Berkshire Hathaway 2007 Annual Report Download - page 50

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(19) Contingencies and Commitments (Continued)
relating to a wide variety of allegedly wrongful practices by AIG. The allegations relating to General Reinsurance focus on the AIG
Transaction, and the complaint purports to assert causes of action in connection with that transaction for aiding and abetting other
defendants’ breaches of fiduciary duty and for unjust enrichment. The complaint does not specify the amount of damages or the
nature of any other relief sought. Subsequently, the New York Derivative Litigation was stayed by stipulation between the plaintiffs
and AIG. That stay remains in place.
In August 2005, General Reinsurance received a Summons and First Amended Consolidated Shareholders’ Derivative
Complaint in In re American International Group, Inc. Consolidated Derivative Litigation, Case No. 769-N, Delaware Chancery
Court. In June 2007, AIG filed an Amended Complaint in the Delaware Derivative Litigation asserting claims against two of its
former officers, but not against General Reinsurance. On September 28, 2007, AIG and the shareholder plaintiffs filed a Second
Combined Amended Complaint, in which AIG asserted claims against certain of its former officers and the shareholder plaintiffs
asserted claims against a number of other defendants, including General Reinsurance and General Re. The claims asserted in the
Delaware complaint are substantially similar to those asserted in the New York derivative complaint, except that the Delaware
complaint makes clear that the plaintiffs are asserting claims against both General Reinsurance and General Re. General Reinsurance
and General Re filed a motion to dismiss on November 30, 2007. Various parties moved to stay discovery and/or all proceedings in
the Delaware Derivative Litigation. At a hearing held on February 12, 2008, the Court ruled that discovery would be stayed pending
the resolution of the claims asserted against AIG in the AIG Securities Litigation. The parties are currently formulating the text of a
stipulation implementing the Court’ s ruling and establishing a briefing schedule on the motions to dismiss.
FAI/HIH Matter
In December 2003, the Liquidators of both FAI Insurance Limited (“FAI”) and HIH Insurance Limited (“HIH”) advised GRA
and Cologne Re that they intended to assert claims arising from insurance transactions GRA entered into with FAI in May and June
1998. In August 2004, the Liquidators filed claims in the Supreme Court of New South Wales in order to avoid the expiration of a
statute of limitations for certain plaintiffs. The focus of the Liquidators’ allegations against GRA and Cologne Re are the 1998
transactions GRA entered into with FAI (which was acquired by HIH in 1999). The Liquidators contend, among other things, that
GRA and Cologne Re engaged in deceptive conduct that assisted FAI in improperly accounting for such transactions as reinsurance,
and that such deception led to HIH’ s acquisition of FAI and caused various losses to FAI and HIH. The Liquidator of HIH served its
Complaint on GRA and Cologne Re in June 2006 and discovery is ongoing. The FAI Liquidator dismissed his complaint against
GRA and Cologne Re.
Berkshire has established reserves for certain of the legal proceedings discussed above where it has concluded that the
likelihood of an unfavorable outcome is probable and the amount of the loss can be reasonably estimated. For other legal
proceedings discussed above, either Berkshire has determined that an unfavorable outcome is reasonably possible but it is unable to
estimate a range of possible losses or it is unable to predict the outcome of the matter. Management believes that any liability to the
Company that may arise as a result of current pending civil litigation, including the matters discussed above, will not have a material
effect on Berkshire’ s financial condition or results of operations.
c) Commitments
Berkshire subsidiaries lease certain manufacturing, warehouse, retail and office facilities as well as certain equipment. Rent
expense for all leases was $648 million in 2007, $578 million in 2006 and $432 million in 2005. Minimum rental payments for
operating leases having initial or remaining non-cancelable terms in excess of one year are as follows. Amounts are in millions.
After
2008 2009 2010 2011 2012 2012 Total
$541 $457 $351 $272 $214 $661 $2,496
Several of Berkshire’ s subsidiaries have made long-term commitments to purchase goods and services used in their businesses.
The most significant of these relate to NetJets’ commitments to purchase up to 541 aircraft through 2015 and MidAmerican’ s
commitments to purchase coal, electricity and natural gas. Commitments under all such subsidiary arrangements are approximately
$7.3 billion in 2008, $3.9 billion in 2009, $3.6 billion in 2010, $2.6 billion in 2011, $1.7 billion in 2012 and $6.9 billion after 2012.
As of December 31, 2007 Berkshire is contractually obligated to acquire 60% of Marmon Holdings, Inc. (“Marmon”) for $4.5
billion in cash. Once the initial acquisition is completed, Berkshire will then become obligated to acquire the remaining minority
shareholders’ interests (40%) in stages between 2011 and 2014. Based upon the initial purchase price, the cost to Berkshire of the
minority shareholders’ interest would be $3.0 billion. However, the consideration payable for the minority shareholders’ interest is
contingent upon future operating results of Marmon and the per share cost could be greater than or less than the initial per share price.
(For additional information see Note 2).
Berkshire is also obligated under certain conditions to acquire minority ownership interests of certain consolidated, but not
wholly-owned subsidiaries, pursuant to the terms of certain shareholder agreements with the minority shareholders. The
consideration payable for such interests is generally based on the fair value of the subsidiary. Were Berkshire to have acquired all
such outstanding minority ownership interest holdings as of December 31, 2007, the cost to Berkshire would have been
approximately $4 billion. However, the timing and the amount of any such future payments that might be required are contingent on
future actions of the minority owners and future operating results of the related subsidiaries.