1977 : In particular, Ken Chaces efforts after the change in corporate control took place in 1965 generated capital from the textile division needed to finance the acquisition and expansion of our profitable insurance operation. Rather, this almost 600% increase has been achieved through large gains in National Indemnitys traditional liability areas plus the starting of new companies (Cornhusker Casualty Company in 1970, Lakeland Fire and Casualty Company in 1971, Texas United Insurance Company in 1972, The Insurance Company of Iowa in 1973, and Kansas Fire and Casualty Company in late 1977), the purchase for cash of other insurance companies (Home and Automobile Insurance Company in 1971, Kerkling Reinsurance Corporation, now named Central Fire and Casualty Company, in 1976, and Cypress Insurance Company at yearend 1977), and finally through the marketing of additional products, most significantly reinsurance, within the National Indemnity Company corporate structure. We experienced significant problems from (1) a surety operation initiated in 1969, (2) the 1973 expansion of Home and Automobiles urban auto marketing into the Miami, Florida area, (3) a still unresolved aviation fronting arrangement, and (4) our Workers Compensation operation in California, which we believe retains an interesting potential upon completion of a reorganization now in progress. In addition to actively supervising the other four homestate operations, John Ringwalt manages the operations of Cornhusker which has recorded combined ratios below 100 in six of its seven full years of existence and, from a standing start in 1970, has grown to be one of the leading insurance companies operating in Nebraska utilizing the conventional independent agency system. of Shares Company Cost Market (000s omitted) 220,000 Capital Cities Communications, Inc. $ 10,909 $ 13,228 1,986,953 Government Employees Insurance Company Convertible Preferred 19,417 33,033 1,294,308 Government Employees Insurance Company Common Stock 4,116 10,516 592,650 The Interpublic Group of Companies, Inc. 4,531 17,187 324,580 Kaiser Aluminum& Chemical Corporation 11,218 9,981 1,305,800 Kaiser Industries, Inc. 778 6,039 226,900 Knight-Ridder Newspapers, Inc. 7,534 8,736 170,800 Ogilvy & Mather International, Inc. 2,762 6,960 934,300 The Washington Post Company Class B 10,628 33,401 Total $ 71,893 $139,081 All Other Holdings 34,996 41,992 Total Equities $106,889 $181,073 We select our marketable equity securities in much the same way we would evaluate a business for acquisition in its entirety.

1978 : After the merger, our ownership of Blue Chip Stamps increased to approximately 58% and, therefore, the accounts of that company must be fully consolidated in the Balance Sheet and Statement of Earnings presentation of Berkshire. In previous reports, our share of the net earnings only of Blue Chip had been included as a single item on Berkshires Statement of Earnings, and there had been a similar one-line inclusion on our Balance Sheet of our share of their net assets. The table shows the overall earnings of each major operating category on a pre-tax basis (several of the businesses have low tax rates because of significant amounts of tax-exempt interest and dividend income), as well as the share of those earnings belonging to Berkshire both on a pre-tax and after-tax basis. Under Phils leadership, with outstanding assistance by Roland Miller in Underwriting and Bill Lyons in Claims, this segment of National Indemnity (including National Fire and Marine Insurance Company, which operates as a running mate) had one of its best years in a long history of performances which, in aggregate, far outshine those of the industry. Our experience has been that the manager of an already highcost operation frequently is uncommonly resourceful in finding new ways to add to overhead, while the manager of a tightly-run operation usually continues to find additional methods to curtail costs, even when his costs are already well below those of his competitors.

1979 : All of the significant capital gains or losses attributable to any of the business entities are aggregated in the realized securities gain figure at the bottom of the table, and are not included in operating earnings. We believe that the conversion options obtained, in effect, give that portion of the bond portfolio a far shorter average life than implied by the maturity terms of the issues (i.e., at an appropriate time of our choosing, we can terminate the bond contract by conversion into stock). However, you should be aware that we do not expect to be able to fully, or even in very large part, replace the earning power represented by the bank from the proceeds of the sale of the bank. There is also a fair chance that operating earnings in aggregate dollars will fall short of 1979; the outcome depends partly upon the date of disposition of the bank, partly upon the degree of slippage in insurance underwriting profitability, and partly upon the severity of earnings problems in the savings and loan industry. Your company is run on the principle of centralization of financial decisions at the top (the very top, it might be added), and rather extreme delegation of operating authority to a number of key managers at the individual company or business unit level.

1980 : The large increase in such holdings, plus the growth of earnings experienced by those partially-owned companies, has produced an unusual result; the part of our earnings that these companies retained last year (the part not paid to us in dividends) exceeded the total reported annual operating earnings of Berkshire Hathaway. (Half of the 20% will go for income tax; the remaining 10% leaves the owners of the business with only 98% of the purchasing power they possessed at the start of the year - even though they have not spent a penny of their earnings). All of the significant capital gains and losses attributable to any of the business entities are aggregated in the realized securities gains figure at the bottom of the table, and are not included in operating earnings. The consequences of this directive are predictable: (a) with most business both price sensitive and renewable annually, many policies presently on the books will be lost to competitors in rather short order; (b) as premium volume shrinks significantly, there will be a lagged but corresponding decrease in liabilities (unearned premiums and claims payable); (c) assets (bonds) must be sold to match the decrease in liabilities; and (d) the formerly unrecognized disappearance of net worth will become partially recognized (depending upon the extent of such sales) in the insurers published financial statements. Disposition of Illinois National Bank and Trust of Rockford On December 31, 1980 we completed the exchange of 41,086 shares of Rockford Bancorp Inc. (which owns 97.7% of Illinois National Bank) for a like number of shares of Berkshire Hathaway Inc. Our method of exchange allowed all Berkshire shareholders to maintain their proportional interest in the Bank (except for me; I was permitted 80% of my proportional share).

1981 : Berkshire Acquisition Objectives We will continue to seek the acquisition of businesses in their entirety at prices that will make sense, even should the future of the acquired enterprise develop much along the lines of its past. That was true even though a combination of taxes on dividends and on capital gains would reduce the 10% earned by the corporation to perhaps 6%-8% in the hands of the individual investor. All of the significant gains and losses attributable to unusual sales of assets by any of the business entities are aggregated with securities transactions in the line near the bottom of the table and are not included in operating earnings. We believe that very large, although obviously varying, underwriting losses will be the norm for the industry, and that the best underwriting years in the future decade may appear substandard against the average year of the past decade. The father-knows-best school of corporate governance will be surprised to find that none of our shareholders sent in a designation sheet with instructions that the officers of Berkshire - in their superior wisdom, of course - make the decision on charitable funds applicable to his shares.

1982 : This decline largely resulted from: (1) a significant deterioration in insurance underwriting results; (2) a considerable expansion of equity capital without a corresponding growth in the businesses we operate directly; and (3) a continually-enlarging commitment of our resources to investment in partially-owned, nonoperated businesses; accounting rules dictate that a major part of our pro-rata share of earnings from such businesses must be excluded from Berkshires reported earnings. In our view, the value to all owners of the retained earnings of a business enterprise is determined by the effectiveness with which those earnings are used - and not by the size of ones ownership percentage. All of the significant gains and losses attributable to unusual sales of assets by any of the business entities are aggregated with securities transactions in the line near the bottom of the table, and are not included in operating earnings. And the wishes of sellers cant be the determinant of the best interests of the buyer - what would happen if, heaven forbid, the seller insisted that as a condition of merger the CEO of the acquirer be replaced?) The results were the converse of most of the activity since 1970: the shareholders of the acquired company received very inflated currency (frequently pumped up by dubious accounting and promotional techniques) and were the losers of wealth through such transactions.

1983 : All of the significant gains and losses attributable to unusual sales of assets by any of the business entities are aggregated with securities transactions on the line near the bottom of the table, and are not included in operating earnings. Among these, points 2 and 3 also may explain the popularity of the Sunday News compared to that of the Sunday Courier-Express when it was the sole Sunday paper: (1) The first point has nothing to do with merits of the News. We are not sure to what extent this flat volume - both in the retail shop area and the quantity order area - is due to our pricing policies and to what extent it is due to static industry volume, the recession, and the extraordinary share of market we already enjoy in our primary marketing area. If a purchase and sale of the stock each extract commissions of 1% (the rate may be much higher on low-priced stocks) and if the stock trades at book value, the owners of our hypothetical company will pay, in aggregate, 2% of the companys net worth annually for the privilege of transferring ownership. Depending on the size of the transaction, the difference between proceeds received by the seller of Berkshire and cost to the buyer may range downward from 4% (in trading involving only a few shares) to perhaps 1 1/2% (in large trades where negotiation can reduce both the market-makers spread and the brokers commission).

