Management’s Discussion and Analysis of Financial Condition and Results Of

8/14/2019 Managements Discussion and Analysis of Financial Condition and Results Of

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Managements Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations

Net earnings attributable to Berkshire are disaggregated in the table that follows. Amounts are after deductingincome taxes and exclude earnings attributable to noncontrolling interests. Amounts are in millions.

SecondThird Quarter First SixNine Months

2009 2008 2009 2008

rance underwriting $ 83363 $ 36081 $ 302665 $ 541622rance investment income 1,159976 884809 2,1923,168 1,6862,495ties and energy 253346 208324 456802 524848ufacturing, service and retailing 239336 719665 497833 1,206871nce and financial products 8292 15991 160252 306397r (3658) (6099) (122180) (6237)stment and derivative gains/losses 1,515183 610(1,012 ) (1,724541) (3811,393)

arnings attributable to Berkshire $ 3,295238 $2,8801,057 $1,7614,999 $3,8204,877

Berkshires operating businesses are managed on an unusually decentralized basis. There are essentially nocentralized or integrated business functions (such as sales, marketing, purchasing, legal or human resources) and there isminimal involvement by Berkshires corporate headquarters in the day-to-day business activities of the operatingbusinesses. Berkshires corporate office management participates in and is ultimately responsible for significant capitalallocation decisions, investment activities and the selection of the Chief Executive to head each of the operatingbusinesses. The business segment data (Note 17 to theCondensed Consolidated Financial Statements) should be read inconjunction with this discussion.

The declines in global economic activity over the last half of 2008 (and in the fourth quarter in particular)continued through the first halfnine months of 2009. Berkshires operating results in 2009 have beenwere significantlyimpacted by those declines. Earnings in 2009 of most of Berkshires diverse group of manufacturing, service andretailing businesses declined, in some cases severely, compared to the prior year. The effects from the current worldwideeconomic recession resulted in lower sales volume, revenues and profit margins as consumers have significantly curtailedspending, particularly for discretionary items. Berkshires two largest business segments, insurance and utilities, remainstrong and operating results have not been negatively impacted in any significant way by the recession.

Investment and derivative gains were $1.5 billion,183 million in the secondthird quarter of 2009, while in the firstsixnine months there were losses of $1.7 billion.541 million. The gains and losses primarily derived from credit defaultcontracts, dispositions of certain equity securities, non-cash other-than-temporary impairment charges with respect tocertain equity securities and changes in estimated fair values of long duration equity index put option contracts. Changesin the equity and credit markets from period to period can and have caused and will likely continue to cause significantvolatility in periodic earnings.

In response to the crises in the financial and capital markets and global recession, the U.S. and other governmentsaround the world are taking measures to stabilize financial institutions, regulate markets (including over-the-counter

derivatives markets) and stimulate economic activity. While management hopesbelieves such actions will provebesuccessful, the potentialultimate impact on Berkshire is not clear at this time. It is expected that the current economicconditions will persist at least through 2009 before meaningful improvements become evident. Berkshires operatingcompanies have taken and will continue to take cost reduction actions as necessary to manage through the currenteconomic situation. Management believes that the economic franchises of Berkshires business operations remain intactand that operating results will ultimately return to more normal historical levelsimprove, although it cannot predict thetiming ofaan economic recovery that will be required to have this happen.

Insurance Underwriting

Berkshires management views insurance businesses as possessing two distinct operations underwriting andinvesting. Underwriting decisions are the responsibility of the unit managers; investing, with limited exception, is theresponsibility of Berkshires Chairman and CEO, Warren E. Buffett. Accordingly, Berkshire evaluates performance ofunderwriting operations without any allocation of investment income.


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Berkshire provides both primary insurance and reinsurance of property and casualty risks. Through General Re,Berkshire also reinsures life and health risks. Berkshires principal insurance and reinsurance underwriting units are:(1) GEICO, (2) General Re, (3) Berkshire Hathaway Reinsurance Group and (4) Berkshire Hathaway Primary Group.Through General Re, Berkshire also reinsures life and health risks.

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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued)

InsuranceUnderwriting (Continued)

Periodic underwriting results can be affected significantly by changes in estimates for unpaid losses and lossadjustment expenses, including amounts established for occurrences in prior years. In addition, the timing and amount ofcatastrophe losses produce significant volatility in periodic underwriting results. A key marketing strategy followed byall of the insurance businesses is the maintenance of extraordinary capital strength. Statutory surplus of Berkshiresinsurance businesses was approximately $51 billion at December 31, 2008. This superior capital strength createsopportunities, especially with respect to reinsurance activities, to negotiate and enter into insurance and reinsurancecontracts specially designed to meet the unique needs of insurance and reinsurance buyers.

Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Insurance Underwriting (Continued)

A summary follows of underwriting results from Berkshires insurance businesses. Amounts are in millions.


2009 2008 2009 2008

rwriting gain (loss) attributable to:O $ 111200 $ 298246 $ 259459 $ 484730ral Re 276186 10254 260446 144198

shire Hathaway Reinsurance Group (291167) 79(166 ) (8879) 108(58 )shire Hathaway Primary Group 297 81(8 ) 3340 10698

ax underwriting gain 125560 560126 4641,024 842968me taxes and noncontrolling interests 42197 20045 162359 301346

underwriting gain $ 83363 $ 36081 $ 302665 $ 541622

GEICOGEICO provides primarily private passenger automobile coverages to insureds in all 50 states and the District of

Columbia. GEICO policies are marketed mainly by direct response methods in which customers apply for coveragedirectly to the company via the Internet, over the telephone or through the mail. This is a significant element in GEICOsstrategy to be a low-cost insurer. In addition, GEICO strives to provide excellent service to customers, with the goal ofestablishing long-term customer relationships. GEICOs underwriting results are summarized in the table below. Dollar

amounts are in millions. SecondThird Quarter First SixNine Months 2009 2008 2009 2008

Amount % Amount % Amount % Amount %

Premiumsearned

$3,39444

8 100.0 $3,08615

0 100.0 $6,65510,1

03 100.0 $6,1189,26

8 100.0

es and loss adjustment expenses2,64863

678.076.

5 2,23335

072.474.

6 5,1627,79

8 77.624,5186,86

873.974.

1

rwriting expenses 635612 1817.7 55555418.017.

6 1,234846 18.53 1,116670 18.20

Total losses and expenses3,28324

896.794.

2 2,78890

490.492.

2 6,3969,64

496.195.

55,6348,53

8 92.1

Pre-tax underwriting gain $ 111200 $ 298246 $ 259459 $ 484730


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Premiums earned in the second third quarter and first sixnine months of 2009 increased $308298 million

(10.09.5%) and $537835 million (8.89.0%), respectively, over the premiums earned in the corresponding 2008 periods.The growth in premiums earned for voluntary auto was 8.79.0% for the first sixnine months of 2009, reflecting anincrease in policies-in-force. The weakening economy of 10.1% offset somewhat by a decrease in average premiums perpolicy. It is also believed to be causingthat the weak economic conditions have caused customers to raise policy

deductibles and reduce coverage in order to save money. Policies-in-force over the last twelve months increased 10.8%overall, including 9.1% in the preferred risk auto markets and 15.9% in the standard and nonstandard auto markets.Voluntary auto new business sales in the first sixnine months of 2009 increased 25.618.2% versus 2008. Growth wasparticularly strong during the first quarter and slowed to a more normal raterates in the second quarterand third quarters.Voluntary auto policies-in-force at JuneSeptember 30, 2009 were 596662,000 greater than at December 31, 2008.

