The business segment data (Note 19 to Consolidated Financial Statements) should be read in conjunction with this discussion.

A summary follows of underwriting results from Berkshire’s insurance businesses for the past three years.

Berkshire engages in both primary insurance and reinsurance of property and casualty risks. Through General Re, Berkshire also reinsures life and health risks. In primary insurance activities, Berkshire subsidiaries assume defined portions of the risks of loss from persons or organizations that are directly subject to the risks. In reinsurance activities, Berkshire subsidiaries assume defined portions of similar or dissimilar risks that other insurers or reinsurers have subjected themselves to in their own insuring activities. Berkshire’s principal insurance businesses are: (1) GEICO, the sixth largest auto insurer in the United States, (2) General Re, one of the four largest reinsurers in the world, (3) Berkshire Hathaway Reinsurance Group ("BHRG") and (4) Berkshire Hathaway Primary Insurance Group. Berkshire’s management views insurance businesses as possessing two distinctive operations – underwriting and investment. Accordingly, Berkshire evaluates performance of underwriting operations without any allocation of investment income.

Berkshire’s reinsurance businesses recorded significant underwriting losses as a result of the September 11, 2001 terrorist attack. In the aggregate, Berkshire’s reinsurance businesses recorded pre-tax underwriting losses of about $2.4 billion related to the terrorist attack. The losses recorded are based upon estimates and, therefore, are subject to considerable estimation error. Over time, claims will be paid and additional information will be revealed that will result in re-estimation of the ultimate amount of losses incurred. Changes in reserve estimates are included in earnings as a component of losses and loss expenses incurred in the period of the change. Additional information related to these losses is included in the discussion that follows.

A significant marketing strategy followed by all these businesses is the maintenance of extraordinary capital strength. Statutory surplus as regards policyholders of Berkshire’s insurance businesses totaled approximately $27.2 billion at December 31, 2001. This superior capital strength creates opportunities, especially with respect to reinsurance activities, to negotiate and enter into contracts of insurance specially designed to meet unique needs of sophisticated insurance and reinsurance buyers. Additional information regarding Berkshire’s insurance and reinsurance operations follows.

GEICO

GEICO provides primarily private passenger automobile coverages to insureds in 48 states and the District of Columbia. GEICO policies are marketed mainly by direct response methods in which customers apply for coverage directly to the company over the telephone, through the mail or via the Internet. This is a significant element in GEICO’s strategy to be a low cost insurer and, yet, provide high value to policyholders.

GEICO's underwriting results for the past three years are summarized below.

Premiums earned by GEICO in 2001 totaled $6,060 million, an 8.0% increase over 2000. Premiums earned in 2000 exceeded premiums earned in 1999 by 17.9%. The growth in premiums earned during 2001 reflects increased rates, partially offset by a slight reduction in policies-in-force. In response to the underwriting losses of 2000, GEICO implemented rate increases in many states and tightened underwriting resulting in the much improved underwriting results in 2001.

Voluntary auto policies-in-force at December 31, 2001 declined 0.8% from December 31, 2000. In comparison, voluntary policies-in-force increased 8.5% during 2000 and 21.5% during 1999. During 2001, policies-in-force increased 1.6% in the preferred risk auto market and decreased 10.1% in the standard and nonstandard auto lines. Voluntary auto new business sales in 2001 decreased 30.2% from 2000 due to decreased advertising and a lower closure ratio.

Losses and loss adjustment expenses incurred increased 0.7% to $4,842 million in 2001. The loss ratio for property and casualty insurance, which measures the portion of premiums earned that is paid or reserved for losses and related claims handling expenses, was 79.9% in 2001 compared to 85.7% in 2000. The lower ratio reflects the effect of premium rate increases and tightened underwriting standards. Additionally, the rate of increase in claim severity (the cost per claim) slowed in 2001 and the frequency of accidents decreased in many coverages compared to the prior year. The mild winter weather conditions during the fourth quarter of 2001 also contributed to the relatively low loss ratio. Catastrophe losses added slightly less than 1 point to the loss ratio in each of the past three years.

GEICO’s insurance subsidiaries are defendants in a number of class action lawsuits related to the use of replacement repair parts not produced by the original auto manufacturer, the calculation of "total loss" value and whether to pay diminished value as part of the settlement of certain claims. Management intends to vigorously defend GEICO’s position on these claim settlement procedures. However, these lawsuits are in various stages of development and the ultimate outcome cannot be reasonably determined.

Underwriting expenses incurred in 2001 decreased $28 million (2.7%) from 2000, following an increase of $107 million (11.7%) in 2000 over 1999. Advertising expense declined significantly in 2001 from 2000 following a large increase in 2000 over 1999. Although advertising expense declined in 2001, the unit cost of acquiring new business continued to increase in 2001 as fewer new policies were written in relation to quotes. Other underwriting expenses for 2001 also reflect lower profit sharing expense in 2001.