1984 : All of the significant gains and losses attributable to unusual sales of assets by any of the business entities are aggregated with securities transactions on the line near the bottom of the table, and are not included in operating earnings. As reported last year: (1) in mid-1983 GEICO made a tender offer to buy its own shares; (2) at the same time, we agreed by written contract to sell GEICO an amount of its shares that would be proportionately related to the aggregate number of shares GEICO repurchased via the tender from all other shareholders; (3) at completion of the tender, we delivered 350,000 shares to GEICO, received $21 million cash, and were left owning exactly the same percentage of GEICO that we owned before the tender; (4) GEICOs transaction with us amounted to a proportionate redemption, an opinion rendered us, without qualification, by a leading law firm; (5) the Tax Code logically regards such proportionate redemptions as substantially equivalent to dividends and, therefore, the $21 million we received was taxed at only the 6.9% inter-corporate dividend rate; (6) importantly, that $21 million was far less than the previously-undistributed earnings that had inured to our ownership in GEICO and, thus, from the standpoint of economic substance, was in our view equivalent to a dividend. The loss expense charged in a property/casualty companys current income statement represents: (1) losses that occurred and were paid during the year; (2) estimates for losses that occurred and were reported to the insurer during the year, but which have yet to be settled; (3) estimates of ultimate dollar costs for losses that occurred during the year but of which the insurer is unaware (termed IBNR: incurred but not reported); and (4) the net effect of revisions this year of similar estimates for (2) and (3) made in past years. This is a source of particular chagrin to me because: (1) I like for you to be able to count on what I say; (2) our insurance managers and I undoubtedly acted with less urgency than we would have had we understood the full extent of our losses; and (3) we paid income taxes calculated on overstated earnings and thereby gave the government money that we didnt need to. Since our ad is pulling, we will repeat it in precisely last years form: We prefer: (1) large purchases (at least $5 million of after-tax earnings), (2) demonstrated consistent earning power (future projections are of little interest to us, nor are turn-around situations), (3) businesses earning good returns on equity while employing little or no debt, (4) management in place (we cant supply it), (5) simple businesses (if theres lots of technology, we wont understand it), (6) an offering price (we dont want to waste our time or that of the seller by talking, even preliminarily, about a transaction when price is unknown).

1985 : Later sections of this report discuss (a) our purchase of a major position in Capital Cities/ABC, (b) our acquisition of Scott & Fetzer, (c) our entry into a large, extended term participation in the insurance business of Firemans Fund, and (d) our sale of our stock in General Foods. We remained in the business for reasons that I stated in the 1978 annual report (and summarized at other times also): (1) our textile businesses are very important employers in their communities, (2) management has been straightforward in reporting on problems and energetic in attacking them, (3) labor has been cooperative and understanding in facing our common problems, and (4) the business should average modest cash returns relative to investment. what part of the premium received should be kept by the issuing company to compensate it fairly for taking the first $1 million of risk and how much should be passed on to the reinsurers to compensate them fairly for taking the risk between $1 million and $25 million? The burgeoning uncertainties of the business, coupled with the entry into reinsurance of many unsophisticated participants, worked in recent years in favor of issuing companies writing a small net line: they were able to keep a far greater percentage of the premiums than the risk. Such purchases appeal to us only when we are very comfortable with both the economics of the business and the ability and integrity of the people running the operation.

1986 : All have been discussed in past annual reports and, because of the tendency of Berkshire owners to stay in the fold (about 98% of the stock at the end of each year is owned by people who were owners at the start of the year), we want to avoid undue repetition of basic facts. The circumstances of this acquisition were similar to those prevailing in our purchase of Nebraska Furniture Mart: most of the shares were held by people who wished to employ funds elsewhere; family members who enjoyed running their business wanted to continue both as owners and managers; several generations of the family were active in the business, providing management for as far as the eye can see; and the managing family wanted a purchaser who would not re-sell, regardless of price, and who would let the business be run in the future as it had been in the past. The rate of gain in the industrys premium volume has slowed significantly (from an estimated 27.1% in 1986s first quarter, to 23.5% in the second, to 21.8% in the third, to 18.7% in the fourth), and we expect further slowing in 1987. In the past, the tax at the corporate level could be avoided, If Berkshire, for example, were to be liquidated - which it most certainly wont be - shareholders would, under the new law, receive far less from the sales of our properties than they would have if the properties had been sold in the past, assuming identical prices in each sale. By the end of 1986 the difference between the net worth of the "old" and "new" Scott Fetzer had been reduced from $142.6 million to $131.0 million by means of the extra $11.6 million that was charged to earnings of the new entity.

1987 : o Among dominant papers of its size or larger, the Buffalo News continues to be the national leader in two important ways: (1) its weekday and Sunday penetration rate (the percentage of households in the paper's primary market area that purchase it); and (2) its "news-hole" percentage (the portion of the paper devoted to news). Two, it turned out, were badly missed by our customers, who wasted no time in letting us know what they thought of our judgment: "A pox on all in See's who participated in the abominable decision ;" "May your new truffles melt in transit, may they sour in people's mouths, may your costs go up and your profits go down ;" "We are investigating the possibility of obtaining a mandatory injunction requiring you to supply ;" You get the picture. If it is to depict the true state of affairs, we believe the standard opinion letter to shareholders of a property-casualty company should read something like: "We have relied upon representations of management in respect to the liabilities shown for losses and loss adjustment expenses, the estimate of which, in turn, very materially affects the earnings and financial condition herein reported. The lack of skill that many CEOs have at capital allocation is no small matter: After ten years on the job, a CEO whose company annually retains earnings equal to 10% of net worth will have been responsible for the deployment of more than 60% of all the capital at work in the business. Here's what we're looking for: (1) large purchases (at least $10 million of after-tax earnings), (2) demonstrated consistent earning power (future projections are of little interest to us, nor are "turnaround" situations), (3) businesses earning good returns on equity while employing little or no debt, (4) management in place (we can't supply it), (5) simple businesses (if there's lots of technology, we won't understand it), (6) an offering price (we don't want to waste our time or that of the seller by talking, even preliminarily, about a transaction when price is unknown).

1988 : Important negatives affecting our prospects today are: (1) a less attractive stock market than generally existed over the past 24 years; (2) higher corporate tax rates on most forms of investment income; (3) a far more richly-priced market for the acquisition of businesses; and (4) industry conditions for Capital Cities/ABC, Inc., GEICO Corporation, and The Washington Post Company - Berkshires three permanent investments, constituting about one-half of our net worth - that range from slightly to materially less favorable than those existing five to ten years ago. This change underscores the need for companies also to report segmented data: The greater the number of economically diverse business operations lumped together in conventional financial statements, the less useful those presentations are and the less able investors are to answer the three questions posed earlier. On pages 41-47 we show separate combined balance sheets and earnings statements for: (1) our subsidiaries engaged in financetype operations, which are Mutual Savings and Scott Fetzer Financial; (2) our insurance operations, with their major investment positions itemized; (3) our manufacturing, publishing and retailing businesses, leaving aside certain non-operating assets and purchase-price accounting adjustments; and (4) an allother category that includes the non-operating assets (primarily marketable securities) held by the companies in (3) as well as various assets and debts of the Wesco and Berkshire parent companies. I realize that many of you do not pore over our figures, but instead hold Berkshire primarily because you know that: (1) Charlie and I have the bulk of our money in Berkshire; (2) we intend to run things so that your gains or losses are in direct proportion to ours; and (3) the record has so far been satisfactory. All of the conditions are present that are required for a fair test of portfolio performance: (1) the three organizations traded hundreds of different securities while building this 63- year record; (2) the results are not skewed by a few fortunate experiences; (3) we did not have to dig for obscure facts or develop keen insights about products or managements - we simply acted on highly-publicized events; and (4) our arbitrage positions were a clearly identified universe - they have not been selected by hindsight.

