1970 年伯克希尔完整年报

[PAGE 1]

CLEVELAND POSTIC LIBRARY CORPORATION FILE BOSINESS IRE, BUR BERKSHIRE HATHAWAY INC. 1970 ANNUAL REPORT TO THE STOCKHOLDERS (52 WEEKS ENDED JANUARY 2, 1971)

[PAGE 2]

Contents 1 - 2 Chairman's Letter to Stockholders Financial Statements and Accountants' Certificates: 3 - 8 Berkshire Hathaway Inc. and Consolidated Subsidiary Unconsolidated Subsidiaries: 9 - 14 National Indemnity Company 15 - 20 National Fire & Marine Insurance Company 21 - 26 The Illinois National Bank & Trust Co. of Rockford

[PAGE 3]

Berkshire Hathaway Inc. March 15, 1971 To the Stockholders of Berkshire Hathaway Inc.: The past year witnessed dramatically diverse earnings results among our various operating units. The Illinois National Bank & Trust reported record earnings and continued to rank right at the top, nationally, among banks in terms of earnings as a percentage of average resources. Our insurance operations had some deterioration in underwriting results, but increased investment income produced a continued excellent return. The textile business became progressively more difficult throughout the year and the final break-even result is understandable, considering the industry environment. The combination of these factors produced a return of approximately 10% on average share- holder's investment. While this figure is only about average for American industry, it is considerably in excess of what would have been achieved had resources continued to be devoted exclusively to the textile business, as was the pattern until five years ago. Textile Operations Sales in both menswear linings and home fabrics declined significantly during the year. Thus we were continuously forced to modify production plans to prevent inventories from mounting. Such production curtailments were costly to the Company and disruptive to the lives of our employees. Prices continue at poor levels and demand has not strengthened. Inventory levels, while reduced from a year ago through great effort, continue high in relation to current sales levels. We continue to work at making the changes required in manufacturing and marketing areas that will result in profitable operations with more stable employment. Led by Ken Chace, the effort, attitude and enterprise manifested by management and labor in this operation have been every bit the equal of their counterparts in our much more profitable busi- nesses. But in the past year they have been swimming against a strong tide and, at this writing, that situation still prevails. Insurance Operations We enjoyed an outstanding year for growth in our insurance business, accompanied by a some- what poorer underwriting picture. Our traditional operation experienced a surge in volume as conventional auto insurance markets became more restricted. This is in line with our history as a non- conventional carrier which receives volume gains on a "wave" basis when standard markets are ex- periencing capacity or underwriting problems. Although our combined loss and expense ratio on the traditional business rose to approximately 100% during the year, our management, led by Jack Ringwalt and Phil Liesche, has the ability and determination to return it to an underwriting profit. 1

[PAGE 4]

Our new reinsurance division, managed by George Young, made substantial progress during the year. While an evaluation of this division's underwriting will take some years, initial signs are encouraging. We are producing significant volume in diverse areas of reinsurance and developing a more complete staff in order to handle a much larger volume of business in the future. The surety business, referred to in last year's report, operated at a significant underwriting loss during 1970. The contractor's bond field was a disappointment and we are restricting our writings to the miscellaneous bond area. This will mean much less volume but, hopefully, under- writing profits. Our "home-state" operation — Cornhusker Casualty Company, formed in early 1970 as a 100% owned subsidiary of National Indemnity, writing standard business through Nebraska agents only - is off to a strong start. The combination of big-company capability and small-company accessibility is proving to be a strong marketing tool with first class agents. John Ringwalt deserves credit for translating the concept into reality. Our present plans envision extension of the home-state approach and we plan to have another company in operation later this year. Banking Operations Eugene Abegg had the problem in 1970 of topping a banner year in 1969 — and in the face of an unchanged level of deposits, managed to do it. While maintaining a position of above average liquidity, net operating earnings before security gains came to well over 2% of average deposits. This record reflects an exceptionally well-managed banking business. Bob Kline became President of the Illinois National Bank in January, 1971, with Mr. Abegg continuing as Chairman and Chief Executive Officer. Illinois is a unit banking state, and deposit growth is hard to come by. In the year he has been with the bank, Mr. Kline has demonstrated effort and initiative in generating new deposits. Such deposit growth, in line with national trends, will largely be in the consumer savings area with attendant high costs. With generally lower interest rates prevailing on loans throughout the country, it will be a challenge to management to maintain earnings while utilizing a higher cost deposit mix. In the closing days of 1970, new bank holding company legislation was passed which affects Berkshire Hathaway because of its controlling ownership of The Illinois National Bank. In effect, we have about ten years to dispose of stock in the bank (which could involve a spin-off of bank stock to our shareholders) and it will probably be some time before we decide on a course of action. In the meantime, certain activities of all entities in the Berkshire Hathaway group — including acquisitions

• are subject to the provisions of the Act and Regulations of the Federal Reserve Board.