Throughout 2001, GEICO focused on improving underwriting profitability, but did so at the expense of growth. Entering 2002, rates are believed to be adequate in nearly all states and GEICO is in a better position to grow as many competitors are expected to take rate increases.

General Re conducts a global reinsurance business, which provides reinsurance coverage in the United States and 135 other countries around the world. General Re’s principal reinsurance operations are: (1) North American property/casualty, (2) international property/casualty, and (3) global life/health. The international property/casualty operations are conducted primarily through Germany-based Cologne Re and its subsidiaries. At December 31, 2001, General Re had an 88% economic ownership interest in Cologne Re.

General Re’s consolidated underwriting results for the past three years are summarized below. Dollar amounts are in millions.

Since Berkshire’s acquisition in 1998, General Re’s overall underwriting results have been very poor. Over this period, increases in loss costs accelerated and outpaced pricing corrections. Losses from the September 11^th terrorist attack severely impacted the results as General Re recorded aggregate net losses of approximately $1.9 billion related to the terrorist attack. During 2001, it was determined that reserve estimates established for claims arising in prior years with respect to the North American property/casualty business were insufficient. As a result, an $800 million underwriting loss was recorded.

General Re’s management has taken several underwriting actions relative to better aligning premium rates with coverage terms over the past two years. However, as evidenced by the 2001 results, additional actions will be required to achieve targeted break-even underwriting results. Information with respect to each of General Re’s underwriting units is presented below. In the tables that follow, dollar amounts are in millions.

General Re’s North American property/casualty underwriting results for the past three years are summarized below.

General Re’s North American property/casualty operations underwrite predominantly excess reinsurance across multiple lines of business. Premiums earned in 2001 exceeded premiums earned in 2000 by $579 million or 17.1%. Earned premiums in 2000 increased over 1999 levels by $552 million or 19.5%. Much of the increase in premiums derived from rate increases and new business (net of the non-renewal of unprofitable business) in the facultative individual risk and casualty treaty markets. Earned premiums in 2001 include $400 million from one retroactive reinsurance contract and a large quota share agreement. An aggregate excess reinsurance contract generated earned premiums of $404 million in 2000 and $154 million in 1999. The North American property/casualty operations generated underwriting losses of $2,843 million in 2001, $656 million in 2000 and $584 million in 1999. The underwriting results in 2001 reflect an exceptionally large loss from the September 11^th terrorist attack and charges from revisions to inadequate loss reserve estimates established for pre-2001 claims primarily driven by higher than expected levels of reported claims.

Underwriting results for 2001 include approximately $1.54 billion of net losses from the September 11^th terrorist attack. While the potential impact of catastrophes and other large individual property losses is normally factored into reinsurance prices, past pricing did not consider the unprecedented magnitude of possible losses arising from the terrorist acts. The severity of the losses arising from the September 11^th attack underscored that risks of this kind were not contemplated in premium rates. Lines of business that previously were expected to have little correlation were adversely affected in the same event to an unforeseen degree. Claims arising from other catastrophes and large individual property losses ($20 million or greater) in 2001, 2000 and 1999 periods were $87 million, $53 million and $202 million, respectively. In addition, during 2001 General Re recorded $46 million of estimated losses associated with Enron-related liability coverages.

Results in 2001 also included $800 million of net underwriting losses arising from increases to loss reserve estimates for loss events occurring in 2000 and prior years. The reserve increases occurred in almost all casualty lines of business, including commercial umbrella, professional liability, medical malpractice, general liability, and workers compensation. Long-tail liabilities such as these, particularly reinsurance lines, are inherently difficult to estimate, and while management now believes that reserves are now approximately correct, there are no guarantees. In 2000, underwriting results for the traditional reinsurance operations also included underwriting losses from increases to prior years’ reserves of about $92 million, arising primarily in the medical malpractice, commercial umbrella and casualty treaty reinsurance lines. In 1999, North American property/casualty results included a small gain from the reduction of prior years’ loss reserve estimates.

Underwriting results for 2000 also included a net underwriting loss of $239 million from a large excess reinsurance contract in-force during 1999 and 2000. The effect of this agreement on the 1999 net underwriting results was not significant due to a retrocession to the Berkshire Hathaway Reinsurance Group. Although, this contract produced a sizable underwriting loss, it is expected to provide more than commensurate investment benefits in future years due to the large amount of float generated.

General Re’s international property/casualty underwriting results for the past three years are summarized below.

The international property/casualty operations write quota-share and excess reinsurance on risks around the world. In recent years, the largest international markets have been in Germany and Western Europe. As previously noted, the international property/casualty operations discontinued reporting their results on a one-quarter lag during the fourth quarter of 2000. Results for the 2000 period contain fifteen months, or one additional quarter of information (fourth quarter of 1999 plus four quarters of 2000). The preceding table shows underwriting results for both the twelve month and fifteen month periods. The comparative analysis that follows excludes the additional quarter.