1989 : In other words, our performance to date has benefited from a doubledip: (1) the exceptional gains in intrinsic value that our portfolio companies have achieved; (2) the additional bonus we realized as the market appropriately "corrected" the prices of these companies, raising their valuations in relation to those of the average business. Shown on these pages are balance sheets and earnings statements for: (1) our insurance operations, with their major investment positions itemized; (2) our manufacturing, publishing and retailing businesses, leaving aside certain non-operating assets and purchase-price accounting adjustments; (3) our subsidiaries engaged in finance-type operations, which are Mutual Savings and Scott Fetzer Financial; and (4) an all-other category that includes the non-operating assets (primarily marketable securities) held by the companies in segment (2), all purchase price accounting adjustments, and various assets and debts of the Wesco and Berkshire parent companies. We will accept more reinsurance risk for our own account than any other company because of two factors: (1) by the standards of regulatory accounting, we have a net worth in our insurance companies of about $6 billion - the second highest amount in the United States; and (2) we simply don't care what earnings we report quarterly, or even annually, just as long as the decisions leading to those earnings (or losses) were reached intelligently. 12/31/89 Shares Company Cost Market (000s omitted) 3,000,000 Capital Cities/ABC, Inc. $ 517,500 $1,692,375 23,350,000 The Coca-Cola Co. 1,023,920 1,803,787 2,400,000 Federal Home Loan Mortgage Corp. 71,729 161,100 6,850,000 GEICO Corp. 45,713 1,044,625 1,727,765 The Washington Post Company 9,731 486,366 This list of companies is the same as last year's and in only one case has the number of shares changed: Our holdings of Coca-Cola increased from 14,172,500 shares at the end of 1988 to 23,350,000. If you buy a stock at a sufficiently low price, there will usually be some hiccup in the fortunes of the business that gives you a chance to unload at a decent profit, even though the longterm performance of the business may be terrible.

1990 : I believe the best way to think about our earnings is in terms of "look-through" results, calculated as follows: Take $250 million, which is roughly our share of the 1990 operating earnings retained by our investees; subtract $30 million, for the incremental taxes we would have owed had that $250 million been paid to us in dividends; and add the remainder, $220 million, to our reported operating earnings of $371 million. An assumption was being made that the universe of newly-minted junk bonds was identical to the universe of low-grade fallen angels and that, therefore, the default experience of the latter group was meaningful in predicting the default experience of the new issues. The Board of Directors has adopted the following advanced form of this idea: The entire personnel of the Corporation are to receive their compensation in the form of rights to buy common stock at $50 per share, at the rate of one purchase right for each $50 of salary and/or wages in their present amounts. Because of the large earnings per share to be shown on our common stock under the new methods, it is certain that the shares will command a price in the market far above the option level of $50 per share, making the readily realizable value of these option warrants greatly in excess of the present cash wages that they will replace. It is the considered view of the Board of Directors that under the Modernization Scheme we shall be able to undersell all competitors to such a point that the anti-trust laws will constitute the only barrier to 100% domination of the industry.

1991 : Berkshire's Share of Undistributed Berkshire's Approximate Operating Earnings Berkshire's Major Investees Ownership at Yearend (in millions) 1991 1990 1991 1990 Capital Cities/ABC Inc. 18.1% 17.9% $ 61 $ 85 The Coca-Cola Company 7.0% 7.0% 69 58 Federal Home Loan Mortgage Corp. 3.4%(1) 3.2%(1) 15 10 The Gillette Company 11.0% 23(2) GEICO Corp. 48.2% 46.1% 69 76 The Washington Post Company 14.6% 14.6% 10 18 Wells Fargo & Company 9.6% 9.7% (17) 19(3) Berkshire's share of undistributed earnings of major investees $230 $266 Hypothetical tax on these undistributed investee earnings (30) (35) Reported operating earnings of Berkshire 316 371 Total look-through earnings of Berkshire $516 $602 (1) Net of minority interest at Wesco (2) For the nine months after Berkshire converted its preferred on April 1 (3) Calculated on average ownership for the year We also believe that investors can benefit by focusing on their own look-through earnings. We have a significant investment in media - both through our direct ownership of Buffalo News and our shareholdings in The Washington Post Company and Capital Cities/ABC - and the intrinsic value of this investment has declined materially because of the secular transformation that the industry is experiencing. A distinguishing characteristic of H. H. Brown is one of the most unusual compensation systems I've encountered - but one that warms my heart: A number of key managers are paid an annual salary of $7,800, to which is added a designated percentage of the profits of the company after these are reduced by a charge for capital employed. We would love to see an intermediary earn its fee by thinking of us - and therefore repeat here what we're looking for: (1) Large purchases (at least $10 million of after-tax earnings), (2) Demonstrated consistent earning power (future projections are of little interest to us, nor are "turnaround" situations), (3) Businesses earning good returns on equity while employing little or no debt, (4) Management in place (we can't supply it), (5) Simple businesses (if there's lots of technology, we won't understand it), (6) An offering price (we don't want to waste our time or that of the seller by talking, even preliminarily, about a transaction when price is unknown). If my universe of business possibilities was limited, say, to private companies in Omaha, I would, first, try to assess the longterm economic characteristics of each business; second, assess the quality of the people in charge of running it; and, third, try to buy into a few of the best operations at a sensible price.

1992 : The third point incorporates two predictions: Charlie Munger, Berkshire's Vice Chairman and my partner, and I are virtually certain that the return over the next decade from an investment in the S&P index will be far less than that of the past decade, and we are dead certain that the drag exerted by Berkshire's expanding capital base will substantially reduce our historical advantage relative to the index. Berkshire's Share of Undistributed Berkshire's Approximate Operating Earnings Berkshire's Major Investees Ownership at Yearend (in millions) 1992 1991 1992 1991 Capital Cities/ABC Inc. 18.2% 18.1% $ 70 $ 61 The Coca-Cola Company 7.1% 7.0% 82 69 Federal Home Loan Mortgage Corp. 8.2%(1) 3.4%(1) 29(2) 15 GEICO Corp. 48.1% 48.2% 34(3) 69(3) General Dynamics Corp. 14.1% 11(2) The Gillette Company 10.9% 11.0% 38 23(2) Guinness PLC 2.0% 1.6% 7 The Washington Post Company 14.6% 14.6% 11 10 Wells Fargo & Company 11.5% 9.6% 16(2) (17)(2) Berkshire's share of undistributed earnings of major investees $298 $230 Hypothetical tax on these undistributed investee earnings (42) (30) Reported operating earnings of Berkshire 348 316 Total look-through earnings of Berkshire $604 $516 (1) Net of minority interest at Wesco (2) Calculated on average ownership for the year (3) Excludes realized capital gains, which have been both recurring and significant Insurance Operations Shown below is an updated version of our usual table presenting key figures for the property-casualty insurance industry: Yearly Change Combined Ratio in Premiums After Policyholder Written (%) Dividends 1981 3.8 106.0 1982 3.7 109.6 1983 5.0 112.0 1984 8.5 118.0 1985 22.1 116.3 1986 22.2 108.0 1987 9.4 104.6 1988 4.5 105.4 1989 3.2 109.2 1990 4.5 109.6 1991 (Revised) 2.4 108.8 1992 (Est.) In The Theory of Investment Value, written over 50 years ago, John Burr Williams set forth the equation for value, which we condense here: The value of any stock, bond or business today is determined by the cash inflows and outflows - discounted at an appropriate interest rate - that can be expected to occur during the remaining life of the asset. The investment shown by the discounted-flows-of-cash calculation to be the cheapest is the one that the investor should purchase - irrespective of whether the business grows or doesn't, displays volatility or smoothness in its earnings, or carries a high price or low in relation to its current earnings and book value. In fact, since I'm in the mood for offers, I'll make one to any executive who is granted a restricted option, even though it may be out of the money: On the day of issue, Berkshire will pay him or her a substantial sum for the right to any future gain he or she realizes on the option.