Warren E. Buffett Chairman of the Board 2

[PAGE 5]

Berkshire Hathaway Inc. FINANCIAL STATEMENTS 1970 (52 Weeks Ended January 2, 1971) ACCOUNTANTS' CERTIFICATE PEAT, MARWICK, MITCHELL & Co. CERTIFIED PUBLIC ACCOUNTANTS I0 DORRANCE STREET PROVIDENCE, RHODE ISLAND 02903 Berkshire Hathaway Inc.: The Board of Directors and Stockholders Hathaway Inc. and its We have examined the consolidated balance sheet of Berkshire statements of earnings, retained earnings and source and application subsidiary as of January 2, 1971 and the related cordance with generally accepted auditing standards, and accordingly of funds for the 52 weeks then ended. Our examination was made in ac- included procedures as we considered necessary in the circumstances. such tests the accounting records and such other auditing In our opinion, the above mentioned financial statements its subsidiary at January 2, 1971 and the results of their operations financial position of Berkshire Hathaway Inc. and source and application of funds for the 52 weeks then ended, in conformity with generally that of the preceding period. accepted accounting principles applied on a Peat marwick Mutchell $ Co. February 12, 1971(except for the which the date is March 2, 1971) insurance subsidiaries, as to 3

[PAGE 6]

Berkshire Hathaway Inc. CONSOLIDATED STATEMENT OF EARNINGS 52 weeks ended January 2, 1971 with comparative figures for the 53 weeks ended January 3, 1970 52 weeks ended January 2, 1971 Federal income taxes Tax effect of Revenues (expenses) before Federal income taxes (expense) benefit (See Note 5) earnings Net Textile operations Net sales $24,568,567 Cost of sales, administrative and selling expense (24,461,279) Earnings from textile operations $ 107,288 (62,541) 44,747 Interest and dividends Interest and dividend income 60,285 Interest (expense) (580,835) Net interest expense (520,550) 144,910 (375,640) Corporate administrative costs (63,443) 17,557 (45,886) vestment (losses) gains) of unconsolidated Equity in earnings (excluding realized in- subsidiaries Insurance subsidiaries 2,638,710 (586,837) 2,051,873 Banking subsidiary 2,643,039 (28,915) 2,614,124 Earnings before investment gains (losses) and extraordinary item 4,805,044 (515,826) 4,289,218 Investment gains (losses) Parent company Insurance subsidiaries (301,047) (301,047) Banking subsidiary 358,819 358,819 Net investment gains 57,772 57,772 Earnings before extraordinary item 4,862,816 (515,826) 4,346,990 tion or retirement of textile properties Extraordinary item — gain (loss) on liquida- 281,839 (63,351) 218,488 Net earnings $ 5,144,655 (579,177) 4,565,478 mon stock Net earnings per share of outstanding com- Earnings before investment gains (losses) and extraordinary item $4.38 Investment gains .06 Extraordinary item .22 Net earnings $4.66 See accompanying notes to consolidated financial statements. 4

[PAGE 7]

53 weeks ended January 3, 1970 Revenues (expenses) before Federal income taxes Tax effect of Federal income taxes (expense) benefit earnings Net Textile operations $40,427,037 Net sales Cost of sales, administrative and selling (38,971,802) expense $ 1,455,235 (667,000) 788,235 Earnings from textile operations Interest and dividends 96,449 Interest and dividend income (643,443) Interest (expense) (546,994) 296,393 (250,601) Net interest expense (6,307) 3,154 (3,153) Corporate administrative costs vestment (losses) gains of unconsolidated Equity in earnings (excluding realized in- subsidiaries 2,774,186 (495,957) 2,278,229 Insurance subsidiaries 2,364,306 (827,500) 1,536,806 Banking subsidiary 6,040,426 (1,690,910) 4,349,516 Earnings before investment gains (losses) and extraordinary item Investment gains (losses) 5,333,488 (1,525,736) 3,807,752 Parent company 388,622 (106,871) 281,751 Insurance subsidiaries (781,758) 409,963 (371,795) Banking subsidiary 4,940,352 (1,222,644) 3,717,708 Net investment gains 10,980,778 (2,913,554) 8,067,224 Earnings before extraordinary item (228,788) 114,353 Extraordinary item - gain (loss) on liquida- (114,435) tion or retirement of textile properties 10,751,990 (2,799,201) 7,952,789 Net earnings Net earnings per share of outstanding com- mon stock $4.41 Earnings before investment gains (losses) and extraordinary item 3.78 Investment gains (•12) Extraordinary item $8.07 Net earnings 5

[PAGE 8]

Berkshire Hathaway Inc. CONSOLIDATED BALANCE SHEET January 2, 1971 with comparative figures at January 3, 1970 ASSETS Jan. 2, 1971 Jan. 3, 1970 Current assets: Cash $ 1,351,567 $ 1,792,835 Marketable securities, at cost Accounts receivable (less allowance for doubtful accounts 294,165 1971 — $215,191; January 3, 1970 — $189,026)