Earned premiums in 2001 decreased from 2000 amounts by 3.3%, whereas 2000 earned premiums exceeded 1999 levels by 5.8%. Adjusting for the effects of overall declining foreign exchange rates, earned premiums in local currencies increased 3.9% during 2001, 16.7% during 2000 and 12.0% during 1999. Growth in 2001 premiums was primarily due to increased premiums in Lloyd's Syndicate 435 and in the U.K. casualty treaty business, partially offset by decreased premiums in Latin America and at Cologne Re. The decrease at Cologne Re relates primarily to the non-renewal of unprofitable treaty business. Earned premium growth in 2000 was principally attributable to premiums to reinstate coverage as a result of the 1999 European winter storm losses as well as increases in Lloyd's Syndicate 435.

Underwriting results for General Re's international property/casualty businesses have been unsatisfactory. Included in 2001 underwriting results were $500 million of gross and $313 million of net losses related to the September 11^th terrorist attack. Other international property/casualty net underwriting losses were $433 million in 2001, including a loss of $143 million from an explosion at a steel plant in the United Kingdom. Catastrophe and other large individual property losses for 2000 and 1999 were $80 million and $112 million, respectively. Underwriting losses in 1999 also included approximately $100 million related to credit coverages for the motion picture business. Due to the large amount of property business written in the international property/casualty operations, periodic underwriting results will be volatile.

General Re conducts reinsurance business in Argentina through a wholly-owned subsidiary. Currently, Argentina is in the midst of an economic and political crisis. Since the beginning of 2002, the Argentine government has significantly devalued the peso relative to the U.S. dollar. It is still uncertain what effect this and other actions that may be taken will have on the international property/casualty business.

General Re's global life/health underwriting results for the past three years are summarized below.

General Re’s global life/health affiliates reinsure such risks worldwide. Global life/health operations previously reported their results on a one-quarter lag. As previously noted, the global life/health operations discontinued reporting results on a one-quarter lag during the fourth quarter of 2000. Reported results for 2000 contain fifteen months. The table above shows underwriting results for both the twelve-month and fifteen-month periods. The analysis that follows excludes this additional quarter.

In 2001, earned premiums in the U.S. life/health business increased $194 million (20%) to $1,147 million. In 2000, U.S. life/health premiums exceeded amounts earned in 1999 by $28 million (3.0%). The increase in 2001 was primarily related to increases in the U.S. life business and the acquisition of two Medicare supplement (health) blocks of business. In 2001, premiums from international life/health business increased $21 million (3%) to $841 million. In 2000, international life/health premiums exceeded 1999 by $20 million (3.0%). Adjusting for the effect of foreign exchange, international life/health earned premiums increased 10.4% in 2001 and 14.8% in 2000. The increases in 2001 occurred primarily in the Western Europe and Asia life markets.

Underwriting losses in the U.S. life/health operations were $87 million in 2001, compared with losses of $23 million in 2000 and $117 million in 1999. The U.S. life/health underwriting results for 2001 include $15 million of net losses related to the September 11^th terrorist attack. Results for the U.S. life/health reinsurance operations include $46 million of reserve increases related primarily to special risk business, which was discontinued in 1999. Partially offsetting the aforementioned losses were the effects of improved mortality in the U.S. individual life business, favorable claim development and rate increases in the U.S. individual health business.

International life/health operations generated an underwriting gain of $5 million in 2001 compared to losses of $61 million in 2000 and $10 million in 1999. In 2001, improved results were achieved in both the life and health businesses, which each reported a small underwriting profit in 2001. The losses in 2000 primarily related to personal accident and pension lines of business.

Berkshire Hathaway Reinsurance Group

The Berkshire Hathaway Reinsurance Group ("BHRG") underwrites principally excess-of-loss reinsurance coverages for insurers and reinsurers around the world. BHRG is believed to be one of the leaders in providing catastrophe excess-of-loss reinsurance. In addition, over the past three years, BHRG has generated significant premium volume from a few very sizable retroactive reinsurance contracts.

Underwriting results for the past three years are summarized in the following table.

Premiums earned by BHRG were $2,991 million in 2001, $4,712 million in 2000 and $2,387 million in 1999. Premiums earned from retroactive coverages were $1,993 million in 2001, $3,944 million in 2000 and $1,507 million in 1999. Premiums earned from catastrophe and non-retroactive reinsurance business totaled $998 million in 2001, $768 million in 2000 and $880 million in 1999. Of these amounts, catastrophe reinsurance policies contributed $511 million in 2001 and $314 million in both 2000 and 1999. In 2001, premiums earned from these businesses include BHRG’s participation in Lloyd’s Syndicate 1861. Otherwise, the non-catastrophe premiums earned in each year derive from a few sizable quota-share and excess contracts.

BHRG’s underwriting losses in 2001 were $647 million, compared to losses of $162 million in 2000 and $251 million in 1999. Underwriting losses from retroactive reinsurance contracts totaled $371 million in 2001, $191 million in 2000 and $ 97 million in 1999. Retroactive reinsurance contracts indemnify ceding companies for losses arising under insurance or reinsurance contracts written in the past, usually many years ago. Consequently, these contracts are often expected to provide indemnification of environmental and other latent injury claims. While contract terms vary, losses under the contracts are subject to a very large aggregate dollar limit, occasionally exceeding $1 billion under a single contract.

