are based on the inception dates of the contracts. We do not believe that analysis of losses incurred and paid by accident year of the underlying event is relevant or meaningful given that our exposure to losses incepts when the contract incepts. Further, we believe the classifications of reported claims and case development liabilities has little or no practical analytical value. In 2017, NICO entered into an agreement with various subsidiaries of American International Group, Inc. (collectively, “AIG”), which became effective on February 2, 2017. Under this agreement, NICO agreed to indemnify AIG for 80% of up to $25 billion of losses and allocated loss adjustment expenses in excess of $25 billion retained by AIG, with respect to certain commercial insurance loss events occurring prior to 2016. As of the effective date, we recorded premiums earned of $10.2 billion, and we also recorded a liability for unpaid losses and loss adjustment expenses of $16.4 billion and a deferred charge reinsurance assumed asset of $6.2 billion. Berkshire agreed to guarantee the timely payment of all amounts due to AIG under the agreement. K-93 Notes to Consolidated Financial Statements (Continued) (16) Retroactive reinsurance contracts (Continued) In the fourth quarter of 2017, we increased our estimated ultimate claim liabilities under the aforementioned AIG contract by approximately $1.8 billion based on higher than expected loss payments reported by AIG under the contractual retention. We also increased the related deferred charge asset by $1.7 billion based on our re-estimation of the amounts and timing of future claim payments. The estimated ultimate claim liabilities with respect to the AIG contract were approximately $18.2 billion at December 31, 2018 and at December 31, 2017 and the related deferred charge assets were approximately $6.9 billion at December 31, 2018 and $7.5 billion at December 31, 2017. Incurred losses and loss adjustment expenses related to contracts written in prior years were $919 million in 2018, $458 million in 2017 and $451 million in 2016, which included recurring amortization of deferred charges and the effect of changes in the timing and amount of expected future loss payments. In establishing retroactive reinsurance claim liabilities, we analyze historical aggregate loss payment patterns and project losses into the future under various probability-weighted scenarios. We expect the claim-tail to be very long for many contracts, with some lasting several decades. We monitor claim payment activity and review ceding company reports and other information concerning the underlying losses. We reassess and revise the expected timing and amounts of ultimate losses periodically or when significant events are revealed through our monitoring and review processes. Our retroactive reinsurance claim liabilities include estimated liabilities for environmental, asbestos and other latent injury exposures of approximately $13.1 billion at December 31, 2018 and $14.0 billion at December 31, 2017. Retroactive reinsurance contracts are generally subject to aggregate policy limits and thus, our exposure to such claims under these contracts is likewise limited. We monitor evolving case law and its effect on environmental and other latent injury claims. Changing government regulations, newly identified toxins, newly reported claims, new theories of liability, new contract interpretations and other factors could result in increases in these liabilities, which could be material to our results of operations. We are unable to reliably estimate the amount of additional net loss or the range of net loss that is reasonably possible. (17) Notes payable and other borrowings Notes payable and other borrowings are summarized below (in millions). The weighted average interest rates and maturity date ranges shown in the following tables are based on borrowings as of December 31, 2018. Weighted Average Interest Rate December 31, 2018 2017 Insurance and other: Berkshire Hathaway Inc. (“Berkshire”): U.S. Dollar denominated borrowings due 2019-2047 . . . . . . . . . . . . . . . . . . . Euro denominated borrowings due 2020-2035 . . . . . . . . . . . . . . . . . . . . . . . . Berkshire Hathaway Finance Corporation (“BHFC”) due 2019-2048 . . . . . . . . . . Subsidiary borrowings due 2019-2045 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Short-term subsidiary borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1% 1.1% 3.4% 4.0% 4.3% $ 9,065 7,806 10,650 5,597 1,857 $34,975 $ 10,603 8,164 12,926 6,884 1,832 $ 40,409 The carrying value of Berkshire’s Euro denominated senior notes reflects the Euro/U.S. Dollar exchange rate as of the balance sheet date. The gains or losses arising from the changes in the Euro/U.S. Dollar exchange rate during the period are recorded in earnings as a component of selling, general and administrative expenses. Changes in the Euro/U.S. Dollar exchange rate resulted in pre-tax gains of $366 million in 2018, losses of $990 million in 2017 and gains of $264 million in 2016. The carrying values of the Euro denominated senior notes reflected corresponding decreases with respect to the gains and increases with respect to the losses in those periods. K-94 Notes to Consolidated Financial Statements (Continued) (17) Notes payable and other borrowings (Continued) Borrowings of BHFC, a wholly owned finance subsidiary of Berkshire, consist of senior unsecured notes used to fund manufactured housing loans originated or acquired and equipment held for lease of certain finance subsidiaries. In August 2018, BHFC issued $2.35 billion of 4.2% senior notes due in 2048. During 2018, BHFC repaid $4.6 billion of maturing senior notes. During January 2019, BHFC issued $1.25 billion of 4.25% senior notes due in 2049 and repaid $950 million of maturing notes. Such borrowings are fully and unconditionally guaranteed by Berkshire. In addition to BHFC’s borrowings, Berkshire guaranteed approximately $1.7 billion of other subsidiary borrowings at December 31, 2018. Generally, Berkshire’s guarantee of a subsidiary’s debt obligation is an absolute, unconditional and irrevocable guarantee for the full and prompt payment when due of all payment obligations. Weighted Average Interest Rate December 31, 2018 2017 Railroad, utilities and energy: Berkshire Hathaway Energy Company (“BHE”) and subsidiaries: BHE senior unsecured debt due 2020-2049 . . . . . . . . . . . . . . . . . . . . . . . . . . . Subsidiary and other debt due 2019-2064 . . . . . . . . . . . . . . . . . . . . . . . . . . . . Short-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Burlington Northern Santa Fe and subsidiaries due 2019-2097 4.6% 4.7% 3.1% 4.7% $ 8,577 28,196 2,516 23,226 $62,515 $ 6,452 28,739 4,488 22,499 $62,178 BHE subsidiary debt represents amounts issued pursuant to separate financing agreements. Substantially all of the assets of certain BHE subsidiaries are, or may be, pledged or encumbered to support or otherwise secure debt. These borrowing arrangements generally contain various covenants, including covenants which pertain to leverage ratios, interest coverage ratios and/or debt service coverage ratios. During 2018, BHE and its subsidiaries issued approximately $5.5 billion of long-term debt. The debt issued in 2018 has maturity dates ranging from 2020 to 2049 and a weighted average interest rate of 3.6%. Proceeds from these debt issuances were used to repay debt, to fund capital expenditures and for general corporate purposes. BNSF’s borrowings are primarily senior unsecured debentures. In 2018, BNSF issued $1.5 billion of senior unsecured debentures due in 2048. These debentures have a weighted average interest rate of 4.1%. As of December 31, 2018, BNSF, BHE and their subsidiaries were in compliance with all applicable debt covenants. Berkshire does not guarantee any debt, borrowings or lines of credit of BNSF, BHE or their subsidiaries. As of December 31, 2018, our subsidiaries had unused lines of credit and commercial paper capacity aggregating approximately $7.3 billion to support short-term borrowing programs and provide additional liquidity. Such unused lines of credit included approximately $6.1 billion related to BHE and its subsidiaries. Debt principal repayments expected during each of the next five years are as follows (in millions). Insurance and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Railroad, utilities and energy . . . . . . . . . . . . . . . . . . . . . . . . 2019 $ 6,760 5,452 $ 12,212 2020 $ 2,811 2,778 $ 5,589 2021 $ 3,261 2,260 $ 5,521 2022 $ 1,616 3,346 $ 4,962 2023 $ 5,371 4,066 $ 9,437 (18) Income taxes The liabilities for income taxes reflected in our Consolidated Balance Sheets are as follows (in millions). Currently payable (receivable) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 323 50,503 549 $ (129) 56,182 554 $ 51,375 $ 56,607 December 31, 2018 2017 K-95 Notes to Consolidated Financial Statements (Continued) (18) Income taxes (Continued) On December 22, 2017, President Trump signed into law legislation known as the Tax Cuts and Jobs Act of 2017 (“TCJA”). Among its provisions, the TCJA reduced the statutory U.S. Corporate income tax rate from 35% to 21% effective January 1, 2018. The TCJA also included a one-time tax on certain accumulated undistributed post-1986 earnings of foreign subsidiaries. Further, the TCJA includes provisions that, in certain instances, impose U.S. income tax liabilities on future earnings of foreign subsidiaries and limit the deductibility of future interest expenses. The TCJA also provides for accelerated deductions of certain capital expenditures made after September 27, 2017 through bonus depreciation. The application of the TCJA may change due to regulations subsequently issued by the U.S. Treasury Department. Upon the enactment of the TCJA, we recorded a reduction in our deferred income tax liabilities of approximately $35.6 billion for the effect of the aforementioned change in the U.S. statutory income tax rate. As a result, we recorded an income tax benefit of approximately $29.6 billion and we increased regulatory liabilities of our regulated utility subsidiaries by approximately $6.0 billion for the portion of the deferred income tax liability reduction that we will be required to, effectively, refund to customers in the rate setting process. We also recognized an income tax charge of approximately $1.4 billion with respect to the deemed repatriation of the accumulated undistributed post-1986 earnings of our foreign subsidiaries. Thus, upon the enactment of the TCJA, we included a net income tax benefit in our 2017 earnings of approximately $28.2 billion. In 2018, we reduced our estimate of the income taxes on the deemed repatriation of earnings of foreign subsidiaries by $141 million and recognized additional deferred income tax rate change effects. We have not established deferred income taxes on accumulated undistributed earnings of certain foreign subsidiaries, which are expected to be reinvested indefinitely. Repatriation of all accumulated earnings of foreign subsidiaries would be impracticable to the extent that such earnings represent capital to support normal business operations. Generally, no U.S. federal income taxes will be imposed on future distributions of foreign earnings under the current law. However, distributions to the U.S. or other foreign jurisdictions could be subject to withholding and other local taxes. The tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities are shown below (in millions). Deferred tax liabilities: Investments – unrealized appreciation and cost basis differences . . . . . . . . . . . . . Deferred charges reinsurance assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Goodwill and other intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 17,765 2,970 28,279 7,199 3,187 $ 24,251 3,226 26,671 7,204 3,216 December 31, 2018 2017 Deferred tax assets: Unpaid losses and loss adjustment expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unearned premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Regulatory liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59,400 64,568 (1,238) (767) (1,956) (1,673) (3,263) (8,897) (1,231) (345) (2,501) (1,707) (2,602) (8,386) Net deferred tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 50,503 $ 56,182 K-96 Notes to Consolidated Financial Statements (Continued) (18) Income taxes (Continued) Income tax expense reflected in our Consolidated Statements of Earnings for each of the three years ending December 31, 2018 is as follows (in millions). Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (1,613) 175 1,117 $(23,427) 894 1,018 $ (321) $(21,515) Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,176 (5,497) $ 3,299 (24,814) $ (321) $(21,515) $ $ $ $ 7,796 556 888 9,240 6,565 2,675 9,240 2018 2017 2016 Income tax expense is reconciled to hypothetical amounts computed at the U.S. federal statutory rate for each of the three years ending December 31, 2018 in the table below (in millions). Earnings before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,001 $ 23,838 $ 33,667 2018 2017 2016 Hypothetical income tax expense computed at the U.S. federal statutory rate . . . . . . . . . . . . . . Dividends received deduction and tax exempt interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . State income taxes, less U.S. federal income tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign tax rate differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . U.S. income tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-taxable exchange of investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net benefit from the enactment of the TCJA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other differences, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 840 (393) 138 271 (711) — (302) (164) $ 8,343 (905) 465 (339) (636) — (28,200) (243) $ 11,783 (789) 361 (421) (518) (1,143) — (33) $ (321) $ (21,515) $ 9,240 We file income tax returns in the United States and in state, local and foreign jurisdictions. We are under examination by the taxing authorities in many of these jurisdictions. We have settled income tax liabilities with the U.S. federal taxing authority (“IRS”) for tax years through 2011. The IRS continues to audit Berkshire’s consolidated U.S. federal income tax returns for the 2012 and 2013 tax years. We are also under audit or subject to audit with respect to income taxes in many state and foreign jurisdictions. It is reasonably possible that certain of these income tax examinations will be settled in 2019. We currently do not believe that the outcome of unresolved issues or claims will be material to our Consolidated Financial Statements. At December 31, 2018 and 2017, net unrecognized tax benefits were $549 million and $554 million, respectively. Included in the balance at December 31, 2018, were $452 million of tax positions that, if recognized, would impact the effective tax rate. The remaining balance in net unrecognized tax benefits principally relates to tax positions where the ultimate recognition is highly certain but there is uncertainty about the timing of such recognition. Because of the impact of deferred income tax accounting, the differences in recognition periods would not affect the annual effective tax rate but would accelerate the payment of cash to the taxing authority to an earlier period. As of December 31, 2018, we do not expect any material changes to the estimated amount of unrecognized tax benefits in the next twelve months. (19) Dividend restrictions – Insurance subsidiaries Payments of dividends by our insurance subsidiaries are restricted by insurance statutes and regulations. Without prior regulatory approval, our principal insurance subsidiaries may declare up to approximately $16 billion as ordinary dividends during 2019. Combined shareholders’ equity of U.S. based insurance subsidiaries determined pursuant to statutory accounting rules (Surplus as Regards Policyholders) was approximately $162 billion at December 31, 2018 and $170 billion at December 31, 2017. Statutory surplus differs from the corresponding amount based on GAAP due to differences in accounting for certain assets and liabilities. For instance, deferred charges reinsurance assumed, deferred policy acquisition costs, unrealized gains on certain investments and related deferred income taxes are recognized for GAAP but not for statutory reporting purposes. In addition, the carrying values of certain assets, such as goodwill and the carrying values of non-insurance entities owned by our insurance subsidiaries, are not fully recognized for statutory reporting purposes. K-97 Notes to Consolidated Financial Statements (Continued) (20) Fair value measurements Our financial assets and liabilities are summarized below as of December 31, 2018 and December 31, 2017, with fair values shown according to the fair value hierarchy (in millions). The carrying values of cash and cash equivalents, U.S. Treasury Bills, receivables and accounts payable, accruals and other liabilities are considered to be reasonable estimates of their fair values. Carrying Value Fair Value Quoted Prices (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) December 31, 2018 Investments in fixed maturity securities: U.S. Treasury, U.S. government corporations and agencies . . . . . . . . . . . . $ 4,223 $ 4,223 $ 2,933 $ 1,290 $ — States, municipalities and political subdivisions . . . . . . . . . . . . . . . . . . . . . . . Foreign governments . . . . . . . . . . . . . . . . . . Corporate bonds . . . . . . . . . . . . . . . . . . . . . . Mortgage-backed securities . . . . . . . . . . . . . Investments in equity securities . . . . . . . . . . . . . . . . . Investment in Kraft Heinz common stock . . . . . . . . . Loans and finance receivables . . . . . . . . . . . . . . . . . . Derivative contract assets (1) . . . . . . . . . . . . . . . . . . . . Derivative contract liabilities: Railroad, utilities and energy (1) . . . . . . . . . . Equity index put options . . . . . . . . . . . . . . . Notes payable and other borrowings: Insurance and other . . . . . . . . . . . . . . . . . . . Railroad, utilities and energy . . . . . . . . . . . . December 31, 2017 Investments in fixed maturity securities: U.S. Treasury, U.S. government 189 7,502 7,440 544 172,757 13,813 16,280 172 111 2,452 34,975 62,515 189 7,502 7,440 544 172,757 14,007 16,377 172 111 2,452 35,361 66,422 — 5,417 — — 172,253 14,007 — 2 1 — — — 189 2,085 7,434 544 203 — 1,531 52 101 — 35,335 66,422 — — 6 — 301 — 14,846 118 9 2,452 26 — corporations and agencies . . . . . . . . . . . . $ 3,953 $ 3,953 $ 2,360 $ 1,593 $ — States, municipalities and political subdivisions . . . . . . . . . . . . . . . . . . . . . . . Foreign governments . . . . . . . . . . . . . . . . . . Corporate bonds . . . . . . . . . . . . . . . . . . . . . . Mortgage-backed securities . . . . . . . . . . . . . Investments in equity securities . . . . . . . . . . . . . . . . . Investment in Kraft Heinz common stock . . . . . . . . . Loans and finance receivables . . . . . . . . . . . . . . . . . . Derivative contract assets (1) . . . . . . . . . . . . . . . . . . . . Derivative contract liabilities: Railroad, utilities and energy (1) . . . . . . . . . . Equity index put options . . . . . . . . . . . . . . . Notes payable and other borrowings: . . . . . . . . . . . . . . . . . . . Insurance and other Railroad, utilities and energy . . . . . . . . . . . . 854 8,822 6,862 862 170,540 17,635 13,748 142 82 2,172 40,409 62,178 854 8,822 6,862 862 170,540 25,306 14,136 142 82 2,172 41,762 70,538 — 6,946 — — 170,494 25,306 — 1 3 — — — 854 1,876 6,856 862 46 — 17 28 69 — 41,757 70,538 — — 6 — — — 14,119 113 10 2,172 5 — (1) Assets are included in other assets and liabilities are included in accounts payable, accruals and other liabilities. K-98 Notes to Consolidated Financial Statements (Continued) (20) Fair value measurements (Continued) The fair values of substantially all of our financial instruments were measured using market or income approaches. The hierarchy for measuring fair value consists of Levels 1 through 3, which are described below. Level 1 – Inputs represent unadjusted quoted prices for identical assets or liabilities exchanged in active markets. Level 2 – Inputs include directly or indirectly observable inputs (other than Level 1 inputs) such as quoted prices for similar assets or liabilities exchanged in active or inactive markets; quoted prices for identical assets or liabilities exchanged in inactive markets; other inputs that may be considered in fair value determinations of the assets or liabilities, such as interest rates and yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates; and inputs that are derived principally from or corroborated by observable market data by correlation or other means. Pricing evaluations generally reflect discounted expected future cash flows, which incorporate yield curves for instruments with similar characteristics, such as credit ratings, estimated durations and yields for other instruments of the issuer or entities in the same industry sector. Level 3 – Inputs include unobservable inputs used in the measurement of assets and liabilities. Management is required to use its own assumptions regarding unobservable inputs because there is little, if any, market activity in the assets or liabilities and it may be unable to corroborate the related observable inputs. Unobservable inputs require management to make certain projections and assumptions about the information that would be used by market participants in valuing assets or liabilities. Reconciliations of assets and liabilities measured and carried at fair value on a recurring basis with the use of significant unobservable inputs (Level 3) for each of the three years ending December 31, 2018 follow (in millions). Investments in equity and fixed