1969 年伯克希尔完整年报

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CLEVELAND PUBLIC LIBRARO CORPORATION FILE BOSINESS INF. BUR BERKSHIRE HATHAWAY INC. 1969 ANNUAL REPORT TO THE STOCKHOLDERS (53 WEEKS ENDED JANUARY 3, 1970)

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Berkshire Hathaway Inc. COMPARATIVE SUMMARY OF EARNINGS - 1969 and 1968 Earnings (loss) Federal Income before Federal Income Applicable Taxes (Benefit) Taxes Net Share Per Earnings Operations: Textile Operations 1969 $1,439,000 $ 662,000 $ 777,000 $0.79 1968 1,567,000 810,000 757,000 0.77 Insurance Subsidiaries 1969 2,774,000 496,000 2,278,000 2.31 1968 2,173,000 384,000 1,789,000 1.82 Banking Subsidiary 1969 2,364,000 827,000 1,537,000 1.56 Interest and Dividend Income of Parent Company 1969 138,000 44,000 94,000 0.10 1968 389,000 99,000 290,000 0.29 Interest Expense of Parent Company 1969 (675,000) (338,000) (337,000) (0.35) 1968 (363,000) (181,000) (182,000) (0.18) Total of Above 1969 6,040,000 1,691,000 4,349,000 4.42 1968 3,766,000 1,112,000 2,654,000 2.69 Investment Gains (Losses): Parent Company (From Total Liquidation of 1969 5,334,000 1,526,000 3,808,000 3.87 Securities Portfolio) 1968 2,043,000 575,000 1,468,000 1.49 Insurance Subsidiaries 1969 389,000 107,000 282,000 0.29 1968 974,000 268,000 706,000 0.71 Banking Subsidiary 1969 (782,000) (410,000) (372,000) (0.38) Extraordinary Items 1969 (228,000) (114,000) (114,000) (0.12) 1968 (704,000) (538,000) (166,000) (0.17) Per share figures based on average number of shares outstanding during each year.

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Berkshire Hathaway Inc. April 3, 1970 To the Stockholders of Berkshire Hathaway Inc.: Four years ago your management committed itself to the development of more substantial and more consistent earning power than appeared possible if capital continued to be invested exclusively in the textile industry. The funds for this program were temporarily utilized in marketable securities, pending the acquisition of operating businesses meeting our investment and management criteria. This policy has proved reasonably successful - particularly when contrasted with results achieved by firms which have continued to commit large sums to textile expansion in the face of totally inadequate returns. We have been able to conclude two major purchases of operating busi- nesses, and their successful operations enabled Berkshire Hathaway to achieve an over-all return of more than 10% on average stockholders' equity last year in the face of less than a 5% return from the portion of our capital employed in the textile business. We have liquidated our entire holdings of marketable securities over the last two years at a profit of more than $5 million after taxes. These gains provided important funds to facilitate our major purchase of 1969, when bor- rowed money to finance acquisitions was generally most difficult to obtain. We anticipate no further purchases of marketable securities, but our search for desirable acquisitions continues. Any acquisition will, of course, be dependent upon obtaining appropriate financing. Textile Operations Dollar sales volume in 1969 was approximately 12% below 1968. Net earnings were slightly higher despite substantial operating losses incurred in the termination of our Box Loom Division. Earnings on capital employed improved modestly but still remain unsatisfactory despite strenuous efforts toward improvement. We are presently in the midst of a textile recession of greater intensity than we have seen for some years. There is an over-all lack of demand for textile products in a great many end uses. This lack of demand has required curtailment of production to avoid inventory build-up. Both our Mens- wear Lining Division and Home Fabrics Division have been forced to schedule two-week shutdowns during the first quarter of 1970, but inventories remain on the high side. The slowdown in demand appears even greater than that normally occurring in the cyclical textile market. Recovery from this cycle will probably be dependent upon Federal Government action on economic factors they can control. We have concentrated our textile operations in those areas that appear, from historical per- formance and from our market projections, to be potentially satisfactory businesses. Improvements have been made in our mill operations which, under better industry conditions, should produce substantial cost reductions. However, the present picture is for lower profits in this business during 1970. 1

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Insurance Operations Jack Ringwalt and his outstanding management group turned in new records in just about every department during 1969. During another year in which the fire and casualty insurance industry experienced substantial underwriting losses, our insurance subsidiaries achieved significant adjusted underwriting profits. Since establishment of the business in 1941, Mr. Ringwalt has held to the principle of underwriting for a profit — a policy which is frequently talked about within the industry but much less frequently achieved. Our new surety department, although small, made good progress during the year. We are entering the workmen's compensation market in California through the establishment of a branch office in Los Angeles. Our new reinsurance division seems to be off to a strong start, although the nature of this business is such that it takes at least several years to render an intelligent verdict as to operating results. We also have interesting plans for a new "home state" insurance operation. Phil Liesche — over twenty years a major contributor to outstanding results in the production and underwriting departments — was elected Executive Vice President early this year. Expectations are for continued growth in our insurance operations. Banking Operations The most significant event of 1969 for Berkshire Hathaway was the acquisition of 97.7% of the stock of The Illinois National Bank and Trust Co. of Rockford, Illinois. This bank had been built by Eugene Abegg, without addition of outside capital, from $250,000 of net worth and $400,000 of deposits in 1931 to $17 million of net worth and $100 million of deposits in 1969. Mr. Abegg has continued as Chairman and produced record operating earnings (before security losses) of approxi- mately $2 million in 1969. Such earnings, as a percentage of either deposits or total assets, are close to the top among larger commercial banks in the country which are not primarily trust department operations. It will not be easy to achieve greater earnings in 1970 because (1) our bank is already a highly efficient business, and (2) the unit banking law of Illinois makes more than modest deposit growth difficult for a major downtown bank. After almost a year of ownership, we are delighted with our investment in Illinois National Bank, and our association with Mr. Abegg. Kenneth V. Chace President 2