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GEICO (Continued)

Losses and loss adjustment expenses incurred in the secondthird quarter and first sixnine months of 2009increased $415286 million (18.612.2%) and $644930 million (14.313.5%), respectively, over amounts incurred in 2008periods. The loss ratio was 77.62% in the first sixnine months of 2009 compared to 73.974.1% in 2008. The higherloss ratio in 2009 reflected overall increases in average claim frequencies and injury claim severities. Claims frequenciesin 2009 for physical damage coverages increased in the onetwo to threefour percent range, while frequencies for injurycoverages increased in the threeeight to fiveten percent range compared with the very low frequency levels in 2008.Average injury severities in 2009 increased in the three to five percent range while average physical damage severitiesdecreased in the three to five percent range over from 2008. Incurred losses from catastrophe events infor the first ninemonths of2009 and 2008 were relatively insignificant. Management anticipates that loss ratios over the remainder of2009 will be generally higher than in 2008, resulting in comparatively lower underwriting gains$73 million compared to$88 million for the first nine months of 2008. Underwriting expenses in the first sixnine months of 2009 increased10.65% over 2008 to $1,234846 million due primarily to higher policy issuance costs and increased salary and employee

benefit expenses.

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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued)Insurance Underwriting (Continued)

General Re

General Re conducts a reinsurance business offering property and casualty and life and health coverages to clientsworldwide. Property and casualty reinsurance is written in North America on a direct basis through General ReinsuranceCorporation and internationally through Cologne Re (based in Germany) and other wholly-owned affiliates. Property and

casualty reinsurance is also written through brokers with respect to Faraday in London. Life and health reinsurance iswritten worldwide through Cologne Re. General Re strives to generate underwriting gains in essentially all product lines.Underwriting performance is not evaluated based upon market share and underwriters are instructed to rejectinadequately priced risks. General Res underwriting results are summarized in the following table. Amounts are inmillions.

Premiums earned Pre-tax underwriting gain/loss

SecondThird

Quarter

First SixNine

Months

SecondThird

QuarterFirst SixNine

Months

2009 2008 2009 2008 2009 2008 2009 2008

Property/casualty$ 814820 $ 821819 $

1,5772,397 $

1,8592,678 $

214107 $

55(13

) $

191298 $ 7057

Life/health 612656 667639 1,228884 1,333972 6279 4767 69148 74141

$1,4264

76 $1,4884

58 $2,8054,2

81 $3,1924,6

50 $27618

6 $1025

4 $26044

6 $14419

8


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Property/casualty

Property/casualty premiums earned in the secondthird quarter andof 2009 were relatively flat when compared tothe third quarter of 2008. Premiums earned in the first sixnine ofmonths of 2009 declined $7281 million (0.9%) and$282 million (15.2%), respectively,10.5%), versus the corresponding 2008 periods. period. Premiums earned in 2008

included $205 million from a reinsurance-to-close transaction in the first quarter that increased General Res economicinterest in the runoff of Lloyds Syndicate 435s 2000 year of account from 39% to 100%. Under this transaction,General Re also assumed a corresponding amount of net loss reserves and as a result, there was no impact on netunderwriting gains in the first quarter of 2008. There was no similar transaction in 2009.

Excluding the effect of the reinsurance-to-close transaction in 2008 and the effects of foreign currency translationrate changes, premiums earned in the first sixnine months of 2009 increased $63.691 million (3.8%). 7%). The increasewas due primarily to increased volume in Europe and lower retrocessions of Lloyds market business. Premium volumein 2009 may remain flat or increase slightly above 2008 levels if current market conditions continue.

UnderwritingIn 2009, underwriting gains were $214107 million in the secondthird quarter and $191298 millionfor the first sixnine months of 2009. Underwriting gains for the first sixnine months of 2009 included gains of $111260

million from property business and $8038 million from casualty/workers compensation business. The property resultsin 2009 were net of $8280 million of losses from catastrophes, includingprimarily from winter storm Klaus in Europe,the Victoria bushfires in Australia and an earthquake in Italy. The timing and magnitude of catastrophe and largeindividual losses can produce significant volatility in periodic underwriting results. The underwriting gains fromcasualty/workers compensation business reflected the overall favorable run-off of prior years loss reserves.

Underwriting results In 2008, underwriting losses were $5513 million in the secondthird quarter and$70underwriting gains were $57 million for the first sixnine months of 2008. Underwriting gains for the first sixninemonths of 2008 included gains of $133126 million from property business and losses of $6369 million fromcasualty/workers compensation business. Property results for the first sixnine months of 2008 included a $50$186million lossof catastrophe losses arising primarily from Hurricanes Ike and Gustav in the third quarter, and winter stormEmma in Germany and hailstorms in Europe., which occurred in the first half of 2008. Casualty losses were adverselyimpacted by legal costs incurred in connection with the regulatory investigations of finite reinsurance.

Life/health

Premiums earned in the secondthird quarter and first sixnine months of 2009 were $612656 million and $1,228884million, respectively, decreasesan increase of $5517 million (8.2.7%) and $105a decrease of $88 million (7.94.5%) fromthe 2008 comparable periods. Excluding the effects of changes in foreign currency translation rates, premiums earned in2009 were relatively unchanged from the first sixnine months of2008. 2009 increased by $46 million (2.3%) due toincreased international business. The life/health operations produced underwriting gains of $6279 million and $148million in the secondthird quarter and first nine months of 2009, respectively, an increase of $1512 million (17.9%) and$7 million (5.0%) over 2008, whichthe corresponding 2008 periods. This was due primarily to lower losses in the U.S.long-term health business.

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Berkshire Hathaway 23




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Berkshire Hathaway Reinsurance Group

The Berkshire Hathaway Reinsurance Group (BHRG) underwrites excess-of-loss reinsurance and quota-sharecoverages for insurers and reinsurers worldwide. BHRGs business includes catastrophe excess-of-loss reinsurance andexcess direct and facultative reinsurance for large or otherwise unusual discrete property risks referred to as individualrisk. Retroactive reinsurance policies provide indemnification of losses and loss adjustment expenses with respect to past

loss events. Other multi-line refers to other business written on both a quota-share and excess basis, participations in andcontracts with Lloyds syndicates, as well as property, aviation and workers compensation programs. BHRGsunderwriting results are summarized in the table below. Amounts are in millions.

Premiums earned Pre-tax underwriting gain/loss

SecondThirdQuarter First SixNine Months

SecondThirdQuarter

First SixNineMonths

2009 2008 2009 2008 2009 2008 2009 2008

Catastrophe andindividual risk $ 241197 $ 222292 $ 495692 $ 439731 $ 169271 $176(102 )$ 322593 $ 350248Retroactive reinsurance 77 3 1,886 3 (95137) (112104) (202339) (233337)Other multi-line 8921,032 9311,091 1,9162,948 1,6982,789 (36533) 1540 (208175) (931)

$1,210229 $1,156383 $4,2975,526 $2,1403,523 $(291167) $ 79(166 ) $ (8879) $ 108(58 )

Premiums earned in the first sixnine months of 2009 from catastrophe and individual risk contracts increased$56declined $39 million (135%) versus the first halfnine months of 2008. The level of business written in a given periodwill vary significantly due to changes in market conditions and managements assessment of the adequacy of premiumrates. In additionearly 2009, management has constrained the volume of business written in 2009 in response to thedecline in Berkshires net worth that occurred in the first quarter of 2009. Due Though net worth has recoveredsignificantly since then, management will continue to constrain the restorationvolume ofnet worth that occurredduringbusiness written in light ofthe second quarter, managements willingnesspending BNSF acquisition (see Note 20to write large catastrophe risks has increased but to datethe Consolidated Financial Statements for information regardingthe pending acquisition). Also, premium rates have not warranted such writingbeen attractive enough to actually warrantincreasing volume thus far in 2009. Underwriting results in 2009 and 2008 reflected no significant catastrophe losses,while underwriting results in 2008 included approximately $350 million of estimated losses from third quarter hurricanes

(Gustav and Ike). Underwriting results in the third quarter of 2009 reflect reductions of loss reserves primarily due tolower estimated ultimate losses from hurricanes in 2004 and 2005.

