Berkshire Hathaway 2004 Annual Report Download - page 66

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Financial Condition
Berkshire’ s balance sheet continues to reflect significant liquidity and a strong capital base. Consolidated
shareholders’ equity at December 31, 2004 totaled $85.9 billion. Consolidated cash and invested assets, excluding assets of
finance and financial products businesses, totaled approximately $102.9 billion at December 31, 2004 (including cash and cash
equivalents of $40.0 billion) and $95.6 billion at December 31, 2003 (including $31.3 billion in cash and cash equivalents).
Berkshire’ s consolidated notes payable and other borrowings, excluding borrowings of finance businesses, totaled $3.5
billion at December 31, 2004 and $4.2 billion at December 31, 2003. During 2004, commercial paper and short-term borrowings
of subsidiaries declined $388 million, primarily from repayments arising from operating cash flow of NetJets and Shaw.
Additionally, investment contract balances of $226 million were repaid during 2004.
In May 2002, Berkshire issued the SQUARZ securities, which consist of $400 million par amount of senior notes due
in November 2007 together with warrants to purchase 4,464 Class A equivalent shares of Berkshire common stock, which expire
in May 2007. A warrant premium is payable to Berkshire at an annual rate of 3.75% and interest is payable to note holders at a
rate of 3.00%. Each warrant provides the holder the right to purchase either 0.1116 shares of Class A or 3.348 shares of Class B
stock for $10,000. In addition, holders of the senior notes have the option to require Berkshire to repurchase the senior notes at
par on May 15, 2005 and 2006, provided that the holders also surrender a corresponding amount of warrants for cancellation.
All warrants and senior notes were outstanding as of December 31, 2004.
Assets of the finance and financial products businesses totaled $30.1 billion as of December 31, 2004, compared to
$49.0 billion at June 30, 2004 and $28.3 billion at December 31, 2003. Liabilities totaled $20.4 billion as of December 31, 2004
compared to $42.2 billion at June 30, 2004 and $22.0 billion at December 31, 2003. As discussed in Note 15 to the Consolidated
Financial Statements, Berkshire consolidated the accounts of Value Capital, L.P. beginning as of January 1, 2004, and as a result
of a reduction of its ownership interest in the partnership, discontinued consolidation effective July 1, 2004. As of June 30,
2004, Value Capital’ s assets and liabilities totaled $24.1 billion and $23.4 billion, respectively.
Cash and cash equivalents of finance and financial products businesses totaled $3.4 billion as of December 31, 2004
and $4.7 billion as of December 31, 2003. During 2004, manufactured housing loans of Clayton increased approximately $5.0
billion to $7.5 billion as of December 31, 2004. The increase was primarily attributed to a loan portfolio acquisition of
approximately $3.7 billion on December 30, 2004. Clayton is a leading builder of manufactured housing, provides financing to
customers, and acquires other installment loan portfolios. Prior to its acquisition by Berkshire in August 2003, Clayton
securitized and sold a significant portion of its installment loans through special purpose entities. In early 2003, Clayton
discontinued loan securitizations and sales.
Notes payable and other borrowings of Berkshire’ s finance and financial products businesses totaled $5.4 billion at
December 31, 2004 and $4.9 billion at December 31, 2003. During 2004, Berkshire Hathaway Finance Corporation (“BHFC”)
issued a total of $1.6 billion par amount of medium term notes due from 2007 through 2014. The proceeds of these issues were
used to finance originated and acquired loans of Clayton. These medium term notes are guaranteed by Berkshire. On January 4,
2005, BHFC issued an additional $3.75 billion par amount of medium term notes to finance Clayton’ s December 30, 2004 loan
portfolio acquisition discussed above. In February 2004, the remaining balance of Berkadia’ s bank borrowing ($525 million)
was repaid upon the collection of the final $525 million loan to FINOVA and in the second quarter GRS repaid debt of
approximately $550 million.
Berkshire believes that it currently maintains sufficient liquidity to cover its existing contractual obligations and
provide for contingent liquidity.
Contractual Obligations
A summary of long-term contractual obligations as of December 31, 2004 follows. Amounts represent estimates of
gross undiscounted amounts payable over time. In addition, certain losses and loss adjustment expenses for property and
casualty loss reserves are ceded to others under reinsurance contracts and therefore are recoverable. Such potential recoverables
are not reflected in the table. Amounts are in millions.
Estimated payments due by period
Total 2005 2006-2007 2008-2009 After 2009
Notes payable and other borrowings (1) .......... $11,753 $ 1,937 $ 2,138 $ 2,321 $ 5,357
Securities sold under agreements to
repurchase
(1) .............................................. 5,831 5,831 — — —
Operating leases ............................................. 1,628 364 528 328 408
Purchase obligations (2) .................................. 7,759 3,103 2,285 1,504 867
Unpaid losses and loss expenses .................... 47,878 11,023 12,280 6,637 17,938
Other long-term policyholder liabilities......... 4,308 94 78 72 4,064
Other (3) .......................................................... 7,124 430 517 416 5,761
Total............................................................... $86,281 $22,782 $17,826 $11,278 $34,395
(1) Includes interest
(2) Principally relates to NetJets’ aircraft purchases
(3) Principally annuity reserves and employee benefits