1993 : We prefer instead to focus on the economic characteristics of businesses that we wish to own and the personal characteristics of managers with whom we wish to associate - and then to hope we get lucky in finding the two in combination. As we calculate them, look-through earnings consist of: (1) the operating earnings reported in the previous section, plus; (2) the retained operating earnings of major investees that, under GAAP accounting, are not reflected in our profits, less; (3) an allowance for the tax that would be paid by Berkshire if these retained earnings of investees had instead been distributed to us. Berkshire's Share of Undistributed Berkshire's Approximate Operating Earnings Berkshire's Major Investees Ownership at Yearend (in millions) 1993 1992 1993 1992 Capital Cities/ABC, Inc. 13.0% 18.2% $ 83(2) $ 70 The Coca-Cola Company 7.2% 7.1% 94 82 Federal Home Loan Mortgage Corp. 6.8%(1) 8.2%(1) 41(2) 29(2) GEICO Corp. 48.4% 48.1% 76(3) 34(3) General Dynamics Corp. 13.9% 14.1% 25 11(2) The Gillette Company 10.9% 10.9% 44 38 Guinness PLC 1.9% 2.0% 8 7 The Washington Post Company 14.8% 14.6% 15 11 Wells Fargo & Company 12.2% 11.5% 53(2) 16(2) Berkshire's share of undistributed earnings of major investees $439 $298 Hypothetical tax on these undistributed investee earnings(4) (61) (42) Reported operating earnings of Berkshire 478 348 Total look-through earnings of Berkshire $856 $604 (1) Does not include shares allocable to the minority interest at Wesco (2) Calculated on average ownership for the year (3) Excludes realized capital gains, which have been both recurring and significant (4) The tax rate used is 14%, which is the rate Berkshire pays on the dividends it receives We have told you that we expect the undistributed, hypothetically-taxed earnings of our investees to produce at least equivalent gains in Berkshire's intrinsic value. The primary factors bearing upon this evaluation are: 1) The certainty with which the long-term economic characteristics of the business can be evaluated; 2) The certainty with which management can be evaluated, both as to its ability to realize the full potential of the business and to wisely employ its cash flows; 3) The certainty with which management can be counted on to channel the rewards from the business to the shareholders rather than to itself; 4) The purchase price of the business; 5) The levels of taxation and inflation that will be experienced and that will determine the degree by which an investor's purchasing-power return is reduced from his gross return. We recommend that you promptly get hotel reservations at one of these hotels: (1) The Radisson-Redick Tower, a small (88 rooms) but nice hotel across the street from the Orpheum; (2) the much larger Red Lion Hotel, located about a five-minute walk from the Orpheum; or (3) the Marriott, located in West Omaha about 100 yards from Borsheim's, which is a twenty-minute drive from downtown.

1994 : Thirty years ago, no one could have foreseen the huge expansion of the Vietnam War, wage and price controls, two oil shocks, the resignation of a president, the dissolution of the Soviet Union, a one-day drop in the Dow of 508 points, or treasury bill yields fluctuating between 2.8% and 17.4%. The sad fact is that most major acquisitions display an egregious imbalance: They are a bonanza for the shareholders of the acquiree; they increase the income and status of the acquirer's management; and they are a honey pot for the investment bankers and other professionals on both sides. Our compensation arrangements with the managers of all our other units are similarly simple, though the terms of each agreement vary to fit the economic characteristics of the business at issue, the existence in some cases of partial ownership of the unit by managers, etc. As we calculate them, look-through earnings consist of: (1) the operating earnings reported in the previous section, plus; (2) the retained operating earnings of major investees that, under GAAP accounting, are not reflected in our profits, less; (3) an allowance for the tax that would be paid by Berkshire if these retained earnings of investees had instead been distributed to us. Berkshire's Share of Undistributed Berkshire's Approximate Operating Earnings Berkshire's Major Investees Ownership at Yearend (in millions) 1994 1993 1994 1993 American Express Company 5.5% 2.4% $ 25(2) $ 16 Capital Cities/ABC, Inc. 13.0% 13.0% 85 83(2) The Coca-Cola Company 7.8% 7.2% 116(2) 94 Federal Home Loan Mortgage Corp. 6.3%(1) 6.8%(1) 47(2) 41(2) Gannett Co., Inc. 4.9% 4(2) GEICO Corp. 50.2% 48.4% 63(3) 76(3) The Gillette Company 10.8% 10.9% 51 44 PNC Bank Corp. 8.3% 10(2) The Washington Post Company 15.2% 14.8% 18 15 Wells Fargo & Company 13.3% 12.2% 73 53(2) Berkshire's share of undistributed earnings of major investees $ 492 $422 Hypothetical tax on these undistributed investee earnings(4) (68) (59) Reported operating earnings of Berkshire 606 478 Total look-through earnings of Berkshire $1,030 $ 841 (1) Does not include shares allocable to the minority interest at Wesco (2) Calculated on average ownership for the year (3) Excludes realized capital gains, which have been both recurring and significant (4) The tax rate used is 14%, which is the rate Berkshire pays on the dividends it receives Insurance Operations As we've explained in past reports, what counts in our insurance business is, first, the amount of "float" we develop and, second, its cost to us.

1995 : We insured: (1) The life of Mike Tyson for a sum that is large initially and that, fight-by-fight, gradually declines to zero over the next few years; (2) Lloyd's against more than 225 of its "names" dying during the year; and (3) The launch, and a year of orbit, of two Chinese satellites. The well-publicized problems at Lloyd's further illustrate the perils of reinsurance and also underscore how vital it is that the interests of the people who write insurance business be aligned - on the downside as well as the upside - with those of the people putting up the capital. Charlie and I have never had a conviction about the paper industry - actually, I can't remember ever owning the common stock of a paper producer in my 54 years of investing - so our choice in August was whether to sell in the market or to the company. Each share of the "B" will have the rights of 1/30th of an "A" share with these exceptions: First, a B share will have 1/200th of the vote of an A share (rather than 1/30th of the vote). However, because the Class A stock will entitle its holders to full voting rights and access to Berkshire's contributions program, these shares will be superior to the Class B shares and we would expect most shareholders to remain holders of the Class A - which is precisely what the Buffett and Munger families plan to do, except in those instances when we ourselves might convert a few shares to facilitate gifts.

1996 : As a result, we now carry our original 51% of GEICO at a value that is both lower than its market value at the time we purchased the remaining 49% of the company and lower than the value at which we carry that 49% itself. Second, whatever our rate of progress, it will not be smooth: Year-to-year moves in the first column of the table above will be influenced in a major way by fluctuations in securities markets; the figures in the second column will be affected by wide swings in the profitability of our catastrophe-reinsurance business. As we calculate these, they consist of: (1) the operating earnings reported in the previous section, plus; (2) our share of the retained operating earnings of major investees that, under GAAP accounting, are not reflected in our profits, less; (3) an allowance for the tax that would be paid by Berkshire if these retained earnings of investees had instead been distributed to us. Berkshire's Share of Undistributed Berkshire's Approximate Operating Earnings Berkshire's Major Investees Ownership at Yearend(1) (in millions)(2) American Express Company 10.5% $ 132 The Coca-Cola Company 8.1% 180 The Walt Disney Company 3.6% 50 Federal Home Loan Mortgage Corp. 8.4% 77 The Gillette Company 8.6% 73 McDonald's Corporation 4.3% 38 The Washington Post Company 15.8% 27 Wells Fargo & Company 8.0% 84 Berkshire's share of undistributed earnings of major investees 661 Hypothetical tax on these undistributed investee earnings(3) (93) Reported operating earnings of Berkshire 954 Total look-through earnings of Berkshire $1,522 (1) Does not include shares allocable to minority interests (2) Calculated on average ownership for the year (3) The tax rate used is 14%, which is the rate Berkshire pays on the dividends it receives Common Stock Investments Below we present our common stock investments. Given that background, it won't surprise you to learn that we again went to Terry when we decided late in the year to sell an issue of Berkshire notes that can be exchanged for a portion of the Salomon shares that we hold.