Premiums earned in the first sixnine months of 2009 from retroactive reinsurance included 2 billion Swiss Francs(CHF) (approximately $1.7 billion) from an adverse loss development contract with Swiss Reinsurance CompanyLimited and its affiliates (Swiss Re) covering substantially all of Swiss Res non-life insurance losses and allocatedloss adjustment expenses for loss events occurring prior to January 1, 2009. The Swiss Re contract provides aggregatelimits of indemnification of 5 billion CHF in excess of a retention of Swiss Res reported loss reserves at December 31,2008 (58.725 billion CHF) less 2 billion CHF. The impact on underwriting results from this contract was negligible asthe premiums earned were offset by a corresponding amount of losses incurred.

Retroactive policies generally provide very large, but limited, indemnification of unpaid losses and loss

adjustment expenses with respect to past loss events that are generally expected to be paid over long periods of time. Theunderwriting losses from retroactive policies primarily represent the periodic amortization of deferred chargesestablished at the inception of the contracts. At JuneSeptember 30, 2009, unamortized deferred charges wereapproximately $3.7 billion and gross unpaid losses were approximately $18.1 billion for all of BHRGs retroactivecontracts.

Premiums earned in the secondthird quarter of 2009 from other multi-line business declined $3959 million (5%)compared to 2008 and in the first sixnine months of 2009 increased $218159 million (6%) versus 2008. Premiums earnedin the secondthird quarter and first sixnine months of 2009 included $652717 million and $1,3172,034 million,respectively, from a 20% quota-share contract with Swiss Re covering substantially all of Swiss Res property/casualtyrisks incepting from January 1, 2008 and running through December 31, 2012. Premiums earned in 2008 from the SwissRe contract were $534496 million in the secondthird quarter and $6731,169 million in the first sixnine months.Excluding the Swiss Re quota-share contract, other multi-line business premiums earned in 2009 declined $157280

million (47%) in the secondthird quarter and $426706 million (approximately 4044%) versus 2008 periods, primarily dueto lowersignificant reductions in aviation, property, workers compensation and Lloyds market volume.


6/18

Pre-tax underwriting results from other multi-line reinsurance in 2009 included foreign currency transaction losses

gains of $41760 million for the secondthird quarter and $365305 million of losses for the first sixnine months. TheseThenon-cash losses arose from the conversion of certain reinsurance loss reserves and other liabilities denominated in foreigncurrencies (primarily the U.K. Pound Sterling and the Euro) into U.S. Dollars as of the balance sheet date.). The value ofthese currencies rose significantly versusrelative to the U.S. Dollar inover the second quarterfirst nine months of 2009,

resulting in losses. The In 2008, underwriting results included foreign currency transaction gains of approximately $360million in the third quarter and losses were relatively insignificantapproximately $315 million for the first nine months,resulting from declines in the first half of 2008. As disclosed in Berkshires 2008 Annual Report on Form 10-Euro andU.K, these currencies weakened significantly in 2008. Pound Sterling versus the U.S. Dollar (particularly over the lasthalf of 2008), which produced a pre-tax foreign currency transaction gain of approximately $930 million for theyear. Excluding foreign currency transaction losses, other multi-line reinsurance produced underwriting gains of $52million in the second. Underwriting results in the third quarter and $157first nine months of 2008 included estimatedcatastrophe losses of $535 million in the first six months of 2009, reflecting underwriting gains from the Swiss Re quota-share contract and improved loss ratios for property businessattributable to Hurricanes Gustav and Ike.

25



Berkshire Hathaway 24



Berkshire Hathaway Primary Group

Premiums earned in 2009 by Berkshires various primary insurers were $455442 million in the secondthird quarter

and $9111,353 million in the first sixnine months, representing declines of $4632 million (7%) and $79111 million (8%)compared to the corresponding 2008 periods, resulting from increased competition across virtually all market segments.For the first sixnine months, Berkshires primary insurers produced underwriting gains of $3340 million in 2009 and$10698 million in 2008. Underwriting results in the first half of2009 were lower than 2008 for most of the primaryinsurance operations due to higher loss ratios andas increased price competition narrowed profit margins, and higherexpense ratios, which reflected the impact of fixed costs on lower premium volume.

InsuranceInvestment Income

A summary of net investment income of Berkshires insurance operations follows. Amounts are in millions.


2009 2008 2009 2008

stment income before taxes, noncontrolling interests and equitymethod earnings $1,422348 $1,204074 $2,7204,068 $2,2933,367me taxes and noncontrolling interests 376483 320265 7241,207 607872

investment income before equity method earnings 1,046865 884809 1,9962,861 1,6862,495ty method earnings 113111 196307

investment income $1,159976 $ 884809 $2,1923,168 $1,6862,495

Investment income consists of interest and dividends earned on cash equivalents and investments allocable toBerkshires insurance businesses. Pre-tax investment income earned in the secondthird quarter and first sixnine monthsof 2009 exceeded amounts earned in 2008 periods by $218274 million and $427701 million, respectively. The increasesin investment income in 2009 primarily reflected earnings from several large investments made during the fourth quarterof 2008 and first half of 2009, partially offset by lower earnings on cash and cash equivalents due to lower short-term

interest rates and lower average cash balances in 2009.


7/18

In October 2008, Berkshire subsidiaries acquired Wrigley, Goldman Sachs and General Electric securities for anaggregate cost of $14.5 billion and in March 2009, Berkshire invested 3 billion CHF in a 12% convertible perpetualinstrument of Swiss Re. In addition, on April 1, 2009, Berkshire invested $3 billion in 8.5% Cumulative ConvertiblePerpetual Preferred Stock of The Dow Chemical Company. See Note 7 to the Condensed Consolidated FinancialStatements. Interest and dividends from these securities will be approximately $2 billion per annum, which is expectedtowill produce comparative increases in investment income over the remainder ofin 2009. Partially offsetting these

increases will be reductions in dividends from Berkshires investments in Wells Fargo and U.S. Bancorp common stockas a result of dividend rate cuts announced by those companies.

Beginning in 2009, investment income also includes earnings from equity method investments (BurlingtonNorthern Santa FeBNSF and Moodys). Equity method earnings represents Berkshires proportionate share of the netearnings of these companies. Dividends earned on these investments in the first six months of 2009 were $71 million, butwere not reflected in Berkshires earnings as a result of the application of the equity method. For the first six months of2008, dividends earned from these investments of $50 million were included in investment income. In the third quarter of2009, Berkshire intends to discontinue the use of the equity method with respect to its investment in Moodys commonstock as a result of a reduction in its ownership interest to less than 20% (about 17% at July 31, 2009).As a result of areduction of ownership of Moodys in July of 2009, Berkshire discontinued the use of the equity method for itsinvestment in Moodys as of the beginning of the third quarter. Dividends earned on equity method investments are notreflected in Berkshires earnings. Dividends earned on equity method investments for the first nine months of 2009 were

$102 million.

A summary of cash and investments held in Berkshires insurance businesses follows. Amounts are in millions.

