(2) Year-end data for 1998 includes General Re Corporation acquired by Berkshire on December 21, 1998.
Berkshire engages in both primary insurance and reinsurance of property and casualty risks. Through General Re, Berkshire also reinsures life and health risks. In primary insurance activities, Berkshire subsidiaries assume defined portions of the risks of loss from persons or organizations that are directly subject to the risks. In reinsurance activities, Berkshire subsidiaries assume defined portions of similar or dissimilar risks that other insurers or reinsurers have subjected themselves to in their own insuring activities. Berkshire's principal insurance businesses are: (1) GEICO, the sixth largest auto insurer in the United States, (2) General Re, one of the four largest reinsurers in the world, (3) Berkshire Hathaway Reinsurance Group ("BHRG") and (4) Berkshire Hathaway Direct Insurance Group.
A significant marketing strategy followed by all these businesses is the maintenance of extraordinary capital strength. Statutory surplus as regards policyholders of Berkshire's insurance businesses totaled approximately $41.5 billion at December 31, 2000. This superior capital strength creates opportunities, especially with respect to reinsurance activities, to negotiate and enter into contracts of insurance specially designed to meet unique needs of sophisticated insurance and reinsurance buyers. Additional information regarding Berkshire's insurance and reinsurance operations is presented on the following pages.
Premiums earned by GEICO in 2000 totaled $5,610 million, an increase of 17.9% over 1999, which, in turn exceeded premiums earned in 1998 by 17.9%. The growth in premiums earned in 2000 for voluntary auto was 18.3% reflecting an 8.5% increase in policies-in-force during the past year and increased premium rates. During 2000, in response to increased losses, GEICO implemented rate increases in many states and tightened underwriting standards. Additional rate increases will be taken, as necessary, to align rates with pricing targets. It takes six to twelve months for the full effect of a rate change to be reflected in premiums earned.
While policies-in-force grew over the last twelve months (8.2% in the preferred-risk auto market and 9.5% in the standard and nonstandard auto lines), total policies-in-force were relatively unchanged during the second half of 2000. Voluntary auto new business sales in 2000 decreased 10.6% compared to 1999 due to decreased response to advertising, increased premium rates and tightened underwriting standards. The decline in new business sales over the last half of 2000 was significant. It is currently believed that policies-in-force in the preferred-risk auto line will increase in 2001. However, policies-in-force may decline in the standard and nonstandard auto lines.
The levels of catastrophe losses incurred in each of the past three years were relatively minor. Catastrophe losses added approximately one percentage point to the loss ratio in each of the past three years.
GEICO's underwriting expenses in 2000 increased $107 million (11.7%) over 1999, following an increase of $132 million (16.8%) in 1999 over 1998. The increases in underwriting expenses reflect increased advertising and costs related to new business growth. In 2000, these increases were somewhat offset by significantly lower employee profit sharing expense. The unit cost of acquiring new business has continued to increase significantly in 2000 reflecting higher aggregate media spending and a lower ratio of new policies generated to new policies quoted. In response to higher unit costs, GEICO expects to reduce advertising expenditures in 2001. It is anticipated that the reduction in advertising expenditures combined with the expected impact of the previously noted underwriting actions will result in underwriting results slowly improving over the next twelve months.
General Re and its affiliates conduct a global reinsurance business, which provides reinsurance coverage in the United States and 129 other countries around the world. General Re's principal reinsurance operations are: (1) North American property/casualty, (2) International property/casualty, and (3) Global life/health. The International property/casualty operations are conducted primarily through Germany-based Cologne Re and its subsidiaries. At December 31, 2000, General Re had an 88% economic ownership interest in Cologne Re.
(1) During the fourth quarter of 2000, the International property/casualty and Global life/health operations discontinued reporting their results on a one-quarter lag. Consequently, General Re's 2000 results include one additional quarter for these businesses. See Note 1(a) to the accompanying Consolidated Financial Statements for additional information.