1997 : We measure GEICO's performance by first, the net increase in its voluntary auto policies (that is, not including policies assigned us by the state) and, second, the profitability of "seasoned" auto business, meaning policies that have been with us for more than a year and are thus past the period in which acquisition costs cause them to be money-losers. Look-Through Earnings Reported earnings are a poor measure of economic progress at Berkshire, in part because the numbers shown in the table presented earlier include only the dividends we receive from investees though these dividends typically represent only a small fraction of the earnings attributable to our ownership. As we calculate these, they consist of: (1) the operating earnings reported in the previous section, plus; (2) our share of the retained operating earnings of major investees that, under GAAP accounting, are not reflected in our profits, less; (3) an allowance for the tax that would be paid by Berkshire if these retained earnings of investees had instead been distributed to us. Berkshire's Share of Undistributed Berkshire's Approximate Operating Earnings Berkshire's Major Investees Ownership at Yearend(1) (in millions)(2) American Express Company 10.7% $161 The Coca-Cola Company 8.1% 216 The Walt Disney Company 3.2% 65 Freddie Mac 8.6% 86 The Gillette Company 8.6% 82 The Washington Post Company 16.5% 30 Wells Fargo & Company 7.8% 103 Berkshire's share of undistributed earnings of major investees 743 Hypothetical tax on these undistributed investee earnings(3) (105) Reported operating earnings of Berkshire 1,292 Total look-through earnings of Berkshire $1,930 (1) Does not include shares allocable to minority interests (2) Calculated on average ownership for the year (3) The tax rate used is 14%, which is the rate Berkshire pays on the dividends it receives Acquisitions of 1997 In 1997, we agreed to acquire Star Furniture and International Dairy Queen (a deal that closed early in 1998). At the annual meeting last year, with the Dow at 7,071 and long-term Treasury yields at 6.89%, Charlie and I stated that we did not consider the market overvalued if 1) interest rates remained where they were or fell, and 2) American business continued to earn the remarkable returns on equity that it had recently recorded.

1998 : We will simply ask the company to exercise the discipline of the past while increasing the proportion of its business that is retained, expanding its product line, and widening its geographical coverage making these moves in recognition of Berkshires financial strength and tolerance for wide swings in earnings. That fact, however, does not reduce the cost of the nontransferable option: Giving an employee a company car that can only be used for certain purposes diminishes its value to the employee, but does not in the least diminish its cost to the employer. In some cases, the purpose of the charge is to clean up earnings misrepresentations of the past, and in others it is to prepare the ground for future misrepresentations. Unfortunately, CEOs who use variations of these scoring schemes in real life tend to become addicted to the games theyre playing after all, its easier to fiddle with the scorecard than to spend hours on the practice tee and never muster the will to give them up. Because we know that our Omaha shareholders will want to be good hosts to the out-of-towners (many of them come from outside the U.S), we plan to give those visitors first crack at the Aksarben tickets and to subsequently allocate these to greater Omaha residents on a first-come, first-served basis.

1999 : In Ajit, we have an underwriter equipped with the intelligence to properly rate most risks; the realism to forget about those he cant evaluate; the courage to write huge policies when the premium is appropriate; and the discipline to reject even the smallest risk when the premium is inadequate. Nevertheless, I want to emphasize that a major percentage of the $300-$350 million we will spend in 2000 on advertising, as well as large additional costs ', '7': b' 9 we will incur for sales counselors, communications and facilities, are optional outlays we choose to make so that we can both achieve significant growth and extend and solidify the promise of the GEICO brand in the minds of Americans. As we calculate these, they consist of: (1) the operating earnings reported in the previous section, plus; (2) our share of the retained operating earnings of major investees that, under GAAP accounting, are not reflected in our profits, less; (3) an allowance for the tax that would be paid by Berkshire if these retained earnings of investees had instead been distributed to us. ', '13': b' 15 Berkshires Approximate Berkshires Share of Undistributed Berkshires Major Investees Ownership at Yearend Operating Earnings (in millions)(1) (2) American Express Company 11.3% $228 The Coca-Cola Company 8.1% 144 Freddie Mac 8.6% 127 The Gillette Company 9.0% 53 M&T Bank 6.5% 17 The Washington Post Company 18.3% 30 Wells Fargo & Company 3.6% 108 Berkshires share of undistributed earnings of major investees 707 Hypothetical tax on these undistributed investee earnings (99) (3) Reported operating earnings of Berkshire 1,318 Total look-through earnings of Berkshire $ 1,926 (1) Does not include shares allocable to minority interests (2) Calculated on average ownership for the year (3) The tax rate used is 14%, which is the rate Berkshire pays on the dividends it receives Investments Below we present our common stock investments. The business needs that I speak of are of two kinds: First, expenditures that a company must make to maintain its competitive position (e.g., the remodeling of stores at Helzbergs) and, second, optional outlays, aimed at business growth, that management expects will produce more than a dollar of value for each dollar spent (R. C. Willeys expansion into Idaho).

2000 : The net of all this is that a) I expect our cost of float to be very attractive in the future but b) rarely to return to a no-cost mode because of the annual charge that retroactive reinsurance will lay on us. 12/31/00 Shares Company Cost Market (dollars in millions) 151,610,700 American Express Company $1,470 $ 8,329 200,000,000 The Coca-Cola Company 1,299 12,188 96,000,000 The Gillette Company 600 3,468 1,727,765 The Washington Post Company 11 1,066 55,071,380 Wells Fargo & Company 319 3,067 Others 6,703 9,501 Total Common Stocks $10,402 $_37,619 In 2000, we sold nearly all of our Freddie Mac and Fannie Mae shares, established 15% positions in several mid-sized companies, bought the high-yield bonds of a few issuers (very few the category is not labeled junk without reason) and added to our holdings of high-grade, mortgage-backed securities. There, if we own a 10% stake in a business earning $10 million after tax, our $1 million share of the earnings is subject to additional state and federal taxes of (1) about $140,000 if it is distributed to us (our tax rate on most dividends is 14%); or (2) no less than $350,000 if the $1 million is retained and subsequently captured by us in the form of a capital gain (on which our tax rate is usually about 35%, though it sometimes approaches 40%). Instead, we try to apply Aesops 2,600-year-old equation to opportunities in which we have reasonable confidence as to how many birds are in the bush and when they will emerge (a formulation that my grandsons would probably update to A girl in a convertible is worth five in the phonebook.). ', '16': b' 17 Berkshires Approximate Berkshires Share of Undistributed Berkshires Major Investees Ownership at Yearend(1) Operating Earnings (in millions)(2) American Express Company 11.4% $265 The Coca-Cola Company 8.1% 160 Freddie Mac 0.3% 106 The Gillette Company 9.1% 51 M&T Bank 7.2% 23 The Washington Post Company 18.3% 18 Wells Fargo & Company 3.2% 117 Berkshires share of undistributed earnings of major investees 740 Hypothetical tax on these undistributed investee earnings(3) (104) Reported operating earnings of Berkshire 1,779 Total look-through earnings of Berkshire $ 2,415 (1) Does not include shares allocable to minority interests (2) Calculated on average ownership for the year (3) The tax rate used is 14%, which is the rate Berkshire pays on most dividends it receives Full and Fair Reporting At Berkshire, full reporting means giving you the information that we would wish you to give to us if our positions were reversed.

2001 : I cut the ribbon at the grand opening in October this was after a soft opening and a few weeks of exceptional sales and, just as I did at Boise, I suggested to the crowd that the new store was my idea. Among the policies we have written and retained entirely for our own account are (1) $578 million of property coverage for a South American refinery once a loss there exceeds $1 billion; (2) $1 billion of non-cancelable third-party liability coverage for losses arising from acts of terrorism at several large international airlines; (3) 500 million of property coverage on a large North Sea oil platform, covering losses from terrorism and sabotage, above 600 million that the insured retained or reinsured elsewhere; and (4) significant coverage on the Sears Tower, including losses caused by terrorism, above a $500 million threshold. ', '11': b' 12 Because of this one-sided experience, it is folly to suggest, as some are doing, that all property/casualty insurance reserves be discounted, an approach reflecting the fact that they will be paid in the future and that therefore their present value is less than the stated liability for them. An uncompromising insistence on delivering only the best to his customers is embedded in the DNA of Rich Santulli, CEO of the company and the inventor of fractional ownership. In neither the purchase of goods nor the hiring of personnel, do we ever consider the religious views, the gender, the race or the sexual orientation of the persons we are dealing with.

