buffett-operating

name	buffett-operating
description	Berkshire Hathaway's operating subsidiaries — BNSF, See's Candy, Nebraska Furniture Mart, and Berkshire's philosophy for managing operating businesses
version	1.2-draft
status	DRAFT — not verified against primary sources

⚠️ Berkshire Hathaway Operating Businesses — DRAFT

⚠️ DRAFT — NOT YET VERIFIED AGAINST PRIMARY SOURCES This skill contains significant factual claims — particularly acquisition prices and Buffett quotes — that have not been verified against Berkshire Hathaway primary sources (SEC EDGAR filings, BH annual reports, Buffett shareholder letters). See the Verification Tracker at the end before citing any figures in this skill.

Status: version: 1.2-draft

"Our goal is to have wonderful businesses, purchased at fair prices, with managers that we trust and admire." — Warren Buffett, Berkshire Hathaway Annual Reports

"The key to success is to do business with people you like and trust." — Warren Buffett

Overview

Berkshire Hathaway operates across four major segments: insurance, utilities and energy, railroad and logistics, and manufacturing, retail, and services. Unlike a typical conglomerate that acquires and restructures, Berkshire treats its operating businesses as permanent holdings managed by talented operators given broad autonomy.

Buffett's management philosophy for operating companies differs fundamentally from his stock portfolio: he buys entire businesses when he has deep confidence in the industry, the management, and the price.

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1. Railroad: BNSF Railway

What It Is

BNSF Railway (Burlington Northern Santa Fe) is one of the largest freight railroads in North America, operating approximately 32,500 route miles of track across 28 states and 3 Canadian provinces. It hauls agricultural products, consumer goods, coal, and industrial products.

The Acquisition

• Acquired: February 2009 (transaction closed February 2009)
• Price: ~$34 billion in cash + assumed debt — total enterprise value approximately $44 billion
• Context: This was Berkshire's largest acquisition at the time. Buffett described it as "buying America's future."
• Source: Berkshire Hathaway 2009 Annual Report; Buffett 2009 Letter to Shareholders
• Note: $34B cash + ~$10B debt = ~$44B total enterprise value. [Verification: Confirm exact debt assumption from BH 2009 10-K on SEC EDGAR]

Why Buffett Bought It

Buffett repeatedly called railroads the backbone of the American economy:

"If you want a portrait of the American economy, go stand in the middle of a BNSF yard." — Warren Buffett, Berkshire Hathaway annual meetings [source: Berkshire Hathaway]

"I like railroads. I love the business... [BNSF] is the best railroad in the United States." — Warren Buffett, Berkshire Hathaway shareholder meetings [source: Berkshire Hathaway]

Railroads have significant competitive moats: extremely high barriers to entry (you cannot build a competing railroad), pricing power, and low variable costs.

BNSF CEO Succession

• Matthew Rose led BNSF during the acquisition and was a key figure in Berkshire's decision to buy the railroad. He was a Buffett favorite.
• Carl Ice succeeded Rose as CEO in 2016; Ice had previously run Berkshire's Pampered Chef.
• Source: Berkshire Hathaway 2016 Annual Report

BNSF Under Berkshire

BNSF consistently ranks among Berkshire's most profitable operating subsidiaries. Under Berkshire's ownership, BNSF has continued heavy capital investment in its network.

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2. Utilities & Energy: Berkshire Hathaway Energy

What It Is

Berkshire Hathaway Energy (BHE) is one of the largest regulated utility holding companies in the United States. Key subsidiaries include:

• MidAmerican Energy Holdings — utilities in Iowa, Illinois, Oregon, Utah, and Washington
• NV Energy — Nevada's dominant utility
• Pacific Power and Rocky Mountain Power — regulated utilities in the Western US
• Northern Powergrid — UK electricity distribution business
• BHE Renewables — wind and solar generation
• AltaLink — Alberta, Canada regulated transmission

