Berkshire Hathaway 2001 Annual Report Download - page 38

37
(9) Finance and financial products businesses (Continued)
c) Berkadia LLC (Continued)
Berkadia financed the entire Berkadia Loan through a third party lending facility led by Fleet Bank (“Fleet Loan”).
Both the Berkadia Loan and the Fleet Loan are due on August 20, 2006. Under the terms of the Fleet Loan, Berkadia is
obligated to use the proceeds received from principal prepayments on the Berkadia Loan to prepay the Fleet Loan. Since
the end of 2001, FNV Capital has prepaid $1.0 billion aggregate principal amount of the Berkadia Loan and Berkadia
has repaid a like amount to its lenders. The Fleet Loan is collateralized by the Berkadia Loan. Among other things, the
Fleet Loan requires that FNV maintain a minimum ratio of its consolidated assets to the outstanding Fleet Loan balance.
Berkadia is required to pay down the loan to the extent such ratio is under the minimum. Berkshire provided Berkadia’ s
lenders with a 90% primary guaranty of the Berkadia Loan and also provided a secondary guaranty to the 10% primary
guaranty provided by Leucadia. Berkshire has a 90% economic interest in Berkadia’ s loan to FNV Capital and
Berkadia’ s borrowings from the lending facility.
In connection with the restructuring and concurrent with the loan to FNV Capital, Berkadia received 61,020,581
shares of FNV common stock representing 50% of the total FNV outstanding shares. Berkadia initially recorded the
FNV common stock at fair value and subsequently accounted for the stock pursuant to the equity method. The value
assigned to the stock increased the discount on the Berkadia Loan, which will subsequently be accreted into interest
income over the life of the Berkadia Loan. Berkshire and Leucadia each have a 50% economic interest in Berkadia’ s
ownership of the FNV common stock. Due to post-August 21 operating losses of FNV, the investment in FNV common
stock was completely written off. Consequently, the equity method was suspended as of September 30, 2001.
d) Other investment
On July 1, 1998, Value Capital L.P., a limited partnership commenced operations. A wholly owned subsidiary of
Berkshire is a limited partner in Value Capital. The partnership’ s investment objective is to achieve income and capital
growth from investments and arbitrage in fixed income investments. Berkshire accounts for this investment pursuant to
the equity method. Since inception Berkshire has contributed $430 million to the partnership. At December 31, 2001,
the carrying value of $542 million (including Berkshire’ s share of accumulated earnings of $112 million) is included as
a component of other assets on the preceding summary of assets and liabilities. Neither Berkshire nor any of its
subsidiaries provides or will provide any financial support of the obligations of this partnership or of the other partners.
As a limited partner, Berkshire’ s exposure to loss is limited to the carrying value of its investment.
(10) Unpaid losses and loss adjustment expenses
Supplemental data with respect to unpaid losses and loss adjustment expenses of property/casualty insurance
subsidiaries (in millions) is as follows. 2001 2000 1999
Unpaid losses and loss adjustment expenses:
Gross liabilities at beginning of year ................................................................ $33,022 $26,802 $23,012
Ceded losses and deferred charges.................................................................... (5,590) (3,848) (2,727)
Net balance........................................................................................................ 27,432 22,954 20,285
Incurred losses recorded:
Current accident year ........................................................................................ 15,608 15,252 11,275
All prior accident years ..................................................................................... 1,165 211 (192)
Total incurred losses ......................................................................................... 16,773 15,463 11,083
Payments with respect to:
Current accident year ........................................................................................ 4,435 4,589 3,648
All prior accident years ..................................................................................... 5,366 5,890 4,532
Total payments .................................................................................................. 9,801 10,479 8,180
Unpaid losses and loss adjustment expenses:
Net balance at end of year................................................................................. 34,404 27,938 23,188
Ceded losses and deferred charges.................................................................... 6,189 5,590 3,848
Foreign currency translation adjustment........................................................... 30 (722) (234)
Net liabilities assumed in connection with business acquisitions..................... 93 216 —
Gross liabilities at end of year.............................................................................. $40,716 $33,022 $26,802