Generally, underwriting conditions within the reinsurance industry during 2000 remained difficult. General Re's overall underwriting results during 2000 and 1999 were unsatisfactory in both the property/casualty and life/health reinsurance businesses. General Re management continues to take underwriting actions to address these matters with the objective of returning underwriting results to acceptable levels. Although the underwriting losses for 2000 were considerable, $239 million of the loss was attributed to a single large aggregate excess contract written in 2000. Additional information regarding this arrangement is provided in the North American property/casualty discussion.
General Re's North American property/casualty underwriting results for the years ending December 31, 2000, 1999 and 1998 are summarized below.
When the effects of the aforementioned large aggregate excess contract are excluded, General Re's North American property/casualty underwriting results improved in 2000 as compared to the results for 1999. The underwriting loss ratio declined from 121.8% in 1999 to 113.0% in 2000. The improved results in 2000 were primarily due to the initial effects of underwriting actions on both property and casualty lines. In addition, catastrophe and large property losses were less in 2000 than in 1999. Losses arising from catastrophic events and other large property losses added 3.5 points to the North American property/casualty loss and loss expense ratio for 2000, as compared to 9.4 points for 1999 and 4.1 points for 1998. While the potential for catastrophe and large property losses are factors normally considered in underwriting decisions, the timing and magnitude of such losses can cause significant volatility in periodic underwriting results.
General Re's International property/casualty underwriting results for the years ending December 31, 2000, 1999 and 1998 are summarized below.
(1) Column includes 15 months of data due to elimination of one-quarter lag reporting in 2000.
(2) Column includes 12 months reported on a one-quarter lag and is shown for comparability with 1999 and 1998.
The International property/casualty operations write quota-share and excess reinsurance on risks around the world. In recent years, the largest international markets have been in Germany and Western Europe. As previously noted, the International property/casualty operations discontinued reporting their results on a one-quarter lag during the fourth quarter of 2000. Results for the 2000 period contain fifteen months, or one additional quarter of information. The preceding table shows underwriting results for both the twelve month and fifteen month periods. The comparative analysis that follows excludes the additional quarter, with results for the additional three month period of 2000 discussed separately afterward.
The International property/casualty business generated an underwriting loss of $102 million during the additional quarter being reported in the 2000 financial statements (three month period ended December 31, 2000). The results were adversely affected by two catastrophes involving flood losses in the United Kingdom and Italy, totaling $25 million.
Global life/health premiums earned in 2000 increased 2.8% over 1999 amounts. Premiums earned in 1999 increased 33.5% over 1998 levels. Adjusting both the 2000 and 1999 periods for the effects of run-off business written by a former London-based managing underwriter, Global life/health earned premiums increased 9.8% in 2000 and 20.3% in 1999. The increase in earned premiums in 2000 is primarily due to increases in the U.S. individual health segment and reduced retrocessions of business.
The Global life/health operations produced improved but still unsatisfactory underwriting results for 2000. Underwriting results weakened in the international life/health business, while the U.S. life/health operations continued to show improvement. Of the $84 million Global life/health underwriting loss in 2000, $23 million was attributable to the U.S. operations and $61 million was incurred in the international operations. The U.S. life segment produced modest underwriting profits in 2000 and a significantly reduced loss in its health operations. Results in the international life operations deteriorated from 1999, primarily due to losses on personal accident and pension lines of business.
Underwriting results for the additional quarter of 2000 produced a small profit of $4 million. While all segments showed improvement, the U.S. individual life and international health segments both produced underwriting profits during the quarter. The improvement in the U.S. individual life segment was primarily due to reduced mortality and better persistency.
Underwriting results for the past three years are summarized in the following table. Dollar amounts are in millions.
Premiums earned from retroactive reinsurance contracts were $3,944 million in 2000, $1,508 million in 1999 and $343 million in 1998. In 2000, premiums of $2,438 million were derived from a single contract. Generally, retroactive reinsurance contracts indemnify the ceding company, subject to aggregate loss limits, with respect to insured loss events that are attributed to insurance contracts written in the past, usually many years ago. Many of these contracts may give rise to considerable amounts of environmental and latent injury claims.
