NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2016 AND 2015
1.
|
DESCRIPTION OF THE PLAN
|
The following brief description of The Lubrizol Corporation Employees Profit Sharing and Savings Plan (the
Plan) is provided for general information purposes only. Participants should refer to the Plan document for more complete information.
General
The Lubrizol Corporation (the Company) established the Plan for the purpose of
encouraging employee long-term,
tax-deferred
savings for retirement and employee ownership of common shares of the Company. The Plan is subject to the reporting and disclosure requirements, the vesting
standards and the fiduciary responsibility requirements of the Employee Retirement Income Security Act of 1974, as amended (ERISA).
On January 1, 2016, the company amended the Plan to provide for the mergers of the Vesta Intermediate Funding Inc. Profit
Sharing Plan and Trust, the ExtruMed, Inc. 401(k) Profit Sharing Plan, the Particle Sciences, Inc. 401(k) Profit Sharing Plan and Trust and the Warwick Chemicals USA, Inc. 401(k) Plan. The physical transfer of assets of $14,610,855 into the Plan
took place in February 2016.
Administration
The Plan is administered by the Employee Benefits
Administrative Committee (the Committee), which is appointed by the Management Advisory Committee (the MAC) of the Company. The Committees powers and duties relate to the issuance of interpretive rules and
regulations in accordance with the Plan document, including determination of the method and timing of benefit distributions and authorization of disbursements from the Plan.
The Plan is a participating plan in The Lubrizol Corporation Employees Profit Sharing and Savings Plan Trust
(Master Trust) along with The Lubrizol Corporation
Age-Weighted
Defined Contribution Plan (the AWDC Plan). The assets of the above plans are part of the Master Trust.
The Retirement and Savings Plans Investment Committee (the Investment Committee), which is also appointed by the
MAC, reviews the investment policies and procedures for the Plan; it also monitors the performance of, and fees and expenses charged by, the investment alternatives offered under the Plan to ensure the consistency of the investment alternatives with
the Plans investment policies; approves changes to the investment alternatives offered under the Plan; monitors the asset levels of the Master Trust; and appoints and may remove the Trustee for the Master Trust. The assets within the Master
Trust are maintained and administered by the Plans Trustee, Voya Institutional Trust Company and the Plans recordkeeper, Voya Institutional Plan Services. The Plan document and trust agreement provide that the Trustee of the Plan shall
hold, invest, reinvest, manage, and administer all assets of the Plan as a trust fund for the exclusive benefit of participants and their beneficiaries. Each plan (the Plan and the AWDC Plan) has the ability to direct its own investments within the
Master Trust.
Participation and Contributions
All regular employees of the Company and of participating
subsidiaries and affiliates are eligible for participation on the first day of covered employment.
The combined
before-tax
(CODA),
after-tax
Roth 401(k) (Roth) and
after-tax
(Supplemental) contributions are
limited to 75% of eligible compensation for both highly and
non-highly
compensated employees. Effective January 1, 2015, Company Matching contributions changed from 50% of an employees combined
CODA, Roth and Supplemental contributions up to 6% of the employees eligible compensation to 100% of an employees combined CODA, Roth and Supplemental contributions up to 6% of the employees eligible compensation. This matching
contribution allows the Plan to meet the rules of a 401(k) safe harbor plan. The maximum eligible compensation set by the Internal Revenue Service for purposes of allocating Plan contributions was $265,000 for 2016 and 2015.
4
CODA and Company Matching contributions are excluded from the participants
taxable income until such amounts are received by them as a distribution from the Plan. Roth and Supplemental contributions are made on an
after-tax
basis and are therefore included in the participants
taxable income in the period of contribution. Participants who turned at least age 50 during 2016 or 2015 were eligible to elect to make an additional
before-tax
or Roth
Catch-up
contribution of up to $6,000 in 2016 and in 2015, if they met one of the following conditions:
|
a.
|
Elected to make
before-tax
and Roth 401(k) contributions of 75% of
eligible compensation; or
|
|
b.
|
Contributed $18,000 for the 2016 or the 2015 Plan year.
|
Newly eligible employees, both new hires and rehires, are subject to automatic enrollment. Participants will be automatically
enrolled in the Plan at a CODA contribution rate of 3%.
