Berkshire Hathaway 2002 Annual Report Download - page 45

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44
Notes to Consolidated Financial Statements (Continued)
(11) Notes payable and other borrowings (Continued)
During the second quarter of 2001, Berkshire filed a shelf registration to issue up to $700 million in new debt
securities at a future date. The intended purpose of the future issuance of debt is to fund the repayment of borrowings of
certain Berkshire subsidiaries. The timing and amount of the debt to be issued under the shelf registration has not yet
been determined.
Borrowings of Berkadia LLC ("Berkadia") relate to Berkadia's loan to FINOVA Capital Corporation ("FNV
Capital"), a subsidiary of The FINOVA Group ("FNV"). On August 21, 2001, Berkshire and Leucadia National
Corporation (Leucadia), through Berkadia LLC, a newly formed and jointly owned entity formed for this purpose,
loaned $5.6 billion on a senior secured basis (the Berkadia Loan) to FNV Capital, in connection with a restructuring
of all of FNV Capitals then outstanding bank debt and publicly traded debt securities. 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, which is collateralized by the Berkadia
Loan, Berkadia is obligated to use the proceeds received from principal prepayments on the Berkadia Loan to prepay the
Fleet 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 a 10% primary guaranty provided by Leucadia. Berkshire has a 90% economic interest in both
the Berkadia Loan and the Fleet Loan. Subsequent to December 31, 2002, FNV has prepaid an additional $450 million
principal amount on the Berkadia Loan and Berkadia has prepaid an identical amount on the Fleet Loan.
In connection with the restructuring and concurrent with Berkadias 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.
Berkshire and Leucadia each possess a 50% economic interest in Berkadias ownership of FNV common stock. Due to
large operating losses of FNV between August 21, 2001 and September 30, 2001, Berkadias investment in FNV
common stock was written down to zero through the application of the equity method. Consequently, the equity method
was suspended as of September 30, 2001, because neither Berkshire nor Berkadia has guaranteed any obligations of
FNV.
Payments of principal amounts expected during the next five years are as follows (in millions).
2003 2004 2005 2006 2007
Insurance and other.............................................................. $2,270 $ 23 $ 263 $ 99 $ 557
Finance and financial products ............................................ 1,612 1,093 500 465 93
$3,882 $1,116 $ 763 $ 564 $ 650
(12) Income taxes
The liability for income taxes as of December 31, 2002 and 2001 as reflected in the accompanying Consolidated
Balance Sheets is as follows (in millions). 2002 2001
Payable currently ................................................................................. $ (21) $ (272)
Deferred ............................................................................................... 8,072 7,293
$8,051 $7,021
The Consolidated Statements of Earnings reflect charges for income taxes as shown below (in millions).
2002 2001 2000
Federal ................................................................................................. $1,991 $ 629 $2,136
State ..................................................................................................... 87 68 32
Foreign................................................................................................. 56 (77) (150)
$2,134 $ 620 $2,018
Current ................................................................................................. $2,259 $ 109 $2,012
Deferred ............................................................................................... (125) 511 6
$2,134 $ 620 $2,018