2002 : Two acquisitions pending at yearend 2001 were completed: Albecca (which operates under the name Larson-Juhl), the U.S. leader in custom-made picture frames; and Fruit of the Loom, the producer of about 33.3% of the mens and boys underwear sold in the U.S. and of other apparel as well. In addition, Gen Re had accumulated an aggregation of risks that would have been fatal had, say, terrorists detonated several largescale nuclear bombs in an attack on the U.S. A disaster of that scope was highly improbable, of course, but it is up to insurers to limit their risks in a manner that leaves their finances rock-solid if the impossible happens. (One of my sisters owns a fraction of a Falcon 2000, which she uses for trips to Hawaii, but exhibiting the Buffett gene she interchanges to a more economical Citation Excel for short trips in the U.S.) The roster of NetJets users confirms the advantages we offer major businesses. Some of these counterparties, as Ive mentioned, are linked in ways that could cause them to contemporaneously run into a problem because of a single event (such as the implosion of the telecom industry or the precipitous decline in the value of merchant power projects). Imagine, if you will, that at the beginning of this year a company paid all of its employees for the next ten years of their service (in the way they would lay out cash for a fixed asset to be useful for ten years).

2003 : In effect, the directors decided that whoever would pay the most for the old management company was the party that should manage the shareholders money in the future. Why not simply affirm in each annual report that (1) We have looked at other management companies and believe the one we have retained for the upcoming year is among the better operations in the field; and (2) we have negotiated a fee with our managers comparable to what other clients with equivalent funds would negotiate. The largest are (1) Yorkshire Electricity and Northern Electric, whose 3.7 million electric customers make it the third largest distributor of electricity in the U.K.; (2) MidAmerican Energy, which serves 689,000 electric customers in Iowa and; (3) Kern River and Northern Natural pipelines, which carry 7.8% of the natural gas transported in the United States. (The abnormals: In 2002 we had a $60 million pre-tax gain from the sale of a partnership interest to Boeing, and in 2003 we recognized a $37 million loss stemming from the premature obsolescence of simulators.) Nevertheless, to see the diversity of our investment activities, you may be interested in the following table, categorizing the gains we reported during 2003: Category Pre-Tax Gain (in $ million) Common Stocks $ 448 U.S. Government Bonds 1,485 Junk Bonds 1,138 Foreign Exchange Contracts 825 Other 233 $4,129 The common stock profits occurred around the edges of our portfolio not, as we already mentioned, from our selling down our major positions.

2004 : The largest of these are (1) Yorkshire Electricity and Northern Electric, whose 3.7 million electric customers make it the third largest distributor of electricity in the U.K.; (2) MidAmerican Energy, which serves 698,000 electric customers, primarily in Iowa; and (3) Kern River and Northern Natural pipelines, which carry 7.9% of the natural gas consumed in the U.S. Fully as important in my decisions to both use and buy NetJets, however, was the fact that the company was managed by Rich Santulli, the creator of the fractional-ownership industry and a fanatic about safety and service. And though its impossible to forecast just when and how the trade problem will be resolved, its improbable that the resolution will foster an increase in the value of our currency relative to that of our trading partners. Measured by the biblical standard, the Berkshire board is a model: (a) every director is a member of a family owning at least $4 million of stock; (b) none of these shares were acquired from Berkshire via options or grants; (c) no directors receive committee, consulting or board fees from the company that are more than a tiny portion of their annual income; and (d) although we have a standard corporate indemnity arrangement, we carry no liability insurance for directors. We have made this change because a number of shareholders complained last year about the time consumed by two speakers who advocated proposals of limited interest to the majority of the audience and who were no doubt relishing their chance to talk to a captive group of about 19,500.

2005 : The largest of these are (1) Yorkshire Electricity and Northern Electric, whose 3.7 million electric customers make it the third largest distributor of electricity in the U.K.; (2) MidAmerican Energy, which serves 706,000 electric customers, primarily in Iowa; and (3) Kern River and Northern Natural pipelines, which carry 7.8% of the natural gas consumed in the U.S. Balance Sheet 12/31/05 (in $ millions) Assets Liabilities and Equity Cash and equivalents $ 1,004 Notes payable $ 1,469 Accounts and notes receivable 3,287 Other current liabilities 5,371 Inventory 4,143 Total current liabilities 6,840 Other current assets 342 Total current assets 8,776 Goodwill and other intangibles 9,260 Deferred taxes 338 Fixed assets 7,148 Term debt and other liabilities 2,188 Other assets 1,021 Equity 16,839 $26,205 $26,205 Earnings Statement (in $ millions) 2005 2004 2003 Revenues $46,896 $44,142 $32,106 Operating expenses (including depreciation of $699 in 2005, $676 in 2004 and $605 in 2003) 44,190 41,604 29,885 Interest expense (net) 83 57 64 Pre-tax earnings 2,623 2,481 2,157 Income taxes 977 941 813 Net income $ 1,646 $ 1,540 $ 1,344 This eclectic collection, which sells products ranging from Dilly Bars to fractional interests in Boeing 737s, earned a very respectable 22.2% on average tangible net worth last year. A sufficient number of arrangements like this heads, the Helper takes much of the winnings; tails, the Gotrocks lose and pay dearly for the privilege of doing so may make it more accurate to call the family the Hadrocks. Heres the answer to the question posed at the beginning of this section: To get very specific, the Dow increased from 65.73 to 11,497.12 in the 20th century, and that amounts to a gain of 5.3% compounded annually. But many of Berkshires hundreds of thousands of investors have a large portion of their net worth in our stock (among them, it should be emphasized, a large number of our board and key managers) and a disaster for the company would be a disaster for them.

2006 : Paul rejected the idea of a strategic buyer, knowing that in the pursuit of synergies, an owner of that type would be apt to dismantle what he had so carefully built, a move that would uproot hundreds of his associates (and perhaps wound TTIs business in the process). But as Ajit and I reviewed the facts in the spring of 2006 13 years after the last exposed policy had been written and after the payment of 11.3 billion in claims we concluded that the patient was likely to survive. The amount of the annual amortization charge will be primarily determined by how our end-of-the-year estimates as to the timing and amount of future loss payments compare to the estimates made at the beginning of the year. However, the economic potential of a newspaper internet site given the many alternative sources of information and entertainment that are free and only a click away is at best a small fraction of that existing in the past for a print newspaper facing no competition. The largest of these are (1) Yorkshire Electricity and Northern Electric, whose 3.7 million electric customers make it the third largest distributor of electricity in the U.K.; (2) MidAmerican Energy, which serves 706,000 electric customers, primarily in Iowa; (3) Pacific Power and Rocky Mountain Power, serving about 1.7 million electric customers in six western states; and (4) Kern River and Northern Natural pipelines, which carry about 8% of the natural gas consumed in the U.S. Our partners in ownership of MidAmerican are Walter Scott, and its two terrific managers, Dave Sokol and Greg Abel.

2007 : The largest of these are (1) Yorkshire Electricity and Northern Electric, whose 3.8 million electric customers make it the third largest distributor of electricity in the U.K.; (2) MidAmerican Energy, which serves 720,000 electric customers, primarily in Iowa; (3) Pacific Power and Rocky Mountain Power, serving about 1.7 million electric customers in six western states; and (4) Kern River and Northern Natural pipelines, which carry about 8% of the natural gas consumed in the U.S. Our partners in ownership of MidAmerican are Walter Scott, and its two terrific managers, Dave Sokol and Greg Abel. We purchased many of them, however, at large premiums to net worth a point reflected in the goodwill item shown on the balance sheet and that fact reduces the earnings on our average carrying value to 9.8%. The puts in these contracts are exercisable only at their expiration dates, which occur between 2019 and 2027, and Berkshire will then need to make a payment only if the index in question is quoted at a level below that existing on the day that the put was written. The U.S. dollar weakened further in 2007 against major currencies, and its no mystery why: Americans like buying products made elsewhere more than the rest of the world likes buying products made in the U.S. Inevitably, that causes America to ship about $2 billion of IOUs and assets daily to the rest of the world. We are now eight years into this century, and we have racked up less than 2,000 of the 1,988,000 Dow points the market needed to travel in this hundred years to equal the 5.3% of the last.

