Berkshire Hathaway 1999 Annual Report Download - page 30

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(2) Significant business acquisitions (Continued)
General Re is a holding company for global reinsurance and related risk management operations. It owns General
Reinsurance Corporation, which together with its affiliates, comprise the largest professional property and casualty reinsurance
group domiciled in the United States. General Re also owns a controlling interest in Kölnische Rückversicherungs-Gesellschaft
AG (“Cologne Re”), a major international reinsurer. Together, General Re and Cologne Re transact reinsurance business as
“General & Cologne Re”. General & Cologne Re operate in 28 countries and provide reinsurance coverage in 125 countries
around the world.
In addition, General Re writes excess and surplus lines insurance through General Star Management Company, provides
alternative risk solutions through Genesis Underwriting Management Company, provides reinsurance brokerage services through
Herbert Clough, Inc., manages aviation insurance risks through United States Aviation Underwriters, Inc., and acts as a business
development consultant and reinsurance intermediary through Ardent Risk Services, Inc. General Re also operates as a dealer
in the swap and derivatives market through General Re Financial Products Corporation, and provides specialized investment
services to the insurance industry through General Re-New England Asset Management, Inc.
Each of the business acquisitions described above was accounted for under the purchase method. The excess of the purchase
cost of the business over the fair value of net assets acquired was recorded as goodwill of acquired businesses. The aggregate
goodwill associated with the three acquisitions discussed above was $15.7 billion, including $14.7 billion associated with the
General Re merger.
The results of operations for each of these entities are included in Berkshire’s consolidated results of operations from the
dates of each merger. The following unaudited table sets forth certain consolidated earnings data for the years ended December
31, 1998 and 1997 as if the Dairy Queen, Executive Jet and General Re acquisitions had been consummated on the same terms
at the beginning of 1997. Dollars in millions except per share amounts.
1998 1997
Insurance premiums earned ................................................ $11,395 $11,369
Sales and service revenues ................................................. 5,267 4,719
Total revenues ......................................................... 24,174 19,422
Net earnings ........................................................... 4,764 2,438
Earnings per equivalent Class A Common Share ................................. 3,137 1,607
(3) Investment in MidAmerican Energy Holdings Company
On October 24, 1999, Berkshire entered into an agreement along with Walter Scott, Jr. and David L. Sokol, to acquire
MidAmerican Energy Holdings Company (“MidAmerican”). Pursuant to the terms of the agreement, Berkshire expects to invest
approximately $1.24 billion in common stock and a non-dividend paying convertible preferred stock of a newly formed entity
which will merge with and into MidAmerican, with MidAmerican continuing as the surviving corporation. Such investment will
give Berkshire about a 9.7% voting interest and a 76% economic interest in MidAmerican on a fully-diluted basis. Mr. Scott, a
member of Berkshire’s Board of Directors, will control approximately 86% of the voting interest in MidAmerican. Mr. Sokol
is the current CEO of MidAmerican. Berkshire will also acquire approximately $455 million of an 11% non-transferable trust
preferred security. Under certain conditions, for a period of up to seven years subsequent to the transaction, Berkshire may be
required to purchase up to $345 million of additional trust preferred securities. The merger and related investments by Berkshire
and the other investors are subject to terms and conditions including approval by shareholders of MidAmerican and certain
regulatory approvals. On January 27, 2000, the transaction was approved by the shareholders of MidAmerican. All regulatory
approvals are expected to be received prior to March 31, 2000. It is currently anticipated that the transaction will close by March
31, 2000.
Through its retail utility subsidiaries, MidAmerican Energy in the U.S. and Northern Electric in the U.K., MidAmerican
provides electric service to 2.2 million customers and natural gas service to 1.2 million customers worldwide. MidAmerican
manages and owns interests in approximately 8,300 net megawatts of diversified power generation facilities in operation,
construction and development.