It is generally expected that losses ultimately paid under retroactive contracts will exceed the premiums received, in some cases by a wide margin. Premiums are based in part on time-value-of-money concepts because loss payments may occur over lengthy time periods. However, retroactive contracts do not significantly impact reported earnings in the year of inception. Consistent with Berkshire's accounting policy, the excess of the estimated ultimate losses payable over the premiums received is established as a deferred charge and amortized against income over the estimated future claim settlement periods. Although Berkshire expects that these contracts will produce significant underwriting losses over time, the business is accepted due to the exceptional levels of policyholder float generated.
Premiums earned from catastrophe excess contracts were $314 million in 2000 and 1999 and $286 million in 1998. Competition within the catastrophe reinsurance markets remains intense, which in many instances, makes premium rates inadequate or coverage conditions unacceptable. As a result, BHRG has accepted relatively few new arrangements. However, it is expected that this business will still produce meaningful amounts of earned premiums during 2001.
Net underwriting gains from catastrophe reinsurance were $183 million in 2000, $196 million in 1999 and $155 million in 1998. Catastrophe losses incurred in each of the past three years were relatively minor. Significant exposure to losses remains with respect to contracts that are in-force at year-end 2000, especially with respect to a major earthquake in California or a major hurricane affecting the U.S. Future periodic underwriting results of this business are subject to extreme volatility. However, Berkshire's management is willing to accept volatility in reported results, provided there is a reasonable prospect of long-term profitability.
Investment income before taxes from the insurance operations increased in 2000 by $305 million (12.3%) over 1999. The increase in investment income in 2000 as compared to 1999 is due to greater amounts of taxable interest and dividend income, partially offset by reduced tax exempt interest. Approximately one-third of the total increase in pre-tax investment income in 2000 was attributed to the inclusion of the fifth quarter of General Re's International property/casualty and Global life/health operations, as previously discussed. Investment income in 1999 includes income of General Re's insurance operations, which were acquired by Berkshire in December 1998.
Income taxes and minority interest as a percentage of investment income before taxes were 29.9% for 2000, 28.9% for 1999 and 24.9% for 1998. The increase in the rates reflects an increase in the proportion of taxable interest income relative to the amounts of dividend and tax exempt interest, which are effectively taxed at lower rates.
A comparison of revenues and operating profits between 2000, 1999 and 1998 for the non-insurance businesses follows.
The Scott Fetzer companies are a group of about twenty diverse manufacturing and distribution businesses under common management. Principal businesses in this group of companies sell products under the Kirby (home cleaning systems), Campbell Hausfeld (air compressors, paint sprayers, generators and pressure washers) and World Book (encyclopedias and other educational products) names. These three businesses normally produce approximately 60% of the revenues and 65% of the operating profits of Scott Fetzer. Revenues in 2000 from Scott Fetzer's businesses decreased $58 million (5.7%) as compared to 1999. Operating profits in 2000 declined $25 million (17.0%) as compared to 1999. The decline in revenues was due primarily to lower sales of power generators at Campbell Hausfeld and lower unit sales at Kirby. In 1999, sales of generators were unusually high due in part to Year 2000 concerns. In addition to the impact on operating profits from the aforementioned revenue declines, the decline in operating profits was also due in part to reduced profits at World Book.
Other businesses conduct a broad range of activities. A brief description of the most significant of the activities conducted by this diverse group of non-insurance businesses is provided in Note 16 to the accompanying Consolidated Financial Statements. During 2000, Berkshire acquired three businesses that are currently included in this group (CORT Business Services, acquired in February, 2000; Justin Brands and Acme Building Brands, acquired in August, 2000; and Benjamin Moore, acquired in December, 2000).
Revenues in 2000 of this group of businesses increased approximately $1,017 million (57.7%) over 1999. Operating profits of these businesses in 2000 exceeded 1999 by $446 million (133%). Approximately $600 million of the increase in revenues and $85 million of the increase in operating profits was attributed to the aforementioned business acquisitions. In addition, a significant increase in net revenues and operating profits was generated by Berkshire's finance and financial products businesses. The increase in operating profits of the finance and financial products businesses in 2000 was produced primarily from realized gains on a large portfolio of fixed maturity securities acquired in 1999 pursuant to a proprietary trading strategy. These securities were disposed of during 2000. Partially offsetting the realized gains on trading securities in 2000 were operating losses at GRS.