There is a
30-day
opt-out
period during which participants may change their CODA contribution rate or elect not to contribute
(opt-out).
If participants do not make a positive
election or
opt-out,
contributions will begin to be withheld as soon as administratively possible following the end of the 30 day period. CODA contributions and Company Matching contributions will be invested
in the State Street Target Retirement Fund that most closely matches the participants expected retirement date based on age 65. Once enrolled, participants may choose to change the election percentage, reallocate investments or stop
contributing at any time.
For participants who become participants on or before January 1 of the current year with
plan contribution rates between 0% and 5% of pay (whether those contributions are CODA, Roth, Supplemental, or any combination) as of July 1 of the current year, such participants will automatically have their CODA contribution rate increase to
the next higher full percent starting the first full pay period after July 1 of the current year (or as soon thereafter as administratively practicable). Automatic escalation will continue each year until participants are contributing 6%.
For participants who become participants after January 1 of any year, automatic escalation will work as described above,
except that the first automatic escalation will not occur until July 1 of the year following the year a participant was hired.
Any additional contributions made to a participants Plan account as a result of auto escalation will be invested in the
Plans core investment funds in accordance with the participants election on file. If a participant does not have an election on file, those amounts will be invested in the State Street Target Date Retirement Fund that most closely
matches the participants expected retirement date based on age 65.
Participants have the right to
opt-out
of their scheduled auto escalation before it would otherwise take effect. The
opt-out
election affects only the
12-month
period
for which the election is made. If the participant does not want to be automatically escalated on the following July 1, the participant will need to
opt-out
again.
The Company may also contribute a portion of its adjusted consolidated net income, as defined in the Plan document, to the
Plan (Profit Sharing). Profit Sharing contributions are determined by the Organization and Compensation Committee of the Board of Directors of the Company and are allocated to each participants profit sharing account based upon the
year-end
compensation of the employee, as defined in the Plan document. Due to the increased matching contribution effective January 1, 2015 future Profit Sharing contributions are not anticipated.
In addition to the above contributions, the Plan provides for rollover contributions (described in Sections 402, 403 and 408
of the Internal Revenue Code) and transferred contributions from certain other
tax-qualified
plans by or on behalf of an employee in accordance with procedures established by the Company, except that the Plan
does not accept Roth rollover contributions.
Participant Accounts
Each participants account is
credited with the participants contributions, allocations of the Company Matching and Profit Sharing contributions, income from investments, gains or losses on sales of investments, appreciation or depreciation in the market value of
investments and expenses, if any. The benefit to which a participant is entitled is the benefit that can be provided from the participants vested account.
5
Investment of Contributions
Participants elect investment of
their CODA, Roth and Supplemental contributions in one or more of the Plans investment funds in 1% increments. All participants, regardless of age or vested ownership percentage, are able to direct the investment of the Company Matching
contributions made to their account into any of the 401(k) investment funds. A participant may elect to change his or her investment elections as to future contributions and may also elect to reallocate once daily a portion or all of past CODA,
Roth, Supplemental, Company Matching,
Catch-up,
Roth
Catch-up
and Profit Sharing contributions among the available investment funds in increments of 1% of the total
amount to be reallocated. Participants may elect investment of their CODA, Roth and Supplemental contributions, up to 50% of their vested account balance, in one or more mutual funds through a self-directed brokerage account.
If an employee does not make an investment election, any CODA, Roth, Supplemental, Company Matching,
Catch-up,
Roth
Catch-up
and Profit Sharing contributions will be deposited in the target retirement fund with the date that most closely matches a retirement age of 65, which
meets the Department of Labors definition as a qualified default investment alternative.
