Berkshire Hathaway 2000 Annual Report Download - page 39

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Notes to Consolidated Financial Statements (Continued)
(8) Unpaid losses and loss adjustment expenses (Continued)
Berkshire continuously evaluates its liabilities and related reinsurance recoverable for environmental and latent
injury claims and claim expenses, which arise from exposures in the U.S., as well as internationally. Environmental and
latent injury exposures do not lend themselves to traditional methods of loss development determination and therefore
reserve estimates related to these exposures may be considerably less reliable than for other lines of business (e.g.,
automobile). The effect of joint and several liability claims severity and a provision for inflation have been included in
the loss development estimate. The Company has also established a liability for litigation costs associated with
coverage disputes arising out of direct insurance policies.
The liabilities for environmental and latent injury claims and claim expenses net of related reinsurance
recoverables were $4,444 million and $3,211 million, respectively, at December 31, 2000 and 1999. The liabilities
recorded for environmental and latent injury claims and claim expenses are management’s best estimate of future
ultimate claim and claim expense payments and recoveries and are expected to develop over the next several decades.
Berkshire monitors evolving case law and its effect on environmental and latent injury claims. Changing
government regulations, newly identified toxins, newly reported claims, new theories of liability, new contract
interpretations and other factors could result in significant amounts of adverse development of the balance sheet
liabilities. Such development could be material to Berkshire’s results of operations. It is not possible to estimate
reliably the amount of additional net loss, or the range of net loss, that is reasonably possible.
(9) Income taxes
The liability for income taxes as reflected in the accompanying Consolidated Balance Sheets is as follows (in
millions):
Dec. 31, Dec. 31,
2000 1999
Payable currently....................................................................... $ 522 $ (27)
Deferred.................................................................................... 9,603 9,593
$10,125 $9,566
The Consolidated Statements of Earnings reflect charges for income taxes as shown below (in millions):
2000 1999 1998
Federal .................................................................................................................... $2,136 $ 748 $1,421
State ........................................................................................................................ 32 43 31
Foreign.................................................................................................................... (150) 61 5
$2,018 $ 852 $1,457
Current .................................................................................................................... $2,012 $1,189 $1,643
Deferred .................................................................................................................. 6 (337) (186)
$2,018 $ 852 $1,457
The tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred
tax liabilities at December 31, 2000 and 1999 are shown below (in millions):
2000 1999
Deferred tax liabilities:
Relating to unrealized appreciation of investments.................... $9,571 $9,383
Deferred charges reinsurance assumed...................................... 916 534
Investments.............................................................................. 441 644
Other ....................................................................................... 717 74
11,645 10,635
Deferred tax assets:
Unpaid losses and loss adjustment expenses ............................. (1,061) (697)
Unearned premiums ................................................................. (227) (205)
Other ....................................................................................... (754) (140)
(2,042) (1,042)
Net deferred tax liability.............................................................. $9,603 $9,593