Revenues from the non-insurance businesses increased $1,177 million (24.2%) in 1999 as compared to 1998. Operating profits of $837 million during 1999 decreased $23 million (2.7%) from the comparable 1998 amount. The most significant factor giving rise to the revenue increase was the inclusion of Executive Jet for a full year in 1999 versus just under five months during 1998. Operating profits increased at Berkshire's Flight Services, Retail and Scott Fetzer business segments. However, more than offsetting these increases was a decline of $87 million in operating profits from Berkshire's finance and financial products businesses.
Other purchase-accounting adjustments consist primarily of the amortization of the excess market value over the historical cost of fixed maturity investments that existed as of the date of certain business acquisitions, principally GEICO and General Re. Such excess is included in Berkshire's cost of the investments and is being amortized over the estimated remaining lives of the assets. The unamortized excess remaining in the cost of fixed maturity investments was $680 million at December 31, 2000, $940 million at December 31, 1999 and $1.2 billion at December 31, 1998.
While the effects of realized gains are often material to the Consolidated Statements of Earnings, such gains often produce a minimal impact on Berkshire's total shareholders' equity. This is due to the fact that Berkshire's investments are carried in prior periods' consolidated financial statements at market value with unrealized gains, net of tax, reported as a separate component of shareholders' equity.
Strategically, Berkshire strives to invest in businesses that possess excellent economics, with able and honest management and at sensible prices. Berkshire's management prefers to invest a meaningful amount in each investee. Accordingly, Berkshire's equity investments are concentrated in relatively few investees. At year-end 2000 and 1999, approximately 70% of the total fair value of investments in equity securities was concentrated in four investees.
The table below summarizes Berkshire's equity price risks as of December 31, 2000 and 1999 and shows the effects of a hypothetical 30% increase and a 30% decrease in market prices as of those dates. The selected hypothetical change does not reflect what could be considered the best or worst case scenarios. Indeed, results could be far worse due both to the nature of equity markets and the aforementioned concentrations existing in Berkshire's equity investment portfolio. Dollars are in millions.
GRS evaluates and records a fair-value adjustment to recognize counterparty credit exposure and future costs associated with administering each contract. The expected credit exposure for each trade is initially established on the trade date and is determined through the use of a proprietary credit exposure model that is based on historical default probabilities, market volatilities and, if applicable, the legal right of setoff. These exposures are continually monitored and adjusted due to changes in the credit quality of the counterparty, changes in interest and currency rates or changes in other factors affecting credit exposure. Since inception, GRS has not experienced any credit losses.
The net amount of borrowings under investment agreements and other debt increased $198 million during 2000. The increase was due to the inclusion of debt of subsidiaries assumed in connection with business acquisitions during 2000 and an increase in borrowings of certain Berkshire subsidiaries, partially offset by a decline in corporate debt.
* Class B Common Stock has economic rights equal to one-thirtieth (1/30) of the economic rights of Class A Common Stock. Accordingly, on an equivalent Class A Common Stock basis, there are 1,526,230 shares outstanding at December 31, 2000 versus 1,520,562 shares outstanding at December 31, 1999.
* Average shares outstanding include average Class A Common shares and average Class B Common shares determined on an equivalent Class A Common Stock basis. Net earnings per common share shown above represents net earnings per equivalent Class A Common share. Net earnings per Class B Common share is equal to one-thirtieth (1/30) of such amount or $73 per share for 2000, $34 per share for 1999, and $75 per share for 1998.
BERKSHIRE HATHAWAY INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (dollars in millions)
BERKSHIRE HATHAWAY INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000
Since acquired in December 1998, the International property/casualty and Global life/health reinsurance activities of General Re have been reported in Berkshire's financial statements based on a one-quarter lag to facilitate the timely completion of the consolidated financial statements. During the fourth quarter of 2000, General Re implemented a number of procedural changes and improvements that now permit reporting of these businesses without the one-quarter lag. Accordingly, Berkshire's consolidated statements of earnings and cash flows for the year ended December 31, 2000 include five quarters of results of operations and cash flows of these operations. The effect of eliminating the one-quarter lag in reporting was not significant to Berkshire's consolidated statement of earnings for the year ending December 31, 2000.