• January 2,

3,916,332 6,397,021 Inventories, at the lower of cost (first-in, first-out) or market (note 3) 8,471,798 9,269,578 Prepaid and deferred charges 200,341 344,725 Total current assets 13,940,038 18,098,324 Property, plant and equipment (note 4): Property comprising land, buildings, machinery and equipment 14,919,300 Less accumulated depreciation and amortization 15,747,970 12,425,525 12,734,126 Investment in unconsolidated subsidiaries (notes 1 and 2): Net property, plant and equipment . 2,493,775 3,013,844 Bank subsidiary Insurance subsidiaries 19,877,908 18,868,404 19,064,663 15,314,965 Other subsidiaries Total investment in unconsolidated subsidiaries 1,261,000 1,261,000 40,203,571 35,444,369 $56,637,384 $56,556,537 Current liabilities: LIABILITIES AND STOCKHOLDERS' EQUITY Current installments of long-term debt $ 1,500,000 $ 1,500,000 Accounts payable and accrued expenses 2,014,843 3,804,322 Accrued Federal, State, and local taxes 247,908 Total current liabilities 1,442,855 3,762,751 6,747,177 Long-term debt, excluding current installments: Note payable to banks (note 7) . 3,750,000 5,250,000 7½% subordinated debentures (note 8) • 641,300 641,300 Total long-term debt 4,391,300 5,891,300 Stockholders' equity: Common stock, 1,017,547 shares $5 par value. Authorized 1,722,983 shares; issued 5,087,735 5,087,735 Retained earnings 44,212,973 39,647,495 Less 37,970 shares (January 3, 1970 — 37,965) of common stock in treas- 49,300,708 44,735,230 ury, at cost 817,375 817,170 Total stockholders' equity. 48,483,333 43,918,060 $56,637,384 $56,556,537 See accompanying notes to consolidated financial statements. 6

[PAGE 9]

Berkshire Hathaway Inc. CONSOLIDATED STATEMENT OF RETAINED EARNINGS with comparative figures for the 53 weeks ended January 3, 1970 52 weeks ended January 2, 1971 Jan. 2, 1971 Jan. 3, 1970 Retained earnings, beginning $39,647,495 $31,694,706 Net earnings 4,565,478 7,952,789 Retained earnings, ending $44,212,973 $39,647,495 See accompanying notes to consolidated financial statements. CONSOLIDATED STATEMENT OF SOURCE AND APPLICATION OF FUNDS with comparative figures for the 53 weeks ended January 3, 1970 52 weeks ended January 2, 1971 52 weeks Jan. 2, 1971 ended 53 weeks Jan. 3, 1970 ended Funds provided: Net earnings $ 4,565,478 $ 7,952,789 Nonfund items: (Deduct gain) Add - loss on liquidation or retirement of textile Add depreciation and amortization 520,235 643,143 properties (281,839) 228,788 Deduct equity in undistributed earnings of unconsolidated subsidiaries (2,769,929) (2,649,829) Total nonfund items . (2,531,533 (1,777,898) Funds derived from operations 2,033,945 6,174,891 Long-term debt financing 6,000,000 Proceeds from sale of textile properties 532,477 240,865 Decrease in working capital 1,173,860 8,877,815 $ 3,740,282 $21,293,571 Funds used: Investment in unconsolidated subsidiaries 1,989,271 20,039,555 Repayment of long-term debt . 1,500,000 750,000 Additions to property and equipment . 250,806 264,016 Purchase of treasury stock 205 240,000 $ 3,740,282 $21,293,571 See accompanying notes to consolidated financial statements. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) Principles of Consolidation: January 2, 1971 accounts of Berkshire Hathaway Inc. with its wholly-owned The accompanying financial statements consolidate the operation) have not been consolidated, and the investments therein are carried at cost. substantially 100% owned by Canadian subsidiary. The accounts of insurance subsidiaries, accounts of the Illinois National Bank and Trust Co. of Rock- Berkshire Hathaway, and the (2) Investment in Unconsolidated Subsidiaries forded by berianise Haprawny ten arch 199, are was ford and subsidiaries, approximately of which was subsidiaries at anuary 2, 1971 was approximately 52,124,000 value of $40.203.571 for all unconsolidated in excess of the Compan's equity in book values reflected in consolidated. The accompanying flects, based on current certified audit reports of these com- statement of earnings re- been allocated between tangible and intangible assets as the the accounts of the subsidiaries. No part of this excess has these functionally independent operations. The investments panies, the equity of Berkshire Hathaway Inc. in earnings of effect on income of such allocation would not be material and the excess is not being amortized as management believes its in these subsidiaries are carried at cost plus the equity in value is not declining. subsidiaries (an insurance agency, a printing and a publishing undistributed earnings since acquisition. Three immaterial aries and the bank subsidiary are presented elsewhere in this Detailed financial statements of the two insurance subsidi- report. 7

[PAGE 10]

