Berkshire Hathaway 2002 Annual Report Download - page 46

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(12) Income taxes (Continued)
The tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax
liabilities at December 31, 2002 and 2001 are shown below (in millions). 2002 2001
Deferred tax liabilities:
Unrealized appreciation of investments ............................................ $7,884 $7,078
Deferred charges reinsurance assumed ............................................. 1,183 1,131
Property, plant and equipment .......................................................... 1,059 937
Investments ....................................................................................... 282 232
Other ................................................................................................. 648 616
11,056 9,994
Deferred tax assets:
Unpaid losses and loss adjustment expenses..................................... (870) (752)
Unearned premiums .......................................................................... (413) (294)
Other ................................................................................................. (1,701) (1,655)
(2,984) (2,701)
Net deferred tax liability ...................................................................... $8,072 $7,293
Charges for income taxes are reconciled to hypothetical amounts computed at the Federal statutory rate in the table
shown below (in millions). 2002 2001 2000
Earnings before income taxes .............................................................................. $6,435 $1,469 $5,587
Hypothetical amounts applicable to above
computed at the Federal statutory rate .............................................................. $2,252 $ 514 $1,955
Decreases resulting from:
Tax-exempt interest income.............................................................................. (109) (123) (135)
Dividends received deduction ........................................................................... (174) (129) (116)
Goodwill amortization .........................................................................................  191 240
State income taxes, less Federal income tax benefit ............................................ 57 44 21
Foreign tax rate differential.................................................................................. 59 82 34
Other differences, net........................................................................................... 49 41 19
Total income taxes ............................................................................................... $2,134 $ 620 $2,018
(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 $2.45 billion as ordinary dividends during
2003.
Combined shareholders equity of U.S. based property/casualty insurance subsidiaries determined pursuant to
statutory accounting rules (Statutory Surplus as Regards Policyholders) was approximately $28.4 billion at
December 31, 2002 and $27.2 billion at December 31, 2001. Effective January 1, 2001, Berkshires U.S. based
insurance subsidiaries adopted several new statutory accounting policies as required under the Codification of Statutory
Accounting Principles. The adoption of the new statutory accounting policies reduced the combined statutory surplus of
Berkshires U.S. based insurance subsidiaries by approximately $8.0 billion. 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.
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 of goodwill over 10 years as compared to 40 years under GAAP
for periods ending December 31, 2001 and prior. As described in Note 7, as of January 1, 2002, goodwill is no longer
amortized under GAAP and is only subject to tests for impairment.