Berkshire Hathaway 2007 Annual Report Download - page 62

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Financial Condition (Continued)
acquired loans of Clayton Homes, which as of December 31, 2007 had a carrying value of $11 billion. Full and timely payment
of principal and interest on the notes issued by BHFC is guaranteed by Berkshire. In addition, Clayton Homes had outstanding
borrowings of $1.4 billion which are secured by portfolios of manufactured housing loans and are not guaranteed by Berkshire.
These borrowings are repaid as the underlying collateralized loans are repaid.
Contractual Obligations
Berkshire and its subsidiaries are parties to contracts associated with ongoing business and financing activities, which
will result in cash payments to counterparties in future periods. Notes payable are reflected in the Consolidated Financial
Statements along with accrued but unpaid interest as of the balance sheet date. In addition, Berkshire is obligated to pay interest
under debt obligations for periods subsequent to the balance sheet date. Although certain principal balances may be prepaid in
advance of the maturity date, thus reducing future interest obligations, it is assumed that no principal prepayments will occur for
purposes of this disclosure. Also, short-term borrowings and repurchase agreements are generally expected to be renewed as
they mature, however such amounts are not assumed to renew for purposes of this disclosure.
Berkshire and subsidiaries are also parties to long-term contracts to acquire goods or services in the future, which are
not currently reflected in the financial statements. Such obligations, including future minimum rentals under operating leases,
will be reflected in future periods as the goods are delivered or services provided. Amounts due as of the balance sheet date for
purchases where the goods and services have been received and a liability incurred are not included to the extent that such
amounts are due within one year of the balance sheet date.
Contractual obligations for unpaid losses and loss adjustment expenses arising under property and casualty insurance
contracts are estimates. The timing and amount of such payments are contingent upon the ultimate outcome of claim settlements
that will occur over many years. The amounts presented in the following table have been estimated based upon past claim
settlement activities. The timing and amount of such payments are subject to significant estimation error. The factors affecting
the ultimate amount of claims are discussed in the following section regarding Berkshire’ s critical accounting policies. 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 recoverables are not reflected in the table. Accordingly, the actual
timing and amount of payments may differ materially from the amounts shown in the table.
A summary of contractual obligations as of December 31, 2007 follows. Amounts represent estimates of gross
undiscounted amounts payable over time. Amounts are in millions.
Estimated payments due by period
Total 2008 2009-2010 2011-2012 After 2012
Notes payable and other borrowings (1) .......... $ 56,638 $ 8,953 $ 6,079 $ 6,899 $34,707
Operating leases ............................................. 2,496 541 808 486 661
Purchase obligations (2) .................................. 25,995 7,262 7,495 4,349 6,889
Unpaid losses and loss expenses (3) ................ 58,734 13,264 14,038 8,349 23,083
Other long-term policyholder liabilities......... 4,247 190 443 96 3,518
Other (4) .......................................................... 22,313 5,385 1,489 3,039 12,400
Total............................................................... $170,423 $35,595 $30,352 $23,218 $81,258
(1) Includes interest.
(2) Principally relates to future aircraft, coal, electricity and natural gas purchases.
(3) Before reserve discounts of $2,732 million.
(4) Principally annuity reserves, employee benefits and derivative contract liabilities. Also includes $4.5 billion in 2008 related
to the pending acquisition of 60% of Marmon and estimates for the acquisition of the remaining 40% of Marmon between
2011 and 2014.
Critical Accounting Policies
Certain accounting policies require management to make estimates and judgments concerning transactions that will be
settled several years in the future. Amounts recognized in the financial statements from such estimates are necessarily based on
numerous assumptions involving varying and potentially significant degrees of judgment and uncertainty. Accordingly, the
amounts currently reflected in the financial statements will likely increase or decrease in the future as additional information
becomes available.
Property and casualty losses
A summary of Berkshire’ s consolidated liabilities for unpaid property and casualty losses is presented in the table
below. Except for certain workers’ compensation reserves, liabilities for unpaid property and casualty losses (referred to in this
section as “gross unpaid losses”) are reflected in the Consolidated Balance Sheets without discounting for time value, regardless
of the length of the claim-tail. Amounts are in millions.
Gross unpaid losses Net unpaid losses*
Dec. 31, 2007 Dec. 31, 2006 Dec. 31, 2007 Dec. 31, 2006
GEICO.......................................................... $ 6,642 $ 6,095 $ 6,341 $ 5,814
General Re.................................................... 19,831 20,444 17,651 18,361
BHRG........................................................... 24,894 16,832 20,223 14,255
Berkshire Hathaway Primary Group ............ 4,635 4,241 4,127 3,741
Total ............................................................. $56,002 $47,612 $48,342 $42,171
* Net of reinsurance recoverable and deferred charges reinsurance assumed and before foreign currency translation effects.