Berkshire Hathaway 1999 Annual Report Download - page 27

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BERKSHIRE HATHAWAY INC.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
(1) Significant accounting policies and practices
(a) Nature of operations and basis of consolidation
Berkshire Hathaway Inc. ("Berkshire" or "Company") is a holding company owning subsidiaries engaged in
a number of diverse business activities. The most important of these are property and casualty insurance
businesses conducted on both a direct and reinsurance basis. Further information regarding these businesses
and Berkshire's other reportable business segments is contained in Note 16. The accompanying consolidated
financial statements include the accounts of Berkshire consolidated with accounts of all its subsidiaries.
Intercompany accounts and transactions have been eliminated. As more fully described in Note 2, on
December 21, 1998, Berkshire consummated a merger with General Re Corporation (“General Re”). The
balance sheet of General Re is consolidated with the balance sheets of Berkshire and its other subsidiaries
as of December 31, 1999 and 1998. General Re’s results of operations are included in the Consolidated
Statements of Earnings for the ten day period ended December 31, 1998 and the year ended December 31,
1999.
During the second quarter of 1999, the company adjusted its December 31, 1998 Consolidated Balance Sheet.
The adjustment resulted from a further review of the opening balance sheet of General Re which was used
as the basis for recording the fair value of the assets and liabilities acquired in connection with the
acquisition of General Re. The effect of the adjustment was to increase goodwill of acquired businesses by
$124 million and to increase property, plant and equipment by $18 million with a corresponding decrease
of $142 million in other assets from the amounts previously reported. The adjustment had no effect on the
previously reported earnings for the year ended December 31, 1998.
(b) Use of estimates in preparation of financial statements
The preparation of the consolidated financial statements in conformity with generally accepted accounting
principles ("GAAP") requires management to make estimates and assumptions that affect the reported
amount of assets and liabilities at the date of the financial statements and the reported amount of revenues
and expenses during the period. Actual results may differ from the estimates and assumptions used in
preparing the consolidated financial statements.
(c) Cash equivalents
Cash equivalents consist of funds invested in money market accounts and in investments with a maturity of
three months or less when purchased.
(d) Investments
Berkshire’s management determines the appropriate classifications of investments at the time of acquisition
and re-evaluates the classifications at each balance sheet date. Investments may be classified as held for
trading, held to maturity, or, when neither of those classifications is appropriate, as available-for-sale.
Berkshire’s investments in fixed maturity and equity securities are classified as available-for-sale.
Available-for-sale securities are stated at fair value with unrealized gains or losses, net of taxes and
minority interest, reported as a separate component in shareholders’ equity. Realized gains and losses ,
which arise when available-for-sale investments are sold (as determined on a specific identification basis)
or other than temporarily impaired are included in the Consolidated Statements of Earnings.
Other investments include investments in limited partnerships and commodities which are carried at fair value
in the accompanying balance sheets. Investments in limited partnerships are classified as available-for-sale.
The realized and unrealized gains and losses associated with commodities are included in the Consolidated
Statements of Earnings as a component of realized investment gain.
Accounting policies and practices for investments held by finance and financial products businesses are
described in Note 7.