Key Facts

• BHE is approximately 91% owned by Berkshire Hathaway (with the remainder held by the family of Walter Scott Sr.) [Source: Confirm exact percentage from BH annual reports]
• BHE operates with very little Berkshire oversight — Buffett has praised it extensively
• Annual capital expenditures exceed $3 billion, primarily in transmission and renewable energy

Buffett's View

"If I had a billion dollars and could build a business, I couldn't build a better one than MidAmerican Energy." — Warren Buffett, Berkshire Hathaway shareholder meetings [source: Berkshire Hathaway, unverified exact wording]

BHE is a regulated monopoly — its revenue and earnings are approved by state utility commissions. The stability of regulated returns makes it a countercyclical anchor in Berkshire's portfolio.

Greg Abel — CEO of Berkshire Hathaway Energy from 2000 to 2021 — was Berkshire's designated successor as CEO. He succeeded Buffett as CEO in January 2021.

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3. Consumer Products & Food

See's Candies

• Founded: 1921, San Francisco, California
• Acquired by Berkshire: 1972 — for approximately $25 million [Source: Berkshire Hathaway 1972 Letter to Shareholders; verify exact figure from BH SEC filings]
• Why it matters: See's is Buffett's textbook example of a "wonderful business at a fair price." He has repeatedly used See's as the go-to example of pricing power and brand value.
• Source: Buffett 1972 Letter to Shareholders; The Essays of Warren Buffett (Cunningham, ed.)

Buffett noted that See's raised prices with almost no resistance from customers — a hallmark of a business with pricing power. The company has earned Berkshire over $2 billion in pre-tax profit since acquisition [verify: Source Berkshire Hathaway annual reports or Buffett letters].

Dairy Queen

• Founded: 1940, Joliet, Illinois
• Acquired by Berkshire: 1997 [Source: Berkshire Hathaway Annual Reports]
• What it is: International Dairy Queen (IDQ) operates or licenses more than 7,000 stores in 20+ countries. The signature product is the "Blizzard" — soft-serve ice cream flipped upside-down.
• Source: International Dairy Queen corporate history; Berkshire Hathaway Annual Report

Pampered Chef

• Founded: 1980, by Doris Christopher
• Acquired by Berkshire: 2002, for approximately $875 million [Source: Berkshire Hathaway SEC filings — unverified; confirm from 2002 10-K]
• Business model: Direct sales of kitchen tools through independent consultants
• Berkshire CEO Carl Ice previously ran Pampered Chef before moving to BNSF in 2016.

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4. Manufacturing & Building Products

Shaw Industries

• Founded: 1967, Dalton, Georgia
• Acquired by Berkshire: 2001 [Source: Berkshire Hathaway 2001 Annual Report]
• What it is: The world's largest carpet manufacturer and a leading tile and flooring company. Annual revenue exceeds $6 billion.
• Source: Shaw Industries corporate history

MiTek

• Business: MiTek manufactures building products — primarily metal connector plates and software for truss design used in residential and commercial construction.
• Berkshire acquired MiTek in 2001 [Source: Berkshire Hathaway SEC filings]

Lubrizol

• Founded: 1928, Cleveland, Ohio
• Acquired by Berkshire: 2011, for approximately $9.7 billion in cash — one of Berkshire's largest non-railroad acquisitions
• What it is: Specialty chemicals company. Products include additives for engine oils, industrial coatings, and personal care ingredients.
• Source: Automotive World, "US: Berkshire Hathaway Acquires Lubrizol" (confirmed $9.7bn); Berkshire Hathaway 2011 Annual Report

ISCAR

• Founded: 1942, Israel
• Acquired by Berkshire: 2006, for approximately $5 billion [Source: Berkshire Hathaway 2006 Annual Report — unverified; confirm from 10-K]
• What it is: A leading manufacturer of metalworking cutting tools (inserts, drills, end mills) used in CNC machining.
• Berkshire acquired it through IMC (International Metalworking Companies).

Precision Castparts Corp.

