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Notes to Consolidated Financial Statements (Continued) (16) Income taxes (Continued) The tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities are shown below (in millions). December 31, 2013 2012 Deferred tax liabilities: Investments – unrealized appreciation and cost basis differences .................... $25,660 $16,075 Deferred charges reinsurance assumed ......................................... 1,526 1,392 Property, plant and equipment ............................................... 32,409 29,715 Other ................................................................... 6,278 6,485 65,873 53,667 Deferred tax assets: Unpaid losses and loss adjustment expenses .................................... (817) (924) Unearned premiums ....................................................... (682) (660) Accrued liabilities ......................................................... (3,398) (3,466) Derivative contract liabilities ................................................ (374) (1,131) Other ................................................................... (3,160) (3,603) (8,431) (9,784) Net deferred tax liability ........................................................ $57,442 $43,883 We have not established deferred income taxes with respect to undistributed earnings of certain foreign subsidiaries. Earnings expected to remain reinvested indefinitely were approximately $9.3 billion as of December 31, 2013. Upon distribution as dividends or otherwise, such amounts would be subject to taxation in the U.S. as well as foreign countries. However, U.S. income tax liabilities would be offset, in whole or in part, by allowable tax credits deriving from income taxes previously paid to foreign jurisdictions. Further, repatriation of all earnings of foreign subsidiaries would be impracticable to the extent that such earnings represent capital needed to support normal business operations in those jurisdictions. As a result, we currently believe that any incremental U.S. income tax liabilities arising from the repatriation of distributable earnings of foreign subsidiaries would not be material. Income tax expense reflected in our Consolidated Statements of Earnings for each of the three years ending December 31, 2013 is as follows (in millions). 2013 2012 2011 Federal ............................................................... $8,155 $5,695 $3,474 State ................................................................. 258 384 444 Foreign ............................................................... 538 845 650 $8,951 $6,924 $4,568 Current ............................................................... $5,168 $4,711 $2,897 Deferred .............................................................. 3,783 2,213 1,671 $8,951 $6,924 $4,568 52
Notes to Consolidated Financial Statements (Continued) (16) Income taxes (Continued) Income tax expense is reconciled to hypothetical amounts computed at the U.S. federal statutory rate for each of the three years ending December 31, 2013 in the table below (in millions). 2013 2012 2011 Earnings before income taxes ..................................................... $28,796 $22,236 $15,314 Hypothetical amounts applicable to above computed at the U.S. federal statutory rate ......... $10,079 $ 7,783 $ 5,360 Dividends received deduction and tax exempt interest .................................. (514) (518) (497) State income taxes, less U.S. federal income tax benefit ................................. 168 250 289 Foreign tax rate differences ....................................................... (256) (280) (208) U.S. income tax credits .......................................................... (457) (319) (241) Other differences, net ............................................................ (69) 8 (135) $ 8,951 $ 6,924 $ 4,568 We file income tax returns in the United States and in state, local and foreign jurisdictions. We are under examination by the taxing authorities in many of these jurisdictions. We have settled tax return liabilities with U.S. federal taxing authorities for years before 2005. The U.S. Internal Revenue Service (“IRS”) has completed the exams of the 2005 though 2009 tax years. Berkshire and the IRS have informally resolved all proposed adjustments in connection with these years with the IRS Appeals division and expect formal settlements within the next twelve months. The IRS continues to audit Berkshire’s consolidated U.S. federal income tax returns for the 2010 and 2011 tax years. We are also under audit or subject to audit with respect to income taxes in many state and foreign jurisdictions. It is reasonably possible that certain of our income tax examinations will be settled within the next twelve months. We currently do not believe that the outcome of unresolved issues or claims is likely to be material to our Consolidated Financial Statements. At December 31, 2013 and 2012, net unrecognized tax benefits were $692 million and $866 million, respectively. Included in the balance at December 31, 2013, are $560 million of tax positions that, if recognized, would impact the effective tax rate. The remaining balance in net unrecognized tax benefits principally relates to tax positions for which the ultimate recognition is highly certain but for which there is uncertainty about the timing of such recognition. Because of the impact of deferred tax accounting, other than interest and penalties, the difference in recognition period would not affect the annual effective tax rate but would accelerate the payment of cash to the taxing authority to an earlier period. As of December 31, 2013, we do not expect any material changes to the estimated amount of unrecognized tax benefits in the next twelve months. (17) Dividend restrictions – Insurance subsidiaries Payments of dividends by our insurance subsidiaries are restricted by insurance statutes and regulations. Without prior regulatory approval, our principal insurance subsidiaries may declare up to approximately $13 billion as ordinary dividends before the end of 2014. Combined shareholders’ equity of U.S. based property/casualty insurance subsidiaries determined pursuant to statutory accounting rules (Statutory Surplus as Regards Policyholders) was approximately $129 billion at December 31, 2013 and $106 billion at December 31, 2012. Statutory surplus differs from the corresponding amount determined on the basis of GAAP due to differences in accounting for certain assets and liabilities. For instance, deferred charges reinsurance assumed, deferred policy acquisition costs, certain unrealized gains and losses on investments in fixed maturity securities and related deferred income taxes are recognized for GAAP but not for statutory reporting purposes. In addition, under statutory reporting, goodwill is amortized over 10 years, whereas under GAAP, goodwill is not amortized and is subject to periodic tests for impairment. 53
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BERKSHIRE HATHAWAY INC. 2013 ANNUAL
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Page 5 and 6: BERKSHIRE HATHAWAY INC. To the Shar
Page 7 and 8: Š While Charlie and I search for e
Page 9 and 10: Intrinsic Business Value As much as
Page 11 and 12: One venture materialized last June
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Page 17 and 18: I can’t resist, however, giving y
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In June 1996, Berkshire’s Chairma
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Besides, Berkshire has access to tw
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INTRINSIC VALUE Now let’s focus o
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BERKSHIRE HATHAWAY INC. INTRINSIC V
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BERKSHIRE HATHAWAY INC. OPERATING C
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BERKSHIRE HATHAWAY INC. DIRECTORS W
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