maturity securities Net derivative contract liabilities $ 21,503 $(3,785) 3,593 872 — 10 (8,656) (1) 17,321 — 1,157 — (59) (18,413) 880 (2) (11) — (101) 195 (2,824) 888 (3) (1) (129) — 6 (2,069) — — — 302 (1) 307 (118) 2 3 3 (164) $(2,343) Balance December 31, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gains (losses) included in: Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Regulatory assets and liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dispositions and settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Transfers into/out of Level 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Balance December 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gains (losses) included in: Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Regulatory assets and liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dispositions and settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Transfers into/out of Level 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Balance December 31, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gains (losses) included in: Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Regulatory assets and liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dispositions and settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Balance December 31, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ K-99 Notes to Consolidated Financial Statements (Continued) (20) Fair value measurements (Continued) Gains and losses included in earnings are reported as components of investment gains/losses, derivative gains/losses and other revenues, as appropriate. In 2017 and 2016, gains and losses included in other comprehensive income were primarily the net change in unrealized appreciation of investments and the reclassification of investment appreciation in net earnings in our Consolidated Statements of Comprehensive Income. As disclosed in Note 4, we exercised our BAC Warrants to acquire BAC common stock on August 24, 2017. As payment of the cost to acquire the BAC common stock, we surrendered substantially all of our BAC Preferred. Additionally, Restaurant Brands International Inc. (“RBI”) in December 2017, redeemed a $3 billion private placement security that we acquired in 2014. Accordingly, during 2017, we concluded the Level 3 inputs used in the previous fair value determinations of the BAC Warrants, BAC Preferred Stock and RBI investment were not significant and we transferred these measurements from Level 3 to Level 2. Quantitative information as of December 31, 2018, with respect to assets and liabilities measured and carried at fair value on a recurring basis with the use of significant unobservable inputs (Level 3) follows (in millions). Derivative contract liabilities – Equity index put options . . . . . . . . $ 2,452 Option pricing model Volatility Fair Value Principal Valuation Techniques Unobservable Inputs Weighted Average 18% Our equity index put option contracts are illiquid and contain contract terms that are not standard in derivatives markets. For example, we are not required to post collateral under most of our contracts and certain of the contracts have relatively long durations. For these and other reasons, we classified these contracts as Level 3 measurements. The methods we use to value these contracts are those that we believe market participants would use in determining exchange prices with respect to our contracts. We value equity index put option contracts based on the Black-Scholes option valuation model. Inputs to this model include index price, contract duration and dividend and interest rate inputs (including a Berkshire non-performance input) which are observable. However, we believe that the valuation of long-duration options using any model is inherently subjective and, given the lack of observable transactions and prices, acceptable values may be subject to wide ranges. Volatility inputs represent our expectations, which consider the remaining duration of each contract and assume that the contracts will remain outstanding until the expiration dates. Increases or decreases in the volatility inputs will produce increases or decreases in the fair values of the liabilities. (21) Common stock Changes in Berkshire’s issued, treasury and outstanding common stock during the three years ending December 31, 2018 are shown in the table below. In addition to our common stock, 1,000,000 shares of preferred stock are authorized, but none are issued. Balance December 31, 2015 . . . . . . . . . . . . . Conversions of Class A common stock to Class B common stock and exercises of replacement stock options issued in a business acquisition . . . . . . . . . . . . . . . . . Balance December 31, 2016 . . . . . . . . . . . . . Conversions of Class A common stock to Class B common stock and exercises of replacement stock options issued in a business acquisition . . . . . . . . . . . . . . . . . Balance December 31, 2017 . . . . . . . . . . . . . Conversions of Class A common stock to Class B common stock and exercises of replacement stock options issued in a business acquisition . . . . . . . . . . . . . . . . . Treasury stock acquired . . . . . . . . . . . . . . . . Class A, $5 Par Value (1,650,000 shares authorized) Class B, $0.0033 Par Value (3,225,000,000 shares authorized) Issued Treasury Outstanding Issued Treasury Outstanding 820,102 (11,680) 808,422 1,253,866,598 (1,409,762) 1,252,456,836 (32,044) — (32,044) 49,457,329 — 49,457,329 788,058 (11,680) 776,378 1,303,323,927 (1,409,762) 1,301,914,165 (25,303) — (25,303) 38,742,822 — 38,742,822 762,755 (11,680) 751,075 1,342,066,749 (1,409,762) 1,340,656,987 (20,542) — — (1,217) (20,542) (1,217) 31,492,234 — — (4,729,147) 31,492,234 (4,729,147) Balance at December 31, 2018 . . . . . . . . . . . 742,213 (12,897) 729,316 1,373,558,983 (6,138,909) 1,367,420,074 K-100 Notes to Consolidated Financial Statements (Continued) (21) Common stock (Continued) Each Class A common share is entitled to one vote per share. Class B common stock possesses dividend and distribution rights equal to one-fifteen-hundredth (1/1,500) of such rights of Class A common stock. Each Class B common share possesses voting rights equivalent to one-ten-thousandth (1/10,000) of the voting rights of a Class A share. Unless otherwise required under Delaware General Corporation Law, Class A and Class B common shares vote as a single class. Each share of Class A common stock is convertible, at the option of the holder, into 1,500 shares of Class B common stock. Class B common stock is not convertible into Class A common stock. On an equivalent Class A common stock basis, there were 1,640,929 shares outstanding as of December 31, 2018 and 1,644,846 shares outstanding as of December 31, 2017. Since we have two classes of common stock, we provide earnings per share data on the Consolidated Statements of Earnings for average equivalent Class A shares outstanding and average equivalent Class B shares outstanding. Class B shares are economically equivalent to one-fifteen-hundredth (1/1,500) of a Class A share. Average equivalent Class A shares outstanding represents average Class A shares outstanding plus one-fifteen-hundredth (1/1,500) of the average Class B shares outstanding. Average equivalent Class B shares outstanding represents average Class B shares outstanding plus 1,500 times average Class A shares outstanding. For several years, Berkshire had a common stock repurchase program, which permitted Berkshire to repurchase its Class A and Class B shares at prices no higher than a 20% premium over the book value of the shares. On July 17, 2018, Berkshire’s Board of Directors authorized an amendment to the program, permitting Berkshire to repurchase shares any time that Warren Buffett, Berkshire’s Chairman of the Board and Chief Executive Officer, and Charlie Munger, Vice Chairman of the Board, believe that the repurchase price is below Berkshire’s intrinsic value, conservatively determined. The program continues to allow share repurchases in the open market or through privately negotiated transactions and does not specify a maximum number of shares to be repurchased. However, repurchases will not be made if they would reduce the total value of Berkshire’s consolidated cash, cash equivalents and U.S. Treasury Bills holdings below $20 billion. The repurchase program does not obligate Berkshire to repurchase any specific dollar amount or number of Class A or Class B shares and there is no expiration date to the program. (22) Accumulated other comprehensive income A summary of the net changes in after-tax accumulated other comprehensive income attributable to Berkshire Hathaway shareholders and amounts reclassified out of accumulated other comprehensive income for each of the three years ending December 31, 2018 follows (in millions). Unrealized appreciation of investments, net Foreign currency translation Prior service and actuarial gains/losses of defined benefit pension plans Other Balance December 31, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other comprehensive income, net before reclassifications . . . . . . . Reclassifications into net earnings: Earnings before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . Applicable income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Balance December 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other comprehensive income, net before reclassifications . . . . . . . Reclassifications into net earnings: Reclassifications before income taxes . . . . . . . . . . . . . . . . . . . Applicable income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Balance December 31, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reclassifications to retained earnings upon adoption of new accounting standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other comprehensive income, net before reclassifications . . . . . . . Reclassifications into net earnings: Reclassifications before income taxes . . . . . . . . . . . . . . . . . . . Applicable income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 38,598 9,011 $ (3,856) (1,412) $ (6,820) 2,387 43,176 19,826 (1,399) 490 62,093 (61,340) (183) (253) 53 — — (5,268) 2,151 3 — (3,114) (65) (1,424) — — $ (762) 94 104 (29) (593) 65 155 (47) (420) 36 (513) 116 (35) Balance December 31, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 370 $ (4,603) $ (816) $ 2 (48) 51 (22) (17) 16 19 (6) 12 (6) 25 5 (2) 34 Accumulated other comprehensive income $ 33,982 7,645 (6,665) 2,336 37,298 22,058 (1,222) 437 58,571 (61,375) (2,095) (132) 16 $ (5,015) K-101 Notes to Consolidated Financial Statements (Continued) (23) Revenues from contracts with customers As discussed in Note 1(w), on January 1, 2018, we adopted ASC 606 “Revenues from Contracts with Customers.” Except as described in Note 1, our revenue recognition practices for contracts with customers under ASC 606 do not differ significantly from prior practices. Under ASC 606, revenues are recognized when a good or service is transferred to a customer. A good or service is transferred when (or as) the customer obtains control of that good or service. Revenues are based on the consideration we expect to receive in connection with our promises to deliver goods and services to our customers. The following table summarizes customer contract revenues disaggregated by reportable segment and the source of the revenue for the year ended December 31, 2018 (in millions). Other revenues included in our consolidated revenues were primarily insurance premiums earned, interest, dividend and other investment income and leasing revenues which are not within the scope of ASC 606. Manufacturing McLane Company Service and Retail BNSF Berkshire Hathaway Energy Insurance, Corporate and other Total $ Manufactured products: Industrial and commercial products . . . . . . . . . . . Building products . . . . . . . . . . . . . . . . . . . . . . . . . Consumer products . . . . . . . . . . . . . . . . . . . . . . . . Grocery and convenience store distribution . . . . . . . . Food and beverage distribution . . . . . . . . . . . . . . . . . Auto sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other retail and wholesale distribution . . . . . . . . . . . Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Electricity and natural gas . . . . . . . . . . . . . . . . . . . . . $ 25,707 14,323 14,790 204 — $ — — — — — — 33,518 — — 16,309 — — 8,181 — 12,067 2,091 4,100 84 1,519 — — — $ — $ — $ — $ 25,911 14,323 — 14,790 — 33,518 — 16,309 — 8,181 — 14,158 — 33,304 23,652 14,951 — — — — — — 3,949 — 14,951 — — — — — — — — Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58,430 3,340 49,911 76 24,552 4,297 23,652 51 18,900 1,070 — 175,445 72,392 63,558 $ 61,770 $ 49,987 $ 28,849 $ 23,703 $19,970 $63,558 $ 247,837 A summary of the transaction price allocated to the significant unsatisfied remaining performance obligations relating to contracts with expected durations in excess of one year as of December 31, 2018 follows (in millions). Performance obligations expected to be satisfied: Less than 12 months Greater than 12 months Total Electricity and natural gas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other sales and service contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 842 1,190 $ 5,678 1,904 $ 6,520 3,094 (24) Pension plans Several of our subsidiaries sponsor defined benefit pension plans covering certain employees. Benefits under the plans are generally based on years of service and compensation, although benefits under certain plans are based on years of service and fixed benefit rates. Our subsidiaries may make contributions to the plans to meet regulatory requirements and may also make discretionary contributions. The components of our net periodic pension expense for each of the three years ending December 31, 2018 were as follows (in millions). Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expected return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amortization of actuarial losses and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 271 593 (988) 188 $ 273 635 (939) 157 $ 282 691 (908) 148 Net periodic pension expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 64 $ 126 $ 213 2018 2017 2016 K-102 Notes to Consolidated Financial Statements (Continued) (24) Pension plans (Continued) The accumulated benefit obligation is the actuarial present value of benefits earned based on service and compensation prior to the valuation date. The projected benefit obligation (“PBO”) is the actuarial present value of benefits earned based upon service and compensation prior to the valuation date and, if applicable, includes assumptions regarding future compensation levels. Benefit obligations under qualified U.S. defined benefit pension plans are funded through assets held in trusts. Pension obligations under certain non-U.S. plans and non-qualified U.S. plans are unfunded and the aggregate PBOs of such plans were approximately $1.2 billion and $1.3 billion as of December 31, 2018 and 2017, respectively. Reconciliations of the changes in plan assets and PBOs related to BHE’s pension plans and all other pension plans for each of the two years ending December 31, 2018 are in the following tables (in millions). The costs of pension plans covering employees of certain regulated subsidiaries of BHE are generally recoverable through the regulated rate making process. 2018 2017 BHE All other Consolidated BHE All other Consolidated Benefit obligations Accumulated benefit obligation end of year . . . . . . . . $ 4,346 $ 11,540 $ 15,886 $ 4,920 $ 12,604 $ 17,524 PBO beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . Settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . Actuarial (gains) or losses and other . . . . . . . . $ 5,207 40 161 (208) (301) (348) $ 13,617 231 432 (633) (133) (1,143) $ 18,824 271 593 (841) (434) (1,491) $ 5,077 47 174 (271) (146) 326 $ 12,673 226 461 (626) (95) 978 $ 17,750 273 635 (897) (241) 1,304 PBO end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,551 $ 12,371 $ 16,922 $ 5,207 $ 13,617 $ 18,824 Plan assets Plan assets beginning of year . . . . . . . . . . . . . . . . . . . . Employer contributions . . . . . . . . . . . . . . . . . . Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . Actual return on plan assets . . . . . . . . . . . . . . Settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,129 98 (208) (191) (324) (119) $ 11,885 495 (633) (949) (132) (92) $ 17,014 593 (841) (1,140) (456) (211) $ 4,694 122 (271) 535 (159) 208 $ 10,703 159 (626) 1,601 (76) 124 $ 15,397 281 (897) 2,136 (235) 332 Plan assets end of year . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,385 $ 10,574 $ 14,959 $ 5,129 $ 11,885 $ 17,014 Funded status – net liability . . . . . . . . . . . . . . . . . . . . . $ 166 $ 1,797 $ 1,963 $ 78 $ 1,732 $ 1,810 The funded status of our defined benefit pension plans at December 31, 2018 reflected in assets was $510 million and in liabilities was $2,473 million. At December 31, 2017, the funded status included in assets was $1,176 million and in liabilities was $2,986 million. Weighted average assumptions used in determining PBO and net periodic pension expense were as follows. Discount rate applicable to pension benefit obligations . . . . . . . . . . . . . . . . . . Expected long-term rate of return on plan assets . . . . . . . . . . . . . . . . . . . . . . . Rate of compensation increase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Discount rate applicable to net periodic pension expense . . . . . . . . . . . . . . . . . 2018 3.9% 6.4 2.6 3.4 2017 3.3% 6.4 2.8 3.9 2016 3.8% 6.1 3.0 4.2 Benefits payments expected over the next ten years are as follows (in millions): 2019 – $1,017; 2020 – $986; 2021 – $988; 2022 – $991; 2023 – $1,001; and 2024 to 2028 – $5,027. Sponsoring subsidiaries expect to contribute $193 million to defined benefit pension plans in 2019. K-103 Notes to Consolidated Financial Statements (Continued) (24) Pension plans (Continued) Fair value measurements of plan assets as of December 31, 2018 and 2017 follow (in millions). Fair Value Total Level 1 Level 2 Level 3 Investment funds and partnerships at net asset value December 31, 2018 Cash and cash equivalents . . . . . . . . . . . . . . . . . Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . Government obligations . . . . . . . . . . . . . . . . . . . Other fixed maturity securities . . . . . . . . . . . . . . Investment funds and other . . . . . . . . . . . . . . . . . $ 1,328 7,671 1,727 836 3,397 $ 14,959 December 31, 2017 Cash and cash equivalents . . . . . . . . . . . . . . . . . Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . Government obligations . . . . . . . . . . . . . . . . . . . Other fixed maturity securities . . . . . . . . . . . . . . Investment funds and other . . . . . . . . . . . . . . . . . $ 738 9,824 1,536 799 4,117 $ 1,197 7,499 1,654 172 170 $ 10,692 $ 594 9,641 1,497 148 150 $ 131 22 73 631 1,042 $ 1,899 $ 144 23 39 619 1,501 $ 17,014 $ 12,030 $ 2,326 $ — 150 — 33 273 $ 456 $ — 160 — 32 274 $ 466 $ — — — — 1,912 $1,912 $ — — — — 2,192 $2,192 Refer to Note 20 for a discussion of the three levels in the hierarchy of fair values. Plan assets are generally invested with the long-term objective of producing earnings to adequately cover expected benefit obligations, while assuming a prudent level of risk. Allocations may change as a result of changing market conditions and investment opportunities. The expected rates of return on plan assets reflect subjective assessments of expected invested asset returns over a period of several years. Generally, past investment returns are not given significant consideration when establishing assumptions for expected long-term rates of return on plan assets. Actual experience will differ from the assumed rates. A reconciliation of the pre-tax accumulated other comprehensive income (loss) related to defined benefit pension plans for each of the two years ending December 31, 2018 follows (in millions). Balance beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amount included in net periodic pension expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Actuarial gains (losses) and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (614) 116 (686) $ (839) 155 70 Balance end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (1,184) $ (614) 2018 2017 Several of our subsidiaries also sponsor defined contribution retirement plans, such as 401(k) or profit sharing plans. Employee contributions are subject to regulatory limitations and the specific plan provisions. Several plans provide for employer matching contributions up to levels specified in the plans and provide for additional discretionary contributions as determined by management. Employer contributions expensed with respect to our defined contribution plans were $1,009 million in 2018, $1,001 million in 2017 and $912 million in 2016. (25) Contingencies and Commitments We are parties in a variety of legal actions that routinely arise out of the normal course of business, including legal actions seeking to establish liability directly through insurance contracts or indirectly through reinsurance contracts issued by Berkshire subsidiaries. Plaintiffs occasionally seek punitive or exemplary damages. We do not believe that such normal and routine litigation will have a material effect on our financial condition or results of operations. Berkshire and certain of its subsidiaries are also involved in other kinds of legal actions, some of which assert or may assert claims or seek to impose fines and penalties. We believe that any liability that may arise as a result of other pending legal actions will not have a material effect on our consolidated financial condition or results of operations. K-104 Notes to Consolidated Financial Statements (Continued) (25) Contingencies and Commitments (Continued) We lease certain manufacturing, warehouse, retail and office facilities as well as certain equipment. Rent expense under operating leases was $1,649 million in 2018, $1,579 million in 2017 and $1,573 million in 2016. Future minimum rental payments for operating leases having non-cancellable terms in excess of one year are as follows (in millions). 