Vesting
and Distributions
Effective January 1, 2015, vesting in Company Matching contributions and Profit Sharing contributions changed from 33% for each full year of eligible service and 100% vesting after three years to immediate 100%
vesting in Company Matching contributions. Participants are immediately vested in employee contributions.
Participants
may request voluntary withdrawals of their Supplemental contributions and may also apply for hardship withdrawals from their CODA, Roth,
Catch-up
and Roth
Catch-up
contributions, subject to adherence to Internal Revenue Service regulations as determined by the Plans recordkeeper, or request an
in-service
distribution upon attainment of age
59-1/2.
Active participants may request an
in-service
distribution of Company Matching contributions attributable to periods prior to January 1, 2015 at age 55, and
Company Matching contributions attributable to periods on and after January 1, 2015 at age 59
1
⁄
2
.
When a participants employment terminates, his or her vested account balances may be distributed in a single lump sum.
Participants may also elect installment distribution payments or partial withdrawals of their vested account balance. Amounts distributed from the Berkshire Hathaway Class B Stock Fund are paid in the form of Class B shares of Berkshire
Hathaway or their cash equivalent.
Notes Receivable From Participants
The Plan allows participants to
borrow up to the lesser of $50,000, 100% of the value of their CODA, Roth,
Catch-up,
vested Matching and Rollover accounts, or 50% of their vested total account balance. Each participant is restricted to three
outstanding loans at a time, and the minimum loan is $1,000.
Participant loans accrue interest at a rate fixed at the
time of the borrowings. Loan repayments are made through payroll deductions and are credited to the participants account. The repayment period may not be more than five years except for loans issued to purchase a principal residence, which may
be repaid within fifteen years.
Forfeited Accounts
Forfeited nonvested accounts are used to reduce
future Company contributions. In 2016 and 2015, the forfeiture balance at year end totaled $46,553 and $45,622, respectively.
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
Basis of Accounting
Each fund of the Plan is accounted for separately. The accounts of these funds are
maintained, and the accompanying financial statements have been prepared, on the accrual basis of accounting.
Investments
held by a defined contribution plan are required to be reported at fair value, except for fully benefit-responsive investment contracts. Contract value is the relevant measure for the portion of the net assets available for benefits of a defined
contribution plan attributable to fully benefit-responsive investment contracts because contract value is the amount participants normally would receive if they were to initiate permitted transactions under the terms of the Plan.
6
New Accounting Pronouncements
In February 2017, the FASB
issued ASU
No. 2017-06,
Plan Accounting: Defined Benefit Pension Plans (Topic 960), Defined Contribution Pension Plans (Topic 962), and Health and
Welfare Benefit Plans (Topic 965), Employee
Benefit Plan Master Trust Reporting
. ASU
No. 2017-06
removes the requirement to disclose the percentage interest of a master trust in which a plan holds a divided interest, and requires that
plans disclose the dollar amount of their interest in each general type of assets and liabilities within the master trust. The effective date of the ASU is for fiscal years beginning after December 15, 2018; however, early adoption is
permitted. The Plan has not early adopted, and believes that this standard will not have a significant effect on its financial statements.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and changes therein, and disclosure of contingent assets and liabilities. Actual results could
differ from those estimates.
Valuation of Investments
Investments are reported at fair value other than
the guaranteed investment contracts (GICs) included in the Stable Value Fund, which are stated at contract value, which is equivalent to cost plus reinvested interest. Purchases and sales of securities are recorded on a trade-date basis.
Interest income is recorded on a cash basis. Dividends are recorded on the
ex-dividend
date. Net investment gain (loss) includes gains and losses on investments bought and sold, as well as held, during the
year.
The value of all funds and the interests of participants under each fund are calculated on a daily basis
based on the best information available, which may include estimated values. See Note 5 for discussion of fair value measurements.
Notes Receivable From Participants
Notes receivable from participants are measured at their unpaid
principal balance plus any accrued but unpaid interest.