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued (3) Inventories: A comparative summary follows: Equity in net tax (expense) subsidiaries not Jan. 2, 1971 Stock in process Raw materials and supplies $ 543,660 Jan. 3, 1970 solidated in these state- con- Cloth 6,502,922 1,425,216 $ 1,168,967 ments (615,752) 1,798,224 Net income tax (expense) ($579,177) $ 8,471,798 9,269,578 6,302,387 primarily to the increased equity of insurance subsidiaries in The deferred taxes of subsidiaries not consolidated relate includable in Federal taxable income. unearned premiums, which increased equity is not currently (4) Property, Plant and Equipment: tion over the estimated useful lives as allowed by taxing The Company's general policy is to provide for deprecia- (6) Pension Plan: authorities. Except for new additions subsequent to 1965 salaried emplovees. Benefits are funded through the medium The Company has a noncontributorv pension plan for which method, are depreciated The composition of property, plant and equipment is shown depreciation is provided on the straight-line basis on the double-declining balance the actuarially computed vested and nonvested benefits. The of an independently trusteed fund, the assets of which exceed below: normal costs less amortization of the overfunded position at current year's pension expense was S26,000 and represents Jan. 2, 1971 Jan. 3, 1970 Land Machinery and equipment Buildings S 2.345.977 87.116 3,726,310 106,555 August 1, 1968 on a ten-year basis. Furniture leasehold improvements and fixtures and 11,891,239 11,402,218 liable to certain banks at January 2, 1971 for $5,250,000, of Under the terms of a loan agreement, the Company was 594,968 512,887 Less accumulated depreciation 14,919,300 15,747,970 which $1,500,000 is due within one year. Interest, payable for 90-dav commercial loans of The First National Bank of quarterly in arrears, is computed at ½% over the prime rate and amortization $ 2,493,775 12,425,525 $ 3,013,844 12,734,126 quarterly in the amount of $375,000 with a final installment Boston, which serves as the agent bank. Principal is payable of $3,375,000 due on June 30, 1972. (S643,143 in 1969). Depreciation expense recorded in 1970 was $520,235 the banks may at any time require the debt to become secured; The agreement contains provisions, the $8,000,000; net worth shall be at least $35,000,000; and each Company will maintain working capital of at least (5) Income Taxes: clusion in a consolidated Federal income tax return joined in The Company and all of its subsidiaries eligible for in- subsidiary will maintain net worth at least as follows: National Indemnity Company National Fire & Marine Insurance Co. . $ 1,300,000 the filing of such a consolidated return for both 1970 and 1969. Illinois National Bank & Trust Co. 11,500,000 8,000,000 in a reporting of a U.S. net consolidated operating loss. The For 1970, the consolidation for U.S. tax purposes resulted result of filing a consolidated return was to offset ordinary its assets the banks, to dion indebtedness for portioned The agreement also limits the Company's ability, without ordinary taxable income of the bank subsidiary and to offset tax losses of the Parent and insurance subsidiaries against its assets; to incur additional indebtedness for capital losses of the insurance subsidiaries against capital agreement contains money; or enter into business combinations. Additionally, the tax effects in 1970 are not proportionate to the pretax income gains of the Parent and bank subsidiary. For this reason, the subsidiaries of additional shares of their capital stock, options restrictions regarding issuance by items reflected in the statement of earnings. of the following: The total income tax expense for 1970 of $579,177 consists therefore or securities convertible thereto. (8) 72% Subordinated Debentures: Parent company's February turns beg it, and it be ate on August 1, 19b Debentures bear interest at the rate of 7½% come taxes back of its share of consolidated arising from carry- recoverable in- The debentures are convertible; they are subordinated not secured by to any lien and are not net operating loss reportable for which includes indebtedness of the Company senior indebtedness U. S. Federal tax purposes Current foreign income tax expense $115,000 borrowed. The debentures may, at the Company's option, be for money iary of consolidated Canadian subsid- 100%. The indenture under which the debentures are issued redeemed at 105% through July 31, 1973 and thereafter at Net recoverable taxes of Parent (78,425) requires the Company to provide for the retirement by demption, through a sinking fund, on August 1 in each of the re- and consolidated subsidiary 36,575 amount of debentures issued. Redemption through the sinking years 1973 to and including 1986, of one-fifteenth of the total Equity in tax benefit (expense) of these statements: subsidiaries not consolidated in fund shall be at principal amount plus accrued interest. Deferred tax expense Recoverable income taxes aris- ($871,850) (9) "One-Bank Holding Company" Status: tional Bank & Trust Co. of Rockford, the Company is a "one- Because of its controlling ownership of the Illinois Na- ing from carryback by in- Federal legislation is required bank holding company" and as a result of recently surance subsidiaries of their divest itself either of its controlling interest in the bank or its prior to January 1, 1981 to operating loss reportable for share of consolidated net activities unrelated to banking. subject to the restrictions on its as the Company U. S. Federal tax purposes • 256,098 activities imposed by this legislation. 8

[PAGE 11]

National Indemnity Company (Subsidiary of Berkshire Hathaway Inc.) FINANCIAL STATEMENTS 1970 ACCOUNTANTS' CERTIFICATE PEAT, MARWICK, MITCHELL & Co. CERTIFIED PUBLIC ACCOUNTANTS KIEWIT PLAZA OMAHA, NEBRASKA 68131 The Board of Directors National Indemnity Company: and liabilities of National Indemnity Company and its wholly-owned subsidiary, We have examined the consolidated statutory statement of assets Cornhusker Casualty Company, as of December 31, 1970 and the related statements year then ended. We have also examined the supplemental statements of consoli- of consolidated income and consolidated paid-in and unassigned surplus for the was made in accordance with generally accepted auditing standards, and accordingly dated adjusted income and consolidated stockholders' equity. Our examination as we considered necessary in the circumstances. included such tests of the accounting records and such other auditing procedures dated statutory financial position of National Indemnity Company and its wholly- In our opinion, such financial statements present fairly the consoli- consolidated income and changes in consolidated paid-in and unassigned surplus owned subsidiary, Cornhusker Casualty Company, at December 31, 1970 and the prescribed or permitted under statutory authority applied on a basis consistent for the year then ended, in conformity with insurance accounting principles with that of the preceding year. generally accepted accounting principles, as explained in note 1 to the These principles vary in some respects from consolidated statements of adjusted income and stockholders' equity present consolidated financial statements. Also, in our opinion, the supplemental stockholders' equity at that date in conformity with generally accepted fairly net income for the year ended December 31, 1970 and the consolidated accounting principles applied on a basis consistent with that of the preceding Peat, Mervich, Mithell To, March 2, 1971 9

[PAGE 12]