2019 $1,360 2020 $1,317 2021 $1,098 2022 $872 2023 $708 After 2023 $3,658 Total $9,013 Our subsidiaries regularly make commitments in the ordinary course of business to purchase goods and services used in their businesses. The most significant of these relate to our railroad, utilities and energy businesses and our fractional aircraft ownership business. As of December 31, 2018, estimated future payments under such arrangements were as follows: $15.7 billion in 2019, $4.5 billion in 2020, $3.7 billion in 2021, $3.2 billion in 2022, $2.9 billion in 2023 and $17.3 billion after 2023. Pursuant to the terms of agreements with noncontrolling shareholders in our less than wholly-owned subsidiaries, we may be obligated to acquire their equity interests. If we had acquired all outstanding noncontrolling interests as of December 31, 2018, we estimate the cost would have been approximately $5.6 billion. However, the timing and the amount of any such future payments that might be required are contingent on future actions of the noncontrolling owners. (26) Business segment data Our operating businesses include a large and diverse group of insurance, finance, manufacturing, service and retailing businesses. We organize our reportable business segments in a manner that reflects how management views those business activities. Certain businesses are grouped together for segment reporting based upon similar products or product lines, marketing, selling and distribution characteristics, even though those business units are operated under separate local management. The accompanying business segment information for 2017 and 2016 reflects certain reclassifications to conform to presentations in 2018. Specifically, business units that previously were reported as the finance and financial products segment were reclassified to manufacturing (Clayton Homes and UTLX), services and retailing (CORT and XTRA leasing) and corporate and other (principally investment income). The tabular information that follows shows data of reportable segments reconciled to amounts reflected in our Consolidated Financial Statements. Intersegment transactions are not eliminated from segment results when management considers those transactions in assessing the results of the respective segments. Furthermore, our management does not consider investment and derivative gains/losses, amortization of certain purchase accounting adjustments related to Berkshire’s business acquisitions or certain other corporate income and expense items in assessing the financial performance of operating units. Collectively, these items are included in reconciliations of segment amounts to consolidated amounts. Business Identity Insurance: GEICO Berkshire Hathaway Reinsurance Group Berkshire Hathaway Primary Group BNSF Berkshire Hathaway Energy Manufacturing McLane Company Service and retailing Business Activity Underwriting private passenger automobile insurance mainly by direct response methods Underwriting excess-of-loss, quota-share and facultative reinsurance worldwide Underwriting multiple lines of property and casualty insurance policies for primarily commercial accounts Operation of one of the largest railroad systems in North America Regulated electric and gas utility, including power generation and distribution activities and real estate brokerage activities Manufacturers of numerous products including industrial, consumer and building products, including manufactured housing and related consumer financing Wholesale distribution of groceries and non-food items Providers of numerous services including fractional aircraft ownership programs, aviation pilot training, electronic components distribution, various retailing businesses, including automobile dealerships, and trailer and furniture leasing K-105 Notes to Consolidated Financial Statements (Continued) (26) Business segment data (Continued) A disaggregation of our consolidated data for each of the three most recent years is presented in the tables which follow (in millions). Operating Businesses: Insurance: Underwriting: 2018 Revenues 2017 Earnings before income taxes 2016 2018 2017 2016 GEICO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Berkshire Hathaway Reinsurance Group . . . . Berkshire Hathaway Primary Group . . . . . . . $ 33,363 15,944 8,111 $ Insurance underwriting . . . . . . . . . . . . . . . . . . . Investment income . . . . . . . . . . . . . . . . . . . . . . . Total insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . BNSF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Berkshire Hathaway Energy . . . . . . . . . . . . . . . . . Manufacturing . . . . . . . . . . . . . . . . . . . . . . . . . . . . McLane Company . . . . . . . . . . . . . . . . . . . . . . . . . Service and retailing . . . . . . . . . . . . . . . . . . . . . . . 57,418 5,518 62,936 23,855 19,987 61,883 49,987 28,939 29,441 24,013 7,143 60,597 4,865 65,462 21,387 18,854 57,645 49,775 27,219 $ 25,483 14,141 6,257 45,881 4,522 50,403 19,829 17,764 52,969 48,075 26,392 $ $ 2,449 (1,109) 670 2,010 5,503 7,513 6,863 2,472 9,366 246 2,696 (310) (3,648) 719 (3,239) 4,855 1,616 6,328 2,499 8,324 299 2,304 $ 462 1,012 657 2,131 4,482 6,613 5,693 2,878 7,735 431 2,058 Reconciliation to consolidated amount: Investment and derivative gains/losses . . . . . . . . . Interest expense, not allocated to segments . . . . . Equity method investments . . . . . . . . . . . . . . . . . . Corporate, eliminations and other . . . . . . . . . . . . . 247,587 240,342 215,432 29,156 21,370 25,408 — — — 250 — — — (409) — — — (318) (22,455) (458) (2,167) (75) 2,128 (486) 3,014 (2,188) 8,304 (474) 1,109 (680) $ 247,837 $ 239,933 $ 215,114 $ 4,001 $ 23,838 $ 33,667 Interest expense Income tax expense 2018 2017 2016 2018 2017 2016 Operating Businesses: Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . BNSF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Berkshire Hathaway Energy . . . . . . . . . . . . . . . . . Manufacturing . . . . . . . . . . . . . . . . . . . . . . . . . . . . McLane Company . . . . . . . . . . . . . . . . . . . . . . . . . Service and retailing . . . . . . . . . . . . . . . . . . . . . . . Reconciliation to consolidated amount: Investment and derivative gains/losses . . . . . . . . . Interest expense, not allocated to segments . . . . . Equity method investments . . . . . . . . . . . . . . . . . . Income tax net benefit – Tax Cuts and Jobs Act of 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Corporate, eliminations and other . . . . . . . . . . . . . $ — $ — $ 1,041 1,777 690 15 91 3,614 — 458 — — (219) 1,016 2,254 679 19 67 4,035 — 486 — — (135) $ — $ 1,374 1,644 (452) 2,188 59 634 992 1,715 631 — 71 3,409 5,447 — 474 — — (142) (4,673) (96) (753) — (246) (321) (71) 2,369 148 2,678 94 812 6,030 742 (170) 910 (28,200) (827) $ 1,585 2,124 371 2,442 169 761 7,452 1,807 (166) 396 — (249) $ (21,515) $ 9,240 $ 3,853 $ 4,386 $ 3,741 $ K-106 Notes to Consolidated Financial Statements (Continued) (26) Business segment data (Continued) Operating Businesses: Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . BNSF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Berkshire Hathaway Energy . . . . . . . . . . . . . . . . . . . . . . Manufacturing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . McLane Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Service and retailing . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating Businesses: Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . BNSF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Berkshire Hathaway Energy . . . . . . . . . . . . . . . . . . . . . . Manufacturing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . McLane Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Service and retailing . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reconciliation to consolidated amount: Corporate and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Goodwill Capital expenditures Depreciation of tangible assets 2018 2017 2016 2018 2017 2016 $ 130 3,187 6,241 3,116 276 1,587 $ 170 3,256 4,571 2,490 289 932 $ 128 3,819 5,090 2,581 258 1,078 $ 79 2,268 2,830 1,890 204 1,115 $ 84 2,304 2,548 1,839 193 751 $ 85 2,079 2,560 1,757 165 765 $ 14,537 $ 11,708 $ 12,954 $ 8,386 $ 7,719 $ 7,411 Goodwill at year-end Identifiable assets at year-end 2018 2017 2016 2018 2017 2016 $ 15,289 14,851 9,851 34,019 734 6,281 $ 15,499 14,845 9,935 33,967 734 6,278 $ 15,474 14,845 9,266 32,915 734 6,252 $ 289,746 70,242 80,543 99,912 6,243 24,724 $294,418 69,438 77,710 97,753 6,090 20,014 $234,037 69,277 74,571 93,835 5,896 19,208 $ 81,025 $ 81,258 $ 79,486 571,410 565,423 496,824 55,359 81,025 55,414 81,258 44,544 79,486 $ 707,794 $702,095 $620,854 Premiums written and earned by the property/casualty and life/health insurance businesses are summarized below (in millions). Property/Casualty Life/Health 2018 2017 2016 2018 2017 2016 Premiums Written: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Direct Assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ceded . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 44,513 8,970 (869) $ 39,377 17,815 (694) $ 34,001 8,037 (798) $ 52,614 $ 56,498 $ 41,240 Premiums Earned: Direct . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ceded . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 43,095 8,649 (825) $ 37,755 17,813 (677) $ 33,207 7,848 (843) $ $ $ 1,111 5,540 (49) 6,602 1,111 5,438 (50) $ $ $ 866 4,925 (47) $ 1,060 4,672 (62) 5,744 $5,670 866 4,866 (26) $ 1,060 4,671 (62) $ 50,919 $ 54,891 $ 40,212 $ 6,499 $ 5,706 $ 5,669 K-107 Notes to Consolidated Financial Statements (Continued) (26) Business segment data (Continued) Insurance premiums written by geographic region (based upon the domicile of the insured or reinsured) are summarized below. Dollars are in millions. United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Asia Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Western Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . All other Property/Casualty Life/Health 2018 2017 2016 2018 2017 2016 $ 46,146 3,726 2,157 585 $ 52,614 $ 50,604 3,307 1,516 1,071 $ 35,878 3,616 1,406 340 $ 3,598 1,361 939 704 $ 56,498 $ 41,240 $ 6,602 $ 3,320 879 909 636 $ 5,744 $ 3,473 715 822 660 $ 5,670 Consolidated sales, service and leasing revenues were $139.1 billion in 2018, $132.8 billion in 2017 and $125.6 billion in 2016. In 2018, 84% of such revenues were attributable to the United States compared to 85% in 2017 and 2016. The remainder of sales, service and leasing revenues were primarily in Europe, Canada and the Asia Pacific. Consolidated sales, service and leasing revenues included sales to Walmart Stores, Inc. of approximately $13 billion in 2018 and $14 billion in 2017 and 2016. In 2018, approximately 96% of our revenues from railroad, utilities and energy businesses were in the United States compared to 95% in 2017 and 2016. At December 31, 2018, approximately 89% of our consolidated net property, plant and equipment and equipment held for lease was located in the United States with the remainder primarily in Canada and Europe. (27) Quarterly data A summary of revenues and net earnings by quarter for each of the last two years follows. This information is unaudited. Amounts are in millions, except per share amounts. 