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Berkshire Hathaway Inc. CONSOLIDATED BALANCE SHEET with comparative figures at December 28, 1968 January 3, 1970 ASSETS Current assets: Jan. 3, 1970 Dec. 28, 1968 Cash Marketable securities, at cost (note 2) $ 1,792,835 $ 1,605,600 Accounts receivable (less allowance for doubtful accounts — 1969 — 294,165 5,421,384 $189,026; 1968 — $281,418) 6,397,021 Inventories, at the lower of cost (first-in, first-out) or market (note 3) 7,563,123 9,269,578 12,332,943 Prepaid and deferred charges Total current assets 344,725 199,501 18,098,324 27,122,551 Properties, plants and equipment (note 4): Properties comprising land, buildings, machinery and equipment Less accumulated depreciation and amortization 15,747,970 12,734,126 19,998,693 16,136,069 Net properties, plants and equipment . Investment in unconsolidated subsidiaries (note 1): 3,013,844 3,862,624 Bank subsidiary Insurance subsidiaries 18,868,404 15,314,965 Other subsidiaries 12,754,985 Total investment in unconsolidated subsidiaries 1,261,000 35,444,369 12,754,985 $56,556,537 $43,740,160 Current liabilities: LIABILITIES AND STOCKHOLDERS' EQUITY Note payable — Bank, unsecured $ $ 2,000,000 Current installments of long-term debt 1,500,000 Accounts payable and accrued expenses 3,804,322 4,256,530 Accrued Federal, State, and local taxes 1,442,855 637,059 Total current liabilities 6,747,177 6,893,589 Long-term debt, excluding current installments: Note payable to banks (note 8) 7½% subordinated debentures (note 9) . 5,250,000 641,300 641,300 Total long-term debt 5,891,300 641,300 Stockholders' equity: Common stock, $5 par value. Authorized 1,722,983 shares; issued 1,017,547 shares 5,087,735 5,087,735 Retained earnings 39,647,495 31,694,706 44,735,230 36,782,441 Less 37,965 shares (1968 — 32,065) of common stock in treasury, at cost 817,170 Total stockholders' equity 577,170 43,918,060 36,205,271 Contingency (note 10) $56,556,537 $43,740,160 See accompanying notes to financial statements. 3

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Berkshire Hathaway Inc. CONSOLIDATED STATEMENT OF EARNINGS with comparative figures for the 52 weeks ended December 28, 1968 53 weeks ended January 3, 1970 53 weeks Jan. 3, 1970 ended 52 weeks Dec. 28, 1968 ended Textile operations: Net sales $40,427,037 $46,002,417 Cost of sales, administrative and selling expense 38,988,213 44,435,569 Earnings from textile operations before Federal income taxes 1,438,824 1,566,848 Applicable Federal income taxes . 662,000 810,000 Earnings from textile operations 776,824 756,848 Investment gains: Gain on disposition of marketable securities 5,333,488 2,042,752 Applicable income taxes 1,525,736 575,000 Net investment gains 3,807,752 1,467,752 Interest and dividends: Interest (expense), less interest and dividend income (536,890) 26,149 Applicable Federal income tax benefit 294,547 82,000 Net interest (242,343) 108,149 Equity in after-tax earnings and investment gains or losses of unconsolidated subsidiaries (notes 1 and 5) 3,724,991 2,495,906 Earnings before extraordinary items 8,067,224 4,828,655 Extraordinary items: Loss on liquidation or retirement of textile properties (228,788) (704,319) Applicable Federal income tax benefit 114,353 372,000 Reduction in Federal income taxes (note 6) . 166,000 Net extraordinary items. (114,435 (166,319) Net earnings $ 7,952,789 $ 4,662,336 Depreciation and amortization deducted above 643,143 662,061 Net earnings per share of outstanding common stock: Textile operations $ .79 $.77 Investment gains 3.87 Interest and dividends 1.49 (.25) .11 Unconsolidated subsidiaries . 3.78 2.53 Extraordinary items (.12) Net earnings (.17) $8.07 $4.73 CONSOLIDATED STATEMENT OF RETAINED EARNINGS Jan. 3, 1970 Dec. 28, 1968 Net earnings Retained earnings, beginning $31,694,706 $27,032,370 7,952,789 4,662,336 Retained earnings, ending $39,647,495 $31,694,706 See accompanying notes to financial statements. 4

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Berkshire Hathaway Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS January 3, 1970 (1) Principles of Consolidation The accompanying financial statements consolidate the depreciated on the double-declining balance method, depre- accounts of Berkshire Hathaway Inc. with its wholly-owned ciation is provided on the straight-line basis. The composition aries, substantially 100% owned by Berkshire Hathaway, and Canadian subsidiary. The accounts of two insurance subsidi- of property, plants and equipment is shown below: Jan. 3, 1970 Dec. 28, 1968 the accounts of the Illinois National Bank and Trust Co. of Buildings. Land . 106,555 $ Machinery and equipment 3,726,310 106,555 acquired for cash by Berkshire Hathaway in March 1969, are Rockford and subsidiaries, approximately 98% of which was Furniture and fixtures and 11,402,218 15,653,974 3,715,838 not consolidated. reflects the equity of Berkshire Hathaway Inc. in earnings of The accompanying statement of earnings leasehold improvements. 512,887 522,326 in these subsidiaries are carried at cost plus the equity in un- these functionally independent operations, and the investments 15,747,970 19,998,693 Less accumulated deprecia- sidiaries (an insurance agency and two printing and publishing distributed earnings since acquisition. Three immaterial sub- tion and amortization 12,734,126 $ 3,013,844 $ 3.862,624 16,136,069 operations) have not been consolidated, and the investments therein are carried at cost. (5) Equity in Earnings of Unconsolidated Subsidiaries January 3, 1970 was approximately $3,432,000 in excess of the The carrying value of all unconsolidated subsidiaries at tax returns. A summary of the equity of Berkshire Hathaway The Company and its subsidiaries plan to file consolidated the subsidiaries. No part of this excess has been allocated Company's equity in book values reflected in the accounts of with the related taxes, follows: Inc. in the earnings of its unconsolidated subsidiaries, together between tangible and intangible assets as the effect on income Earnings (loss Federal before Applicable of such allocation would not be material and the excess is not federal income taxes income tax Net (benefit) earnings being amortized as management believes its value is not Earnings, excluding investment (loss) declining. gains of insurance subsidiaries: 1969. 1968 $2,774,186 2,173,650 $495,957 384,248 $2,278,229 Detailed financial statements of the two insurance subsidi- Realized investment gains of 1,789,402 aries and the bank subsidiary are presented elsewhere in this report. insurance subsidiaries: 1969 1968. 974,488 388,622 106,871 267,984 706,504 281,751 (2) Marketable Securities Earnings, excluding investment U. S. Treasury bills, was $297,120 at January 3, 1970. The market value of the securities portfolio, consisting of losses of banking subsidiary: 1969 2,364,306 827,500 1,536,806 At Realized investment losses of able common stocks with a market value of $11,824,000. December 28, 1968 the portfolio consisted primarily of market- banking subsidiary: 1969. (781,758) (409,963) (371,795) (3) Inventories (6) Reduction in Federal Income Taxes A comparative summary follows: For 1968, the reduction in Federal income taxes represents Raw materials and supplies Jan. 3, 1970 S1.168.967 Dec. 28, 1968 carryover of investment tax credits from prior periods. Stock in process 1,798,224 $2,025,230 Cloth . . $9,269,578 6,302,387 2,709,075 (7) Pension Plan $12,332.943 7.598,638 salaried employees. Benefits are funded through the medium The Company has a noncontributory pension plan for (4) Property, plants and equipment of an independently trusteed fund, the assets of which exceed over the estimated useful lives as allowed by taxing author- The Company's general policy is to provide for depreciation the actuarially computed vested and nonvested benefits. The current year's pension expense was $53,000 and represents ities. Except for new additions subsequent to 1965 which are normal costs less amortization of the overfunded position at August 1, 1968 on a ten-year basis. 5