National Indemnity Company (Subsidiary of Berkshire Hathaway Inc.) AND ITS WHOLLY-OWNED SUBSIDIARY, CORNHUSKER CASUALTY COMPANY CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES with comparative figures for 1969 December 31, 1970 ASSETS 1970 1969 Bonds, at admitted value (note 3) $45,993,194 $27,894,117 Stocks, at market value (note 3): Preferred (cost, 1970, $757,624; 1969, $1,460,700) 793,331 Common (cost, 1970, $8,310,595; 1969, $7,649,755) 1,393,190 8,737,469 7,376,925 9,530,800 8,770,115 Real estate, at cost less allowance for depreciation of $264,401 (1969, $228,606) (note 4) Cash and bank deposits 986,490 1,005,061 Agents' balances and premiums in course of collection less ceded reinsurance 655,457 686,818 balances payable of $441,786 (1969, $87,581) Reinsurance recoverable on loss payments 2,980,103 3,513,854 Investment income due and accrued 207,103 533,531 Amounts due from sale of securities 800,649 470,174 Federal income taxes recoverable (note 7) 98,350 655,430 Other 250,319 297,500 45,454 62,180 $61,547,919 $43,888,780 LIABILITIES, CAPITAL STOCK AND SURPLUS Losses and loss adjustment expenses (note 6) Unearned premiums (note 5) $26,161,437 $19,079,307 Funds held under reinsurance treaties 15,488,334 10,091,999 Contingent commissions 1,042,588 776,791 Other expenses 331,728 127,814 417,000 Taxes, licenses and fees 87,512 Agents' and policyholders' deposits 769,753 553,266 940,979 473,178 Statutory reserve for bodily injury and compensation losses 5,554 Amounts due for purchase of securities 1,782,560 97,707 Mortgage and contract payable on rental property 856,052 Other liabilities 19,014 9,809 28,182 13,392 46,679,570 32,474,386 Capital stock and surplus: Common stock of $10 par value per share. Authorized 250,000 shares; issued 250,000 shares, 1970; 200,000 shares, 1969 (note 8) Paid-in surplus 2,500,000 2,000,000 Unassigned surplus 1,801,250 301,250 10,567,099 14,868,349 9,113,144 11,414,394 $61,547,919 $43,888,780 See accompanying notes to consolidated financial statements. 10

[PAGE 13]

National Indemnity Company (Subsidiary of Berkshire Hathaway Inc.) AND ITS WHOLLY-OWNED SUBSIDIARY, CORNHUSKER CASUALTY COMPANY CONSOLIDATED STATEMENT OF INCOME with comparative figures for 1969 Year ended December 31, 1970 Underwriting income: 1970 1969 Net premiums written Less increase in unearned premiums $39,390,688 $24,824,366 Premiums earned 5,396,335 3,274,997 Losses and loss expenses incurred 33,994,353 21,549,369 23,461,917 13,933,982 10,532,436 7,615,387 Underwriting expenses: Commissions and brokerage Salaries and other compensation 9,258,373 5,750,605 Taxes, licenses and fees 1,106,419 765,067 Other underwriting expenses 873,688 669,872 1,199,297 559,201 Net underwriting loss 12,437,777 7,744,745 1,905,341 129,358 Investment income: Interest on bonds Dividends on stock 2,047,319 1,421,542 Real estate income 458,323 350,386 195,233 198,966 Investment expenses 2,700,875 1,970,894 199,057 183,892 Profit from underwriting and investments 2,501,818 1,787,002 596,477 1,657,644 Other income (expenses) Income before Federal income taxes and realized 98 (18,552) gain or loss on investments 596,575 1,639,092 Federal income taxes (credit) (note 7) Income before realized gain or loss on investments (270,647) 20,809 867,222 1,618,283 Realized gain (loss) on investments Less Federal income taxes on gain. (211,074) 297,058 (211,074 81,691 Net income 656.148 215,367 $ 1,833,650 Depreciation 67,173 61,730 See accompanying notes to consolidated financial statements. 11

[PAGE 14]

National Indemnity Company (Subsidiary of Berkshire Hathaway Inc.) AND ITS WHOLLY-OWNED SUBSIDIARY, CORNHUSKER CASUALTY COMPANY CONSOLIDATED STATEMENTS OF PAID-IN AND UNASSIGNED SURPLUS with comparative figures for 1969 Year ended December 31, 1970 PAID-IN SURPLUS 1970 1969 Beginning of year 301,250 $ 301,250 Excess of proceeds over par value of capital stock issued (note 8) 1,500,000 End of year $ 1,801,250 $ 301,250 UNASSIGNED SURPLUS Beginning of year 9,113,144 9,207,670 Net income 656,148 1,833,650 Increase (decrease) in net unrealized appreciation of investments 735,837 (2,150,741) Decrease in liability for unauthorized reinsurance 11,493 31,640 Decrease in excess of bodily injury liability and compensation statutory and "P" voluntary reserves over case basis and loss expense reserves (Schedule reserves) 92,153 246,371 Increase in nonadmitted assets (41,676) (55,446) End of year $10,567,099 $ 9,113,144 See accompanying notes to consolidated financial statements. CONSOLIDATED STATEMENT OF ADJUSTED INCOME with comparative figures for 1969 Year ended December 31, 1970 1970 1969 Net income as shown in the accompanying statement of income — statutory Adjustments to net income: basis 656,148 1,833,650 Net realized (gain) loss on investments (to segregate from adjusted net earnings) 211,073 (297,058) Federal income taxes applicable to net realized gain 81,691 Increase in estimated equity in unearned premiums 1,492,628 821,120 Increase in future income taxes applicable to change in estimated equity in unearned premiums (631,451) (423,551) 1,072,250 182,202 Net income as adjusted excluding investment gains $ 1,728,398 $ 2,015,852 Investment gains: Net realized gains (loss) (211,073) 297,058 Less applicable income taxes 81,691 (211,073) 215,367 Increase (decrease) in net unrealized gains 1,399,123 (2,730,100) Less allowance for future income taxes (credit) 132,760 (455,510) 1,266,363 (2,274,590) Net investment gain (loss) $ 1,055,290 $ (2,059,223) See accompanying notes to consolidated financial statements. 12

