Berkshire Hathaway 1999 Annual Report Download - page 39

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38
Notes to Consolidated Financial Statements (Continued)
(13) Fair values of financial instruments
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments" requires certain fair value disclosures. Fair
value disclosures are required for most investment securities as well as other contractual assets and liabilities. Certain
financial instruments, including insurance contracts, are excluded from SFAS 107 disclosure requirements due to perceived
difficulties in measuring fair value. Accordingly, an estimation of fair value was not made with respect to unpaid losses and
loss adjustment expenses.
In determining fair value, Berkshire used quoted market prices when available. For instruments where quoted market
prices were not available, independent pricing services or appraisals by Berkshire’s management were used. Those services
and appraisals reflected the estimated present values utilizing current risk adjusted market rates of similar instruments.
Considerable judgement is necessarily required in interpreting market data used to develop the estimates of fair value.
Accordingly, the estimates presented herein are not necessarily indicative of the amounts that could be realized in a current
market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on
the estimated fair value.
The carrying values of cash and cash equivalents, receivables and accounts payable, accruals and other liabilities are
deemed to be reasonable estimates of their fair values. The estimated fair values of Berkshire’s other financial instruments
as of December 31, 1999 and 1998, are as follows (in millions):
Carrying Value Estimated Fair
Value
1999 1998 1999 1998
Investments in securities with fixed maturities ................ $30,222 $21,246 $30,222 $21,246
Investments in equity securities and other investments ......... 39,508 39,761 39,508 39,761
Assets of finance and financial products businesses ............ 24,229 16,989 24,167 17,129
Borrowings under investment agreements and other debt ........ 2,465 2,385 2,418 2,475
Liabilities of finance and financial products businesses ......... 22,223 15,525 22,151 15,698
(14) Litigation
During 1999, GEICO was named as a defendant in a number of class action lawsuits related to the use of repair parts
not produced by original equipment manufacturers in connection with settlement of collision damage claims. One of the
lawsuits has been dismissed. The remaining lawsuits are in the early stages of development and the ultimate outcome cannot
be reasonably determined at this time. Management intends to vigorously defend GEICO’s position of recommending use
of after-market parts in certain auto accident repairs.
Berkshire and its subsidiaries are parties in a variety of legal actions arising out of the normal course of business. In
particular, and in common with the insurance industry in general, such legal actions affect Berkshire’s insurance an d
reinsurance businesses. Such litigation generally seeks to establish liability directly through insurance contracts or indirectly
through reinsurance contracts issued by Berkshire subsidiaries. Plaintiffs occasionally seek punitive or exemplary damages.
Berkshire does not believe that such normal and routine litigation will have a material effect on its financial condition or
results of operations.
(15) Supplemental cash flow and insurance premium information
A summary of supplemental cash flow information is presented in the following table (in millions):
1999 1998 1997
Cash paid during the year for:
Income taxes ................................................... $2,215 $1,703 $ 498
Interest of finance and financial products businesses ...................... 513 21 21
Other interest ................................................... 136 111 102
Non-cash investing and financing activities:
Liabilities assumed in connection with acquisitions of businesses ............ 61 36,064 25
Common shares issued in connection with acquisitions of businesses ......... —22,795 73
Fair value of investments acquired as part of exchanges and conversions ...... — — 1,837
Contingent value of Exchange Notes recognized in earnings ............... 87 54 298
Value of equity securities used to redeem Exchange Notes ................. 298 344 —