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Berkshire Hathaway Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued (8) Long-term Debt Under the terms of a loan agreement, the Company was shares of their capital stock, any options therefore or any subsidiaries are restricted from issuance of any additional which $1,500,000 is due within one year. Interest, payable liable to certain banks at January 3, 1970 for $6,750,000, of securities convertible thereto. for 90-day commercial loans of The First National Bank of quarterly in arrears, is computed at ½% over the prime rate (9) 7½% Subordinated Debentures Debentures bear interest at the rate of 7½%, payable Boston, which serves as the agent bank. Principal is payable February 1 and August 1, and will be due on August 1, 1987. of $3,375,000 due on June 30, 1972. quarterly in the amount of $375,000 with a final installment vertible; they are subordinated to senior indebtedness which The debentures are not secured by any lien and are not con- banks may at any time require the debt to become secured; the The agreement contains provisions, among others, that: the includes indebtedness of the Company for money borrowed. The debentures may, at the Company's option, be redeemed Company will maintain working capital of at least $8,000,000; at 105% through July 31, 1973 and thereafter at 100% The net worth shall be at least $35,000,000; and each subsidiary indenture under which the debentures are issued requires the will maintain net worth at least as follows: Company to provide for the retirement by redemption, through National Fire & Marine Insurance Co. $ 1,300,000 including 1986, of one-fifteenth of the total amount of deben- a sinking fund, on August 1 in each of the years 1973 to and National Indemnity Company 8,000,000 Illinois National Bank & Trust Co. . 11,500,000 at principal amount plus accrued interest. tures issued. Redemption through the sinking fund shall be of its assets; to incur additional indebtedness for borrowed The agreement also limits the Company's ability to dispose (10) Contingent Liabilities on a $300,000 obligation of its insurance agency subsidiary. Berkshire Hathaway Inc. is contingently liable as guarantor money: or enter into business combinations. Additionally, the PEAT, MARWICK, MITCHELL & Co CERTIFIED PUBLIC ACCOUNTANTS PROVIDENCE, RHODE ISLAND 02903 IO DORRANCE STREET The Board Berkshire Hathaway Inc.: of Directors and Stockholders Hathaway Inc. and its subsidiary as of January 3, 1970 and the related We have examined the consolidated balance sheet of Berkshire statements of earnings and retained earnings for the 53 weeks then ended. standards, and accordingly included such tests of the accounting records Our examination was made in accordance with generally accepted auditing circumstances. and such other auditing procedures as we considered necessary in the of earnings and retained earnings present fairly the financial position In our opinion, the accompanying balance sheet and statements of Berkshire Hathaway Inc. and its subsidiary at January 3, 1970 and the with generally accepted accounting principles applied on a basis consist- results of their operations for the 53 weeks then ended, in conformity ent with that of the preceding year. Peat manuick Mutehul a Co. February 20, 1970

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National Indemnity Company Subsidiary of Berkshire Hathaway Inc. STATEMENT OF ASSETS AND LIABILITIES with comparative figures for 1968 December 31, 1969 ASSETS 1969 1968 Bonds, at admitted value (note 3) $27,894,117 Stocks, at market value (note 3): $27,208,728 Preferred (cost, 1969, $1,460,700; 1968, $26,963) 1,393,190 19,490 Common (cost, 1969, $7,649,755; 1968, $6,302,724) 7,376,925 8,770,115 8,067,196 8,086,686 Real estate, at cost less allowance for depreciation of $228,606 (1968, $194,539) (note 4) 1,005,061 Cash and bank deposits 1,026,105 686,818 Agents' balances and premiums in course of collection, less ceded reinsurance 509,778 balances payable of $87,581 (1968, $128,904) 3,513,854 Reinsurance recoverable on loss payments Investment income due and accrued 533,531 2,205,360 292,549 Amounts due from sales of securities 470,174 431,820 Federal income taxes recoverable (note 7) 655,430 3,170 Other 297,500 62,180 33,356 $43,888,780 $39,797,552 LIABILITIES AND CAPITAL STOCK Mortgage and contract payable on rental property 28,182 $ 37,351 Unearned premiums (note 5) 10,091,999 6,817,002 Funds held under reinsurance treaties Losses and loss adjustment expenses (note 6) 19,079,307 776,791 17,324,317 734,010 Contingent commissions 417,000 510,300 Taxes, licenses and fees Other expenses 87,512 81,208 Federal income taxes (note 7) 553,266 525,786 Agents' and policyholders' deposits . 473,178 231,500 405,581 Statutory reserve for bodily injury and compensation losses 97,707 Amounts due for purchases of securities 344,078 856,052 Other liabilities 1,231,012 13,392 46,487 32,474,386 28,288,632 Capital stock and surplus: Common stock of $10 par value per share. Authorized 250,000 shares; issued 200,000 shares (note 8) 2,000,000 2,000,000 Paid-in surplus 301,250 301,250 Unassigned surplus 9,113,144 9,207,670 11,414,394 11,508,920 $43,888,780 $39,797,552 See accompanying notes to financial statements. 7

