Berkshire Hathaway 2008 Annual Report Download - page 46

Notes to Consolidated Financial Statements (Continued)
(11) Derivatives (Continued)
Premiums on the high yield index and state/municipality contracts were received at the inception dates of the contracts and
as a result Berkshire has no counterparty credit risk. Berkshire’s payment obligations under certain of these contracts are on a
first loss basis. Several other contracts are subject to an aggregate loss deductible that must be satisfied before Berkshire has any
payment obligations or contain provisions that otherwise delay payment obligations arising from defaults.
During 2008, Berkshire also wrote credit default contracts on individual issuers in North America whose obligations are
primarily rated as investment grade and where installment premiums are due from counterparties over the terms of the contracts.
In most instances, premiums are due from counterparties on a quarterly basis. Most individual issuer contracts had a five year
term when written.
The equity index put option contracts and credit default contracts were entered into with the expectation that amounts
ultimately paid to counterparties will be less than the premiums received. Berkshire views these contracts as economically
similar to insurance contracts, notwithstanding the “fair value” accounting requirements for derivatives contracts.
Most of Berkshire’s equity index put option and credit default contracts contain no collateral posting requirements with
respect to changes in either the fair value or intrinsic value of the contracts and/or a downgrade of Berkshire’s credit rating.
Under certain conditions, a few contracts require that Berkshire post collateral. At December 31, 2008, Berkshire had posted
collateral of approximately $550 million with counterparties, related to these contracts.
Berkshire is also exposed to variations in the market prices in the purchases and sales of natural gas and electricity and in
commodity fuel costs with respect to its regulated utility operations. Derivative instruments, including forward purchases and
sales, futures, swaps and options are used to manage these commodity price risks. Unrealized gains and losses under these
contracts are either probable of recovery through rates and therefore are recorded as a regulatory net asset or liability or are
accounted for as cash flow hedges and therefore are recorded as accumulated other comprehensive income or loss. Derivative
contract assets included in other assets of utilities and energy businesses were $324 million and $397 million as of
December 31, 2008 and 2007, respectively. Derivative contract liabilities included in accounts payable, accruals and other
liabilities of utilities and energy businesses were $729 million and $765 million as of December 31, 2008 and 2007,
respectively.
(12) Supplemental cash flow information
A summary of supplemental cash flow information for each of the three years ending December 31, 2008 is presented in
the following table (in millions). 2008 2007 2006
Cash paid during the year for:
Income taxes ................................................................. $3,530 $5,895 $ 4,959
Interest of finance and financial products businesses ................................. 537 569 514
Interest of utilities and energy businesses .......................................... 1,172 1,118 937
Interest of insurance and other businesses .......................................... 182 182 195
Non-cash investing and financing activities:
Investments received in connection with the Equitas reinsurance transaction .............. — 6,529 —
Liabilities assumed in connection with acquisitions of businesses ....................... 4,763 612 12,727
Fixed maturity securities sold or redeemed offset by decrease in directly related repurchase
agreements ................................................................ — 599 460
Equity/fixed maturity securities exchanged for other securities/investments ............... 2,329 258 —
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