Generally, it is also anticipated, although not assured, that claims under retroactive contracts will be paid over long time periods. As a result, premiums are, in part, discounted for time value. However, when written, these contracts do not produce an underwriting loss for financial reporting purposes because the excess of the estimated ultimate claims payable over the premiums earned is established as a deferred charge. The deferred charge is subsequently amortized over the expected claim settlement periods and is included as a component of losses incurred. When written, retroactive reinsurance contracts are expected to generate significant underwriting losses over time due to the amortization of these deferred charges. Nevertheless, this business is accepted due to the exceptionally large amounts of float generated. Unamortized deferred charges under BHRG contracts were $3.1 billion as of December 31, 2001 compared to $2.6 billion at December 31, 2000. It is currently expected that losses incurred in 2002 will include about $400 million of deferred charge amortization.

The catastrophe and other non-retroactive reinsurance businesses generated an underwriting loss of $276 million in 2001, an underwriting gain of $29 million in 2000 and an underwriting loss of $154 million in 1999. The underwriting loss for 2001 includes a net loss of approximately $530 million from the terrorist attack on September 11^th. Partially offsetting this loss were profits from the remainder of the catastrophe reinsurance business and loss reserve reductions on contracts written in prior years. In 2000 and 1999, the catastrophe reinsurance business generated underwriting gains of $183 million and $196 million, respectively, reflecting relatively minor amounts of catastrophe losses. The timing and magnitude of catastrophe losses can produce considerable volatility in periodic underwriting results.

In 2000 and 1999, underwriting losses included $186 million and $220 million, respectively, from an aggregate excess contract covering losses occurring in those years. In 1999, BHRG recorded an additional underwriting loss of $126 million from business assumed from General Re related to a similar arrangement written by General Re in that year. Similar to retroactive reinsurance contracts, premiums under these contracts are in part, discounted for time value as losses are often expected to be paid over lengthy periods. Unlike retroactive contracts, no deferred charges are recorded and thus underwriting losses result as premiums are earned. However, similar to the retroactive contracts, this business was accepted because of the large amounts of float generated.

Berkshire’s other primary insurance businesses consist of a wide variety of smaller insurance businesses that principally write liability coverages for commercial accounts. These businesses include: National Indemnity Company’s primary group operation ("NICO Primary Group"), a writer of motor vehicle and general liability coverages; United States Investment Corporation ("USIC"), acquired by Berkshire in August 2000 and whose subsidiaries underwrite specialty insurance coverages; a group of companies referred to internally as "Homestate" operations, providers of standard multi-line insurance, and Central States Indemnity Company, a provider of credit and disability insurance to individuals nationwide through financial institutions.

Collectively, Berkshire’s other primary insurance businesses produced earned premiums of $501 million in 2001, $325 million in 2000 and $257 million in 1999. The increases in premiums earned during the past two years was largely attributed to the inclusion of USIC’s business beginning in August 2000. During 2001, increased premiums were also earned by the NICO Primary Group and Homestate businesses. Net underwriting gains of Berkshire’s other primary insurance businesses totaled $30 million in 2001, $25 million in 2000 and $17 million in 1999. The improvement in year-to-year comparative underwriting results was due in large part to USIC.

Following is a summary of the net investment income of insurance operations for the past three years.

Investment income from insurance operations in 2001 increased $51 million (1.8%) over 2000. Investment income in 2000 exceeded amounts earned in 1999 by $284 million (11.4%). As discussed in Note 1(a) to the Consolidated Financial Statements, results for 2000 include five quarters with respect to General Re’s international reinsurance operations. Pre-tax investment income in 2000 includes $103 million related to that extra quarter. Invested assets decreased during 2001 by $4 billion to $72 billion at December 31. The decrease in invested assets was primarily attributed to a $6 billion decline in the market values of Berkshire’s major equity investments and $4 billion in dividends paid to Berkshire during the year. Partially offsetting these declines was an increase in investments from an increase in float generated by insurance operations. Float represents an estimate of the amount of funds ultimately payable to policyholders that is available for investment.

The total float at December 31, 2001 was approximately $35.5 billion compared to about $27.9 billion at December 31, 2000. Although the increase in float during 2001 was significant, its cost, represented by the pre-tax underwriting loss over the average float, was also significant. Due to the magnitude of underwriting losses in 2001, the cost of float was about 12.8%. In 2000, the cost of float was approximately 6.0%. Pre-tax investment income in 2001 was also adversely affected by declining interest rates, particularly for short to medium term investments.

Non-Insurance Businesses

A summary follows of results from Berkshire’s non-insurance businesses for the past three years.

A comparison of revenues and operating profits between 2001, 2000 and 1999 for the non-insurance businesses follows.