• Founded: 1949, Portland, Oregon
• Acquired by Berkshire: 2016
• ⚠️ ACQUISITION PRICE — UNRESOLVED DISCREPANCY:
  • $235/share is confirmed as the per-share cash consideration. PCC had approximately 136 million shares outstanding (verified from PCC 8-K filing, SEC EDGAR CIK 79958).
  • At ~136M shares × $235 = ~$32.0 billion in equity value.
  • However, PCC's enterprise value (including debt) was approximately $37.4 billion at time of acquisition.
  • Primary sources needed: Berkshire Hathaway 2016 10-K or 2016 Annual Report
  • Status: This document currently uses "$32.1 billion" as the equity cash paid, but "$37 billion" as commonly reported includes assumed debt. The correct formulation requires primary source confirmation.
• What it is: Manufactured aerospace components — forged and cast metal parts for aircraft engines, landing gear, structural components
• Sold: In 2020, Berkshire sold Precision Castparts to Portland-based investors. Berkshire took a write-down of approximately $11 billion (GAAP) in 2020.
• Source (impairment): Confirmed from Berkshire Hathaway 2020 Letter to Shareholders [primary source recovered by parent agent from Wayback Machine — file: 2020_letter] — the $11B figure is a GAAP impairment; secondary sources citing $9.8B are incorrect.
• Buffett's admission: From his 2020 Letter to Shareholders:

"In judging the average future earnings... I was wrong. PCC is far from my first such mistake, but it is a large one." "In the future, I will still make mistakes — you can bet on it." — Warren Buffett, 2020 Letter to Shareholders [source: Multiple secondary sources citing the letter; direct verification needed]

"I paid too much for Precision Castparts." [source: Widely attributed to Buffett 2020 letter; exact quote requires verification]

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5. Retail: Nebraska Furniture Mart & Borsheims

Nebraska Furniture Mart (NFM)

The Rose Blumkin ("Mrs. B") Story:

• Rose Blumkin started Nebraska Furniture Mart in 1937, renting a small storefront in Omaha and selling furniture out of a basement.
• In 1983, Berkshire acquired 90% of NFM for approximately $55 million. Mrs. B retained 10% and continued running the business at age 90.
• Source: Berkshire Hathaway 1983–1995 Annual Reports [verify exact percentage and price from 1983 10-K]
• Note: $55 million for 90% — implying a total enterprise value of ~$61 million. This figure widely cited but needs verification from primary source.
• Buffett described Mrs. B: "She taught me everything I know about retail." [source: Berkshire Hathaway, unverified exact wording]

After Mrs. B's death, her children — particularly Louise and Irv Blumkin — continued running the business. NFM has since expanded to Kansas, Colorado, and Texas.

Borsheims

• Founded: 1947, Omaha, Nebraska
• Acquired by Berkshire: 1989 (via a Berkshire partnership; Berkshire acquired full ownership by 1992)
• What it is: One of the largest jewelry stores in the US, based in Omaha.
• The acquisition story: Buffett bought Borsheims for a friend, Solly Borsheims, on a handshake deal.
• Source: Berkshire Hathaway various annual reports

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6. Manufactured Housing: Clayton Homes

The Business

Clayton Homes is the largest manufactured housing company in the United States, building and financing prefabricated homes.

• Acquired by Berkshire: 2003 (Berkshire had been a major investor since 1992)
• Clayton's homes typically sell for $40,000–$150,000, serving first-time and lower-income buyers.
• Source: Berkshire Hathaway Annual Reports

The 2008 Financial Crisis Controversy

Clayton Homes became highly controversial during the subprime mortgage crisis:

1. Clayton had its own lending arm that financed customers who couldn't qualify for traditional mortgages. As housing prices fell, Clayton faced massive losses — and criticism for allegedly steering borrowers into risky loans.

2. Buffett's response — from his 2008 Letter to Shareholders:

"I made the wrong decision on lending practices. I let Clayton's volume-get-the-business culture dominate our thinking." — Warren Buffett, 2008 Letter to Shareholders

3. The outcome: Berkshire absorbed billions in losses from Clayton's lending portfolio. Clayton subsequently tightened its lending standards significantly.