2008 : In the 20th Century alone, we dealt with two great wars (one of which we initially appeared to be losing); a dozen or so panics and recessions; virulent inflation that led to a 2112% prime rate in 1980; and the Great Depression of the 1930s, when unemployment ranged between 15% and 25% for many years. In good years and bad, Charlie and I simply focus on four goals: (1) maintaining Berkshires Gibraltar-like financial position, which features huge amounts of excess liquidity, near-term obligations that are modest, and dozens of sources of earnings and cash; (2) widening the moats around our operating businesses that give them durable competitive advantages; (3) acquiring and developing new and varied streams of earnings; (4) expanding and nurturing the cadre of outstanding operating managers who, over the years, have delivered Berkshire exceptional results. The largest of these are (1) Yorkshire Electricity and Northern Electric, whose 3.8 million end users make it the U.K.s third largest distributor of electricity; (2) MidAmerican Energy, which serves 723,000 electric customers, primarily in Iowa; (3) Pacific Power and Rocky Mountain Power, serving about 1.7 million electric customers in six western states; and (4) Kern River and Northern Natural pipelines, which carry about 9% of the natural gas consumed in the U.S. Our partners in ownership of MidAmerican are its two terrific managers, Dave Sokol and Greg Abel, and my long-time friend, Walter Scott. Our put contracts total $37.1 billion (at current exchange rates) and are spread among four major indices: the S&P 500 in the U.S., the FTSE 100 in the U.K., the Euro Stoxx 50 in Europe, and the Nikkei 225 in Japan. In our quarterly reports, however, the amount of gain or loss has swung wildly from a profit of $327 million in the second quarter of 2008 to a loss of $693 million in the fourth quarter of 2008.

2009 : The largest of these are (1) Yorkshire Electricity and Northern Electric, whose 3.8 million end users make it the U.K.s third largest distributor of electricity; (2) MidAmerican Energy, which serves 725,000 electric customers, primarily in Iowa; (3) Pacific Power and Rocky Mountain Power, serving about 1.7 million electric customers in six western states; and (4) Kern River and Northern Natural pipelines, which carry about 8% of the natural gas consumed in the U.S. MidAmerican has two terrific managers, Dave Sokol and Greg Abel. There were three ways to cure this overhang: (1) blow up a lot of houses, a tactic similar to the destruction of autos that occurred with the cash-for-clunkers program; (2) speed up household formations by, say, encouraging teenagers to cohabitate, a program not likely to suffer from a lack of volunteers or; (3) reduce new housing starts to a number far below the rate of household formations. In the end, what counts in investing is what you pay for a business through the purchase of a small piece of it in the stock market and what that business earns in the succeeding decade or two. If we wouldnt dream of selling Berkshire in its entirety at the current market price, why in the world should we sell a significant part of the company at that same inadequate price by issuing our stock in a merger? In the end, Charlie and I decided that the disadvantage of paying 30% of the price through stock was offset by the opportunity the acquisition gave us to deploy $22 billion of cash in a business we understood and liked for the long term.

2010 : And how we have grown: Just take a look at the following table: Yearend Float (in $ millions) 1970 $ 39 1980 237 1990 1,632 2000 27,871 2010 65,832 If our premiums exceed the total of our expenses and eventual losses, we register an underwriting profit that adds to the investment income that our float produces. At bottom, a sound insurance operation requires four disciplines: (1) An understanding of all exposures that might cause a policy to incur losses; (2) A conservative evaluation of the likelihood of any exposure actually causing a loss and the probable cost if it does; (3) The setting of a premium that will deliver a profit, on average, after both prospective loss costs and operating expenses are covered; and (4) The willingness to walk away if the appropriate premium cant be obtained. Consequently: (1) At MiTek, we have made, or committed to, five bolt-on acquisitions during the past eleven months; (2) At Acme, we just recently acquired the leading manufacturer of brick in Alabama for $50 million; (3) Johns Manville is building a $55 million roofing membrane plant in Ohio, to be completed next year; and (4) Shaw will spend $200 million in 2011 on plant and equipment, all of it situated in America. In other words, if the prices of the relevant indices remain unchanged from that date, we will record a $2.9 billion gain in the years to come, that being the difference between the liability figure of $6.7 billion and the settlement value of $3.8 billion. This group efficiently deals with a multitude of SEC and other regulatory requirements, files a 14,097- page Federal income tax return along with state and foreign returns, responds to countless shareholder and media inquiries, gets out the annual report, prepares for the countrys largest annual meeting, coordinates the Boards activities and the list goes on and on.

2011 : Here are the highlights: The primary job of a Board of Directors is to see that the right people are running the business and to be sure that the next generation of leaders is identified and ready to take over tomorrow. When Berkshire buys stock in a company that is repurchasing shares, we hope for two events: First, we have the normal hope that earnings of the business will increase at a good clip for a long time to come; and second, we also hope that the stock underperforms in the market for a long time as well. It must (1) understand all exposures that might cause a policy to incur losses; (2) conservatively evaluate the likelihood of any exposure actually causing a loss and the probable cost if it does; (3) set a premium that will deliver a profit, on average, after both prospective loss costs and operating expenses are covered; and (4) be willing to walk away if the appropriate premium cant be obtained. The Basic Choices for Investors and the One We Strongly Prefer Investing is often described as the process of laying out money now in the expectation of receiving more money in the future. Proceeds from the sale of the milk will compound for the owners of the cows, just as they did during the 20th century when the Dow increased from 66 to 11,497 (and paid loads of dividends as well).

2012 : When the partnership I ran took control of Berkshire in 1965, I could never have dreamed that a year in which we had a gain of $24.1 billion would be subpar, in terms of the comparison we present on the facing page. Since the basic game is so favorable, Charlie and I believe its a terrible mistake to try to dance in and out of it based upon the turn of tarot cards, the predictions of experts, or the ebb and flow of business activity. It must (1) understand all exposures that might cause a policy to incur losses; (2) conservatively assess the likelihood of any exposure actually causing a loss and the probable cost if it does; (3) set a premium that, on average, will deliver a profit after both prospective loss costs and operating expenses are covered; and (4) be willing to walk away if the appropriate premium cant be obtained. We present the data in this manner because Charlie and I believe the adjusted numbers more accurately reflect the real expenses and profits of the businesses aggregated in the table. This group efficiently deals with a multitude of SEC and other regulatory requirements, files a 21,500-page Federal income tax return as well as state and foreign returns, responds to countless shareholder and media inquiries, gets out the annual report, prepares for the countrys largest annual meeting, coordinates the Boards activities and the list goes on and on.

2013 : At Berkshire, we much prefer owning a non-controlling but substantial portion of a wonderful company to owning 100% of a so-so business; its better to have a partial interest in the Hope diamond than to own all of a rhinestone. It must (1) understand all exposures that might cause a policy to incur losses; (2) conservatively assess the likelihood of any exposure actually causing a loss and the probable cost if it does; (3) set a premium that, on average, will deliver a profit after both prospective loss costs and operating expenses are covered; and (4) be willing to walk away if the appropriate premium cant be obtained. When I was first introduced to GEICO in January 1951, I was blown away by the huge cost advantage the company enjoyed compared to the expenses borne by the giants of the industry. We present the data in this manner because Charlie and I believe the adjusted numbers more accurately reflect the true economic expenses and profits of the businesses aggregated in the table than do GAAP figures. This group efficiently deals with a multitude of SEC and other regulatory requirements, files a 23,000-page Federal income tax return as well as state and foreign returns, responds to countless shareholder and media inquiries, gets out the annual report, prepares for the countrys largest annual meeting, coordinates the Boards activities and the list goes on and on.

