Berkshire Hathaway 2015 Annual Report Download - page 94

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Management’s Discussion and Analysis (Continued)
Finance and Financial Products (Continued)
Transportation equipment leasing (Continued)
Revenues and pre-tax earnings in 2014 from our transportation equipment leasing businesses were $2.4 billion and $827
million, respectively, which exceeded revenues and pre-tax earnings in 2013 by 11% and 17%, respectively. The earnings
increase reflected a 9% increase in aggregate lease revenues, primarily due to increased units on lease and higher lease rates for
railcars.
Other
Other earnings from finance activities include CORT furniture leasing, our share of the earnings of a commercial mortgage
servicing business (“Berkadia”) in which we own a 50% joint venture interest, and interest and dividends from a portfolio of
investments. In 2015, the increase in other earnings compared to 2014 reflected increased earnings from investment securities
and CORT, partially offset by lower earnings from Berkadia. In addition, other earnings includes income from interest rate
spreads charged to Clayton Homes on borrowings by a Berkshire financing subsidiary that are used to fund installment loans
made by Clayton Homes and debt guarantee fees charged to NetJets. Corresponding expenses are included in Clayton Homes’
and NetJets’ results. Guarantee fees and interest rate spreads charged to Clayton Homes and NetJets were $63 million in 2015,
$70 million in 2014, and $89 million in 2013.
Investment and Derivative Gains/Losses
A summary of investment and derivative gains and losses and other-than-temporary impairment losses on investments
follows. Amounts are in millions.
2015 2014 2013
Investment gains/losses ............................................................ $ 9,399 $4,272 $4,293
Other-than-temporary impairments ................................................... (26) (697) (228)
Derivative gains/losses ............................................................. 974 506 2,608
Gains/losses before income taxes and noncontrolling interests .............................. 10,347 4,081 6,673
Income taxes and noncontrolling interests .............................................. 3,622 760 2,336
Net gains/losses .................................................................. $ 6,725 $3,321 $4,337
Investment gains/losses
Investment gains/losses arise primarily from the sale, redemption or exchange of investments or when investments are
carried at fair value with the periodic changes in fair values recorded in earnings. The timing of gains or losses can have a
material effect on periodic earnings. Investment gains and losses included in earnings usually have minimal impact on the
periodic changes in our consolidated shareholders’ equity since most of our investments are recorded at fair value with the
unrealized gains and losses included in shareholders’ equity as a component of accumulated other comprehensive income.
We believe the amount of investment gains/losses included in earnings in any given period typically has little analytical or
predictive value. Our decisions to sell securities are not motivated by the impact that the resulting gains or losses will have on
our reported earnings. Although we do not consider investment gains and losses in a given period as necessarily meaningful or
useful in evaluating periodic earnings, we are providing information to explain the nature of such gains and losses when
reflected in earnings.
Pre-tax investment gains in 2015 included non-cash holding gains related to our investment in Kraft Heinz of $6.8 billion,
as well as net gains from dispositions of equity and fixed maturity securities of approximately $2.5 billion. In connection with
its acquisition of Kraft Foods on July 2, 2015, Kraft Heinz issued new shares of its common stock in exchange for the
outstanding shares of Kraft Foods common stock, thus reducing Berkshire’s ownership interest in Kraft Heinz by approximately
50%. Under the equity method of accounting, such transactions are treated by the investor as if it sold a portion of its interests.
For additional information see Note 6 to our Consolidated Financial Statements.
Pre-tax investment gains in 2014 were $4.3 billion, which included gains of approximately $2.1 billion realized in
connection with the exchanges of common stock of Phillips 66 and Graham Holdings Company for 100% of the common stock
of a specified subsidiary of each of those companies. Each exchange transaction was structured as a tax-free reorganization
under the Internal Revenue Code. As a result, no income taxes are payable on the excess of the fair value of the businesses
received over the tax-basis of the common stock of Phillips 66 and Graham Holdings Company exchanged.
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