JuneSept. 30,2009

Dec. 31,2008

JuneSept. 30,2008

and cash equivalents $ 15,07716,147 $ 18,845 $ 25,35821,957ty securities 45,55754,829 48,892 69,27875,775d maturity securities 31,72732,510 26,932 30,16929,408r * 30,36531,927 21,535

$122,726135,413 $116,204 $124,805127,140

* Other investments include the investments in Wrigley, Goldman Sachs, GeneralElectric, Swiss Re and Dow Chemical as well as investments in BNSF and Moodys,

which beginning as of December 31, 2008 are accounted for under the equity

method. At June 30, 2008, investments in BNSF and Moodys are included in equity

securities.

25* Other investments include the investments in Wrigley, Goldman Sachs, General Electric, Swiss Re and Dow

Chemical as well as the investment in BNSF, which beginning as of December 31, 2008 is accounted for under the

equity method. Berkshires investment in Moodys was accounted for under the equity method at December 31, 2008

but included in equity securities at September 30, 2009 and 2008. At September 30, 2008, the investment in BNSF

was included in equity securities.26




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InsuranceInvestment Income (Continued)Fixed maturity securities as ofJuneSeptember 30, 2009 were as follows. Amounts are in millions.

AmortizedCost

UnrealizedGains/Losses

FairValue

Treasury, U.S. government corporations and agencies $ 2,418352 $ 6059 $ 2,478411

s, municipalities and political subdivisions 4,0523,904 264285 4,316189ign governments 10,80111,124 309374 11,110498orate bonds, investment grade 5,0434,647 319493 5,362140orate bonds, non-investment grade 6,023331 (228491) 5,7956,822

tgage-backed securities 2,632378 3472 2,666450

$ 30,969736 $ 7581,774 $31,72732,510

All U.S. government obligations are rated AAA by the major rating agencies and approximately 85% of all state,municipal and political subdivisions, foreign government obligations and mortgage-backed securities were rated AA orhigher. Non-investment grade securities represent securities that are rated below BBB- or Baa3.

Invested assets derive from shareholder capital and reinvested earnings as well as net liabilities assumed under

insurance contracts or float. The major components of float are unpaid losses, unearned premiums and other liabilitiesto policyholders less premiums and reinsurance receivablesrecoverables, deferred charges assumed under retroactivereinsurance contracts and deferred policy acquisition costs. Float was approximately $6162 billion at JuneSeptember 30,2009 and $58 billion as of December 31, 2008. The cost of float, as represented by the ratio of pre-tax underwriting gainor loss to average float, was negative in 2009 and 2008, as Berkshires insurance businesses generated underwriting gainsin each period.

Utilities and Energy (MidAmerican)Revenues and earnings from MidAmerican are summarized below. Amounts are in millions.


Revenues Earnings Revenues Earnings

2009 2008 2009 2008 2009 2008 2009 2008

MidAmerican EnergyCompany $ 768818 $ 1,093115 $ 4081 $ 67119 $1,9062,724 $2,4713,586 $ 148229 $ 201320PacifiCorp 1,041171 1,069260 160231 159200 2,1723,343 2,1763,436 344575 327527Natural gas pipelines 220210 244279 7867 91140 560770 588867 270337 283423U.K. utilities 199216 244247 6272 7367 392608 533780 130202 193260Real estate brokerage 290323 347334 2629 156 468791 592926 1342 (42)Other 13774 3863 11540 1380 106180 69132 (411) 1797

$ 2,655812 $ 3,035298 $5,6048,416 $6,4299,727

ings before corporateinterest and incometaxes 481520 418612 8641,384 1,017629

est, other than toBerkshire (79) (8986) (159238) (172258)est on Berkshireunior debt (1613) (22) (3447) (4567)

me taxes andnoncontrollinginterests (11552) (87154) (183235) (238392)

Net earnings $271376 $220350 $ 488864 $ 562912

ings attributable toBerkshire * $253346 $208324 $ 456802 $ 524848

owed to others atJuneSeptember 30 $ 19,708564 $18,891995owed to Berkshire at

JuneSeptember 30 $ 520420 $ 7541,654


9/18

*Net of

noncontrolling

interests and

includes interest

earned by

Berkshire (net of

related incometaxes).

* Net of noncontrolling interests and includes interest earned by Berkshire (net of related income taxes).

Berkshire currently owns an 89.5% interest in MidAmerican Energy Holdings Company (MidAmerican), aninternational energy company. MidAmericans domestic regulated energy interests are comprised of two regulated utilitycompanies and two interstate natural gas pipeline companies. In the United Kingdom, MidAmerican owns two electricitydistribution businesses. The rates that MidAmericans utilities, electricity distribution businesses and natural gaspipelines charge customers for energy and other services are generally subject to regulatory approval. Rates are based inlarge part on the costs of business operations, including a return on capital. To the extent these operations are not allowedto include such costs in the approved rates, operating results will be adversely affected. In addition, MidAmericans otherbusinesses include a diversified portfolio of independent power projects and the second-largest residential real estatebrokerage firm in the United States.

26


27


Utilities and Energy (MidAmerican) (Continued)

Revenues of MidAmerican Energy Company (MEC) in the secondthird quarter and first sixnine months of 2009

declined $325297 million (3027%) and $565862 million (2324%), respectively, from the same periods in 2008. Therevenue decreases in both periods reflect lower regulated natural gas revenues and, to a lesser extent, lower regulatedelectricity revenues. Regulated natural gas revenues decreased by $162107 million in the secondthird quarter and$345452 million in the first sixnine months primarily due to a lower average per-unit cost of gas sold, which is directlypassed through to customers, and to lower sales volume (decreased demand due to milder temperatures).. MECsregulated electricity revenues declined $101 million in the secondthird quarter and $140241 million in the first sixninemonths primarily as a result of lower average wholesale prices and volumes, which have decreased as a result of reduceddemand in the current economic environment. as well as mild temperatures. Declines in MECs 2009 earnings beforecorporate interest and income taxes (EBIT) of $2738 million (4032%) for the secondthird quarter and $5391 million(2628%) for the first sixnine months primarily reflect the lower regulated electricity revenues, partially offset by lowercost of sales and operating costs.

PacifiCorps 2009 revenues decreased slightly ($28$89 million or 3(7%) in the secondthird quarter and were

relatively unchanged for$93 million (3%) in the first sixnine months compared to 2008. Revenues in 2009 reflect anoverall decrease in sales volume (both wholesale and retail) of approximately 53% and lower wholesale prices,somewhat offset by higher retail prices approved by regulators. The increases in PacifiCorps EBIT in of $31 million(15%) for the 2009 periods reflectsthird quarter and $48 million (9%) for the first nine months reflect lower energy costsas a result of reduced prices and amounts and prices of purchased energy in response to lower sales volumes and the useof lower-cost generation facilities put into service in the second half of 2008 and first quarter of 2009.

Natural gas pipelines revenues and EBIT in the secondthird quarter and first sixnine months of 2009 were lowercompared to 2008 as a result of reduced transportation revenue (due to the current economic climate) and the effects of afavorable rate proceeding included in the results for 2008. U.K. utility revenues declined $4531 million (1813%) in thesecondthird quarter and $141172 million (2622%) in the first sixnine months of 2009, principally due to the impact fromforeign currency exchange rates as a result of a much stronger U.S. Dollar in 2009 as compared with 2008. EBIT of theU.K. utilities in the second2009 was relatively unchanged in the third quarter and first six months of 2009 decreased

$1158 million (15%) and $63 million (33%), respectively, from22%) in the first nine months as compared to 2008


10/18

periods. The declinesdecline in EBIT reflectreflects foreign currency exchange rate changes as well as higherdepreciation and operating expensesexpense.