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National Indemnity Company Subsidiary of Berkshire Hathaway Inc. STATEMENT OF INCOME with comparative figures for 1968 Year ended December 31, 1969 1969 1968 Underwriting income: Net premiums written $24,824,366 $19,999,000 (Increase) decrease in unearned premiums (3,274,997) 342,137 Premiums earned . 21,549,369 20,341,137 Losses and loss expenses incurred 13,933,982 13,343,028 7,615,387 6,998.109 Underwriting expenses: Commissions and brokerage 5,750,605 4,540,886 Salaries and other compensation 765,067 699,168 Taxes, licenses and fees . 669,872 571,711 Other underwriting expenses 559,201 615,233 7,744,745 6,426,998 Net underwriting gain (loss) (129,358) 571,111 Investment income: Interest on bonds 1,421,542 1,130,307 Dividends on stock . 350,386 304,153 Real estate income 198,966 168,969 1,970,894 1,603,429 Investment expenses 183,892 167,843 1,787,002 1,435,586 Profit from underwriting and investments 1,657,644 2,006,697 Other expense 18,552 6,049 Income before Federal income taxes and realized gains on investments 1,639,092 2,000,648 Federal income taxes 20,809 378,053 Income before realized gains on investments 1,618,283 1,622,595 Realized gains on investments 297,058 796,242 Less Federal income taxes on gains 81,691 218,967 215,367 577,275 Net income 1,833,650 $ 2,199,870 Depreciation $ 61,730 $ 59,913 See accompanying notes to financial statements. 8

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National Indemnity Company Subsidiary of Berkshire Hathaway Inc. STATEMENTS OF PAID-IN AND UNASSIGNED SURPLUS with comparative figures for 1968 Year ended December 31, 1969 PAID-IN SURPLUS 1969 1968 Beginning and end of year 301,250 301,250 UNASSIGNED SURPLUS Beginning of year $ Net income 9,207,670 $ 5,856,614 1,833,650 2,199,870 Increase (decrease) in net unrealized appreciation of investments (2,150,741) 1,608,414 Decrease in liability for unauthorized reinsurance 31,640 12,670 Decrease in excess of bodily injury liability and compensation statutory and reserve) voluntary reserves over case basis and loss expense reserves (Schedule "P" Increase in nonadmitted assets 246,371 143,318 Stock dividend (note 8) (55,446) (13,216) (600,000) End of year $ 9,113,144 $ 9,207,670 STATEMENT OF ADJUSTED INCOME with comparative figures for 1968 Year ended December 31, 1969 1969 1968 Net income as shown in the accompanying statement of income - statutory basis Adjustments to net income: $ 1,833,650 $ 2,199,870 Net realized gain on investments (to segregate from adjusted net earnings) (297,058) (796,242) Federal income taxes applicable to net realized gains 81,691 218,967 Increase (decrease) in estimated equity in unearned premiums . 821,120 (102,642) (Increase) decrease in future income taxes applicable to change in estimated equity in unearned premiums (423,551) 54,194 182,202 (625,723) Net earnings, as adjusted (excluding investment gains) . $ 2,015,852 $ 1,574,147 Investment gains: Net realized gains $ 297,058 $ 796,242 Less applicable income taxes 81,691 218,966 215,367 577,276 Increase (decrease) in net unrealized gains (2,730,100) 1,737,273 Less allowance for future income taxes 455,510 477,740 (2,274,590) 1,259,533 Net investment gain (loss) S(2,059,223) $ 1,836,809 See accompanying notes to financial statements.

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National Indemnity Company Subsidiary of Berkshire Hathaway Inc. STATEMENT OF ADJUSTED STOCKHOLDERS' EQUITY with comparative figures for 1968 December 31, 1969 1969 1968 Capital shares and surplus as shown in the accompanying statement of assets and liabilities - statutory basis $11,414,394 $11,508,920 Adjustments to capital shares and surplus: Equity in unearned premium reserve, estimated at 28½% and 30% of reserve at December 31, 1969 and 1968, respectively Statement value of bonds over market value 2,866,220 2,045,100 (663,284) (83,924) Reserve for reinsurance with unauthorized companies 13,183 44,823 Excess bodily injury liability and compensation statutory reserves over case basis Nonadmitted assets (note 2) 97,707 344,077 221,008 165,562 Adjusted equity before income taxes applicable to equity in unearned 2,534,834 2,515,638 premiums and unrealized appreciation on investments 13,949,228 14,024,558 Less Federal income taxes applicable to estimated equity in unearned premiums and unrealized appreciation on investments 1,443,227 1,475,186 Adjusted stockholders' equity . $12,506,001 $12,549,372 NOTES TO FINANCIAL STATEMENTS (1) Basis of Presentation: (2) Nonadmitted Assets: except as to form, on the basis of the requirements for report- The accompanying financial statements have been prepared, liabilities are stated at admitted asset value. The assets in the accompanying statement of assets and mitted assets" means the assets stated at values at which they The term "ad- ing in the annual statements filed with the Insurance Depart- ments of the respective domiciliary states. are permitted to be reported to the respective domiciliary state with insurance accounting principles prescribed or permitted The financial statements have been prepared in conformity poses in the annual report in accordance with the rules and regulatory authority for statement of asset and liability pur- generally accepted accounting principles followed by other under statutory authority which differ in some respects from admitted assets" means assets other than assets which are so regulations of such regulatory authority. The term "non- results of operations. Pursuant to such practices (a) invest- business enterprises in determining financial position and permitted to be reported. assets and liabilities at December 31, 1969 are as follows: Assets which have been excluded from the statement of ment securities are carried in accordance with valuations established by the National Association of Insurance Commis- Agents' balances or uncollected premiums. $ 76,036 appropriate, for amortization of premium or discount, and sioners, i.e. eligible bonds are carried at cost adjusted, where Other Equipment and furniture . 142,702 2,270 other bonds and stocks are carried at market values with no $221,008 in such investments: (b) premium income is taken into earnings provision for income taxes relative to unrealized appreciation (3) Bonds and Stocks: Bonds and stocks are carried in accordance with valuations on a pro rata basis over the periods covered by the policies, established by the National Association of Insurance Commis- whereas related acquisition and commission costs are charged sioners (see note 1). The market value as prescribed by the off when incurred; (c) statutory loss reserves are required on National Association of Insurance Commissioners of all bonds case basis; (d) assets are included in the statement of assets certain lines of insurance in excess of losses computed on a and the "admitted value" of bonds on deposit with regulatory authorities at December 31, 1969 was as follows: assets" are excluded (see note 2); and (e) a provision is made and liabilities at "admitted asset value" and "nonadmitted Aggregate market value (statutory) of all for unearned premiums and losses recoverable, in excess of Admitted value of bonds on deposit $27,230,833 1,950,005 funds held, on business reinsured with companies not qualified accompanying supplemental statements of adjusted stock- by license. The effects of such differences are shown in the investments at book value and investments valued as set The change in each period in the valuation between holders' equity and adjusted net income. from investments. forth above is carried to surplus as unrealized gain or loss 10