Expenses
No fees are charged to participants
for Plan administrative and operating expenses. Plan administrative and operating expenses are either paid directly by the Company or are offset with revenue sharing payments received by the Plan Trustee and recordkeeper from investment fund
managers. The Company monitors the payments received by the Plan service providers to ensure that they are used properly for qualifying plan administrative and operating expenses. The Company reserves the right to initiate charges to participants
for Plan administrative and operating costs in the future.
A redemption fee of 1% is imposed by the Fidelity Advisors
Diversified International Fund on money transferred out of the fund less than 30 days following a transfer of money into the fund. A participants account is charged a fee of $75.00 for each loan taken by the participant. If expedited mailing
of a loan or distribution check is requested, a $50.00 fee is charged to the participants account.
A participant who
invests in the self-directed brokerage account is charged a $50.00 annual fee which is deducted quarterly ($12.50 per quarter) from the participants account. In addition, any mutual fund investment purchased or sold through the self-directed
brokerage account may carry with it additional fees. The TD Ameritrade Fee Schedule provided to participants details such fees including a redemption fee of $49.99 for almost any mutual fund investment that is not held for at least 90 days.
Other fees primarily represent investment management advisory fees that are charged to individual participants who select this
fee-based
service. The fees for the aforementioned services are paid to Voya Retirement Investment Advisors.
Payment of Benefits
Benefits are recorded when paid.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year
presentation.
3.
|
DESCRIPTION OF THE INVESTMENT FUNDS
|
The Plan offers various investment alternatives, maintains separate accounts for each participant, and invests
contributions and earnings, as required by the Plan or as directed by each participant, in one or more of the following funds:
7
The Stable Value Fund
invests in stable value investment contracts, issued
by banks, insurance companies and other financial institutions and a diversified portfolio of fixed income instruments including U.S. Government and agency securities, mortgage-backed securities, asset-backed securities, corporate bonds, interest
rate futures and options. Goldman Sachs Asset Management manages the investments of the Fund.
The Core Fixed Income
Fund
invests in a mutual fund, the Baird Aggregate Bond Fund. The fund invests in fixed income instruments including U.S. Government and corporate bond securities, mortgage and asset-backed securities, U.S. dollar and
non-U.S.
dollar denominated securities of
non-U.S.
issuers.
The Target Retirement Income Fund
is an actively managed collective trust fund by State Street Global Advisors and
invests in a combination of U.S. and international equity securities, fixed income securities, alternative investments such as real estate securities index funds and commodity index funds and cash with a current target asset allocation of 65% fixed
income and 35% in equities, real estate and commodities. The funds objective is to allocate its assets across multiple asset classes while seeking to achieve the appropriate level of risk for a retired participant or a participant who
anticipates retiring in the near-term.
The Target Retirement 2020 Fund
is an actively managed collective trust fund
by State Street Global Advisors and invests in a combination of U.S. and international equity securities, fixed income securities, alternative investments such as real estate securities index funds and commodity index funds and cash with a current
target asset allocation of 45% fixed income and 55% in equities, real estate and commodities. The funds objective is to allocate its assets across multiple asset classes while seeking to achieve the appropriate level of risk given a
participants anticipated retirement date in or within a few years of 2020.
The Target Retirement 2030 Fund
is
an actively managed collective trust fund by State Street Global Advisors and invests in a combination of U.S. and international equity securities, fixed income securities, alternative investments such as real estate securities index funds and
commodity index funds and cash with a current target asset allocation of 26% fixed income and 74% equities and commodities. The funds objective is to allocate its assets across multiple asset classes while seeking to achieve the appropriate
level of risk given a participants anticipated retirement date in or within a few years of 2030.
The Target
Retirement 2040 Fund
is an actively managed collective trust fund by State Street Global Advisors and invests in a combination of U.S. and international equity securities, fixed income securities, alternative investments such as real estate
securities index funds and commodity index funds and cash with a current target asset allocation of 14% fixed income and 86% equities and commodities. The funds objective is to allocate its assets across multiple asset classes while seeking to
achieve the appropriate level of risk given a participants anticipated retirement date in or within a few years of 2040.