Real estate brokerage revenues declined $5711 million (16%) 3%) and $135 million (15%) in the secondthirdquarter and $124 million (21%) in the first sixnine months of 2009 as compared to corresponding 2008 periodsdue todeclines in . The decline in the third quarter reflects lower sales prices somewhat offset by higher transaction volume

and lower home sales prices,. The decline in revenues for the first nine months reflects declines in both sales prices andtransaction volume reflecting the continuing weakness in U.S. housing markets. Improvements in earnings of the realestate brokerage business in 2009 compared to 2008 reflect lower commission and other operating expenses as well asthe benefit of increased home refinancing transaction volume conducted by an affiliated home mortgage business.

Other revenues and EBIT in 2009 included gainsa gain of $93 million in the second quarter and $37 million in thefirst sixnine months associated with the Constellation Energy common stock investment. Other EBIT also included $125million in stock-based compensation expense recorded in the first quarter of 2009 as a result of the purchase of commonstock issued by MidAmerican upon the exercise of the last remaining stock options that had been granted to certainmembers of management at the time of Berkshires acquisition of MidAmerican in 2000.

Manufacturing, Service and Retailing

Many of Berkshires subsidiaries are engaged in a wide variety of manufacturing, service and retailing businesses.A comparison of revenues and pre-tax earnings of these businesses follows. Amounts are in millions.



2009 2008 2009 2008 2009 2008 2009 2008

Marmon $ 1,286306 $ 1,901878 $17019

4 $ 261247 $ 2,5403,846 $ 2,1664,044 $ 332526 $ 289536

McLane7,8648,17

0 7,269634 6664 6814,85723,02

714,25821,89

2 209273 141209Shaw 1,029056 1,337357 3051 8249 2,0323,088 2,5613,918 85136 133182Other

manufacturing

2,9753,24

4 3,972723

22629

3 528478 5,6078,851 7,47511,198 347640 9801,458Other service 1,572538 2,276094 (765) 317260 3,0784,616 4,4026,496 (6267) 526786Retailing 657641 738704 2111 2911 1,314955 1,5002,204 3748 6172

$ 15,383955 $17,49339

0 $29,42845,38

3 $32,36249,75

2

Pre-taxearnings $

437608 $

1,285113 $

9481,556 $

2,1303,243

Income taxesandnoncontrolling interests

198272 566448 451723 9241,372

$

23933

6 $ 719665 $ 497833 $ 1,206871

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Manufacturing, Service and Retailing (Continued)

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Marmon

Berkshire acquired a 60% interest in Marmon Holdings, Inc. (Marmon) on March 18, 2008 and currently ownsa 63.6% interest. Marmons revenues, costs and expenses are included in Berkshires Consolidated Financial Statementsbeginning as of that date. See Note 4 to For both the Condensed Consolidated Financial Statements for additionalinformation concerning the acquisition and Marmons operations. For the secondthird quarter and sixnine months ended

JuneSeptember 30, 2009, Marmons revenues declined approximately 32% and 30%, respectively,% from the revenuesforofthe comparable 2008 periods (including periods in 2008 prior to Berkshires acquisition). Earnings in the 2009periods also declined significantly from Pre-tax earnings in the for the third quarter and first nine months of 2009declined approximately 21% and 28%, respectively, from 2008 comparable 2008 periods, reflecting the revenue declines,partially offset by the impact of ongoing cost reduction efforts across all business sectors. With For the exceptionthirdquarter of2009, the Retail Store Fixtures and , Food Service Equipment, Industrial Products, Water Treatment andHighway Technologies sectors, which produced increasedcomparable or improved earnings in versus the third quarter of2008. For the first half of 2009, earnings declined in the other nine businessmonths of 2009, the Retail Store Fixturesand Food Service Equipment sectors generated increased earnings compared to the nine months ended September 30,2008. The remaining nine sectors experienced lower earnings compared to the comparable nine month period in 2008.

McLane

McLanes revenues for the secondthird quarter of 2009 increased $595536 million (87%) over 2008 and for thefirst sixnine months increased $5991,135 million (45%) over 2008. The increase in year-to-date revenues reflected a 9%increase in the grocery business, partially offset by a 9% decline from the foodservice business. Pre-tax earnings for thesecondthird quarter of 2009 were relatively unchangeddeclined $4 million (6%) from 2008. For and for the first sixninemonths of 2009, earnings were $209 million, an increase of $68increased $64 million (48%) 31%) over 2008. Earningsfor the first sixnine months of 2009 included the impact of a substantial inventory price change gain associated with anincrease in federal excise taxestax on cigarettes. Many tobacco manufacturers raised prices in anticipation of the taxincrease, which allowed McLane to generate a one-time price change gain. The one-time The increase in earnings fromthe inventory price change gain was partially offset by a federally mandated one-time floor stock tax on related inventoryheld and by lower earnings from the foodservice business.

McLanes business is marked by high sales volume and very low profit margins and has been subject to increased

price competition in recent years. The overall gross margin rate was 6.10% in5.81% for the first halfnine months of2009 compared to 5.9693% in 2008. Cigarette excise tax inflation has a negative impact on margins by inflating grosssales while providing only marginal increases in profit since most markups are on a fixed amount per unit as opposed to apercentage of gross sales. Approximately one-third of McLanes annual revenues are from Wal-Mart. A curtailment ofpurchasing by Wal-Mart could have a material adverse impact on the earnings of McLane.

Shaw

Shaws revenues in the secondthird quarter and first sixnine months of 2009 declined $308301 million(23%) 22%) and $529830 million (21%) from revenues in the corresponding 2008 periods. The revenue declines in2009 were driven primarily bydue to lower unit sales. Pre-tax earnings for the secondthird quarter of 2009 were $3051million, a decrease of $52 million (63%) versusslight increase over 2008. Earnings were $85136 million for the firstsixnine months of 2009, a decrease of $4846 million (3625%) compared with 2008. Operating results in 2009 benefitted

from lower raw material costs. However, the favorable impact of the lower material costs was more than offset byrelatively higher operating manufacturing costs attributable to significant declines in sales volume, which decreasedplant operating levels and manufacturing efficiencies, and costs related to plant closures.. During 2009, Shaw incurredcosts of $438 million in the secondthird quarter and $5462 million in the first sixnine months related to plant closures.

Comparable costs in corresponding 2008 periods were not significant. Operating results in 2009 reflect the effects ofthe ongoing recession and the slow residential real estate activity.

Other manufacturing

Berkshires other manufacturing businesses include a wide array of businesses. Included in this group are severalmanufacturers of building products (Acme Building Brands, Benjamin Moore, Johns Manville and MiTek) and apparel(led by Fruit of the Loom which includes the Russell athletic apparel and sporting goods business and the Vanity Fair

Brands womens intimate apparel business). Also included in this group are Forest River, a leading manufacturer ofleisure vehicles and ISCAR Metalworking Companies (IMC), an industry leader in the metal cutting tools businesswith operations worldwide.


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Revenues from other manufacturing activities for the second quarter of 2009 were $2,975 million, a decrease of

$997 million (25%) from 2008. Revenues for the first six months of 2009 were $5,607 million, a decrease of $1,868million (25%) from 2008. Nearly all of the businesses in the manufacturing group experiencedare experiencing theadverse effects of the global economic recession as consumers and customers dramatically cut purchases. Revenues fromother manufacturing activities for the third quarter of 2009 were $3,244 million, a decrease of $479 million (13%) from

2008. Revenues for the first nine months of 2009 were $8,851 million, a decrease of $2,347 million (21%) from 2008. During the first sixnine months of 2009, revenues were lower for apparel (1613%), building products (2623%) and otherbusinesses (3125%) as compared to the comparable prior year periodfirst nine months of 2008.

