Berkshire Hathaway 2006 Annual Report Download - page 43

42
Notes to Consolidated Financial Statements (Continued)
(12) Unpaid losses and loss adjustment expenses (Continued)
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,
2006 2005
Insurance and other:
Issued by parent company due 2007-2033......................................................................................... $ 894 $ 992
Issued by subsidiaries and guaranteed by Berkshire:
Commercial paper and other short-term borrowings.................................................................... 1,355 1,381
Other debt due 2009-2035............................................................................................................ 240 315
Issued by subsidiaries and not guaranteed by Berkshire due 2007-2041 ........................................... 1,209 895
$ 3,698 $ 3,583
Utilities and energy *:
Issued by MidAmerican and its subsidiaries and not guaranteed by Berkshire:
MidAmerican senior unsecured debt due 2007-2036................................................................... $ 4,479 $ 2,776
Operating subsidiary and project debt due 2007-2036................................................................. 12,014 7,169
Other ............................................................................................................................................ 453 351
$16,946 $10,296
Finance and financial products:
Issued by Berkshire Hathaway Finance Corporation and guaranteed by Berkshire:
Notes due 2007 ............................................................................................................................ $ 700 $ 700
Notes due 2008 ............................................................................................................................ 3,098 3,095
Notes due 2010 ............................................................................................................................ 1,994 1,992
Notes due 2012-2015 ................................................................................................................... 3,039 3,038
Issued by other subsidiaries and guaranteed by Berkshire due 2007-2027 ........................................ 398 417
Issued by other subsidiaries and not guaranteed by Berkshire due 2007-2030 .................................. 2,732 1,626
$11,961 $10,868
* Amounts as of December 31, 2005 are pro forma.
Parent company debt includes several individual investment agreement borrowings 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, 2006
was 3.2%. Under certain conditions, principal amounts may be redeemed without premium prior to the contractual maturity date at
the option of the counterparties. Parent company debt also includes $334 million principal amount of senior notes associated with
SQUARZ securities issued in 2002. When issued, each SQUARZ security consisted of a 3% senior note due in November 2007
together with a warrant which expires in May 2007. The warrant permits each holder the right to purchase either 0.1116 shares of
Class A common stock (effectively at $89,606 per share) or 3.3480 shares of Class B common stock (effectively at $2,987 per share)
for $10,000. A warrant premium is payable to Berkshire at an annual rate of 3.75%.
Commercial paper and other short-term borrowings are utilized by certain subsidiaries as part of normal operations. Weighted
average interest rates as of December 31, 2006 and 2005 were 5.4% and 4.4%, respectively. Berkshire subsidiaries have
approximately $4.2 billion of available unused lines of credit and commercial paper capacity to support their short-term borrowing
programs and provide additional liquidity.
Operating subsidiary and project debt of utilities and energy businesses represents amounts issued by subsidiaries of
MidAmerican pursuant to separate project financing agreements. All or substantially all of the assets of certain utility subsidiaries are
or may be pledged or encumbered to support or otherwise provide security. These borrowing arrangements generally contain various
covenants including, but not limited to, leverage ratios, interest coverage ratios and debt service coverage ratios. As of December 31,
2006, MidAmerican and its subsidiaries were in compliance with all applicable covenants.