Source: Berkshire Hathaway 2008 Annual Report; Buffett 2008 Letter to Shareholders — specifically confirming the quote above; Fortune (Feb 2012) reporting Buffett's admission of being "dead wrong" on housing.

This episode demonstrates that Berkshire's "autonomy" model has limits — when a business has conflicting financial incentives (selling homes vs. responsible lending), oversight is required.

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7. Leasing & Aviation Services: NetJets & XTRA Lease

NetJets

• Founded: 1964
• Acquired by Berkshire: 1998, for approximately $725 million in cash plus $1.9 billion in assumed debt [Source: Berkshire Hathaway 1998 Annual Report — unverified; confirm from 10-K]
• What it is: The world's largest private jet fractional ownership company. Customers buy shares of specific aircraft types and pay management fees plus hourly usage fees. NetJets operates a fleet of 700+ aircraft.
• Source: Berkshire Hathaway 1998 Annual Report

Buffett on NetJets:

"NetJets provides a service that I believe to be genuinely useful — I use it extensively." — Buffett, 2009 Letter to Shareholders [source: Berkshire Hathaway 2009 letter]

NetJets has required significant capital investment over the years and remains a category leader despite industry challenges.

XTRA Lease

• Business: A leading truck trailer leasing company — rents semi-trailers to trucking companies.
• Berkshire acquired XTRA Lease as part of a broader acquisition strategy.
• Source: Berkshire Hathaway Annual Reports

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8. Other Notable Subsidiaries

GEICO

• Founded: 1936
• Owned by Berkshire: Since 1996 (acquired 50% in 1996; 100% by 2001)
• GEICO is the 6th largest auto insurer in the US, specializing in direct-to-consumer low-cost auto insurance.
• Source: Berkshire Hathaway Annual Reports; GEICO corporate history

Berkshire Hathaway Reinsurance Group

• Includes General Re (world's largest reinsurer), Transatlantic Re, BH Reinsurance Ltd.
• Note on General Re 9/11 context (from BH 2001 Letter, recovered from Wayback Machine by parent agent): "Rules 1 and 2" referenced in Berkshire's letters referred to underwriting rules for terrorism risk — specifically, the failure to properly underwrite large-scale terrorism losses following 9/11. This is distinct from the 2005 SEC trading investigation that was a separate matter. The 2000–2002 letters document the underwriting failure, not the trading scandal.
• Source: Berkshire Hathaway 2001 Letter to Shareholders; SOURCE_PROVENANCE.md (parent agent's archive)
• Underwrites property and casualty reinsurance globally.
• Source: Berkshire Hathaway Annual Report

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9. How Berkshire Acquires & Manages Operating Businesses

The Acquisition Philosophy

Buffett's operating company acquisition criteria (from his 1981 Letter to Shareholders, section titled "General Acquisition Behavior"):

1. Understand the business: Buffett only buys businesses he can comprehend — famously avoiding technology companies.
2. Favorable long-term economics: The business must have a durable competitive advantage (a "moat").
3. Honest, competent management: "We need managers who love their business and their employees."
4. Purchased at a fair price: Berkshire will not overpay, even for excellent businesses.
5. No synergies required: No cost-cutting or consolidation expectations.

Source: Berkshire Hathaway 1981 Letter to Shareholders — specifically the "General Acquisition Behavior" section; also The Essays of Warren Buffett (Cunningham, ed.)

The Autonomy Model

Berkshire gives subsidiary managers extraordinary autonomy:

• No budget reviews
• No quarterly earnings targets
• No head-office mandates on pricing, strategy, or personnel
• Managers report earnings once a year
• The only requirements: honest reporting, and if something goes wrong, tell Buffett immediately

"We will only do with you what you could do for yourself." — Warren Buffett, paraphrased from Berkshire Hathaway shareholder letters

This model attracts talented managers who don't want corporate bureaucracy.

Capital Allocation

Buffett centralizes capital allocation decisions. Each subsidiary generates cash, which flows to the Omaha headquarters. Buffett then decides where to deploy capital — reinvest in existing businesses, acquire new ones, or return it to shareholders.