Pre-tax earnings of the other manufacturing businesses were $226293 million in the secondthird quarter of 2009, adecrease of $302185 million (57%) 39%) versus 2008. Earnings for the first sixnine months of 2009 were $633640million (65, which were $818 million (56%) lower than in the comparable 2008 period. The declines in earnings reflectedthe dramatic drop inlower revenues as well as relatively higher costs resulting from lower manufacturing efficiencies.Lower earnings were generated by essentially all of theseThese businesses. Each business has have taken actions toreduce costs, slow production and reduce or delay capital spending until the economy improves. Although revenues andearnings for the third quarter were lower than the comparable 2008 periods, revenues increased 9% and earningsincreased 30% versus the second quarter of 2009.

28



29



Other service

Berkshires other service businesses include NetJets, the worlds leading provider of fractional ownershipprograms for general aviation aircraft and FlightSafety, a provider of high technology training to operators of aircraft.Among the other businesses included in this group are: TTI, a leading electronic components distributor; Business Wire,a leading distributor of corporate news, multimedia and regulatory filings; The Pampered Chef, a direct seller of highquality kitchen tools; International Dairy Queen, a licensor and service provider to about 5,700 stores that offer prepareddairy treats and food; The Buffalo News, a publisher of a daily and Sunday newspaper; and businesses that providemanagement and other services to insurance companies.

Revenues of the other service businesses were $1,572538 million in the secondthird quarter of 2009, a decrease of$704556 million (3127%) compared to 2008. For the first sixnine months of 2009, revenues of $3,0784,616 milliondeclined $1,324880 million (3029%) versus 2008. In 2009, pre-tax losses were $765 million for the secondthird quarter

and $6267 million for the first sixnine months. Other service businesses generated pre-tax earnings in 2008 of $317260million for the secondthird quarter and $526786 million for the first sixnine months. The decreases in revenues and pre-tax earnings reflectreflected the negative impact of the global recession on substantially all of Berkshires other servicebusinesses and in particular, NetJets fractional ownership business.

In 2009, NetJets'NetJets revenues declined $550471 million (4341%) for the secondthird quarter and $1,024495million (42%) for the first sixnine months as compared to 2008. The declines reflected an 81a 79% decline in aircraftsales as well as a 22% decline inlower flight operations revenues primarily due to lowera 24% decline in flight revenuehours. NetJets produced pre-tax losses in 2009 of $253183 million for the secondthird quarter and $349531 million forthe first sixnine months. The pre-tax losses in 2009 included asset writedowns and other downsizing costs of $192181million for the secondthird quarter and $255436 million for the first sixnine months. NetJets owns more planes than isrequired for its present level of operations and further downsizing will be required unless demand reboundscosts will beincurred in the fourth quarter. However, management believes that NetJets is likely to operate at a modest profit in 2010,absent any further deterioration in the U.S. economy or negative actions directed at the ownership of private aircraft.


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Retailing

Berkshires retailing operations consist of four home furnishings businesses (Nebraska Furniture Mart, R.C.Willey, Star Furniture and Jordans), three jewelry businesses (Borsheims, Helzberg and Ben Bridge) and Sees Candies.Revenues of the retailing businesses were $657641 million in the secondthird quarter of 2009 and $1,314955 million forthe first sixnine months, reflecting decreases of $8163 million (9%) and $249 million (11%) and $186 million

(12%) compared with the corresponding 2008 periods. Pre-tax earnings in the secondthird quarter of 2009 declined $8million (28%) to $21 millionwere unchanged versus 2008 and in the first sixnine months declined $24 million (3933%)to $3748 million versus 2008. Throughout 2008 and in the fourth quarter in particular, as the impact of the economicrecession in the U.S. worsened, consumer spending declined. These conditions have continued through the first halfofinto 2009. Revenues and pre-tax earnings declined in both the jewelry and home furnishings businesses as a result ofthe general economic conditions. In general, sales of higher-end retail products have suffered greater declines thanpopular-priced items.

Finance and Financial Products

A summary of revenues and pre-tax earnings from Berkshires finance and financial products businesses follows.Amounts are in millions.



2009 2008 2009 2008 2009 2008 2009 2008

Manufactured housing andfinance $ 821872 $ 937904 $ 4753 $ 867 $1,5482,420 $1,7542,658 $ 89142 $201208Furniture/transportationequipment leasing 167164 196198 25 2225 340504 386584 510 4065Other 111107 170156 8684 146131 220327 321477 168252 254385

$1,099143 $1,303258 $2,1083,251 $2,4613,719

Pre-tax earnings $135142 $254163 $262404 $495658Income taxes andnoncontrolling interests 5350 9572 102152 189261

$ 8292 $ 15991 $160252 $306397

Revenues from manufactured housing and finance activities (Clayton Homes) in 2009 declined $11632 million(124%) for the secondthird quarter and $206238 million (129%) for the first sixnine months compared to 2008. Thedeclines were due primarily to a 2620% decline in year-to-date home unit sales, partially offset by a 7% increase inaverage selling price due primarily to mix changes and higher interest. Interest from installment loans. The increase ininterest income reflects higher average installment loan balances in and other investments for the third quarter of2009versuswas relatively unchanged from 2008 due primarily to portfolio acquisitions inand for the first nine months of 2009increased approximately 4% over 2008. Installment loan balances were approximately $12.43 billion as ofJuneSeptember 30, 2009.

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Finance and Financial Products (Continued)

Pre-tax earnings of Clayton Homes in the secondthird quarter of 2009 increased $46 million to $53 million and forthe first sixnine months of 2009 declined $3966 million (45%) and $112to $142 million (56%) from earnings for thecorresponding 2008 periods. Pre-tax earnings in 2009 reflected increases in Provisions for loan loss provisions of $42million for the second quarter and $80 million for losses in the first sixnine months. of 2009 exceeded 2008 by $75million. Lower earnings in the 2009 periods also reflected lower unit sales and increased interest expense, partially offsetby lower selling, general and administrative expenses from cost reduction efforts. Pre-tax earnings in the third quarter of2008 included alosses of approximately $22 million gain from the sale of certain housing community assets in the first

quarterHurricanes Ike and Gustav.


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Revenues and pre-tax earnings from furniture and transportation equipment leasing activities for the first sixninemonths of 2009 declined $4680 million and $3555 million, respectively, compared to 2008. The declines primarilyreflect lower rental income driven by relatively low utilization rates for over-the-road trailer and storage units.Significant cost components of this business are fixed (depreciation and facility expenses) and therefore earningsgenerally change disproportionately to revenues. Revenues and earnings of Clayton Homes and thefurniture/transportation equipment leasing businesses have been negatively affected by the economic recession as well as

the credit crisis.

Earnings from other finance business activities consist primarily of interest income earned on short-term and fixedmaturity investments and from a small portfolio oflong-held commercial real estate loans. The declines in revenues andpre-tax earnings in 2009 are primarily attributable to lower short-term interest rates and lower invested asset levels. Inaddition, other activities include earnings from a 100 basis point interest rate spread on $12 billion in BerkshireHathaway Finance Corporation borrowings, which are used in connection with Clayton Homes installment lendingactivities. A corresponding charge is reflected in Clayton Homes earnings.

Investment and Derivative Gains/Losses

A summary of investment and derivative gains and losses and other-than-temporary impairments ofimpairmentlosses on investments follows. Amounts are in millions.


