Berkshire Hathaway 2012 Annual Report Download - page 85

Management’s Discussion (Continued)
Investment and Derivative Gains/Losses (Continued)
In 2012, we recognized pre-tax gains of $894 million on credit default contracts. Such gains were attributable to narrower
spreads and the passage of time (reduced time exposure), as well as from settlements of certain contracts. No new credit default
contracts were written during the past three years. A significant portion of our risks related to non-investment grade corporate
issuers expired in the fourth quarter of 2012, and all remaining exposures related to corporate issuers expire in 2013.
We recorded pre-tax losses of $251 million on our credit default contracts in 2011 and gains of $250 million in 2010. The
losses in 2011 were primarily related to our contracts involving non-investment grade corporate issuers due to widening credit
default spreads and loss events. The gains in 2010 reflected the overall narrowing of credit default spreads for corporate issuers
and were somewhat offset by losses due to the widening of spreads for municipalities.
Financial Condition
Our balance sheet continues to reflect significant liquidity and a strong capital base. Our consolidated shareholders’ equity
at December 31, 2012 was $187.6 billion, an increase of $22.8 billion from December 31, 2011. Consolidated cash and
investments of our insurance and other businesses approximated $176.3 billion at December 31, 2012 including cash and cash
equivalents of $42.4 billion, of which about $10.6 billion was held by the parent company. Otherwise, invested assets are held
predominantly in our insurance businesses. On January 31, 2012, we issued $1.7 billion of parent company senior unsecured
notes, the proceeds of which were used to fund the repayment of $1.7 billion of notes that matured in February 2012. In January
2013, we issued $2.6 billion of parent company senior unsecured notes with maturities ranging from 2016 to 2043, the proceeds
of which were used to fund the repayment of $2.6 billion of notes that matured in February 2013.
In September 2011, our Board of Directors authorized Berkshire Hathaway to repurchase Class A and Class B shares of
Berkshire at prices no higher than a 10% premium over the book value of the shares. In the fourth quarter of 2012, the Board of
Directors increased the 10% premium limitation to 20%. Berkshire may repurchase shares at management’s discretion. The
repurchase program is expected to continue indefinitely, but does not obligate Berkshire to repurchase any dollar amount or
number of Class A or Class B shares. Repurchases will not be made if they would reduce Berkshire’s consolidated cash
equivalent holdings below $20 billion. Financial strength and redundant liquidity will always be of paramount importance at
Berkshire. In December 2012, Berkshire acquired 9,475 Class A shares and 606,499 Class B shares for approximately $1.3
billion.
In the fourth quarter of 2012, we acquired 10% of the outstanding shares of Marmon held by noncontrolling interests for
aggregate consideration of approximately $1.4 billion. Approximately $800 million of the consideration was paid in the fourth
quarter, and the remainder is payable in March 2013. As a result of these acquisitions, our ownership interest in Marmon
increased to approximately 90%.
As discussed in Note 21 to the Consolidated Financial Statements, on February 13, 2013, we committed to invest $12.12
billion in a newly formed holding company that entered into a definitive merger agreement to acquire H.J. Heinz Company
(“Heinz”). Our investment will consist of common and preferred stock and we will hold 50% of the voting interests in the
holding company. The acquisition of Heinz is subject to approval by Heinz shareholders, receipt of regulatory approvals and
other customary closing conditions, and is expected to close in the third quarter of 2013. We expect to use cash on hand to fund
our investments.
Our railroad, utilities and energy businesses (conducted by BNSF and MidAmerican) maintain very large investments in
capital assets (property, plant and equipment) and will regularly make capital expenditures in the normal course of business. In
2012, MidAmerican’s capital expenditures were $3.4 billion and BNSF’s capital expenditures were $3.5 billion. BNSF and
MidAmerican forecast aggregate capital expenditures of approximately $8.3 billion in 2013. Future capital expenditures are
expected to be funded from cash flows from operations and debt issuances. In 2012, BNSF issued debt of $2.5 billion with
maturities in 2022 and 2042, and its outstanding debt increased approximately $1.9 billion to $14.5 billion as of December 31,
2012. In 2012, MidAmerican issued or acquired new term debt of approximately $3.1 billion and its aggregate outstanding
borrowings increased approximately $1.7 billion to $21.6 billion as of December 31, 2012. BNSF and MidAmerican have
aggregate debt and capital lease maturities in 2013 of about $2.5 billion. Berkshire has committed until February 28, 2014 to
provide up to $2 billion of additional capital to MidAmerican to permit the repayment of its debt obligations or to fund its
regulated utility subsidiaries. Berkshire does not guarantee the repayment of debt issued by BNSF, MidAmerican or any of their
subsidiaries.
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