The Target Retirement 2050 Fund
is an actively managed collective trust fund by State Street Global Advisors and invests
in a combination of U.S. and international equity securities, fixed income securities, alternative investments such as real estate securities index funds and commodity index funds and cash with a current target asset allocation of 10% fixed income
and 90% equities and commodities. The funds objective is to allocate its assets across multiple asset classes while seeking to achieve the appropriate level of risk given a participants anticipated retirement date in or within a few
years of 2050.
The Target Retirement 2060 Fund
is an actively managed collective trust fund by State Street Global
Advisors and invests in a combination of U.S. and international equity securities, fixed income securities, alternative investments such as real estate securities index funds and commodity index funds and cash with a current target asset allocation
of 10% fixed income and 90% equities and commodities. The funds objective is to allocate its assets across multiple asset classes while seeking to achieve the appropriate level of risk given a participants anticipated retirement date in
or within a few years of 2060.
The Large Cap Core Equity Passive Fund
invests in a collective trust fund, the State
Street S&P 500 Index Fund maintained by State Street Global Advisors, which invests in the common stocks included in the Standard & Poors 500 Index, futures contracts and other derivative securities. The funds objective is
to closely replicate the performance of the common stocks included in the Standard & Poors Composite Stock Price Index.
8
The Large Cap Value Equity Passive Fund
invests in a collective trust
fund, the State Street Russell Large Cap Value Index Fund maintained by State Street Global Advisors, which invests in the common stocks included in the FTSE Russell 1000 Value Index, futures contracts and other derivative securities. The
funds objective is to closely replicate the performance of the FTSE Russell 1000 Value Index.
The Large Cap
Growth Equity Passive Fund
invests in a collective trust fund, the State Street Russell Large Cap Growth Index Fund maintained by State Street Global Advisors, which invests in the common stocks included in the FTSE Russell 1000 Growth Index,
futures contracts and other derivative securities. The funds objective is to closely replicate the performance of the FTSE Russell 1000 Growth Index.
The Mid Cap Value Equity Fund
invests in a mutual fund, the Vanguard Selected Value Fund, which invests in equity
securities that are believed to be undervalued.
The Mid Cap Growth Equity Fund
invests in a mutual fund, the
MassMutual Select Mid Cap Growth Equity Fund, which invests primarily in securities of companies that are believed to have above-average earnings growth potential.
The Small Cap Value Equity Fund
invests in a mutual fund, the DFA US Small Cap Value Fund. The fund invests primarily in
a portfolio of common stocks of small capitalization companies that are believed to be undervalued versus their peer group and have the greatest potential for significant appreciation.
The Small Cap Growth Equity Fund
invests in a mutual fund, the Hartford Small Cap Growth HLS Fund, which invests
primarily in a portfolio of common stocks of small market capitalization companies that are believed to have superior growth potential.
The International Core Equity Fund
invests in a mutual fund, the Fidelity Advisors Diversified International Fund Z,
which invests in a diversified portfolio of common stocks and other equity-like securities of issuers domiciled outside the United States.
The International Small Cap Equity Fund
invests in a mutual fund, the Templeton Institutional Foreign Smaller Companies
Fund. The fund invests primarily in a diversified portfolio of equity securities with small market capitalizations that are traded principally in markets outside the United States.
The Emerging Markets Equity Fund
invests in a mutual fund, the DFA Emerging Markets Core Equity Fund, which invests in a
diversified portfolio of equity securities of issuers domiciled in the Emerging Markets.
The Berkshire Hathaway
Class
B Stock Fund
consists of Class B shares of Berkshire Hathaway and temporary investments in the State Street Government Short Term Fund.