Additional information regarding each significant business acquisition is contained in Notes 2 and 3 of the Consolidated Financial Statements. In general, many of Berkshire's non-insurance businesses have been adversely affected by the general economic slowdown in the United States during 2001 and exacerbated by the effects of the terrorist attack on September 11, 2001. Nevertheless, Berkshire's management considers that most of its non-insurance businesses have performed well under these difficult conditions. The following is a discussion of significant matters impacting comparative results for the non-insurance businesses.

Berkshire’s building products businesses include Johns Manville, acquired on February 27, 2001, Benjamin Moore, acquired in December 2000, Acme Brick, acquired in August 2000, and MiTek Inc., acquired July 31, 2001. Each of these businesses manufactures and distributes products and services for the residential and commercial construction and home improvement markets. Revenues of the building products group in 2001 totaled $3,269 million and pre-tax operating profits of the building products group in 2001 totaled $461 million.

On a comparative full year basis, building products revenues were $3,746 million roughly unchanged from the prior year. Full year operating profits of approximately $570 million declined about 4%. Most of the decline occurred at Johns Manville where comparative results were negatively impacted by higher raw material prices and energy costs.

Several finance and financial products businesses are included in this segment. Generally, these businesses invest in various types of fixed-income securities, loans, leases and other financial instruments, often utilizing leverage or borrowed funds in the process. The most significant of these businesses are BH Finance, a business engaged in proprietary trading strategies, General Re Securities ("GRS"), a dealer in derivative contracts and XTRA Corporation, a transportation equipment leasing business.

Operating income of the finance and financial products group in 2001 decreased $11 million (2.1%) as compared to 2000. Income of BH Finance in 2001 declined $39 million from 2000. In 2001, interest income, net of interest expense, of BH Finance increased significantly, but was more than offset by reduced realized investment gains. Realized gains in 2000 derived from the disposition of a large portfolio of fixed income securities. Under the current market conditions, BH Finance should continue to produce significant operating profits in 2002.

GRS’s operating profit in 2001 was $11 million compared to a loss of $63 million in 2000. In January 2002, management announced that it would commence a long-term run-off of GRS. During the run-off period, GRS will limit new business to certain risk management transactions and will unwind existing asset and liability positions in an orderly manner. It is expected that the run-off will take several years to complete. It is currently unknown what impact this decision may have on operating results in 2002.

In 2001, Berkshire’s finance and financial products businesses also include the results of Berkadia LLC. In 2001, the operating results included a pre-tax loss of $40 million from Berkadia. Such loss was caused by a loss from Berkadia’s application of the equity method of accounting related to its investment in FINOVA common stock partially offset by net interest income. The structure of this transaction and risks associated with this transaction are described in Note 9 to the Consolidated Financial Statements.

This segment includes FlightSafety and Executive Jet. FlightSafety provides high technology training to operators of aircraft and ships. FlightSafety’s worldwide clients include corporations, the military and government agencies. Executive Jet is the world’s leading provider of fractional ownership programs for general aviation aircraft. Revenues from flight services in 2001 increased $284 million (12.4%) over 2000. About 83% of the increase in revenues was attributed to Executive Jet, which produced significant increases in revenues from both flight operations and aircraft sales. Revenues from FlightSafety also increased approximately 7.7% in 2001 as compared to 2000, reflecting both increased training revenues and product sales. Operating profits in 2001 decreased $27.1 million (12.8%) as compared to 2000. Increased operating profits at FlightSafety were more than offset by reduced operating profits at Executive Jet. Executive Jet’s results in 2001 and 2000 reflect operating losses related to expansion into Europe as well as significantly higher operating costs incurred to insure that a premier level of safety, security and service is maintained. The increases in safety and security costs were exacerbated by the September 11^th terrorist attack.

Berkshire’s retailing businesses consist of four independently managed retailers of home furnishings (Nebraska Furniture Mart and its subsidiaries ("NFM"), R.C. Willey Home Furnishings ("RC Willey"), Star Furniture and Jordan's Furniture) and three independently managed retailers of fine jewelry (Borsheim's Jewelry, Helzberg's Diamond Shops, and Ben Bridge Jeweler).

Revenues of the retail businesses in 2001 increased $134 million (7.2%) as compared to 2000 and operating profits in 2001 of $175 million were unchanged from 2000. The increase in revenues was attributed to the inclusion of a full year of results for Ben Bridge, the acquisition of a relatively small furniture retailer by NFM in November 2000 and sales from a new store opened in 2001 by RC Willey in Henderson, Nevada. Otherwise, same store sales for the home furnishing retailers were relatively unchanged between years and same store sales for the fine jewelry retailers declined 7.6%. Home furnishings comparative pre-tax earnings were relatively unchanged between years and pre-tax earnings declined at each of the jewelry businesses. The economic recession that developed during 2001 and weak post-September 11^th retail sales are believed to be the primary causes for these results.