[PAGE 15]

National Indemnity Company AND ITS WHOLLY-OWNED SUBSIDIARY, CORNHUSKER CASUALTY COMPANY (Subsidiary of Berkshire Hathaway Inc.) CONSOLIDATED STATEMENT OF ADJUSTED STOCKHOLDERS' EQUITY with comparative figures for 1969 December 31, 1970 1970 1969 Capital shares and surplus as shown in the accompanying statement of assets and liabilities — statutory basis. $14,868,349 $11,414,394 Adjustments to capital shares and surplus: Equity in unearned premium reserve Statement value of bonds over market value 4,358,848 2,866,220 Reserve for reinsurance with unauthorized companies (663,284) 1,690 13,183 Excess bodily injury liability and compensation statutory reserves over case basis Nonadmitted assets (note 2) 5,554 97,707 262,685 221,008 Adjusted equity before income taxes applicable to equity in unearned 4,628,777 2,534,834 premiums and unrealized appreciation on investments 19,497,126 13,949,228 Less Federal income taxes applicable to estimated equity in unearned pre- miums and unrealized appreciation on investments Adjusted stockholders' equity 2,207,437 1,443,227 $17,289,689 $12,506,001 See accompanying notes to consolidated financial statements. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1970 (1) Basis of Presentation: ences is shown in the accompanying supplemental statements companies not qualified by license. The effects of such differ- pared, except as to form, on the basis of the requirements for The accompanying financial statements have been pre- reporting in the annual statements filed with the Insurance of adjusted stockholders' equity and adjusted net income. income tax credit included in the accompanying financial Departments of the respective domiciliary states. The Federal sidiary insurance company, Cornhusker Casualty Company. During 1970 National Indemnity Company formed a sub- statements had not been computed at the time the annual Cornhusker Casualty Company and the two companies have National Indemnity owns 100% of the outstanding stock of statement was filed and was not included therein. transactions and balances eliminated. been consolidated in this report with significant intercompany with insurance accounting principles prescribed or permitted The financial statements have been prepared in conformity generally accepted accounting principles followed by other under statutory authority which differ in some respects from (2) Nonadmitted Assets: The assets in the accompanying statement of assets and ment securities are carried in accordance with valuations results of operations. Pursuant to such practices (a) invest- business enterprises in determining financial mitted assets" means the values at which they are permitted liabilities are stated at admitted asset value. The term "ad- to be reported in the annual statement filed with the state established by the National Association of Insurance Com- regulatory authority. The term "nonadmitted assets" means where appropriate, for amortization of premium or discount, missioners, i.e. eligible bonds are carried at cost adjusted. assets other than assets which are so permitted. and other bonds and stocks are carried at market values with Assets which have been excluded from the statement of tion in such investments; (b) premium income is taken into no provision for income taxes relative to unrealized apprecia- assets and liabilities at December 31, 1970 are as follows: Agents' balances and uncollected premiums $ 52,900 earnings on a pro rata basis over the periods covered by the Equipment and furniture 204,745 policies, whereas related acquisition and commission costs Other 5,039 required on certain lines of insurance in excess of losses are charged when incurred; (c) statutory loss reserves are $262,684 computed on a case basis; (d) assets are included in the state- (3) Bonds and Stocks: "nonadmitted assets" are excluded (see note 2); and (e) a ment of assets and liabilities at "admitted asset value" and established by the National Association of Insurance Commis- Bonds and stocks are carried in accordance with valuations provision is made for unearned premiums and losses recover- sioners (see note 1). The "admitted value" of bonds on deposit able, in excess of funds held, on business reinsured with with regulatory authorities at December 31, 1970 was $2,235,178. 13

[PAGE 16]

National Indemnity Company (Subsidiary of Berkshire Hathaway Inc.) AND ITS WHOLLY-OWNED SUBSIDIARY, CORNHUSKER CASUALTY COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued ments at book value and investments as valued in the annual The change in each year in the valuation between invest- (6) Unpaid Losses and Loss Expenses: from investments. statement is carried to surplus as unrealized gain or loss after the deduction of amounts for reinsurance placed with The net reserve for unpaid losses and loss expenses is 31, 1970. other insurers in the amount of $2,791,815 at December (4) Real Estate: (7) Federal Income Taxes: tax return with Berkshire Hathaway, Inc. for the year ended The companies intend to file a consolidated Federal income December 31, 1970. Federal income tax recoverable included estate is based upon the estimated useful life of the building accumulated depreciation. Provision for depreciation of real in the statement of assets and liabilities is computed on the amount of loss not used in the consolidated return and there- and is computed under the straight-line method. fore available for carryback against prior year payments. 1966 by the Internal Revenue Service and adjustments have Federal income tax returns have been examined through (5) Unearned Premiums: been proposed. The company has filed a protest and manage- rata basis and include provisions for refunds under retro- Unearned premiums are computed on the monthly pro refund due to the company. ment believes that the final determination will result in a account of reinsurance placed with other insurers in the spectively rated policies and are stated after deduction on amount of $3,666,374 at December 31, 1970. 50,000 shares of common stock at a cost of $40 per share. During 1970 the stockholders purchased an additional 14