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter 2018 Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net earnings (loss) attributable to Berkshire shareholders * . . . . . . . . . . . . . . . . Net earnings (loss) attributable to Berkshire shareholders per equivalent $ 58,473 (1,138) $ 62,200 12,011 $ 63,450 18,540 $ 63,714 (25,392) Class A common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (692) 7,301 11,280 (15,467) 2017 Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net earnings attributable to Berkshire shareholders * . . . . . . . . . . . . . . . . . . . . . Net earnings attributable to Berkshire shareholders per equivalent Class A $ 64,370 4,060 $ 57,256 4,262 $ 59,507 4,067 $ 58,800 32,551 common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,469 2,592 2,473 19,790 * Includes after-tax investment and derivative gains/losses and a one-time income tax net benefit attributable to the enactment of the Tax Cuts and Jobs Act of 2017 as follows: Investment and derivative gains/losses – 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . Investment and derivative gains/losses – 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . Income tax net benefit – Tax Cuts and Jobs Act of 2017 . . . . . . . . . . . . . . . . . . . . $ (6,426) $ 5,118 143 — 504 — $ 11,660 623 — $ (28,089) 107 28,200 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter K-108 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None Item 9A. Controls and Procedures At the end of the period covered by this Annual Report on Form 10-K, the Corporation carried out an evaluation, under the supervision and with the participation of the Corporation’s management, including the Chairman (Chief Executive Officer) and the Senior Vice President (Chief Financial Officer), of the effectiveness of the design and operation of the Corporation’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, the Chairman (Chief Executive Officer) and the Senior Vice President (Chief Financial Officer) concluded that the Corporation’s disclosure controls and procedures are effective in timely alerting them to material information relating to the Corporation (including its consolidated subsidiaries) required to be included in the Corporation’s periodic SEC filings. The report called for by Item 308(a) of Regulation S-K is incorporated herein by reference to Management’s Report on Internal Control Over Financial Reporting, included on page K-61 of this report. The attestation report called for by Item 308(b) of Regulation S-K is incorporated herein by reference to Report of Independent Registered Public Accounting Firm, included on page K-62 of this report. There has been no change in the Corporation’s internal control over financial reporting during the quarter ended December 31, 2018 that has materially affected, or is reasonably likely to materially affect, the Corporation’s internal control over financial reporting. Item 9B. Other Information None Except for the information set forth under the caption “Executive Officers of the Registrant” in Part I hereof, information required by this Part (Items 10, 11, 12, 13 and 14) is incorporated by reference from the Registrant’s definitive proxy statement, filed pursuant to Regulation 14A, for the Annual Meeting of Shareholders of the Registrant to be held on May 4, 2019, which meeting will involve the election of directors. Part III K-109 Item 15. Exhibits and Financial Statement Schedules (a)1. Financial Statements Part IV The following Consolidated Financial Statements, as well as the Report of Independent Registered Public Accounting Firm, are included in Part II Item 8 of this report: Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Balance Sheets— PAGE K-62 December 31, 2018 and December 31, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . K-64 Consolidated Statements of Earnings— Years Ended December 31, 2018, December 31, 2017, and December 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . K-66 Consolidated Statements of Comprehensive Income— Years Ended December 31, 2018, December 31, 2017, and December 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . K-67 Consolidated Statements of Changes in Shareholders’ Equity— Years Ended December 31, 2018, December 31, 2017, and December 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . K-67 Consolidated Statements of Cash Flows— Years Ended December 31, 2018, December 31, 2017, and December 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . K-68 K-69 2. Financial Statement Schedule Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . K-110 Schedule I—Parent Company Condensed Financial Information Balance Sheets as of December 31, 2018 and 2017, Statements of Earnings and Comprehensive Income and Cash Flows for the years ended December 31, 2018, December 31, 2017 and December 31, 2016 and Note to Condensed Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . K-111 Other schedules are omitted because they are not required, information therein is not applicable, or is reflected in the Consolidated Financial Statements or notes thereto. (b) Exhibits See the “Exhibit Index” at page K-113. REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and the Board of Directors of Berkshire Hathaway Inc. Omaha, Nebraska Opinion on the Financial Statement Schedule We have audited the consolidated financial statements of Berkshire Hathaway Inc. and subsidiaries (the “Company”) as of December 31, 2018 and 2017, and for each of the three years in the period ended December 31, 2018, and the Company’s internal control over financial reporting as of December 31, 2018, and have issued our report thereon dated February 23, 2019; such consolidated financial statements and report are included elsewhere in this Form 10-K. Our audits also included the financial statement schedule of the Company listed in the Index at Item 15. This financial statement schedule is the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statement schedule based on our audits. In our opinion, such financial statement schedule, when considered in relation to the financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. Change in Accounting Principle As discussed in Note 1 to the financial statements of the Company, the Company has changed its method of accounting for investments in equity securities (excluding equity method investments) in 2018 due to the adoption of ASU 2016-01 “Financial Instruments – Recognition and Measurement of Financial Assets and Financial Liabilities.” /s/ Deloitte & Touche LLP Omaha, Nebraska February 23, 2019 K-110 BERKSHIRE HATHAWAY INC. (Parent Company) Condensed Financial Information (Dollars in millions) Schedule I Balance Sheets December 31, 2018 2017 Assets: Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Short-term investments in U.S. Treasury Bills . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investments in and advances to/from consolidated subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investment in The Kraft Heinz Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,437 22,957 328,898 13,813 80 $ 4,039 13,132 335,668 17,635 79 $ 369,185 $ 370,553 Liabilities and Shareholders’ Equity: Accounts payable, accrued interest and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income taxes, principally deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Notes payable and other borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Berkshire Hathaway shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,507 2,104 16,871 20,482 348,703 $ 196 3,294 18,767 22,257 348,296 Statements of Earnings and Comprehensive Income $ 369,185 $ 370,553 Year ended December 31, 2018 2017 2016 Income items: From consolidated subsidiaries: Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Undistributed earnings (losses) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,658 (3,952) $ 5,367 37,832 $ 9,862 13,264 Investment gains (losses) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equity in net earnings (losses) of The Kraft Heinz Company . . . . . . . . . . . . . . . . . . . . . . . . . Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost and expense items: General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign exchange (gains) losses Euro-denominated senior notes . . . . . . . . . . . . . . . . . . . . . . Income tax expense (benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,706 (4) (2,730) 649 3,621 216 601 (366) (851) (400) 43,199 (1) 2,938 350 46,486 159 522 1,008 (143) 1,546 23,126 700 923 262 25,011 80 452 (244) 649 937 Net earnings attributable to Berkshire Hathaway shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other comprehensive income attributable to Berkshire Hathaway shareholders . . . . . . . . . . . . . . . . 4,021 (2,211) 44,940 21,273 24,074 3,316 Comprehensive income attributable to Berkshire Hathaway shareholders . . . . . . . . . . . . . . . . . . . . $ 1,810 $ 66,213 $ 27,390 See Note to Condensed Financial Information K-111 BERKSHIRE HATHAWAY INC. (Parent Company) Condensed Financial Information (Dollars in millions) Schedule I (continued) Statements of Cash Flows Year ended December 31, 2018 2017 2016 Cash flows from operating activities: Net earnings attributable to Berkshire Hathaway shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . Adjustments to reconcile net earnings to cash flows from operating activities: $ 4,021 $ 44,940 $ 24,074 Investment gains (losses) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Undistributed earnings of consolidated subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other 4 3,952 (972) 3,062 1 (37,832) (135) (1,234) (700) (13,264) 629 (161) Net cash flows from operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,067 5,740 10,578 Cash flows from investing activities: Redemption of Kraft Heinz Company preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investments in and advances to/from consolidated subsidiaries, net . . . . . . . . . . . . . . . . . . . . . . Purchases of U.S. Treasury Bills . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sales and maturities of U.S. Treasury Bills . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 460 (29,740) 21,442 — (239) (19,663) 14,847 8,320 (26,398) (9,350) 1,145 Net cash flows from investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,838) (5,055) (26,283) Cash flows from financing activities: Proceeds from borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Repayments of borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Acquisition of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net cash flows from financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 (1,563) (1,346) 61 (2,831) (602) 4,039 1,201 (1,145) — 77 133 818 3,221 9,278 (1,125) — 164 8,317 (7,388) 10,609 Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,437 $ 4,039 $ 3,221 Other cash flow information: Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,790 388 $ 2,076 386 $ 3,583 307 Note to Condensed Financial Information Berkshire acquired 50% of the outstanding common stock of Heinz Holding Company in 2013. After a series of transactions in 2015, that interest represented 26.8% of the outstanding common stock of The Kraft Heinz Company (“Kraft Heinz”). Berkshire currently owns 26.7% of the outstanding shares of Kraft Heinz common stock. Reference is made to Note 5 to the Consolidated Financial Statements for additional information concerning Berkshire’s investment in Kraft Heinz. Prior to 2018, the Parent Company issued Euro-denominated senior notes and the aggregate par amount outstanding of these borrowings was €6.85 billion as of December 31, 2018 and 2017. The gains and losses from the periodic remeasurement of the Euro notes due to changes in foreign currency exchange rates are included in earnings. Parent Company debt maturities over the next five years are as follows: 2019—$752 million; 2020—$1,149 million; 2021— $2,131 million; 2022—$613 million and 2023—$3,991 million. Berkshire guarantees debt obligations of certain of its subsidiaries, which as of December 31, 2018, totaled approximately $12.4 billion. Such guarantees are an absolute, unconditional and irrevocable guarantee for the full and prompt payment when due of all present and future payment obligations. Berkshire also provides guarantees in connection with equity index put option contracts and certain retroactive reinsurance contracts of subsidiaries. The amounts of subsidiary payments under these contracts, if any, is contingent upon the outcome of future events. In December 2017, the Tax Cuts and Jobs Act of 2017 (“TCJA”) was enacted, which reduced the Parent Company’s income tax expense in 2017 by $550 million, primarily due to the reduction in deferred tax liabilities attributable to the lower U.S. statutory rate, partly offset by a one-time income tax expense on certain accumulated undistributed earnings of foreign subsidiaries. The effects of the TCJA on income tax expense of consolidated subsidiaries is included in undistributed earnings in consolidated subsidiaries. K-112 EXHIBIT INDEX Exhibit No. 2(i) 2(ii) Agreement and Plan of Merger dated as of June 19, 1998 between Berkshire and General Re Corporation. Incorporated by reference to Annex I to Registration Statement No. 333-61129 filed on Form S-4. Agreement and Plan of Merger dated as of November 2, 2009 by and among Berkshire, R Acquisition Company, LLC and BNSF. Incorporated by reference to Annex A to Registration Statement No. 333-163343 on Form S-4. 2(iii) Agreement and Plan of Merger dated August 8, 2015, by and among Berkshire, NW Merger Sub Inc. and Precision Castparts Corporation (“PCC”) Incorporated by reference to Exhibit 2.1 to PCC’s Current Report on Form 8-K filed on August 10, 2015 (SEC File 3(i) 3(ii) 4.1 No. 001-10348) Restated Certificate of Incorporation Incorporated by reference to Exhibit 3(i) to Form 10-K filed on March 2, 2015. By-Laws Incorporated by reference to Exhibit 3(ii) to Form 8-K filed on May 4, 2016. Indenture, dated as of December 22, 2003, between Berkshire Hathaway Finance Corporation, Berkshire Hathaway Inc. and The Bank of New York Mellon Trust Company, N.A. (as successor to J.P. Morgan Trust Company, National Association), as trustee. Incorporated by reference to Exhibit 4.1 on Form S-4 of Berkshire Hathaway Finance Corporation and Berkshire Hathaway Inc. filed on February 4, 2004. SEC File No. 333-112486 4.2 Indenture, dated as of February 1, 2010, among Berkshire Hathaway Inc., Berkshire Hathaway Finance Corporation and The Bank of New York Mellon Trust Company, N.A., as trustee. Incorporated by reference to Exhibit 4.1 to Berkshire’s Registration Statement on Form S-3 filed on February 1, 2010. SEC File No. 333-164611 4.3 Indenture, dated as of January 26, 2016, by and among Berkshire Hathaway Inc., Berkshire Hathaway Finance Corporation and The Bank of New York Mellon Trust Company, N.A., as trustee. Incorporated by reference to Exhibit 4.1 to Berkshire’s Registration Statement on Form S-3 filed on January 26, 2016. SEC File No. 333-209122 4.4 4.5 10.1 14 21 23 31.1 31.2 32.1 32.2 95 101 Indenture, dated as of December 1, 1995, between BNSF and The First National Bank of Chicago, as trustee. Incorporated by reference to Exhibit 4 on Form S-3 of BNSF filed on February 8, 1999. Indenture, dated as of October 4, 2002, by and between MidAmerican Energy Holdings Company and The Bank of New York, Trustee. Incorporated by reference to Exhibit 4.1 to the Berkshire Hathaway Energy Company Registration Statement No. 333-101699 dated December 6, 2002. Other instruments defining the rights of holders of long-term debt of Registrant and its subsidiaries are not being filed since the total amount of securities authorized by all other such instruments does not exceed 10% of the total assets of the Registrant and its subsidiaries on a consolidated basis as of December 31, 2018. The Registrant hereby agrees to furnish to the Commission upon request a copy of any such debt instrument to which it is a party. Equity Commitment Letter of Berkshire Hathaway Inc. with Hawk Acquisition Holding Corporation dated February 13, 2013. Incorporated by reference to Exhibit 10.1 on Form 8-K of Berkshire Hathaway Inc. filed on February 14, 2013. Code of Ethics Berkshire’s Code of Business Conduct and Ethics is posted on its Internet website at www.berkshirehathaway.com Subsidiaries of Registrant Consent of Independent Registered Public Accounting Firm Rule 13a—14(a)/15d-14(a) Certification Rule 13a—14(a)/15d-14(a) Certification Section 1350 Certification Section 1350 Certification Mine Safety Disclosures The following financial information from Berkshire Hathaway Inc.’s Annual Report on Form 10-K for the year ended December 31, 2018, formatted in XBRL (Extensible Business Reporting Language) includes: (i) the Consolidated Balance Sheets as of December 31, 2018 and 2017, (ii) the Consolidated Statements of Earnings for each of the three years ended December 31, 2018, 2017 and 2016, (iii) Consolidated Statements of Comprehensive Income for each of the three years ended December 31, 2018, 2017 and 2016, (iv) the Consolidated Statements of Changes in Shareholders’ Equity for each of the three years ended December 31, 2018, 2017 and 2016, (v) the Consolidated Statements of Cash Flows for each of the three years ended December 31, 2018, 2017 and 2016 and (vi) the Notes to Consolidated Financial Statements and Schedule I, tagged in summary and detail. K-113 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SIGNATURES Date: February 23, 2019 BERKSHIRE HATHAWAY INC. /S/ MARC D. HAMBURG Marc D. Hamburg Senior Vice President and Principal Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. /S/ WARREN E. BUFFETT Warren E. Buffett /S/ GREGORY E. ABEL Gregory E. Abel /S/ HOWARD G. BUFFETT Howard G. Buffett /S/ STEPHEN B. BURKE Stephen B. Burke /S/ SUSAN L. DECKER Susan L. Decker /S/ WILLIAM H. GATES III William H. Gates III /S/ DAVID S. GOTTESMAN David S. Gottesman /S/ CHARLOTTE GUYMAN Charlotte Guyman /S/ AJIT JAIN Ajit Jain /S/ CHARLES T. MUNGER Charles T. Munger /S/ THOMAS S. MURPHY Thomas S. Murphy /S/ RONALD L. OLSON Ronald L. Olson /S/ WALTER SCOTT, JR. Walter Scott, Jr. /S/ MERYL B. WITMER Meryl B. Witmer /S/ MARC D. HAMBURG Marc D. Hamburg /S/ DANIEL J. JAKSICH Daniel J. Jaksich February 23, 2019 Date February 23, 2019 Date February 23, 2019 Date February 23, 2019 Date February 23, 2019 Date February 23, 2019 Date February 23, 2019 Date February 23, 2019 Date February 23, 2019 Date February 23, 2019 Date February 23, 2019 Date February 23, 2019 Date February 23, 2019 Date February 23, 2019 Date February 23, 2019 Date February 23, 2019 Date Chairman of the Board of Directors—Chief Executive Officer Director—Vice Chairman—Non Insurance Operations Director Director Director Director Director Director Director—Vice Chairman—Insurance Operations Director—Vice Chairman Director Director Director Director Senior Vice President—Principal Financial Officer Vice President—Principal Accounting Officer K-114 BERKSHIRE HATHAWAY INC. OPERATING COMPANIES INSURANCE BUSINESSES: GEICO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Berkshire Hathaway Reinsurance Group . . . . . . . . . General Re . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Berkshire Hathaway Homestate Companies . . . . . . . Berkshire Hathaway Specialty . . . . . . . . . . . . . . . . . . Berkshire Hathaway GUARD Insurance Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . MedPro Group Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . MLMIC Insurance Companies . . . . . . . . . . . . . . . . . . National Indemnity Primary Group . . . . . . . . . . . . . United States Liability Insurance Companies . . . . . . Applied Underwriters . . . . . . . . . . . . . . . . . . . . . . . . . Central States Indemnity . . . . . . . . . . . . . . . . . . . . . . MANUFACTURING BUSINESSES: Acme . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Benjamin Moore . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Brooks Sports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Clayton Homes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CTB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Duracell . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fechheimer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Forest River . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fruit of the Loom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Garan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . H. H. Brown Shoe Group . . . . . . . . . . . . . . . . . . . . . . IMC International Metalworking Companies . . . . . Johns Manville . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Justin Brands . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Larson-Juhl . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . LiquidPower Specialty Products, Inc. . . . . . . . . . . . . Lubrizol . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . MiTek Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Precision Castparts . . . . . . . . . . . . . . . . . . . . . . . . . . . Richline Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Scott Fetzer Companies . . . . . . . . . . . . . . . . . . . . . . . . Shaw Industries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Marmon(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Employees 39,982 545 1,960 1,106 808 794 941 329 721 938 703 47 48,874 2,353 1,764 686 17,144 2,996 2,763 407 12,002 27,980 5,304 953 13,117 7,801 788 1,244 296 8,721 5,670 32,842 2,733 2,314 22,660 20,315 192,853 RAILROAD, UTILITIES AND ENERGY BUSINESSES: BNSF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Berkshire Hathaway Energy Company: Employees 45,000 Corporate Office . . . . . . . . . . . . . . . . . . . . . . . . . . . PacifiCorp . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . MidAmerican Energy . . . . . . . . . . . . . . . . . . . . . . . NV Energy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Northern Powergrid . . . . . . . . . . . . . . . . . . . . . . . . Northern Natural Gas . . . . . . . . . . . . . . . . . . . . . . Kern River Gas . . . . . . . . . . . . . . . . . . . . . . . . . . . . AltaLink . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . BHE Renewables . . . . . . . . . . . . . . . . . . . . . . . . . . BHE U.S. Transmission . . . . . . . . . . . . . . . . . . . . . CalEnergy Philippines . . . . . . . . . . . . . . . . . . . . . . MidAmerican Energy Services . . . . . . . . . . . . . . . HomeServices of America . . . . . . . . . . . . . . . . . . . SERVICE AND RETAILING BUSINESSES: Affordable Housing Partners, Inc. . . . . . . . . . . . . . . . Ben Bridge Jeweler . . . . . . . . . . . . . . . . . . . . . . . . . . . Berkshire Hathaway Automotive . . . . . . . . . . . . . . . . BH Media Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Borsheims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Business Wire . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Charter Brokerage . . . . . . . . . . . . . . . . . . . . . . . . . . . . CORT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dairy Queen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Detlev Louis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . FlightSafety . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Helzberg Diamonds . . . . . . . . . . . . . . . . . . . . . . . . . . . Jordan’s Furniture . . . . . . . . . . . . . . . . . . . . . . . . . . . McLane Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . Nebraska Furniture Mart . . . . . . . . . . . . . . . . . . . . . . NetJets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Oriental Trading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Pampered Chef . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Precision Steel Warehouse . . . . . . . . . . . . . . . . . . . . . R.C.Willey Home Furnishings . . . . . . . . . . . . . . . . . . See’s Candies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Star Furniture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Buffalo News . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TTI, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . WPLG, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . XTRA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Berkshire Hathaway Corporate Office . . . . . . . . . . . . . . 30 5,340 3,439 2,426 2,473 925 152 753 326 13 54 107 6,857 67,895 19 920 10,964 3,087 154 493 161 2,633 475 1,301 4,549 2,117 1,086 24,759 4,633 6,484 1,493 380 125 2,866 2,402 670 598 6,768 191 397 79,725 26 389,373 (1) Marmon Holding, Inc. (“Marmon”) is a holding company that conducts operations through more than 100 manufacturing and service businesses organized into 13 sectors. A-1 BERKSHIRE HATHAWAY INC. ANNUAL MEETING INFORMATION Berkshire Hathaway Annual Meeting – Saturday, May 4 CHI Health Center (formerly named CenturyLink Center) Doors Open Annual Meeting Movie Q & A Session Lunch Break 7:00am 8:30am 9:15am Noon 1:00pm Q & A Session 3:30pm Short Recess 3:45pm Formal Business Meeting Details: Financial journalists from organizations representing newspapers, magazines and television will participate in the question-and-answer period, asking Warren and Charlie questions that shareholders have submitted to them by e-mail. The journalists and their e-mail addresses are: Carol Loomis, retired senior editor-at-large of Fortune, who may be emailed at loomisbrk@gmail.com; Becky Quick, of CNBC, at BerkshireQuestions@cnbc.com, and Andrew Ross Sorkin, of The New York Times, at arsorkin@nytimes.com. In addition, we will have three analysts attending the meeting and asking questions from the stage. We also will have a drawing at 8:15am at each of the 11 microphone locations for those shareholders wishing to ask questions themselves. For the fourth year, Yahoo will webcast https://finance.yahoo.com/brklivestream. the May 4th Berkshire meeting, going live at 8:45am CST. Visit OTHER SPECIAL EVENTS AND ANNUAL MEETING INFORMATION Friday, May 3 Berkshire Shareholder Shopping Day-CHI Health Center Noon – 5pm Details: An extended afternoon of shopping for our shareholders. (Must have a meeting credential to participate.) Borsheims Shareholder-Only Cocktail Reception 6:00pm – 9:00pm Saturday, May 4 Nebraska Furniture Mart’s Berkshire Picnic 5:30pm – 8:00pm Details: Nebraska Furniture Mart will be hosting a Berkshire Picnic at the Omaha store with food and live entertainment. Sunday, May 5 Berkshire Hathaway “Invest in Yourself” 5K presented by Brooks 8:00am – 11:00am Details: Brooks and Berkshire Hathaway are bringing the Run Happy spirit to the Annual Shareholders Meeting by again hosting the “Invest in Yourself” 5K fun run and walk. The event will be held in downtown Omaha. Run, jog, or walk to the starting line by registering at www.investinyourself5k.com. Borsheims Shareholder-Only Brunch and Shopping Day 9:00am – 4:00pm Details: Bridge champions Bob Hamman and Sharon Osberg will take on shareholders and Table Tennis Champion Ariel Hsing will provide entertainment. Magician Norman Beck returns for another performance. Dine at Gorat’s Steakhouse Noon – 10:00pm Details: One of Warren’s favorite steakhouses will open Sunday for a private shareholder event. Dinner will be served from Noon-10pm. To get a reservation, call 402/551-3733 starting on April 1 (but not before). They are open Monday – Thursday 11am – 9pm, Friday 11am – 10pm and Saturday from 5pm – 10pm. Reservations are suggested. A-2 BERKSHIRE HATHAWAY INC. ANNUAL MEETING INFORMATION Nebraska Furniture Mart Shareholder Discount Period Tuesday, April 30 through Monday, May 6 (Discounts also available in Kansas City and Dallas/Fort Worth Stores.) Store Hours: Monday – Saturday: 10am – 9pm | Sunday: 11am – 8pm Borsheims Shareholder Discount Period Monday, April 29 through Saturday, May 11 Store Hours: Monday & Thursday: 10am – 8pm | Tuesday, Wednesday & Friday*: 10am – 6pm Saturday**:10am – 5:30pm | Sunday***Closed * Shareholder-Only Cocktail Reception, Friday, May 3 / 6 – 9pm ** Shareholder Shopping Day, Saturday, May 4 / 10am – 6pm *** Shareholder-Only Brunch & Shopping Day Sunday, May 5 / 9am – 4pm Books & DVDs for Shareholders The Bookworm will be back with a selection of more than 40 books and DVDs. Be sure to check out Melinda Gates’ new book, The Moment of Lift: How Empowering Women Changes the World, which Warren strongly recommends. Shareholders receive a 20% discount. The books selected for sale at the Berkshire annual meeting are available year round at www.bookwormomaha.com. Shareholders with credentials also receive the 20% shareholder discount Friday, May 3 through Monday, May 6, at The Bookworm, 90th and Center Street. BERKSHIRE HATHAWAY INC. STOCK TRANSFER AGENT EQ Shareowner Services (“EQ”), a division of Equiniti Trust Company., P. O. Box 64854, St. Paul, MN 55164-0854 serves as Transfer Agent and Registrar for the Company’s common stock. Correspondence may be directed to EQ at the address indicated or at www.shareowneronline.com. Telephone inquiries should be directed to the Shareowner Relations Department at 1-877-602-7411 between 7:00 A.M. and 7:00 P.M. Central Time. Certificates for re-issue or transfer should be directed to the Transfer Department at the address indicated. Berkshire has two classes of common stock designated Class A common stock and Class B common stock. Each share of Class A common stock is convertible, at the option of the holder, into 1,500 shares of Class B common stock. Shares of Class B common stock are not convertible into shares of Class A common stock. Shareholders of record wishing to convert Class A common stock into Class B common stock may contact EQ in writing. Along with the underlying stock certificate, shareholders should provide EQ with specific written instructions regarding the number of shares to be converted and the manner in which the Class B shares are to be registered. We recommend that you use certified or registered mail when delivering the stock certificates and written instructions. If Class A shares are held in “street name,” shareholders wishing to convert all or a portion of their holding should contact their broker or bank nominee. It will be necessary for the nominee to make the request for conversion. A-3 DIRECTORS OFFICERS BERKSHIRE HATHAWAY INC. WARREN E. BUFFETT, Chairman and CEO of Berkshire CHARLES T. MUNGER, Vice Chairman of Berkshire WARREN E. BUFFETT, Chairman and CEO CHARLES T. MUNGER, Vice Chairman GREGORY E. ABEL, Vice Chairman - Non Insurance Operations GREGORY E. ABEL, Vice Chairman of Berkshire - Non Insurance Operations AJIT JAIN, Vice Chairman of Berkshire - Insurance Operations HOWARD G. BUFFETT, Undersheriff of Macon County, Illinois AJIT JAIN, Vice Chairman - Insurance Operations MARC D. HAMBURG, Senior Vice President and CFO DANIEL J. JAKSICH, Vice President, Controller MARK D. MILLARD, Vice President JO ELLEN RIECK, Vice President STEPHEN B. BURKE, Chief Executive Officer of NBCUniversal, a media and KERBY S. HAM, Treasurer entertainment company. REBECCA K. AMICK, Director of Internal Auditing SUSAN L. DECKER, Former President of Yahoo! Inc., an internet company. WILLIAM H. GATES III, Co-Chair of the Bill and Melinda Gates Foundation DAVID S. GOTTESMAN, Senior Managing Director of First Manhattan Company, an investment advisory firm. CHARLOTTE GUYMAN, Former Chairman of the Board of Directors of UW Medicine, an academic medical center. THOMAS S. MURPHY, Former Chairman of the Board and CEO of Capital Cities/ABC RONALD L. OLSON, Partner of the law firm of Munger, Tolles & Olson LLP WALTER SCOTT, JR., Former Chairman of Level 3 Communications, a successor to certain businesses of Peter Kiewit Sons’ Inc. which is engaged in telecommunications and computer outsourcing. MERYL B. WITMER, Managing member of the General Partner of Eagle Capital Partners L.P., an investment partnership. Letters from Annual Reports (1977 through 2018), quarterly reports, press releases and other information about Berkshire may be obtained on the Internet at www.berkshirehathaway.com. BERKSHIRE HATHAWAY INC. Executive Offices — 3555 Farnam Street, Omaha, Nebraska 68131 

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