Berkshire's management determines the appropriate classifications of investments at the time of acquisition and re-evaluates the classifications at each balance sheet date. Investments may be classified as held-for-trading, held-to-maturity, or, when neither of those classifications is appropriate, as available-for-sale. Berkshire's investments in fixed maturity and equity securities are classified as available-for-sale. Available-for-sale securities are stated at fair value with unrealized gains or losses, net of taxes and minority interest, reported as a separate component in shareholders' equity. Realized gains and losses, which arise when available-for-sale investments are sold (as determined on a specific identification basis) or other than temporarily impaired are included in the Consolidated Statements of Earnings.
Other investments include investments in limited partnerships and commodities which are carried at fair value in the accompanying balance sheets. The realized and unrealized gains and losses associated with these investments are included in the Consolidated Statements of Earnings as a component of realized investment gain.
Inventories are stated at the lower of cost or market. Cost with respect to manufactured goods includes raw materials, direct and indirect labor and factory overhead. Approximately 54% of the total inventory cost was determined using the first-in-first-out (FIFO) method with the remainder valued using the last-in-first-out (LIFO) method. With respect to inventories carried at LIFO cost, the aggregate difference in value between LIFO cost and cost determined under FIFO methods was not material as of December 31, 2000 and December 31, 1999.
Property, plant and equipment is recorded at cost. Renewals and betterments are capitalized; maintenance and repairs are charged to expense as incurred. Depreciation is provided principally on the straight-line method over estimated useful lives as follows: aircraft, simulators, training equipment and spare parts, 4 to 20 years; buildings and improvements, 10 to 40 years; machinery, equipment, furniture and fixtures, 3 to 10 years. Leasehold improvements are amortized over the life of the lease or the life of the improvement, whichever is shorter. Interest is capitalized as an integral component of cost during the construction period of simulators and facilities and is amortized over the life of the related assets.
During the fourth quarter of 2000, Berkshire management concluded that an impairment of goodwill existed with respect to the investment in Dexter Shoe. For the years ended December 31, 2000 and 1999, as a result of intense competition from importers, Dexter Shoe has incurred operating losses. During 2000, certain manufacturing facilities were closed and certain other facilities are expected to close in 2001. Goodwill amortization shown in the accompanying Consolidated Statements of Earnings for 2000 includes a charge of $219 million related to the impairment.
In 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities." In June 1999, the FASB issued SFAS No. 137, which delayed the effective date for implementing SFAS No. 133 until the beginning of 2001. In June 2000, the FASB issued SFAS No. 138, which amended certain provisions of SFAS No. 133 with the objective of easing the implementation difficulties expected to arise. Berkshire adopted SFAS No. 133 as amended by SFAS No. 138 as of the beginning of 2001 and does not anticipate that the adoption of these new standards will have a material effect on its financial position or results of operations.
Effective July 3, 2000, Berkshire acquired all of the outstanding shares of Ben Bridge common stock. Ben Bridge is the leading operator of upscale jewelry stores based in major shopping malls in the Western United States.
Effective August 8, 2000, Berkshire acquired all of the outstanding shares of USIC common stock. USIC is the parent of the United States Liability Insurance Group, one of the premier U.S. writers of specialty insurance.
On October 20, 2000, Berkshire announced that it had formally entered into a merger agreement whereby it would acquire approximately 87.3% of the common stock of Shaw for $19 per share. The transaction was completed on January 8, 2001. An investment group consisting of Robert E. Shaw, Chairman and CEO of Shaw, Julian D. Saul, President of Shaw, certain family members and related family interests of Messrs. Shaw and Saul, and certain other directors and members of management acquired the remaining 12.7% of Shaw.
Shaw is the world's largest manufacturer of tufted broadloom carpet and rugs for residential and commercial applications throughout the United States and exports to most markets worldwide. Shaw markets its residential and commercial products under a variety of brand names.