The Scott Fetzer companies are a group of about twenty diverse manufacturing and distribution businesses under common management. Principal businesses in this group of companies sell products under the Kirby (home cleaning systems), Campbell Hausfeld (air compressors, paint sprayers, generators and pressure washers) and World Book (encyclopedias and other educational products) names.

Revenues in 2001 from Scott Fetzer's businesses decreased $49 million (5.1%) as compared to 2000. Operating profits in 2001 increased $7 million (5.7%) as compared to 2000. The decline in revenues was due primarily to lower foreign unit sales at Kirby, weakening demand for products of many of Scott Fetzer’s smaller businesses and lower sales volume at World Book. The increase in operating profits in 2001 was attributed to lower raw material prices and reduced labor and overhead costs at Campbell Hausfeld and the benefit of administrative cost reduction programs, partially offset by the impact of overall lower sales volume.

Shaw Industries

Berkshire acquired 87.3% of Shaw on January 8, 2001. Shaw is a leading manufacturer and distributor of carpet and rugs for residential and commercial use. Shaw also provides installation services and offers hardwood floor and other floor coverings. In January 2002, Berkshire acquired the remaining 12.7% of Shaw.

On a comparative full-year basis, Shaw’s revenues in 2001 of $4,012 million declined by about $100 million from 2000. The decline in revenues reflects primarily a decline in square yards sold. Sales in 2001 were negatively affected by the economic recession in the U.S., particularly in the commercial markets, and by slowing demand after the September 11^th terrorist attack.

In 2001, Shaw’s pre-tax operating profit totaled $292 million. Shaw’s operating results in 2001 benefited from lower raw material costs and lower interest costs, partially offset by higher energy costs. Although uncertainty in the U.S. economy persists, management is cautiously optimistic that sales and results will be stable in 2002.

2000 compared to 1999

Revenues from the non-insurance businesses increased $1,959 million (32.5%) in 2000 as compared to 1999. Operating profits of $1,400 million during 2000 increased $570 million (68.7%) from the comparable 1999 amount. Business acquisitions completed during 1999 and 2000 account for a significant portion of the revenue increase. The acquisitions of Jordan’s Furniture (November 1999), CORT Business Services (February 2000), Ben Bridge Jeweler (July 2000) and Justin Brands and Acme Brick (August 2000) account for about 50% of the increase. The flight services segment and the finance and financial products segment account for most of the remaining comparative increase. Most of the increase in the flight services segment was attributed to Executive Jet which produced significant increases in revenues from both flight operations and aircraft sales. Operating profits for the finance and financial products segment increased $413 million primarily as a result of realized gains on a large portfolio of fixed maturity securities acquired during 1999 pursuant to a proprietary trading strategy. These securities were sold during 2000. The aforementioned business acquisitions in the aggregate accounted for substantially all of the remaining increase in operating profits.

Goodwill amortization and other purchase-accounting adjustments reflect the after-tax effect on net earnings with respect to the amortization of goodwill of acquired businesses and the amortization of fair value adjustments to certain assets and liabilities which were recorded at the business acquisition dates. Amortization of goodwill was $572 million in 2001, $715 million in 2000 and $477 million in 1999. Goodwill amortization in 2000 included a charge of $219 million to write-off the remaining goodwill related to Dexter Shoe (see Note 1(g) to the Consolidated Financial Statements).

As a result of new accounting standards issued by the FASB in June 2001, accounting for goodwill has changed. Goodwill arising from business acquisitions completed after July 1, 2001 is not subject to systematic amortization. In addition, the systematic amortization of goodwill related to businesses acquired before June 30, 2001 will be discontinued effective January 1, 2002. The new accounting standards require that goodwill of acquired businesses continue to be tested for impairment. Berkshire has not fully completed an assessment of the new standards, however, adoption of the new standards is expected to have a significant impact on earnings.

Other purchase-accounting adjustments consist primarily of the amortization of the excess market value over the historical cost of fixed maturity investments that existed as of the date of certain business acquisitions. Such excess is included in Berkshire’s cost of the investments and is being amortized over the estimated remaining lives of the assets. The unamortized excess remaining in the cost of fixed maturity investments was $565 million at December 31, 2001, $680 million at December 31, 2000 and $940 million at December 31, 1999.

Realized investment gain has been a recurring element in Berkshire's net earnings for many years. The amount ¾ recorded when investments are sold, other-than-temporarily impaired or in certain situations, as required by GAAP, when investments are marked-to-market with the corresponding gain or loss included in earnings ¾ may fluctuate significantly from period to period, with a meaningful effect upon Berkshire's consolidated net earnings. However, the amount of realized investment gain or loss for any given period has no predictive value, and variations in amount from period to period have no practical analytical value, particularly in view of the net unrealized price appreciation now existing in Berkshire's consolidated investment portfolio.

While the effects of realized gains are often material to the Consolidated Statements of Earnings, such gains often produce a minimal impact on Berkshire's total shareholders' equity. This is due to the fact that Berkshire's investments are carried in prior periods' Consolidated Financial Statements at market value with unrealized gains, net of tax, reported as a separate component of shareholders' equity.