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National Indemnity Company Subsidiary of Berkshire Hathaway Inc. NOTES TO FINANCIAL STATEMENTS, Continued (4) Real Estate: real estate owned by National Indemnity Company and is Real estate consists of the home office building and related (7) Federal Income Taxes: The company intends to file a consolidated Federal income included in the statement of assets and liabilities at cost less tax return with its parent, Berkshire Hathaway Inc. for the real estate is based upon the estimated useful life of the accumulated depreciation. Provision for depreciation of able included in the statement of assets and liabilities repre- year ended December 31, 1969. Federal income tax recover- (5) Unearned Premiums: building and is computed under the straight-line method. sents payment of estimated taxes in excess of current year's taxes computed on the basis of the company filing a separate basis and include provisions for refunds under retrospectively Unearned premiums are computed on the monthly pro rata return. Federal income tax returns have been examined through reinsurance placed with other insurers in the amount of policies and are stated after deduction on account of been proposed. The company has filed a protest and manage- 1966 by the Internal Revenue Service and adjustments have (6) Unpaid Losses and Loss Expenses: $2,911,679 at December 31, 1969. refund due to the company. ment believes that the final determination will result in a the deduction of amounts for reinsurance placed with other The net reserve for unpaid losses and loss expenses is after (8) Stock Dividend: The Board of Directors by special meeting on November insurers in the amount of $2,267,530 at December 31, 1969. holders of record December 2, 1968. 26, 1968, declared a three-for-seven stock dividend to stock- PEAT, MARWICK, MITCHELL & Co. CERTIFIED PUBLIC ACCOUNTANTS OMAHA, NEBRASKA 68131 KIEWIT PLAZA National Indemnity Company: The Board of Directors of National Indemnity Company as of December 31, 1969 and We have examined the statutory statement of assets and liabilities ments of income and paid-in and unassigned surplus for the year then ended. the related state- we have also examined the supplemental statements of adjusted income and stockholders' equity. Our examination was made in accordance with generally accounting records and such other auditing procedures as we considered accepted auditing standards, and accordingly included necessary in the circumstances. statutory financial position of National Indemnity Company at December 31, In our opinion, such financial statements present fairly the year then ended, in conformity with insurance accounting principles 1969 and the income and changes in paid-in and unassigned surplus for the consistent with that of the preceding year. prescribed or permitted under statutory authority applied on a basis some respects from generally accepted accounting principles, as explained These principles vary in in note 1 to the financial statements. mental statements of adjusted income and stockholders' Also, in our opinion, the supple- fairly net income for the year ended December 31, 1969 and the stockholders' principles applied on a basis consistent with that of the preceding year. equity at that date in conformity with generally accepted accounting Peat, Manvite, Mitchell i Co. February 27, 1970 11

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National Fire & Marine Insurance Company Subsidiary of Berkshire Hathaway Inc. STATEMENT OF ASSETS AND LIABILITIES with comparative figures for 1968 December 31, 1969 ASSETS 1969 1968 Bonds, at admitted value (note 2) $3,940,926 $2,992,253 Stocks, at market value (note 2): Preferred (cost, 1969, $270,003; 1968, $18,900) 253,583 13,200 Common (cost, 1969, $1,326,984; 1968, $804,554) 1,229,678 1,083,704 1,483,261 1,096,904 Agents' balances and premiums in course of collection, less ceded reinsurance Cash and bank deposits 101,114 87,889 balances payable of $60,868, 1969; $81,512, 1968 737,856 612,758 Reinsurance recoverable on loss payments 73,537 50,374 Investment income due and accrued 74,177 52,546 Amounts due from sales of securities 87,683 Federal income taxes recoverable (note 5) 23,242 Other 1,445 1,939 $6,523,241 $4,894,663 LIABILITIES AND CAPITAL STOCK Unearned premiums (note 3) $1,477,375 $1,234,103 Losses and loss adjustment expenses (note 4) 2,369,259 1,225,918 Funds held under reinsurance treaties 522,265 309,055 Other expenses 6,003 4,061 Taxes, licenses and fees 10,462 8,455 Federal income taxes (note 5) 7,021 Statutory reserve for bodily injury and compensation losses 84,733 Amounts due for purchases of securities 201,747 66,280 Other liabilities 12,814 10,898 4,599,925 2,950,524 Capital stock and surplus: Common stock at $100 par value per share. Authorized and issued 10,000 shares, 1969 (note 6) 1,000,000 500,000 Paid-in surplus 50,000 50,000 Unassigned surplus 873,316 1,394,139 1,923,316 1,944,139 $6,523,241 $4,894,663 See accompanying notes to financial statements. 12