On December 19, 2000, Berkshire entered into an Agreement and Plan of Merger whereby Berkshire would acquire Johns Manville. Under the terms of the Merger Agreement, among other things, Berkshire commenced a tender offer to purchase all of the outstanding shares of Johns Manville common stock for $13 per share. The acquisition was completed on February 27, 2001.
Berkshire paid approximately $3,830 million in cash to shareholders of Shaw and Johns Manville in connection with the acquisitions.
During 1998 and 1999, Berkshire completed four significant business acquisitions. Information concerning these acquisitions follows. Effective January 7, 1998, Berkshire acquired 100% of the outstanding common stock of International Dairy Queen, Inc. ("Dairy Queen"). Dairy Queen develops, licenses and services a system of over 6,000 Dairy Queen, Orange Julius and Karmelkorn stores located throughout the United States, Canada, and other foreign countries, which feature various dairy desserts, beverages, blended fruit drinks, prepared foods, popcorn and snacks.
Through its retail utility subsidiaries, MidAmerican Energy in the U.S. and Northern Electric in the U.K., MidAmerican provides electric service to approximately 1.8 million customers and natural gas service to 1.1 million customers worldwide. MidAmerican owns interests in over 10,000 net megawatts of diversified power generation facilities in operation, construction and development.
The Consolidated Statements of Earnings reflect, as income from MidAmerican Energy Holdings Company, Berkshire's proportionate share of MidAmerican's net income with respect to the investments accounted for pursuant to the equity method, as well as interest earned on the 11% trust preferred security. Income derived from equity method investments totaled $66 million for the period from March 14, 2000 through December 31, 2000.
(1) Amounts above exclude securities with fixed maturities held by finance and financial products businesses. See Note 7.
Data with respect to the consolidated investments in equity securities are shown below. Amounts are in millions.
* Payments of principal amounts of notes payable and other borrowings during the next five years are as follows (in millions):
GRS is engaged as a dealer in various types of derivative instruments, including interest rate, currency and equity swaps and options, as well as structured finance products. These instruments are carried at their current estimates of fair value, which is a function of underlying interest rates, currency rates, security values, volatilities and the creditworthiness of counterparties. Future changes in these factors or a combination thereof may affect the fair value of these instruments with any resulting adjustment to be included currently in the Consolidated Statements of Earnings.
The following tables disclose the net fair value or carrying amount at December 31, 2000 and 1999 as well as the average fair value during 2000 and 1999 for each class of derivative financial contract held or issued by GRS.
With respect to Berkshire's life insurance business, annuity reserves and policyholder liabilities are carried at the present value of the actuarially determined ultimate payment amounts discounted at market interest rates existing at the inception of the contracts. Such interest rates range from 5% to 8%. Periodic accretions of the discounted liabilities are charged against income from finance and financial products businesses.
Investments in securities with fixed maturities held by Berkshire's life insurance business are classified as held-to-maturity. Investments classified as held-to-maturity are carried at amortized cost reflecting the Company's ability and intent to hold such investments to maturity. Such items consist predominantly of mortgage loans and collateralized mortgage obligations.
The liability for income taxes as reflected in the accompanying Consolidated Balance Sheets is as follows (in millions):
The Consolidated Statements of Earnings reflect charges for income taxes as shown below (in millions):
Liabilities for this balance sheet caption are as follows (in millions):
Borrowings under investment agreements are made pursuant to contracts calling for interest payable, normally semiannually, at fixed rates ranging from 2.5% to 8.6% per annum. Contractual maturities of borrowings under investment agreements generally range from 3 months to 30 years. Under certain conditions, these borrowings are redeemable prior to the contractual maturity dates.
Under certain conditions, each $1,000 par amount Exchange Note is currently exchangeable at the option of the holder or redeemable at the option of Berkshire into 59.833 shares of Citigroup common stock or at Berkshire's option, at the equivalent value in cash. The carrying value of the Exchange Notes is equal to the value of the Citigroup shares into which they can be exchanged.
Other debt includes variable and fixed rate term bonds and notes issued by a variety of Berkshire subsidiaries. These obligations generally may be redeemed prior to maturity at the option of the issuing company.