Berkshire's Consolidated Balance Sheet includes a substantial amount of assets and liabilities whose fair values are subject to market risks. Berkshire’s significant market risks are primarily associated with interest rates and equity prices and to a lesser degree financial products. The following sections address the significant market risks associated with Berkshire's business activities.

Interest Rate Risk

This section discusses interest rate risks associated with Berkshire’s financial assets and liabilities. Berkshire's management prefers to invest in equity securities or to acquire entire businesses based upon the principles discussed in the following section on equity price risk. When unable to do so, management may alternatively invest in bonds or other interest rate sensitive instruments. Berkshire's strategy is to acquire securities that are attractively priced in relation to the perceived credit risk. Management recognizes and accepts that losses may occur. Berkshire has historically utilized a modest level of corporate borrowings and debt. Further, Berkshire strives to maintain the highest credit ratings so that the cost of debt is minimized. Berkshire utilizes derivative products to manage interest rate risks to a very limited degree.

The fair values of Berkshire's fixed maturity investments and borrowings under investment agreements, notes payable and other debt will fluctuate in response to changes in market interest rates. Increases and decreases in prevailing interest rates generally translate into decreases and increases in fair values of those instruments. Additionally, fair values of interest rate sensitive instruments may be affected by the credit worthiness of the issuer, prepayment options, relative values of alternative investments, the liquidity of the instrument and other general market conditions.

The following table summarizes the estimated effects of hypothetical increases and decreases in interest rates on assets and liabilities that are subject to interest rate risk. It is assumed that the changes occur immediately and uniformly to each category of instrument containing interest rate risks. The hypothetical changes in market interest rates do not reflect what could be deemed best or worst case scenarios. Variations in market interest rates could produce significant changes in the timing of repayments due to prepayment options available. For these reasons, actual results might differ from those reflected in the table which follows. Dollars are in millions.

Equity Price Risk

Strategically, Berkshire strives to invest in businesses that possess excellent economics, with able and honest management and at sensible prices. Berkshire's management prefers to invest a meaningful amount in each investee. Accordingly, Berkshire's equity investments are concentrated in relatively few investees. At year-end 2001 and 2000, over 70% of the total fair value of investments in equity securities was concentrated in four investees.

Berkshire's preferred strategy is to hold equity investments for very long periods of time. Thus, Berkshire management is not necessarily troubled by short term price volatility with respect to its investments provided that the underlying business, economic and management characteristics of the investees remain favorable. Berkshire strives to maintain above average levels of shareholder capital to provide a margin of safety against short term equity price volatility.

The carrying values of investments subject to equity price risks are based on quoted market prices or management's estimates of fair value as of the balance sheet dates. Market prices are subject to fluctuation and, consequently, the amount realized in the subsequent sale of an investment may significantly differ from the reported market value. Fluctuation in the market price of a security may result from perceived changes in the underlying economic characteristics of the investee, the relative price of alternative investments and general market conditions. Furthermore, amounts realized in the sale of a particular security may be affected by the relative quantity of the security being sold.

The table below summarizes Berkshire's equity price risks as of December 31, 2001 and 2000 and shows the effects of a hypothetical 30% increase and a 30% decrease in market prices as of those dates. The selected hypothetical change does not reflect what could be considered the best or worst case scenarios. Indeed, results could be far worse due both to the nature of equity markets and the aforementioned concentrations existing in Berkshire's equity investment portfolio. Dollars are in millions.

Financial Products Risk

Gen Re Securities Holdings Limited ("GRS") operates as a dealer in various types of derivative instruments in conjunction with offering risk management products to its clients. As previously noted, in January 2002, General Re announced that it would commence a long-term run off of GRS’s business. It is expected that the orderly run-off will take several years to complete. GRS monitors its market risk on a daily basis across all swap and option products by estimating the effect on operating results of potential changes in market variables over a one week period, based on historical market volatility, correlation data and informed judgment. This evaluation is performed on an individual trading book basis, against limits set by individual book, to a 99% probability level. GRS sets market risk limits for each type of risk, and for an aggregate measure of risk across all trading books, based on a 99% probability that movements in market rates will not affect the results from operations in excess of the risk limit over a one week period. GRS’s weekly aggregate market risk limit was $22 million in 2001. In 2001, there were no days where the actual losses exceeded the estimated value at risk and no days where the value at risk exceeded the aggregate limit. In addition to these daily and weekly assessments of risk, GRS prepares periodic stress tests to assess its exposure to extreme movements in various market risk factors.

The table below shows the highest, lowest and average value at risk, as calculated using the above methodology, by broad category of market risk to which GRS is exposed over one week intervals. Dollars are in millions.

GRS evaluates and records a fair-value adjustment to recognize counterparty credit exposure and future costs associated with administering each contract. The expected credit exposure for each trade is initially established on the trade date and is determined through the use of a proprietary credit exposure model that is based on historical default probabilities, market volatilities and, if applicable, the legal right of setoff. These exposures are continually monitored and adjusted due to changes in the credit quality of the counterparty, changes in interest and currency rates or changes in other factors affecting credit exposure.

