Berkshire Hathaway 2000 Annual Report Download - page 29

28
BERKSHIRE HATHAWAY INC.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000
(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. Berkshire
initiated and/or consummated several business acquisitions over the past three years. The significant
business acquisitions are described more fully in Note 2. The accompanying consolidated financial
statements include the accounts of Berkshire consolidated with accounts of all its subsidiaries.
Intercompany accounts and transactions have been eliminated.
Since acquired in December 1998, the International property/casualty and Global life/health reinsurance
activities of General Re have been reported in Berkshire’s financial statements based on a one-quarter lag
to facilitate the timely completion of the consolidated financial statements. During the fourth quarter of
2000, General Re implemented a number of procedural changes and improvements that now permit
reporting of these businesses without the one-quarter lag. Accordingly, Berkshire’s consolidated
statements of earnings and cash flows for the year ended December 31, 2000 include five quarters of
results of operations and cash flows of these operations. The effect of eliminating the one-quarter lag in
reporting was not significant to Berkshire’s consolidated statement of earnings for the year ending
December 31, 2000.
(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. The realized and unrealized gains and losses associated with
these investments 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.