2014 : It must (1) understand all exposures that might cause a policy to incur losses; (2) conservatively assess the likelihood of any exposure actually causing a loss and the probable cost if it does; (3) set a premium that, on average, will deliver a profit after both prospective loss costs and operating expenses are covered; and (4) be willing to walk away if the appropriate premium cant be obtained. This group efficiently deals with a multitude of SEC and other regulatory requirements, files a 24,100-page Federal income tax return and oversees the filing of 3,400 state tax returns, responds to countless shareholder and media inquiries, gets out the annual report, prepares for the countrys largest annual meeting, coordinates the Boards activities and the list goes on and on. February 27, 2015 Warren E. Buffett Chairman of the Board BERKSHIRE HATHAWAY INC. ACQUISITION CRITERIA We are eager to hear from principals or their representatives about businesses that meet all of the following criteria: (1) Large purchases (at least $75 million of pre-tax earnings unless the business will fit into one of our existing units), (2) Demonstrated consistent earning power (future projections are of no interest to us, nor are turnaround situations), (3) Businesses earning good returns on equity while employing little or no debt, (4) Management in place (we cant supply it), (5) Simple businesses (if theres lots of technology, we wont understand it), (6) An offering price (we dont want to waste our time or that of the seller by talking, even preliminarily, about a transaction when price is unknown). Today Berkshire possesses (1) an unmatched collection of businesses, most of them now enjoying favorable economic prospects; (2) a cadre of outstanding managers who, with few exceptions, are unusually devoted to both the subsidiary they operate and to Berkshire; (3) an extraordinary diversity of earnings, premier financial strength and oceans of liquidity that we will maintain under all circumstances; (4) a first-choice ranking among many owners and managers who are contemplating sale of their businesses and (5) in a point related to the preceding item, a culture, distinctive in many ways from that of most large companies, that we have worked 50 years to develop and that is now rock-solid. (1) Describe the management system and policies that caused a small and unfixably-doomed commodity textile business to morph into the mighty Berkshire that now exists, (2) Explain how the management system and policies came into being, (3) Explain, to some extent, why Berkshire did so well, (4) Predict whether abnormally good results would continue if Buffett were soon to depart, and (5) Consider whether Berkshires great results over the last 50 years have implications that may prove useful elsewhere.

2015 : Just as is now the case, there will be struggles for the increased output of goods and services between those people in their productive years and retirees, between the healthy and the infirm, between the inheritors and the Horatio Algers, between investors and workers and, in particular, between those with talents that are valued highly by the marketplace and the equally decent hard-working Americans who lack the skills the market prizes. It must (1) understand all exposures that might cause a policy to incur losses; (2) conservatively assess the likelihood of any exposure actually causing a loss and the probable cost if it does; (3) set a premium that, on average, will deliver a profit after both prospective loss costs and operating expenses are covered; and (4) be willing to walk away if the appropriate premium cant be obtained. In most of these cases, I was wrong in my evaluation of the economic dynamics of the company or the industry in which it operates, and we are now paying the price for my misjudgments. In the years preceding the meltdown, a destructive and often corrupt pattern of mortgage creation flourished whereby (1) an originator in, say, California would make loans and (2) promptly sell them to an investment or commercial bank in, say, New York, which would package many mortgages to serve as collateral for a dizzyingly complicated array of mortgage-backed securities to be (3) sold to unwitting institutions around the world. Beyond that, a 10-Ks catalog of risks is seldom of aid in assessing: (1) the probability of the threatening event actually occurring; (2) the range of costs if it does occur; and (3) the timing of the possible loss.

2016 : It must (1) understand all exposures that might cause a policy to incur losses; (2) conservatively assess the likelihood of any exposure actually causing a loss and the probable cost if it does; (3) set a premium that, on average, will deliver a profit after both prospective loss costs and operating expenses are covered; and (4) be willing to walk away if the appropriate premium cant be obtained. Here are the results for the first nine years of the bet figures leaving no doubt that Girls Inc. of Omaha, the charitable beneficiary I designated to get any bet winnings I earned, will be the organization eagerly opening the mail next January. Bill Ruane a truly wonderful human being and a man whom I identified 60 years ago as almost certain to deliver superior investment returns over the long haul said it well: In investment management, the progression is from the innovators to the imitators to the swarming incompetents. To get biblical (Ephesians 3:18), I know the height and the depth and the length and the breadth of the energy flowing from that simple four-letter word fees when it is spoken to Wall Street. This team efficiently deals with a multitude of SEC and other regulatory requirements, files a 30,450-page Federal income tax return, oversees the filing of 3,580 state tax returns, responds to countless shareholder and media inquiries, gets out the annual report, prepares for the countrys largest annual meeting, coordinates the Boards activities, fact-checks this letter and the list goes on and on.

2017 : At Berkshire, in contrast, we evaluate acquisitions on an all-equity basis, knowing that our taste for overall debt is very low and that to assign a large portion of our debt to any individual business would generally be fallacious (leaving aside certain exceptions, such as debt dedicated to Claytons lending portfolio or to the fixed-asset commitments at our regulated utilities). Float materializes at p/c insurers in several ways: (1) Premiums are generally paid to the company upfront whereas losses occur over the life of the policy, usually a six-month or one-year period; (2) Though some losses, such as car repairs, are quickly paid, others such as the harm caused by exposure to asbestos may take many years to surface and even longer to evaluate and settle; (3) Loss payments are sometimes spread over decades in cases, say, of a person employed by one of our workers compensation policyholders being permanently injured and thereafter requiring expensive lifetime care. I made the bet for two reasons: (1) to leverage my outlay of $318,250 into a disproportionately larger sum that if things turned out as I expected would be distributed in early 2018 to Girls Inc. of Omaha; and (2) to publicize my conviction that my pick a virtually cost-free investment in an unmanaged S&P 500 index fund would, over time, deliver better results than those achieved by most investment professionals, however well-regarded and incentivized those helpers may be. That would occur because fixed fees averaging a staggering 212% of assets or so were paid every year by the fund-of-funds investors, with part of these fees going to the managers at the five funds-of-funds and the balance going to the 200-plus managers of the underlying hedge funds. This team efficiently deals with a multitude of SEC and other regulatory requirements, files a 32,700-page Federal income tax return, oversees the filing of 3,935 state tax returns, responds to countless shareholder and media inquiries, gets out the annual report, prepares for the countrys largest annual meeting, coordinates the Boards activities, fact-checks this letter and the list goes on and on.

2018 : The components of that figure are $24.8 billion in operating earnings, a $3.0 billion non-cash loss from an impairment of intangible assets (arising almost entirely from our equity interest in Kraft Heinz), $2.8 billion in realized capital gains from the sale of investment securities and a $20.6 billion loss from a reduction in the amount of unrealized capital gains that existed in our investment holdings. Our portion of the after-tax operating earnings of these businesses 26.7% of Kraft Heinz, 50% of Berkadia and Electric Transmission Texas, and 38.6% of Pilot Flying J totaled about $1.3 billion in 2018. But our after-tax gain in 2018 from these businesses was far greater 47% thanks in large part to the cut in the corporate tax rate that became effective at the beginning of that year. In the years they served, the country contended at various times with a long period of viral inflation, a 21% prime rate, several controversial and costly wars, the resignation of a president, a pervasive collapse in home values, a paralyzing financial panic and a host of other problems. With the whole ensemble that is, with Ajit and Greg running operations, a great collection of businesses, a Niagara of cash-generation, a cadre of talented managers and a rock-solid culture your company is in good shape for whatever the future brings.

2019 : The components of that figure are $24 billion of operating earnings, $3.7 billion of realized capital gains and a $53.7 billion gain from an increase in the amount of net unrealized capital gains that exist in the stocks we hold. The list distinguishes between their earnings that are reported to you under GAAP accounting these are the dividends Berkshire receives from those 10 investees and our share, so to speak, of the earnings the investees retain and put to work. Charlie and I have very pragmatic reasons for wanting to assure Berkshires prosperity in the years following our exit: The Mungers have Berkshire holdings that dwarf any of the familys other investments, and I have a full 99% of my net worth lodged in Berkshire stock. My only disposal of Berkshire shares, aside from charitable donations and minor personal gifts, took place in 1980, when I, along with other Berkshire stockholders who elected to participate, exchanged some of our Berkshire shares for the shares of an Illinois bank that Berkshire had purchased in 1969 and that, in 1980, needed to be offloaded because of changes in the bank holding company law. The will goes on to instruct the executors and, in time, the trustees to each year convert a portion of my A shares into B shares and then distribute the Bs to various foundations.