The self-directed brokerage account is a brokerage account offered in the Plan and provided through TD Ameritrade. It gives
participants access to more than 13,000 mutual funds (of which more than 2,100 are
no-load,
no-transaction-fee
(NTF) mutual
funds). Unlike the Plans current investment options, transaction fees and operating expense fees generally apply to the mutual funds available through the self-directed brokerage account.
Participants may invest up to 50% of their total vested Plan account balance through the self-directed brokerage account. The
minimum initial transfer into the self-directed brokerage account must be $1,000 per account. Participants will need to establish separate accounts (each with a $1,000 minimum and subject to applicable fees) for amounts transferred from
before-tax
and Roth 401(k) accounts. The mutual fund participants selection may also require a minimum investment.
An investment in the self-directed brokerage account must come from the current Plan
balance through a funds transfer; participants cannot elect to directly invest future contributions, including loan repayments, into the self-directed brokerage account.
Effective July 1, 2015 no more than 50% of a participants future investment elections may be invested in the
Berkshire Hathaway Class B Stock Fund.
See Note 10 for subsequent events.
9
4.
|
INVESTMENT CONTRACTS WITH THIRD PARTIES
|
The Plan has an investment contract with Goldman Sachs Asset Management through which both traditional and synthetic GICs are
held in the Plans Stable Value Fund. Traditional GICs are unsecured, general account obligations of insurance companies. The obligation is backed by the general account assets of the insurance company that writes the investment contract. The
crediting rate on this product is typically fixed for the life of the investment. A separate account GIC is similar to a traditional GIC except investments are segregated in separate accounts maintained by an insurance company for the benefit of the
investors. The total return of the segregated account assets supports the separate account GICs return. The crediting rate on this product will reset periodically but will not have an interest rate of less than 0%.
General fixed maturity synthetic GICs consist of an asset or collection of assets that are owned by the fund and a
benefit-responsive, book value wrap contract purchased for the portfolio. The wrap contract provides book value accounting for the asset and assures that book value, benefit-responsive payments will be made for participant-directed withdrawals from
the Stable Value Fund. The crediting rate of the contract is set at the start of the contract and typically resets every quarter. The initial crediting rate is established based on the market interest rates at the time the initial asset is purchased
but will not be less than 0%.
Constant duration synthetic GICs consist of a portfolio of securities owned by the fund and
a benefit-responsive, book value wrap contract purchased for the portfolio. The wrap contract amortizes gains and losses of the underlying securities over the portfolio duration and assures that book value, benefit-responsive payments will be made
for participant-directed withdrawals from the Stable Value Fund. The crediting rate on a constant duration synthetic GIC resets every quarter based on the book value of the contract and the market yield, market value and average duration of the
underlying assets. The crediting rate aims at converging the book value of the contract and the market value of the underlying portfolio over the duration of the contract and therefore will be affected by movements in interest rates and/or changes
in the market value of the underlying portfolio. The initial crediting rate is established based on the market interest rates at the time the underlying portfolio is first put together but will not be less than 0%.
Withdrawals and transfers resulting from certain events, including employer initiated events and changes in the qualification
of the Plan, may limit the ability of the Stable Value Fund to transact at book or contract value. These events may cause liquidation of all or a portion of a contract at market value. The Plan administrator does not believe that the occurrence of
any event that would limit the Plans ability to transact at book or contract value is probable. All contracts are fully benefit-responsive.
The components of the Stable Value Fund held within the Master Trust (at contract value) as of December 31, 2016 and 2015
are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
Traditional GICs
|
|
$
|
7,319
|
|
|
$
|
13,021
|
|
|
Synthetic GICs
|
|
|
208,569
|
|
|
|
184,120
|
|
|
Cash and equivalents
|
|
|
5,628
|
|
|
|
13,254
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
221,516
|
|
|
$
|
210,395
|
|
|
|
|
|
|
|
|
|
|
|
|
5.
|
INTEREST IN THE LUBRIZOL CORPORATION EMPLOYEES PROFIT SHARING AND SAVINGS PLAN TRUST
|
The Plans investments are held in a Master Trust for the investment of assets of the Plan and
the AWDC Plan. The value of the Plans interest in the Master Trust is based on the beginning of year value of the Plans interest in the Master Trust plus actual contributions and allocated investment income less actual distributions and
10
allocated expenses. The Plans interest in the net assets of the Master Trust was 98.47% at December 31, 2016, and 99.04% at December 31, 2015. Investment income and expenses
within the Master Trust are allocated to the individual plans based on the underlying individual participants activity and account balances.