2009 2008 2009 2008

Investment gains/losses $ 3110 $ 675(46 ) $ (367257) $ 790744Other-than-temporary impairments ofimpairment losses oninvestments (3025) (429250) (3,126151) (429679)vative gains/losses 2,3571,732 689(1,261 ) 8402,572 (9522,213)

s/losses before income taxes and noncontrolling interests 2,3301,817 935(1,557 ) (2,653836) (5912,148)me taxes and noncontrolling interests 815634 325(545 ) (929295) (210755)

ains/losses $ 1,515183 $ 610(1,012 ) $ (1,724541) $ (3811,393)

Investment gains or losses are recognized upon the sales of investments or as otherwise required under GAAP.The timing of realized gains or losses from sales can have a material effect on periodic earnings. However, such gains orlosses usually have little, if any, impact on total shareholders equity because most equity and fixed maturity investmentsare carried at fair value with any unrealized gain or loss included as components of accumulated other comprehensiveincome.

Other-than-temporary impairments (OTTI) of investments in 2009 predominantly relate to a first quarter OTTIcharge with respect to Berkshires investment in ConocoPhillips common stock. The market price of ConocoPhillipsshares declined sharply over the last half of 2008. InOver the first sixnine months of 2009, Berkshire sold approximately20.4 27.5 million shares of ConocoPhillips and sold additional shares in July.. Although Berkshire expects the marketprice for ConocoPhillips shares to increase over time to levels that exceed original cost, Berkshire may sell additionalshares before the price fully recovers. Sales in 2009 were or may be in anticipation of other investment opportunities, toincrease overall liquidity and to carry back realizedrealize capital losses that can be carried backto prior years for income

tax purposes. Capital losses can be carried back three years and carried forward five years for federal income taxpurposes. Income taxes of approximately $690 million were paid on capital gains in 2006 and will be fully recoverable ifcapital losses of at least $1.98 billion are generated by the end of 2009. Since a significant portion of the decline in themarket value of Berkshires investment in ConocoPhillips occurred during the last half of 2008, a significant portion ofthe other-than-temporary impairment losses recorded in earnings in the first quarter of 2009 was recognized in othercomprehensive income as of December 31, 2008.

Derivative gains/losses primarily represent the non-cash changes in fair value of credit default and equity indexput option contracts. Changes in the fair values of these contracts are reflected in earnings and can be significant,reflecting the volatility of equity and credit markets. Management does not view the periodic gains or losses from thechanges in fair value as meaningful given the volatile nature of equity and credit markets over short periods of time ,particularly with respect to the equity index put option contracts.

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Investment and Derivative Gains/Losses (Continued)

LossesThe fair values of Berkshires credit default contracts are impacted by changes in credit default spreads,which have been volatile in recent periods. Pre-tax losses from credit default contracts for the first quarter of 2009 were

approximately $1.35 billion, which reflected several defaults and the widening of credit default spreads with respect tothe underlying non-investment grade issuers included in the high yield indexes. During the second quarter of 2009, creditdefault spreads tightened resulting in a second quarter pre-tax gain of approximately $400 million. During the thirdquarter of 2009, credit default spreads narrowed further resulting in a pre-tax gain of approximately $1.44 billion. Non-investment grade issuers are typically highly leveraged and therefore dependent on having ongoing access to the capitalmarkets. The freezing of the credit markets in late 2008 and early 2009 was particularly detrimental to these issuers. As aresult, several high yield issuers defaulted in the first six monthshalfof 2009. InFor the first sixnine months of 2009,credit default loss payments were approximately $1.59 billion and additional payments of approximately $350comparedwith $56 million were made in Julyfor the first nine months of 2008.

In the secondthird quarter and first sixnine months of 2009, gains from equity index put option contracts were$1.96 billion 220 million and $1.79 billion2,010 million, respectively. The gains in the secondthird quarter of 2009reflected increases in the equity indexes ranging from 8% to 23%, partially offset by the impact of a weaker U.S. Dollaron non-U.S. contracts and lower interest rates. In 2008, equity index put option contracts produced a gainlosses of$326880 million in the secondthird quarter and a loss of $851$1,731 million for the first sixnine months. The loss for thefirst six monthslosses in 2008 reflected declines in the equity indexes and a weaker U.S. Dollar.. Berkshires ultimatepayment obligations, if any, under equity index put option contracts will be determined as of the contract expirationdates, which begin in 2018. As previously noted, management does not believe that the gains or losses reflected inearnings in the past two years to be meaningful relative to evaluating Berkshires ultimate payment obligations, if any.

Financial Condition

Berkshires balance sheet continues to reflect significant liquidity and a strong capital base. ConsolidatedBerkshire shareholders equity at JuneSeptember 30, 2009 was $114.5126.1 billion, an increase of $5.316.8 billion fromDecember 31, 2008. Consolidated cash and invested assetsinvestments of insurance and other businesses waswere

approximately $129.6143.4 billion at JuneSeptember 30, 2009, an increase of about $7.621.4 billion from December 31,2008. Cash and cash equivalents of insurance and other businesses were $21.423.8 billion as ofJuneSeptember 30,2009. Invested assets Investments are held predominantly in Berkshires insurance businesses.

During the first sixnine months of 2009, Berkshire acquired a 12% convertible perpetual instrumentsecurity issuedby Swiss Re for $2.7 billion and an 8.5% Cumulative Convertible Perpetual Preferred Stock of The Dow ChemicalCompany for $3 billion. Investment income generated by these investments will greatly exceed income currently earnedon short-term investments (which, for the first half of 2009 was at rates, generally, less than 0.50% per annum)..

Capital expenditures of the utilities and energy businesses in the first sixnine months of 2009 were approximately$1.72.6 billion. Forecasted capital expenditures for the fourth quarter of2009 are estimated at $3.40.8 billion.MidAmerican intends to fund future capital expenditures with cash flows from operations and debt proceeds.MidAmericans borrowings were $19.76 billion at JuneSeptember 30, 2009, an increase of $563419 million fromDecember 31, 2008. During the first quarter of In 2009, MidAmerican operating subsidiaries issued $350 million of 5.5%bonds maturing in 2019 and $650 million of 6.0% bonds maturing in 2039. Notes payable and other borrowings ofapproximately $200 million mature over the remainder of 2009MidAmerican also issued $250 million of 3.15% notesmaturing in 2012. MidAmerican and an additionalits operating subsidiaries currently have no significant debt maturitiesuntil 2011, when about $1.281 billion matures before the end of 2011.. Berkshire has committed until February 28, 2011to provide up to $3.5 billion of additional capital to MidAmerican to permit the repayment of its debt obligations or tofund its regulated utility subsidiaries. Berkshire does not intend to guarantee the repayment of debt by MidAmerican orany of its subsidiaries.

Assets of the finance and financial products businesses, which consisted primarily of loans and financereceivables, fixed maturity securities and cash and cash equivalents, were approximately $24.225.0 billion as ofJuneSeptember 30, 2009 and $23.9 billion at December 31, 2008. Liabilities were $2927.6 billion as ofJuneSeptember

30, 2009 and $30.7 billion at December 31, 2008. As ofJuneSeptember 30, 2009, notes payable and other borrowings of$14.76 billion included approximately $12.01 billion par amount of medium-term notes issued by Berkshire HathawayFinance Corporation (BHFC). In 2009, BHFC issued $250 million of 5.4% notes due in 2018 and $1.0 billion of 4.0%


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notes due in 2012. The BHFC notes are unsecured and mature at various dates extending through 2018, beginning with a$1.5 billion maturity in January 2010. The proceeds from the medium-term notes were used to finance originated andacquired loans of Clayton Homes. The full and timely payment of principal and interest on the notes is guaranteed byBerkshire.

