Berkshire Hathaway 2001 Annual Report Download - page 41

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Notes to Consolidated Financial Statements (Continued)
(12) Income taxes (Continued)
Charges for income taxes are reconciled to hypothetical amounts computed at the Federal statutory rate in the table
shown below (in millions). 2001 2000 1999
Earnings before income taxes ................................................................................. $1,469 $5,587 $2,450
Hypothetical amounts applicable to above
computed at the Federal statutory rate ................................................................. $ 514 $1,955 $ 858
Decreases resulting from:
Tax-exempt interest income................................................................................. (123) (135) (145)
Dividends received deduction .............................................................................. (129) (116) (95)
Goodwill amortization ............................................................................................ 191 240 161
State income taxes, less Federal income tax benefit ............................................... 44 21 28
Foreign tax rate differential..................................................................................... 82 34 45
Other differences, net.............................................................................................. 41 19 —
Total income taxes .................................................................................................. $ 620 $2,018 $ 852
(13) Dividend restrictions – Insurance subsidiaries
Payments of dividends by insurance subsidiaries are restricted by insurance statutes and regulations. Without prior
regulatory approval, insurance subsidiaries may pay up to approximately $637 million as dividends from insurance
subsidiaries during 2002.
Combined shareholders’ equity of U.S. based property/casualty insurance subsidiaries determined pursuant to
statutory accounting rules (Statutory Surplus as Regards Policyholders) was approximately $27.2 billion at December
31, 2001 and $41.5 billion at December 31, 2000. Effective January 1, 2001, Berkshire’ s insurance companies adopted
several new statutory accounting policies as required under the Codification of Statutory Accounting Principles. Upon
adoption of the new statutory accounting policies, the combined statutory surplus of Berkshire’ s insurance businesses
declined approximately $8.0 billion to $33.5 billion as of January 1, 2001. The most significant new accounting policy
related to the recording of net deferred income tax liabilities, which included deferred taxes on existing unrealized gains
in equity securities. During 2001, combined statutory surplus declined further, primarily as a result of a decline in the
net unrealized appreciation of certain equity investments.
Statutory surplus differs from the corresponding amount determined on the basis of GAAP. The major differences
between statutory basis accounting and GAAP are that deferred charges-reinsurance assumed, deferred policy
acquisition costs, unrealized gains and losses on investments in securities with fixed maturities and related deferred
income taxes are recognized under GAAP but not for statutory reporting purposes. In addition, statutory accounting for
goodwill of acquired businesses requires amortization over 10 years, compared to 40 years under GAAP.
(14) Common stock
Changes in issued and outstanding Berkshire common stock during the three years ended December 31, 2001 are
shown in the table below. Class A Common, $5 Par Value Class B Common $0.1667 Par Value
(1,650,000 shares authorized) (55,000,000 shares authorized)
Shares Issued and Shares Issued and
Outstanding Outstanding
Balance December 31, 1998..................................... 1,349,535 5,070,379
Conversions of Class A common stock
to Class B common stock and other ...................... (7,872) 296,576
Balance December 31, 1999..................................... 1,341,663 5,366,955
Common stock issued in connection
with acquisitions of businesses.............................. 3,572 1,626
Conversions of Class A common stock
to Class B common stock and other ...................... (1,331) 101,205
Balance December 31, 2000..................................... 1,343,904 5,469,786
Conversions of Class A common stock
to Class B common stock and other ...................... (20,494) 674,436
Balance December 31, 2001..................................... 1,323,410 6,144,222
Each share of Class A Common Stock is convertible, at the option of the holder, into thirty shares of Class B
Common Stock. Class B Common Stock is not convertible into Class A Common Stock. Each share of Class B
Common Stock possesses voting rights equivalent to one-two-hundredth (1/200) of the voting rights of a share of Class
A Common Stock. Class A and Class B common shares vote together as a single class.