[PAGE 17]

National Fire & Marine Insurance Company (Subsidiary of Berkshire Hathaway Inc.) FINANCIAL STATEMENTS 1970 ACCOUNTANTS' CERTIFICATE PEAT, MARWICK, MITCHELL & Co. CERTIFIED PUBLIC ACCOUNTANTS KIEWIT PLAZA OMAHA, NEBRASKA 68131 The Board of Directors National Fire & Marine Insurance Company: of National Fire & Marine Insurance Company as of December 31, 1970 and the We have examined the statutory statement of assets and liabilities then ended. We have also examined the supplemental statements of adjusted income and paid-in and unassigned surplus for the year income and stockholder's equity. Our examination was made in accordance with the accounting records and such other auditing procedures as we considered generally accepted auditing standards, and accordingly included such tests of necessary in the circumstances. In our opinion, such financial statements present fairly the at December 31, 1970 and the income and changes in paid-in and unassigned position of National Fire & Marine Insurance Company surplus for the year then ended, in conformity with insurance accounting consistent with that of the preceding year. These principles vary in some principles prescribed or permitted under statutory authority on a basis respects from generally accepted accounting principles, as explained in statements of adjusted income and stockholder's equity present fairly net note 1 to the financial statements. Also, in our opinion, the supplemental income for the year ended December 31, 1970 and the stockholder's equity at on a basis consistent with that of the preceding year. that date in conformity with generally accepted accounting principles applied Peat, Marico, MAtthell To, March 2, 1971 15

[PAGE 18]

National Fire & Marine Insurance Company (Subsidiary of Berkshire Hathaway Inc.) STATEMENT OF ASSETS AND LIABILITIES with comparative figures for 1969 December 31, 1970 ASSETS 1970 1969 Bonds, at admitted value (note 2) $5,616,100 $3,940,926 Stocks, at market value (note 2): Preferred (cost, 1970, $228,313; 1969, $270,003) 247,734 253,583 Common (cost, 1970, $1,543,752; 1969, $1,326,984) 1,516,841 1,229,678 1,764,575 1,483,261 Cash and bank deposits 157,017 101,114 Agents' balances and premiums in course of collection, less ceded reinsurance balances payable of $89,283, 1970; $60,868, 1969 1,091,924 737,856 Reinsurance recoverable on loss payments 97,297 73,537 Investment income due and accrued Amounts due from sales of securities 97,574 74,177 87,683 Federal income taxes recoverable (note 5) 8,160 23,242 Other 5,490 1,445 $8,838,137 $6,523,241 LIABILITIES, CAPITAL STOCK AND SURPLUS Unearned premiums (note 3) $1,994,623 $1,477,375 Losses and loss adjustment expenses (note 4) 3,597,302 2,369,259 Funds held under reinsurance treaties 867,064 522,265 Other expenses 6,808 6,003 Taxes, licenses and fees 11,465 10,462 Amounts due for purchases of securities 112,030 201,747 Other liabilities 15,863 12,814 6,605,155 4,599,925 Capital stock and surplus: Common stock at $100 par value per share. Authorized and issued 10,000 shares 1,000,000 1,000,000 Paid-in surplus 50,000 50,000 Unassigned surplus 1,182,982 873,316 2,232,982 1,923,316 $8,838,137 $6,523,241 See accompanying notes to financial statements. 16

[PAGE 19]

National Fire & Marine Insurance Company (Subsidiary of Berkshire Hathaway Inc.) STATEMENT OF INCOME with comparative figures for 1969 Year ended December 31, 1970 1970 1969 Underwriting income: Net premiums written $5,695,407 $3,951,771 Less increase in unearned premiums 517,248 243,272 Premiums earned 5,178,159 3,708,499 Losses and loss expenses incurred 3,395,897 2,426,897 1,782,262 1,281,602 Underwriting expenses: Commissions and brokerage 1,736,827 1,205,362 Salaries and other compensation 76,188 54,577 Taxes, licenses and fees 12,397 18,492 Other underwriting expenses 32,990 26,563 1,858,402 1,304,994 Net underwriting loss 76,140 23,392 Investment income: Interest on bonds 272,909 193,040 Dividends on stocks 103,556 52,412 376,465 245,452 Investment expenses 368,355 8,110 7,253 238,199 Income before Federal income tax credit and realized gains on investments 292,215 214,807 Federal income tax credit (note 5) 5,920 308 Income before realized gains on investments 298,135 215,115 Realized gains (losses) on investments (90,093) 91,731 Less Federal income taxes on gains 25,226 (90,093) 66,505 Net income 208,042 281,620 See accompanying notes to financial statements. 17

[PAGE 20]