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National Fire & Marine Insurance Company Subsidiary of Berkshire Hathaway Inc. STATEMENT OF INCOME with comparative figures for 1968 Year ended December 31, 1969 Underwriting income: 1969 1968 Net premiums written Less increase in unearned premiums $3,951,771 $2,620,727 Premiums earned 243,272 345,072 3,708,499 2,275,655 Losses and loss expenses incurred 2,426,897 1,455,326 1,281,602 820,329 Underwriting expenses: Commissions and brokerage Salaries and other compensation 1,205,362 755,722 Taxes, licenses and fees 54,577 43,899 Other underwriting expenses 18,492 6,753 26,563 17,240 Net underwriting loss 1,304,994 823,614 23,392 3,285 Investment income: Interest on bonds Dividends on stocks 193,040 134,895 52,412 47,350 Investment expenses 245,452 182,245 7,253 5,772 238,199 176,473 Income before Federal income taxes and realized gains on investments 214,807 173,188 Federal income taxes (credit) Income before realized gains on investments (308) 5,913 215,115 167,275 Realized gains on investments Less Federal income taxes on gains 91,731 178,694 25,226 49,140 Net income $ 66,505 129,554 281,620 296,829 See accompanying notes to financial statements. 13

[PAGE 16]

National Fire & Marine Insurance Company Subsidiary of Berkshire Hathaway Inc. STATEMENTS OF PAID-IN AND UNASSIGNED SURPLUS with comparative figures for 1968 Year ended December 31, 1969 PAID-IN SURPLUS 1969 1968 Beginning and end of year. S 50,000 50,000 UNASSIGNED SURPLUS Beginning of year 1,394,139 815,996 Net income 281,620 296,829 Increase (decrease) in net unrealized appreciation of investments (387,176) 225,031 Decrease (increase) in excess of bodily injury liability and compensation statutory and voluntary reserves over case basis and loss expense reserves (Schedule "P" reserve) . 84,733 56,283 Stock dividend (note 6) (500,000) 873,316 $1,394,139 STATEMENT OF ADJUSTED INCOME with comparative figures for 1968 Year ended December 31, 1969 1969 1968 Net income as shown in the accompanying statement of income — statutory basis 281.620 296,829 Adjustments to net income: Net realized gain on investments (to segregate from adjusted net earnings) (91,731) (178,694) Federal income taxes applicable to net realized gains 25,226 49,140 Increase in estimated equity in unearned premiums 102,539 103,521 Future income taxes applicable to increase in estimated equity in unearned premiums. (54,141) (54,659) (18,107) (80,692) Net earnings, as adjusted (excluding investment gains) $ 263,513 $ 216,137 Investment gains: Net realized gains $ 91,731 $ 178,694 Less applicable income taxes 25,226 49,140 66,505 129,554 Increase (decrease) in net unrealized gains (388,609) 222,889 Less allowance for future income taxes 73,027 61,162 (315,582) 161,727 Net investment gain (loss) . $ (249,077) 291,281 See accompanying notes to financial statements. 14

[PAGE 17]

National Fire & Marine Insurance Company Subsidiary of Berkshire Hathaway Inc. STATEMENT OF ADJUSTED STOCKHOLDERS' EQUITY with comparative figures for 1968 December 31, 1969 1969 Capital shares and surplus as shown in the accompanying statement of assets 1968 and liabilities — statutory basis $1,923,316 $1,944,139 Adjustments to capital shares and surplus: Equity in unearned premium reserve, estimated at 32% and 30% of reserve at December 31, 1969 and 1968, respectively 472,770 370,231 Statement value of bonds over market value. (5,010) (3,577) Excess bodily injury liability and compensation statutory reserves over case basis. 84,733 467,760 451,387 Adjusted equity before income taxes applicable to equity in unearned premiums and unrealized appreciation on investments 2,391,076 2,395,526 Less Federal income taxes applicable to estimated equity in unearned premiums and unrealized appreciation on investments Adjusted stockholders' equity . 242,155 $2,148,921 261,041 $2,134,485 NOTES TO FINANCIAL STATEMENTS (1) Basis of Presentation: The accompanying financial statements have been pre- holders' equity and adjusted net income. accompanying supplemental statements of adjusted stock- pared, except as to form, on the basis of the requirements for departments of the respective domiciliary states. reporting in the annual statements filed with the insurance (2) Bonds and Stocks: established by the National Association of Insurance Commis- Bonds and stocks are carried in accordance with valuations with insurance accounting principles prescribed or permitted The financial statements have been prepared in conformity sioners (see note 1). under statutory authority which differ in some respects from The market value as prescribed by the National Association business enterprises in determining financial position and generally accepted accounting principles followed by other of Insurance Commissioners of all bonds and the "admitted value" of bonds on deposit with regulatory authorities at results of operations. Pursuant to such practices (a) invest- December 31, 1969 was as follows: ment securities are carried in accordance with valuations Aggregate market value (statutory) established by the National Association of Insurance Commis- of all bonds $3,935,916 appropriate, for amortization of premium or discount, and sioners, i.e. eligible bonds are carried at cost adjusted, where Admitted value of bonds on deposit 161,794 other bonds and stocks are carried at market values with no The change in each period in the valuation between provision for income taxes relative to unrealized appreciation investments at book value and investments valued as set forth on a pro rata basis over the periods covered by the policies, in such investments; (b) premium income is taken into earnings investments. above is carried to surplus as unrealized gain or loss from whereas related acquisition and commission costs are charged off when incurred; and (c) statutory loss reserves are required (3) Unearned Premiums: on certain lines of insurance in excess of losses computed on a Unearned premiums are computed on the monthly pro rata case basis. The effects of such differences are shown in the rated policies and are stated after deduction on account of basis and include provisions for refunds under retrospectively 15

[PAGE 18]

