Berkshire Hathaway 2001 Annual Report Download - page 59

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Management's Discussion (Continued)
Interest Rate Risk (Continued)
The following table summarizes the estimated effects of hypothetical increases and decreases in interest
rates on assets and liabilities that are subject to interest rate risk. It is assumed that the changes occur immediately
and uniformly to each category of instrument containing interest rate risks. The hypothetical changes in market
interest rates do not reflect what could be deemed best or worst case scenarios. Variations in market interest rates
could produce significant changes in the timing of repayments due to prepayment options available. For these
reasons, actual results might differ from those reflected in the table which follows. Dollars are in millions.
Estimated Fair Value after
Hypothetical Change in Interest Rates
(bp=basis points)
Non-finance businesses 100 bp 100 bp 200 bp 300 bp
Fair Value decrease increase increase increase
As of December 31, 2001
Investments in securities with fixed maturities ..... $36,603 $38,937 $34,333 $32,154 $30,148
Borrowings under investment agreements and
other debt............................................................ 3,624 3,708 3,545 3,474 3,407
As of December 31, 2000
Investments in securities with fixed maturities ..... $32,567 $33,466 $31,346 $30,005 $28,690
Borrowings under investment agreements and
other debt............................................................ 2,470 2,540 2,404 2,336 2,274
Finance and financial products businesses *
As of December 31, 2001
Investments in securities with fixed maturities
and loans and other receivables.......................... $28,126 $28,545 $27,221 $26,140 $25,025
Notes payable and other borrowings **................ 26,373 26,451 26,307 26,244 26,186
As of December 31, 2000
Investments in securities with fixed maturities
and loans and other receivables.......................... $6,460 $6,752 $6,125 $5,700 $5,304
Notes payable and other borrowings **................ 4,285 4,339 4,252 4,215 4,182
*Excludes General Re Securities – See Financial Products Risk section for discussion of risks associated with this business.
** Includes securities sold under agreements to repurchase with a carrying value of $20,430 million at December 31, 2001 and
$2,887 million at December 31, 2000.
Equity Price Risk
Strategically, Berkshire strives to invest in businesses that possess excellent economics, with able and
honest management and at sensible prices. Berkshire's management prefers to invest a meaningful amount in each
investee. Accordingly, Berkshire's equity investments are concentrated in relatively few investees. At year-end
2001 and 2000, over 70% of the total fair value of investments in equity securities was concentrated in four
investees.
Berkshire's preferred strategy is to hold equity investments for very long periods of time. Thus, Berkshire
management is not necessarily troubled by short term price volatility with respect to its investments provided that
the underlying business, economic and management characteristics of the investees remain favorable. Berkshire
strives to maintain above average levels of shareholder capital to provide a margin of safety against short term
equity price volatility.
The carrying values of investments subject to equity price risks are based on quoted market prices or
management's estimates of fair value as of the balance sheet dates. Market prices are subject to fluctuation and,
consequently, the amount realized in the subsequent sale of an investment may significantly differ from the reported
market value. Fluctuation in the market price of a security may result from perceived changes in the underlying
economic characteristics of the investee, the relative price of alternative investments and general market conditions.
Furthermore, amounts realized in the sale of a particular security may be affected by the relative quantity of the
security being sold.