During 2008 and continuing into the first part of2009, access to credit markets became limited as a consequence

of the ongoing worldwide credit crisis. As a result, interest rates for investment grade corporate issuers increased relativeto government obligations, even for companies with strong credit histories and ratings. AlthoughHowever, managementbelieves that the credit crisis is temporaryhas abated and that Berkshire has ample liquidity and capitalinterest rates forinvestment grade issuers relative to withstand these conditionsgovernment obligations have declined. Nevertheless,restricted access to credit markets at affordable rates over longer periodsin the future could have a significant negativeimpact on operations, particularly the utilities and energy businesses and the finance and financial products operations.Management believes that it currently maintains ample liquidity to cover its existing contractual obligations and providefor contingent liquidity needs.

3132


Financial Condition(Continued)

On November 3, 2009, Berkshire announced that it had entered into a definitive agreement to acquire for $100 pershare the remaining 77.4% of BNSFs outstanding shares not currently owned by Berkshire. Based upon the outstandingshares of BNSF, the value of the aggregate consideration to acquire the remaining BNSF shares is approximately $26.4billion. Approximately 60% of the aggregate consideration will be paid in cash and 40% in Berkshire Class A and ClassB Common Stock. Berkshire expects to fund about 50% of the cash consideration with internally generated cash and theremainder with borrowings expected to be repaid over a three year period. The acquisition is subject to BNSFshareholder approval and customary closing conditions. The closing is expected to occur in the first quarter of 2010.

Contractual Obligations

Berkshire and its subsidiaries are parties to contracts associated with ongoing business and financing activities,which will result in cash payments to counterparties in future periods. Certain obligations reflected in theCondensedConsolidated Balance Sheets, such as notes payable, require future payments on contractually specified dates and in fixedand determinable amounts. The timing and amount of the payment of other obligations, such as unpaid property andcasualty loss reserves and long duration credit default and equity index put option contracts, are contingent upon theoutcome of future events. Actual payments will likely vary, perhaps significantly, from estimates. Other obligationspertain to the acquisition of goods or services in the future, which are not currently reflected in the financial statements,such as minimum rentals under operating leases. Berkshires consolidated contractual obligations as ofJuneSeptember30, 2009 did not change materially from those disclosed in Contractual Obligations, included in ManagementsDiscussion and Analysis of Financial Condition and Results of Operations contained in Berkshires Annual Report onForm 10-K for the year ended December 31, 2008.

Critical Accounting Policies

In applying certain accounting policies, Berkshires management is required to make estimates and judgmentsregarding transactions that have occurred and ultimately will be settled several years in the future. Amounts recognizedin the financial statements from such estimates are necessarily based on assumptions about numerous factors involvingvarying, and possibly significant, degrees of judgment and uncertainty. Accordingly, the amounts currently recorded inthe financial statements may prove, with the benefit of hindsight, to be inaccurate. Reference is made to CriticalAccounting Policies discussed in Managements Discussion and Analysis of Financial Condition and Results ofOperations included in Berkshires Annual Report on Form 10-K for the year ended December 31, 2008 for additionaldiscussion regarding these estimates.

Berkshires Condensed Consolidated Balance Sheet as ofJuneSeptember 30, 2009 includes estimated liabilitiesfor unpaid losses from property and casualty insurance and reinsurance contracts of $58.959.6 billion. Due to the inherent

uncertainties in the process of establishing loss reserve amounts, the actual ultimate claim amounts will likely differ fromthe currently recorded amounts. A very small percentage change in estimates of this magnitude will result in a material


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effect on reported earnings. The effects from changes in these estimates are recorded as a component of losses incurred inthe period of the change.

Berkshires Condensed Consolidated Balance Sheet as ofJuneSeptember 30, 2009 includes goodwill of acquiredbusinesses of $33.934.0 billion. A significant amount of judgment is required in performing goodwill impairment tests.Such tests include periodically determining or reviewing the estimated fair value of Berkshires reporting units. There are

several methods of estimating a reporting units fair value, including market quotations, if available, asset and liabilityfair values and other valuation techniques, such as discounted projected future net earnings or cash flows and multiplesof earnings. If the carrying amount of a reporting unit, including goodwill, exceeds the estimated fair value, thenindividual assets, including identifiable intangible assets, and liabilities of the reporting unit are estimated at fair value.The excess of the estimated fair value of the reporting unit over the estimated fair value of net assets would establish theimplied value of goodwill. The excess of the recorded amount of goodwill over the implied value is then charged toearnings as an impairment loss. Berkshire performs an annual evaluation of goodwill for impairment in the fourthquarter. Although Berkshire management has not concluded that any significant amounts of goodwill were impaired inrecent years, the ultimate length and depth of the ongoing economic recession could adversely impact the long-termeconomic values of certain of its businesses and result in impairment charges in future periods. Conversely, in light ofBerkshires strong capital position, the currentongoing recession may enhanceis producing a lesser impact and in someinstances enhancing the long-term economic value ofcertain ofBerkshires subsidiariesreporting units.

Berkshires consolidated financial position reflects very significant amounts of invested assets and derivativecontract liabilities that are measured at fair value. A substantial portion of invested assets are carried at fair value basedupon current market quotations and, other observable market inputs. In instances when market prices are not available,values may be based upon fair value pricing matrices or models. These models may incorporate observable inputs as wellas unobservable inputs, which require judgments by management. Derivative contract values reflect estimates of theamounts at which the contracts could be exchanged based upon varying levels of observable market information andaswell as other assumptions. by management. Certain of Berkshires fixed maturity securities are not actively traded in thesecurities markets, and loans and finance receivables of Berkshires finance businesses are not traded at all.

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Critical Accounting Policies (Continued)

Considerable judgment may be required in determining the assumptions used in certain valuation models,including interest rate, loan prepayment speed, credit risk and liquidity risk assumptions. Changes in these assumptionsmay produce a significant effect on values. Furthermore, accounting and reporting standards are continually and rapidlychanging in the area of financial instruments, which may impact the values recorded in the financial statements in futureperiods.

Information concerning recently issued accounting pronouncements which are not yet effective is included in Note3 to the Condensed Consolidated Financial Statements. Berkshire is currently evaluating the impact of these accountingpronouncements.

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Forward-Looking Statements

Investors are cautioned that certain statements contained in this document as well as some statements in periodicpress releases and some oral statements of Berkshire officials during presentations about Berkshire are forward-lookingstatements within the meaning of the Private Securities Litigation Reform Act of 1995 (the Act). Forward-lookingstatements 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 growthrates), ongoing business strategies or prospects and possible future Berkshire actions, which may be provided bymanagement, 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


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Berkshire, economic and market factors and the industries in which Berkshire does business, among other things. Thesestatements are not guaranties of future performance and Berkshire has no specific intention to update these statements.

Actual events and results may differ materially from those expressed or forecasted in forward-looking statementsdue to a number of factors. The principal important risk factors that could cause Berkshires actual performance andfuture events and actions to differ materially from such forward-looking statements include, but are not limited to,

changes in market prices of Berkshires investments in fixed maturity and equity securities, losses realized fromderivative contracts, the occurrence of one or more catastrophic events, such as an earthquake, hurricane or act ofterrorism that causes losses insured by Berkshires insurance subsidiaries, changes in insurance laws or regulations,changes in Federal income tax laws, and changes in general economic and market factors that affect the prices ofsecurities or the industries in which Berkshire and its affiliates do business.

Management’s Discussion and Analysis of Financial Condition and Results Of

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