National Fire & Marine Insurance Company Subsidiary of Berkshire Hathaway Inc. NOTES TO FINANCIAL STATEMENTS, Continued $427,651. reinsurance placed with other insurers in the amount of year's taxes computed on the basis of the Company filing sents payment of estimated taxes in excess of the current (4) Unpaid Losses and Loss Adjustment Expenses: a separate return. The reserve for unpaid losses and loss adjustment expenses Federal income tax returns have been examined through is after deduction of amounts for reinsurance placed with 1966 by the Internal Revenue Service and adjustments have other insurers in the amount of $405,919. been proposed. The Company intends to file a protest and management believes that final determination will result in a (5) Federal Income Taxes: refund due to the Company. The Company intends to file a consolidated Federal income (6) Stock Dividend: tax return with its parent, Berkshire Hathaway Inc., for the The Board of Directors by special meeting on November year ended December 31, 1969. Federal income tax recover- 18, 1969, declared a one-for-one stock dividend to stockholders able included in the statement of assets and liabilities repre- of record November 18, 1969. PEAT, MARWICK, MITCHELL & Co. CERTIFIED PUBLIC ACCOUNTANTS OMAHA, NEBRASKA 68131 KIEWIT PLAZA The Board of Directors National Fire & Marine Insurance Company: of National Fire & Marine Insurance Company as of December 31, 1969 and the We have examined the statutory statement of assets and liabilities related statements of income and paid-in and unassigned surplus for the year income and stockholder's equity. then ended. We have also examined the supplemental statements of adjusted generally accepted auditing standards, and accordingly included such tests of Our examination was made in accordance with necessary in the circumstances. the accounting records and such other auditing procedures as we considered statutory financial position of National Fire & Marine Insurance Company In our opinion, such financial statements present fairly the at December 31, 1969 and the income and changes in paid-in and unassigned principles prescribed or permitted under statutory authority on a basis surplus for the year then ended, in conformity with insurance accounting respects from generally accepted accounting principles, as explained in consistent with that of the preceding year. These principles vary in some note 1 to the financial statements. statements of adjusted income and stockholder's equity present fairly net Also, in our opinion, the supplemental income for the year ended December 31, 1969 and the stockholder's equity at that date in conformity with generally accepted accounting principles applied on a basis consistent with that of the preceding year. Peat Manurik, Mitchell 2Co. February 27, 1970 16

[PAGE 19]

The Illinois National Bank & Trust Co. of Rockford AND SUBSIDIARIES Subsidiary of Berkshire Hathaway Inc. CONSOLIDATED STATEMENT OF CONDITION with comparative figures for 1968 December 31, 1969 ASSETS 1969 1968 Cash and due from banks $ 19,917,661 S 23,244,160 Investment securities (note 2): United States Government obligations. 11,227,704 26,922,462 Obligations of states and political subdivisions 36,005,053 Other securities 17,803,334 210,000 Loans (note 3) 210,000 47,962,992 Bank premises and equipment (note 4) 46,995,450 1,825,164 Accrued interest receivable and other assets 1,236,936 1,040,477 895,831 $118,189,051 $117,308,173 LIABILITIES AND CAPITAL ACCOUNTS Demand deposits $ 58,237,471 Time deposits $ 57,676,992 41,317,347 41,408,448 Total deposits 99,554,818 Accrued taxes and other expenses 99,085,440 Total liabilities . 638,453 783,194 100,193,271 Reserve for loan losses (note 5) 99,868,634 800,271 599,008 Capital accounts: Common stock, $20.00 par Authorized and issued 100,000 shares 2,000,000 2,000,000 Surplus Undivided profits 5,027,442 5,027,442 9,092,067 8,737,089 Reserve for contingencies 1,001,000 Reserve for asset re-evaluation 1,001,000 75,000 Total capital accounts 75,000 17,195,509 16,840,531 $118,189,051 $117,308,173 See accompanying notes to consolidated financial statements. 17

[PAGE 20]

The Illinois National Bank & Trust Co. of Rockford AND SUBSIDIARIES Subsidiary of Berkshire Hathaway Inc. CONSOLIDATED STATEMENT OF EARNINGS Year ended December 31, 1969 with comparative figures for 1968 1969 1968 Operating income: Interest and fees on loans. $3,820,358 $3,431,019 Income on federal funds sold 392,335 319,556 Interest and dividends on: United States Government obligations 1,003,301 1,419,708 Obligations of states and political subdivisions 1,154,524 531,755 Trust department 342,976 339,039 Service charges on deposit accounts 219,891 199,012 Other 247,796 250,463 Total operating income . 7,181,181 6,490,552 Operating expenses: Salaries 1,159,126 1,073,054 Pensions, profit sharing, and other employee benefits 113,551 137,037 Interest on deposits 1,694,877 1,493,180 Interest on federal funds purchased 12,538 2,517 Net occupancy expense of bank premises 301,557 325,147 Equipment rentals, depreciation, and maintenance 260,087 234,865 Provision for loan losses 61,600 65,800 558,132 497,270 Total operating expenses 4,161,468 3,828,870 Income before income taxes and securities gains or (losses) 3,019,713 2,661,682 Applicable income taxes: Current 1,060,974 1,003,312 Deferred (21,884) 107,010 Total applicable income taxes 1,039,090 1,110,322 Income before securities gains or (losses) 1,980,623 1,551,360 Securities gains or (losses) (788,879) 150,985 Applicable income taxes 416.528 (41,434) Securities gains or (losses) — net of applicable income taxes (372,351) 109,551 Net income $1,608,272 $1,660,911 Earnings per share (based on 100,000 shares during 1968 and 1969): Income before securities gains or (losses) . $19.81 $15.51 Net income 16.08 16.61 See accompanying notes to consolidated financial statements. 18

[PAGE 21]