No materially restrictive covenants are included in any of the various debt agreements. Payments of principal amounts expected during the next five years are as follows (in millions):
Combined shareholders' equity of U.S. based property/casualty insurance subsidiaries determined pursuant to statutory accounting rules (Statutory Surplus as Regards Policyholders) was approximately $41.5 billion at December 31, 2000. This amount differs from the corresponding amount determined on the basis of GAAP. The major differences between statutory basis accounting and GAAP are that deferred income tax assets and liabilities, deferred charges-reinsurance assumed, unrealized gains and losses on investments in securities with fixed maturities and goodwill of acquired businesses are recognized under GAAP but not for statutory reporting purposes.
Effective January 1, 2001, Berkshire's insurance companies will be required to adopt several new accounting policies as a result of the completion of the Codification of Statutory Accounting Principles ("SAP") by the National Association of Insurance Commissioners. The most significant new accounting policy affecting Berkshire's insurance companies will be the requirement to record deferred income tax liabilities, including amounts related to unrealized gains in investment securities. Deferred tax liabilities were previously not recognized under SAP.
As a result, the combined statutory surplus of Berkshire's insurance businesses will decline significantly in 2001. Berkshire estimates that the combined surplus of the group would approximate $33 billion at December 31, 2000 under the new statutory accounting rules.
In connection with the General Re merger, all shares of Class A and Class B Common Stock of the Company outstanding immediately prior to the effective date of the merger were canceled and replaced with new Class A and Class B common shares and all Class A treasury shares were canceled and retired. See Note 2 for information regarding the General Re merger.
GEICO has been named as a defendant in a number of class action lawsuits related to the use of repair parts not produced by original equipment manufacturers in connection with settlement of collision damage claims. A number of the lawsuits have been dismissed. The remaining lawsuits are in the early stages of development and the ultimate outcome of any case cannot be reasonably determined at this time. Management intends to defend vigorously GEICO's position of recommending use of after-market parts in certain auto accident repairs.
Premiums written and earned by Berkshire's property/casualty and life/health insurance businesses during each of the three years ending December 31, 2000 are summarized below. Dollars are in millions.
Other businesses not specifically identified above consist of: Buffalo News, a daily newspaper publisher in Western New York; International Dairy Queen, which licenses and services a system of almost 6,000 Dairy Queen stores; See's Candies, a manufacturer and distributor of boxed chocolates and other confectionery products; H.H. Brown Shoe, Lowell Shoe, Dexter Shoe and Justin Brands, manufacturers and distributors of footwear and Acme Building Brands, a manufacturer and distributor of building materials. This group of businesses also includes several independently operated finance and financial products businesses. In 2000, other businesses also include CORT Business Services, a leading national provider of rental furniture and related services and Benjamin Moore, a formulator, manufacturer and retailer of a range of architectural and industrial coatings and paints.
A summary of revenues and earnings by quarter for each of the last two years is presented in the following table. This information is unaudited. Dollars are in millions, except per share amounts.
The term loan will be secured by all assets of FINOVA Capital and will bear interest at an annual rate equal to the greater of 9% or LIBOR plus 3%. In addition, an annual facility fee will be payable at the rate of 25 basis points on the outstanding principal amount of the term loan. After payment of accrued interest on the term loan and operating and other corporate expenses, providing for reserves and payment of accrued interest on the restructured FINOVA Group senior notes, 100% of excess cash flow and net proceeds from asset sales will be used to make mandatory prepayments of principal on the term loan without premium. Any remaining principal and accrued and unpaid interest on the term loan will be due at maturity (five years from the closing).
The accompanying consolidated financial statements include the accounts of OBH Inc. (formerly Berkshire Hathaway Inc.), which became a wholly-owned subsidiary of Berkshire Hathaway Inc. upon completion of the General Re merger. The condensed consolidated balance sheets of OBH Inc. as of December 31, 2000 and 1999 are as follows (dollars in millions):
The condensed consolidated statements of earnings of OBH Inc. for the years ended December 31, 2000, 1999 and 1998 are as follows (in millions):
The summarized financial data of the finance and financial products businesses (See Note 7) includes the activities conducted by the Scott Fetzer Financial Group and its subsidiaries ("SFFG"). Assets and liabilities of SFFG are summarized below (in millions).