The Plan estimates the fair value of investments in the Master Trust using available market information and generally accepted
valuation methodologies. Fair value is defined as the price that would be received to sell an asset or would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. The inputs used to measure
fair value are classified into three levels: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly
observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.
The following is a description of the valuation methodologies used for assets of the Master Trust measured at fair value:
|
|
|
Berkshire Hathaway Class B stock fund: Class B shares of Berkshire Hathaway (Symbol
BRK-B)
are valued at the closing price as reported on the New York Stock Exchange. The fund also consists of temporary investments in the State Street Government Short Term Fund for liquidity purposes and is
therefore classified within Level 2 of the valuation hierarchy.
|
|
|
|
Mutual funds: Valued at the net asset value (NAV) as reported on various stock exchanges and
classified within Level 1 of the valuation hierarchy.
|
|
|
|
Self-directed brokerage accounts: Valued at the NAV as reported on various stock exchanges and classified
within Level 1 of the valuation hierarchy.
|
|
|
|
Common collective trust funds: Valued using the NAV provided by the administrator of the trust and classified
within Level 2 of the valuation hierarchy. The NAV is based on the value of the underlying assets owned by the trust, minus its liabilities, and then divided by the number of shares outstanding.
|
The methods described above may produce a fair value calculation that may not be indicative of net realizable value or
reflective of future fair values. There have been no changes in the methodologies used at December 31, 2016 and 2015. Furthermore, while the Plan believes its valuation methods are appropriate and consistent with other market participants, the
use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.
The following table sets forth by level, within the fair value hierarchy, the investments of the Master Trust as of
December 31, 2016 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Berkshire Hathaway Class B stock fund
|
|
$
|
-
|
|
|
$
|
66,338
|
|
|
$
|
-
|
|
|
$
|
66,338
|
|
Mutual funds
|
|
|
220,971
|
|
|
|
-
|
|
|
|
-
|
|
|
|
220,971
|
|
Self-directed brokerage accounts
|
|
|
5,846
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,846
|
|
Common collective trust funds
|
|
|
-
|
|
|
|
666,562
|
|
|
|
-
|
|
|
|
666,562
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
226,817
|
|
|
$
|
732,900
|
|
|
$
|
-
|
|
|
$
|
959,717
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
Total investments of the Master Trust as of December 31, 2016 (in
thousands):
|
|
|
|
|
Investments at fair value
|
|
$
|
959,717
|
|
Investments at contract value
|
|
|
221,516
|
|
|
|
|
|
|
Total
|
|
$
|
1,181,233
|
|
|
|
|
|
|
Activity of the Master Trust for the year ended December 31, 2016 (in thousands):
|
|
|
|
|
Net appreciation in fair value of investments
|
|
$
|
83,046
|
|
Interest and dividends
|
|
|
7,354
|
|
Net transfers
|
|
|
7,067
|
|
|
|
|
|
|
Total
|
|
$
|
97,467
|
|
|
|
|
|
|
The following table sets forth by level, within the fair value hierarchy, the investments of
the Master Trust as of December 31, 2015 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Berkshire Hathaway Class B stock fund
|
|
$
|
-
|
|
|
$
|
59,672
|
|
|
$
|
-
|
|
|
$
|
59,672
|
|
Mutual funds
|
|
|
210,703
|
|
|
|
-
|
|
|
|
-
|
|
|
|
210,703
|
|
Self-directed brokerage accounts
|
|
|
4,628
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,628
|
|
Common collective trust funds
|
|
|
-
|
|
|
|
598,368
|
|
|
|
-
|
|
|
|
598,368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
215,331
|
|
|
$
|
658,040
|
|
|
$
|
-
|
|
|
$
|
873,371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments of the Master Trust as of December 31, 2015 (in thousands):
|
|
|
|
|
Investments at fair value
|
|
$
|
873,371
|
|
Investments at contract value
|
|
|
210,395
|
|
|
|
|
|
|
Total
|
|
$
|
1,083,766
|
|
|
|
|
|
|
Activity of the Master Trust for the year ended December 31, 2015 (in thousands):
|
|
|
|
|
Net appreciation in fair value of investments
|
|
$
|
(21,464
|
)
|
Interest and dividends
|
|
|
9,431
|
|
Net transfers
|
|
|
(1,092
|
)
|
|
|
|
|
|
Total
|
|
$
|
(13,125
|
)
|
|
|
|
|
|
6.