The Illinois National Bank & Trust Co. of Rockford AND SUBSIDIARIES Subsidiary of Berkshire Hathaway Inc. CONSOLIDATED STATEMENT OF CHANGES IN CAPITAL ACCOUNTS Two years ended December 31, 1969 Balances January 1, 1968: Common Stock Surplus $ 2,000,000 Undivided Profits 5,027,442 Reserve for Contingencies 6,573,370 Reserve for Asset Re-evaluation 1,001,000 Total Capital 75,000 14,676,812 Changes in Undivided Profits in 1968: Net adjustments resulting from change to full accrual basis of accounting as of January 1, 1968 (net of tax) . Net Income 836,985 1,660,911 17,174,708 Cash dividends ($2.75 per share) Provision to reserve for loan losses from undivided profits net of tax (275,000) (59,177) Balance December 31, 1968 . 16,840,531 Changes in Undivided Profits in 1969: Net income 1,608,272 18,448,803 Cash dividends ($11.75 per share) (1,175,000) Provision to reserve for loan losses from undivided profits net of tax (78,294) Balance December 31, 1969 $17,195,509 Balance December 31, 1969 represented by: Common stock Surplus $ 2,000,000 Undivided profits 5,027,442 Reserve for contingencies 9,092,067 Reserve for asset re-evaluation 1,001,000 Total Capital 75,000 $17,195,509 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1969 (1) Basis of Presentation: certain changes in accounting practices and statement presen- The consolidated financial statements retroactively reflect of the Bank and its wholly-owned subsidiaries, Brown Build- The consolidated financial statements include the accounts tation which were adopted subsequent to December 31, 1968. ing Corporation and Illinois National Safe Deposit Co. These changes, which are explained in the following notes, The consolidated financial statements are presented on the did not materially affect the previously reported financial accrual basis of accounting. Income is reported on the cash position or results of operation of the Bank. have been provided for in the consolidated financial statements. basis for tax purposes. Applicable deferred income taxes 19

[PAGE 22]

The Illinois National Bank & Trust Co. of Rockford AND SUBSIDIARIES Subsidiary of Berkshire Hathaway Inc. NOTES TO FINANCIAL STATEMENTS, Continued (2) Investment Securities: amortization of premium. Investment securities are stated at cost, adjusted for and total average loans for the five most recent years, including investment securities at December 31, The approximate market value of the current year. This ratio has been applied to the average $44,023,000 and $43,720,000, respectively. 1969 and 1968 were loan loss provision charged to operating expense. of outstanding loans during the current year to determine the 1969 and $11,614,592 on December 31, 1968 were pledged Investment securities stated at $8,069,083 on December 31, restated in accordance with this policy. Additional provisions The consolidated statement of earnings for 1968 has been to secure public deposits and other purposes as required or allowable under the current Treasury Tax formula are charged permitted by law. to undivided profits — net of deferred taxes. maximum allowable under the Treasury Tax formula for the The balance in the reserve for loan losses represents the (3) Loans: Loans, previously carried at face value, have been reduced period since the adoption of the reserve method of accounting by unearned discount, which was previously included among for loan losses in 1965. other liabilities, and Consumer Credit loan payments, which 1969 and 1968 is as follows: A summary of the reserve for loan losses for the years were previously included in time deposits. Unearned discount was $2,206,028 on December 31, 1969 and $2,126,499 on 1969 1968 $11,031,809 December 31, 1968. Consumer Credit loan payments totaled on December 31, 1969 and $10,328,663 on Balance beginning of year $599,008 $498,377 December 31, 1968. Provisions charged to: (4) Bank Premises and Equipment: Operating expenses 61,600 65,800 Bank premises and equipment are stated at cost less Undivided profits 165,877 125,375 accumulated depreciation of $1,061,740 and $913,072 for 1969 Recoveries 57,897 (84,111) 44,766 and 1968, respectively. totaled $189,728 in 1969 and $143,325 in 1968. Depreciation, Depreciation charged to expense Losses (135,310) for both book and tax purposes, is provided on the straight- Balance end of year $800,271 $599,008 erated method for building improvements, equipment, and line method for buildings and automobiles and on an accel- (6) Pension and Profit Sharing Plan: drive-in and parking facility. sharing plan for all officers and employees with two full years The Bank has a noncontributory pension plan and a profit (5) Reserve for Loan Losses: of service. expense a provision for loan losses based on a five-year moving The Bank has adopted the policy of including in operating the profit sharing expense was $97,138 for 1969. The total No pension contribution was required for 1969; pension and profit sharing expense was $117,574 for 1968. to total loans over the past five years. The ratio of losses has average ratio of losses computed on the basis of net charge-offs As of January 1, 1969, the book value of the pension trust been determined based on the aggregate of total net charge-offs of the participants. assets exceeded the actuarial values of the vested benefits PEAT. MARWICK. MITCHELL & Co. CERTIFIED PUBLIC ACCOUNTANTS CHICAGO. ILLINOIS 60603 111 WEST MONROE STREET The Illinois National Bank & Trust The Board of Directors Rockford, Illinois: Co. of Rockford The Illinois National Bank & Trust Co. of Rockford and subsidiaries as of We have examined the consolidated statement of condition of December 31, 1969, and the related consolidated statements of earnings and made in accordance with generally accepted auditing standards, and accord- changes in capital accounts for the year then ended. Our examination was procedures as we considered necessary in the circumstances. ingly included such tests of the accounting records and such other auditing statements of the preceding year, included for comparative purposes, have Financial not been examined by independent public accountants. financial position of The Illinois National Bank & Trust Co. of Rockford In our opinion, such financial statements present fairly the and changes in capital accounts for the year then ended, in conformity with and subsidiaries at December 31, 1969, and the results of its operations generally accepted accounting principles applied on a basis consistent with cial statements.) that of the preceding year as restated. (See note 1 to consolidated finan- Reat, march, mitchell. co. January 15, 1970 20

[PAGE 23]

DIRECTORS *MALCOLM G. CHACE, JR. RICHARD BOWEN *WARREN E. BUFFETT *KENNETH V. CHACE DANIEL COWIN JOHN WILLIAM SCOTT *Member of Finance Committee OFFICERS KENNETH V. CHAcE, President RICHARD BoWEN, Vice President J. VERNE McKENZIE, Vice President and Treasurer RALPH RIGBY, Vice President JoHN L. THRESHIE, Vice President GENERAL COUNSEL Ropes & Gray, Boston, Massachusetts AUDITORS PEAT, MARWICK, MITCHELL & Co. TRANSFER AGENT OLD COLONY TRUST COMPANY, Boston, Massachusetts REGISTRAR THE FIRST NATIONAL BANK oF BostoN, Boston, Massachusetts

[PAGE 24]

BERKSHIRE HATHAWAY INC. Executive Offices — 97 Cove Street, New Bedford, Massachusetts 02744 Sales Offices — 261 Fifth Avenue, New York, New York 10016 137 East 36th Street, New York, New York 10016