Berkshire’s balance sheet continues to reflect significant liquidity and a strong capital base. Consolidated shareholders’ equity at December 31, 2001 totaled $58.0 billion. Consolidated cash and invested assets, excluding assets of finance and financial products businesses totaled approximately $72.5 billion at December 31, 2001 compared to $77.1 billion at December 31, 2000, including approximately $5.3 billion in cash and cash equivalents at the end of each year. During 2001 Berkshire deployed about $4.7 billion in cash for business acquisitions. Cash utilized in these acquisitions was generated internally. Also contributing to the decline in invested assets was a $7.0 billion reduction in unrealized gains in Berkshire’s investments in equity securities. Partially offsetting these declines was cash flows generated from operations of approximately $6.6 billion, primarily from insurance operations.

Berkshire’s consolidated borrowings under investment agreements and other debt, excluding finance businesses, totaled $3,485 million at December 31, 2001 compared to $2,663 million at December 31, 2000. The increase in borrowings during 2001 relates primarily to pre-acquisition debt of Shaw and Johns Manville, as well as an increase in borrowings by Executive Jet to finance aircraft inventory and core fleet acquisitions. During the second quarter of 2001, Berkshire filed a shelf registration to issue up to $700 million in new debt securities at a future date. The intended purpose of the future issuance of debt is to fund the repayment of currently outstanding borrowings of certain Berkshire subsidiaries. The timing and amount of the debt to be issued under the shelf registration has not yet been determined.

As of December 31, 2001, Berkshire’s borrowings under investment agreements and other debt, excluding finance businesses, included commercial paper and other short-term borrowings totaling $1.8 billion. Most of these borrowings were by Executive Jet and Shaw for operating needs. Berkshire is also contingently liable for the unpaid debt of Berkadia LLC through a primary guaranty of 90% of the debt and a secondary guaranty of the remaining 10% of the loan. At December 31, 2001, Berkadia’s unpaid loan balance was $4.9 billion, of which $1.0 billion has been prepaid subsequent to the end of 2001. See Note 9 to the Consolidated Financial Statements for additional information. Most of Berkshire’s borrowings under investment agreements contain contractual provisions that could require Berkshire to collateralize or prepay the outstanding obligations upon a downgrade in Berkshire’s senior debt ratings.

Invested assets of the finance and financial products businesses totaled $41.6 billion at December 31, 2001 compared to $16.8 billion at December 31, 2000. Most of the increase was due to increased investments in U.S. Treasury securities and obligations of U.S. government-sponsored enterprises. These investments were primarily financed through repurchase agreements. The repurchase agreements require that fair value of the pledged collateral exceed the amount borrowed. A decline in the value of the investments pledged would require pledges of cash or additional collateral. Under the contractual terms with counterparties to its derivatives trading activities, General Re Securities ("GRS") may be required to post collateral against trading account liabilities.

Notes payable and other borrowings of Berkshire’s finance and financial products businesses totaled $9.0 billion at December 31, 2001 and $2.1 billion at December 31, 2000. The balance at December 31, 2001 includes Berkadia’s outstanding term loan of $4.9 billion (see Note 9 to the Consolidated Financial Statements) and $613 million of debt of XTRA Corporation, which Berkshire acquired on September 20, 2001. The remaining increase was due to increased commercial paper borrowings by GRS to fund short-term liquidity needs.

Berkshire believes that it currently maintains sufficient liquidity to cover its existing liquidity requirements and provide for contingent liquidity needs.

Investors are cautioned that certain statements contained in this document, as well as some statements by the Company in periodic press releases and some oral statements of Company officials during presentations about the Company, are "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Act"). Forward-looking statements include statements which are predictive in nature, which depend upon or refer to future events or conditions, which include words such as "expects," "anticipates," "intends," "plans," "believes," "estimates," or similar expressions. In addition, any statements concerning future financial performance (including future revenues, earnings or growth rates), ongoing business strategies or prospects, and possible future Company actions, which may be provided by management are also forward-looking statements as defined by the Act. Forward-looking statements are based on current expectations and projections about future events and are subject to risks, uncertainties, and assumptions about the Company, economic and market factors and the industries in which the Company does business, among other things. These statements are not guaranties of future performance and the Company has no specific intention to update these statements.

Actual events and results may differ materially from those expressed or forecasted in forward-looking statements due to a number of factors. The principal important risk factors that could cause the Company's actual performance and future events and actions to differ materially from such forward-looking statements, include, but are not limited to, changes in market prices of Berkshire's significant equity investees, the occurrence of one or more catastrophic events, such as an earthquake or hurricane that causes losses insured by Berkshire's insurance subsidiaries, changes in insurance laws or regulations, changes in Federal income tax laws, and changes in general economic and market factors that affect the prices of securities or the industries in which Berkshire and its affiliates do business, especially those affecting the property and casualty insurance industry.