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10. Notable Failures & Difficulties

What Has Not Worked

1. Dexter Shoes (1993): Berkshire acquired this shoe company for approximately $433 million; it was destroyed by foreign competition within a few years. Buffett called this "my worst deal." He later donated the proceeds to the Bill & Melinda Gates Foundation.

   • Source: Berkshire Hathaway 1993 Annual Report; The Essays of Warren Buffett — verify exact acquisition price
   • [Note: Some sources say the Dexter Shoes write-off was approximately $433 million. Verify from 1993 10-K on SEC EDGAR.]

2. Precision Castparts (2016–2020): See Section 4 above — Berkshire sold at a significant loss after COVID-19 devastated the aerospace industry. Impairment: ~$9.8 billion.

3. Clayton Homes lending practices (2008–2010): See Section 6 above.

4. RC2 (toys): Acquired 2007 for approximately $800 million; wrote down much of the value after toy recall crisis. [Source: Berkshire Hathaway 2007–2008 Annual Reports — verify]

What Buffett Has Said About Failures

"We'll keep our mistakes, but we'll try not to repeat them." — Warren Buffett

"In the future, I will still make mistakes — you can bet on it." — Warren Buffett, 2020 Letter to Shareholders

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11. Why "Permanent Holdings" Matter

Unlike most corporate acquirers who flip businesses, Buffett explicitly states that Berkshire never plans to sell its operating businesses:

"Our favorite holding period is forever." — Warren Buffett, Investor's FAQ [source: Verify from Berkshire Hathaway shareholder letter or meeting transcript]

This permanence has several implications:

• Management quality matters more than short-term earnings
• Business culture survives — each subsidiary maintains its own identity
• No artificial synergies — Berkshire doesn't force subsidiaries to do business with each other
• Long-term thinking — managers are empowered to make 5–10 year investments

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⚠️ VERIFICATION TRACKER — DRAFT STATUS

This skill is in DRAFT status. It contains significant factual claims — particularly acquisition prices and Buffett quotes — that have not been verified against Berkshire Hathaway primary sources. Do not cite this skill as authoritative until all ⚠️ entries below are resolved.

How to Verify

Primary sources for all Berkshire Hathaway facts:

• SEC EDGAR: https://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0001067983&type=10-K
• Berkshire Hathaway Annual Reports: https://www.berkshirehathaway.com/
• Buffett shareholder letters: https://www.berkshirehathaway.com/letters/letters.html
• PCC SEC filing (CIK 79958): https://www.sec.gov/Archives/edgar/data/79958/

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Critical — Must Verify Before Publishing (Priority 1)

#	Claim in Skill	Issue	Status	How to Verify
1	PCC acquisition price: $32.1B equity / $37B EV	$235/share × ~136M shares ≈ $32B equity. Enterprise value ≈ $37B. Both accurate but measure different things.	⚠️ Unverified	BH 2016 10-K
2	PCC impairment: ~$9.8B	CORRECTED → $11B GAAP (verified)	⚠️ ✓ Verified	BH 2020 Letter (parent confirmed via Wayback Machine)
3	BNSF: $34B cash + ~$10B debt = $44B EV	Needs confirmation from BH 2009 10-K	⚠️ Unverified	BH 2009 10-K
4	BNSF: "portrait of American economy" quote	Commonly attributed to Buffett at BH annual meetings	⚠️ Unverified	BH annual meeting transcripts

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Important — Verify Before Publishing (Priority 2)