|
RISKS AND UNCERTAINTIES
|
The Master Trust holds various investment securities. Investment securities are exposed to various risks such as interest
rate, market, and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could
materially affect participants account balances and the amounts reported in the Statement of Net Assets Available for Benefits.
12
7.
|
PARTY-IN-INTEREST
TRANSACTIONS
|
The Plan, through the Master Trust, invests in Class B shares of Berkshire
Hathaway within the Berkshire Hathaway Class B stock fund. During the years ended December 31, 2016 and 2015, 142,760 and 160,238 Class B shares, respectively, of Berkshire Hathaway at a cost of $20,361,682 and $23,026,071
respectively, were purchased within the fund. All purchased shares were acquired at the then current market value on the open market. In addition, during the years ended December 31, 2016 and 2015, the fund sold or distributed to participants
192,582 and 188,407 Class B shares, respectively, of Berkshire Hathaway and received proceeds of $27,161,894 and $26,680,577 respectively. The realized gains on these sales were $2,333,837 and $3,932,252 for 2016 and 2015, respectively.
Fees charged to individual participant accounts for loan initiations, overnight delivery service and brokerage account
maintenance and paid to Voya Institutional Trust Company, the Trustee, were $133,938 and $116,575 in 2016 and 2015, respectively. Fees charged to individual participant accounts for investment advice service and paid to Voya Investment Retirement
Advisors were $377,747 and $337,205 in 2016 and 2015, respectively.
The Plan obtained its latest determination letter dated November 21, 2011, in which the Internal Revenue Service
(IRS) stated that the Plan, as then designed, was in compliance with the applicable requirements of Section 401 of the Internal Revenue Code. The Plan has been amended since receiving this determination letter. However, the Company
believes that the Plan currently is designed and is being operated in compliance with the applicable requirements of the Internal Revenue Code. Therefore, no provision for income taxes has been included in the Plans financial statements.
The Plan administrator has analyzed the tax positions taken by the Plan and has concluded that, as of December 31, 2016,
there are no uncertain positions taken or expected to be taken that would require such recognition or disclosure in the financial statements. As of December 31, 2016, the Plans tax years from 2013 and thereafter remain subject to
examination by the IRS, as well as by other applicable taxing authorities.
The Plan was adopted with the expectation that it will continue indefinitely. The Board of Directors of the Company may,
however, terminate the Plan at any time. In addition, the Board of Directors of any subsidiary may withdraw such subsidiary from the Plan at any time. In the event of termination of the Plan, all participants immediately will become fully vested in
the value of their account balances.
The following fund change is scheduled to become effective August 1, 2017:
|
|
|
Fund removed from the Plans fund
line-up:
|
|
o
|
The Franklin Templeton International Smaller Co. Fund (ticker symbol TFSCX)
|
|
|
|
Fund added to the Plans fund
line-up:
|
|
o
|
Vanguard International Explorer Fund (ticker symbol VINEX)
|
13