Berkshire Hathaway 2005 Annual Report Download - page 42

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(12) Unpaid losses and loss adjustment expenses (Continued)
The liabilities for environmental, asbestos, and latent injury claims and claims expenses net of reinsurance recoverables were
approximately $5.4 billion at December 31, 2005 and $5.6 billion at December 31, 2004. These liabilities include $4.0 billion at
December 31, 2005 and $4.2 billion at December 31, 2004, of liabilities assumed under retroactive reinsurance contracts written by
the Berkshire Hathaway Reinsurance Group. Liabilities arising from retroactive contracts with exposure to claims of this nature are
generally subject to aggregate policy limits. Thus, Berkshire’ s exposure to environmental and latent injury claims under these
contracts is, likewise, limited.
Berkshire monitors evolving case law and its effect on environmental and latent injury claims. Changing government
regulations, newly identified toxins, newly reported claims, new theories of liability, new contract interpretations and other factors
could result in significant increases in these liabilities. Such development could be material to Berkshire’ s results of operations. It is
not possible to reliably estimate the amount of additional net loss, or the range of net loss, that is reasonably possible.
(13) Notes payable and other borrowings
Notes payable and other borrowings of Berkshire and its subsidiaries are summarized below. Amounts are in millions.
December 31, December 31,
2005 2004
Insurance and other:
Issued by Berkshire:
SQUARZ notes due 2007 ...................................................................................................... $ 336 $ 400
Investment Agreements due 2007-2033................................................................................. 656 406
Issued by subsidiaries and guaranteed by Berkshire:
Commercial paper and other short-term borrowings.............................................................. 1,381 1,139
Other debt due 2006-2035...................................................................................................... 315 315
Issued by subsidiaries and not guaranteed by Berkshire due 2006-2041 ..................................... 895 1,190
$ 3,583 $ 3,450
Finance and financial products:
Issued by Berkshire Hathaway Finance Corporation and guaranteed by Berkshire:
3.4% notes due 2007 .............................................................................................................. $ 700 $ 699
3.375% and floating rate notes due 2008 ............................................................................... 3,095 1,049
4.20% and 4.125% notes due 2010 ........................................................................................ 1,992 497
4.75% notes due 2012 ............................................................................................................ 695 —
4.625% notes due 2013 .......................................................................................................... 948 948
5.1% notes due 2014 .............................................................................................................. 401 401
4.85% notes due 2015 ............................................................................................................ 994 —
Issued by other subsidiaries and guaranteed by Berkshire due 2006-2027 .................................. 417 344
Issued by subsidiaries and not guaranteed by Berkshire due 2006-2030 ..................................... 1,626 1,449
$10,868 $ 5,387
Investment agreements represent numerous individual borrowing arrangements under which Berkshire is required to
periodically pay interest over the contract terms. The weighted average interest rate on amounts outstanding as of December 31, 2005
was 3.3%. Under certain conditions, principal amounts may be redeemed without premium prior to the contractual maturity date at
the option of the counterparties.
Commercial paper and other short-term borrowings are utilized by certain non-insurance and finance businesses as part of
normal operations. Weighted average interest rates as of December 31, 2005 and 2004 were 4.4% and 2.4% respectively. Berkshire
affiliates have approximately $2.6 billion of available unused lines of credit and commercial paper capacity to support their short-
term borrowing programs and, otherwise, provide additional liquidity.
In May 2002, Berkshire issued 40,000 SQUARZ securities for net proceeds of $398 million. Each SQUARZ security consists
of a $10,000 par amount senior note due in November 2007 together with a warrant, which expires in May 2007. Interest is payable
at a rate of 3.00% per annum. In May 2005, $64 million par amount of senior notes were tendered at the option of the holders for
redemption at par, and a corresponding amount of warrants were cancelled. In addition, holders of the senior notes have the option to
require Berkshire to repurchase the senior notes at par on May 15, 2006, provided that the holders also surrender a corresponding
amount of warrants for cancellation. Also, the warrants may be exercised to purchase either 0.1116 shares of Class A common stock
(effectively at $89,606 per share) or 3.3480 shares (effectively at $2,987 per share) of Class B common stock for $10,000. A warrant
premium is payable to Berkshire at an annual rate of 3.75%.