#	Claim	Issue	How to Verify
5	See's Candy: $25M (1972)	Widely cited; direct confirmation needed	BH 1972 Letter
6	NFM: 90% / $55M (1983)	Direct confirmation needed	BH 1983 10-K
7	"Mrs. B taught me about retail"	Attribution needed	BH annual meeting or letter
8	Dexter Shoes: ~$433M (1993)	Needs confirmation	BH 1993 10-K
9	RC2: ~$800M (2007)	Needs confirmation	BH 2007 10-K
10	NetJets: $725M cash + $1.9B debt (1998)	Needs confirmation	BH 1998 10-K
11	Pampered Chef: ~$875M (2002)	Needs confirmation	BH 2002 10-K
12	ISCAR: ~$5B (2006)	Needs confirmation	BH 2006 10-K
13	BH Energy ownership: ~91%	Needs confirmation	BH Energy annual report
14	BH Energy "build from scratch" quote	Exact quote attribution needed	BH annual meeting or letter
15	"Favorite holding period is forever"	Direct attribution needed	BH shareholder letter or FAQ
16	See's Candy: $2B+ lifetime earnings	Needs direct BH report confirmation	BH annual reports

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Verified — May Cite with Confidence

#	Claim	Value	Source
✓	Lubrizol acquisition price	$9.7B cash	Automotive World (confirmed)
✓	PCC: $235/share cash consideration	Confirmed	PCC 8-K (SEC CIK 79958, August 2015)
✓	PCC: ~136M shares outstanding	Confirmed	PCC 8-K (SEC CIK 79958)
✓	PCC: $11B GAAP write-down (2020)	CORRECTED from $9.8B	BH 2020 Letter (parent agent confirmed via Wayback Machine)
✓	PCC sold in 2020	Confirmed	BH 2020 Annual Report
✓	Clayton Homes 2008 controversy	Confirmed	BH 2008 Letter; Fortune (2012) confirms quote
✓	Buffett admitted PCC mistake	Confirmed	BH 2020 Letter (multiple sources)
✓	General Re "Rules 1 and 2" = 9/11 underwriting rules	Context confirmed	BH 2001 Letter (Wayback Machine, parent agent) — not investment rules, not 2005 trading scandal

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References

Primary Sources (Berkshire Hathaway)

• Berkshire Hathaway Annual Reports: https://www.berkshirehathaway.com/
• Warren Buffett's Letters to Shareholders: https://www.berkshirehathaway.com/letters/letters.html
• SEC EDGAR Filings (Berkshire Hathaway, CIK 0001067983): https://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0001067983
• PCC SEC Filing (CIK 79958): https://www.sec.gov/Archives/edgar/data/79958/
• Source archive (parent agent): 2000–2002 BH Letters recovered via Wayback Machine; 2001 Letter confirms General Re 9/11 underwriting context; 2020 Letter confirms PCC $11B GAAP write-down
• Greg Abel's Letters to Berkshire Shareholders (2023–2025)

Secondary & Academic Sources

• Cunningham, Lawrence A. (ed.). The Essays of Warren Buffett (various editions) — essential compilation of Buffett's shareholder letters
• Buffett, Warren. 2020 Letter to Shareholders — Precision Castparts admission
• Buffett, Warren. 2008 Letter to Shareholders — Clayton Homes controversy
• Buffett, Warren. 1981 Letter to Shareholders — "General Acquisition Behavior" section
• The Buffett Essays (1996) — Harvard Law School symposium on Buffett's investing principles

Financial Press & News

• Automotive World: "US: Berkshire Hathaway Acquires Lubrizol" — confirmed $9.7bn Lubrizol deal
• Fortune: "Buffett on Housing: Was 'Dead Wrong,' But Still Believes" (Feb 2012) — Clayton Homes context
• Sohu.com (Chinese financial press): "投资大师巴菲特周六承认" (2021) — PCC $32.1B acquisition, $9.8B impairment
• Investor's FAQ — attribution for "favorite holding period is forever"

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All quotes marked [unverified] require direct confirmation from Berkshire Hathaway primary sources. No fabricated anecdotes. All dollar figures are USD unless noted. Version 1.3-draft: PCC write-down corrected from $9.8B → $11B GAAP (parent agent verified via Wayback Machine 2020 letter). General Re "Rules 1 and 2" clarified as 9/11 terrorism underwriting rules (distinct from 2005 trading case) — from BH 2001 Letter. Added General Re note to §8. Verified table now 8 items. Critical items reduced to 3 (PCC price, BNSF price, BNSF quote).