National Fire & Marine Insurance Company (Subsidiary of Berkshire Hathaway Inc.) STATEMENTS OF PAID-IN AND UNASSIGNED SURPLUS with comparative figures for 1969 Year ended December 31, 1970 PAID-IN SURPLUS 1970 1969 Beginning and end of year 50,000 $ 50,000 UNASSIGNED SURPLUS Beginning of year Net income 873,316 Increase (decrease) in net unrealized appreciation of investments 208,042 1,394,139 281,620 Decrease in excess of bodily injury liability and compensation statutory and 101,624 (387,176) "P" reserve) voluntary reserves over case basis and loss expense reserves (Schedule Stock dividend 84,733 End of year (500,000) $1,182,982 $ 873,316 See accompanying notes to financial statements. STATEMENT OF ADJUSTED INCOME with comparative figures for 1969 Year ended December 31, 1970 1970 1969 Net income as shown in the accompanying statement of income - statutory basis 208,042 281,620 Adjustments to net income: Net realized (gain) loss on investments (to segregate from adjusted net earnings) Federal income taxes applicable to net realized gains 90,093 (91,731) Increase in estimated equity in unearned premiums 25,226 158,528 Future income taxes applicable to increase in estimated equity in unearned 102,539 premiums (77,995) (54,141) Net earnings, as adjusted (excluding investment gains) 170,626 378,668 (18,107) 263,513 Investment gains: Net realized gains (losses) Less applicable income taxes (90,093) 91,731 25,226 Increase (decrease) in net unrealized gains (90,093) 66,505 Less allowance for future income taxes 106,634 (388,609) 73,027 Net investment gain (loss) 106,634 16,541 (315,582) $ (249,077) See accompanying notes to financial statements. 18

[PAGE 21]

National Fire & Marine Insurance Company (Subsidiary of Berkshire Hathaway Inc.) STATEMENT OF ADJUSTED STOCKHOLDER'S EQUITY with comparative figures for 1969 December 31, 1970 1970 1969 Capital shares and surplus as shown in the accompanying statement of assets and liabilities - statutory basis - $2,232,982 $1,923,316 Adjustments to capital shares and surplus: Equity in unearned premium reserve Statement value of bonds over market value 631,298 472,770 (5,010) 631,298 467,760 Adjusted equity before income taxes applicable to equity in unearned premiums and unrealized appreciation on investments 2,864,280 2,391,076 Less Federal income taxes applicable to estimated equity in unearned premiums and unrealized appreciation on investments 320,150 Adjusted stockholder's equity 242,155 $2,544,130 $2,148,921 See accompanying notes to financial statements. NOTES TO FINANCIAL STATEMENTS December 31, 1970 (1) Basis of Presentation: The accompanying financial pared, except as to form, on the basis of the requirements for statements have been pre- are charged when incurred. The effects of such differences is shown in the accompanying supplemental statements of ad. reporting in the annual statements filed with the insurance justed stockholder's equity and adjusted net income. departments of the respective domiciliary states. The Federal (2) Bonds and Stocks: income tax credit included in the accompanying financial Bonds and stocks are carried in accordance with valuations statements was not included in the 1970 annual statement as established by the National Association of Insurance Com- filed because the amount had not been computed by the missioners (see note 1). due date. The "admitted value" of bonds on deposit with regulatory The financial statements have been prepared in conformity authorities at December 31, 1970 was $162,131. with insurance accounting principles prescribed or permitted The change in each year in the valuation between invest- generally accepted accounting principles followed by other under statutory authority which differ in some respects from ments at book value and investments valued as set forth in the annual statement is carried to surplus as unrealized gain or business enterprises in determining financial position and loss from investments. results of operations. Pursuant to such practices (a) invest- (3) Unearned Premiums: ment securities are carried in accordance with valuations Unearned premiums are computed on the monthly pro established by the National Association of Insurance Commis- rata basis and include provisions for refunds under retro- sioners, i.e. eligible bonds are carried at cost adjusted, where spectively rated policies and are stated after deduction for appropriate, for amortization of premium or discount, and reinsurance placed with other insurers in the amount of other bonds and stocks are carried at market values with no $426,283. provision for income taxes relative to unrealized appreciation in such investments; (b) and premium income is taken into (4) Unpaid Losses and Loss Adjustment Expenses: earnings on a pro rata basis over the periods covered by the The reserve for unpaid losses and loss adjustment ex- policies, whereas related acquisition and commission costs penses is after deduction of amounts for reinsurance placed with other insurers in the amount of $547,161. 19

[PAGE 22]

National Fire & Marine Insurance Company (Subsidiary of Berkshire Hathaway Inc.) NOTES TO FINANCIAL STATEMENTS, Continued (5) Federal Income Taxes: therefore available to carryback to prior years' returns. The Company intends to file a consolidated Federal income Federal income tax returns have been examined through tax return with its parent, Berkshire Hathaway Inc., for the 1966 by the Internal Revenue Service and adjustments have included in the financial statements is computed on the portion year ended December 31, 1970. Federal income tax recoverable management believes that final determination will result in a been proposed. The Company intends to file a protest and of this year's tax loss not used in the consolidated return and refund due to the Company. 20

[PAGE 23]

The Illinois National Bank & Trust Co. of Rockford (Subsidiary of Berkshire Hathaway Inc.) FINANCIAL STATEMENTS 1970 ACCOUNTANTS' CERTIFICATE PEAT. MARWICK, MITCHELL & Co. CERTIFIED PUBLIC ACCOUNTANTS 111 WEST MONROE STREET CHICAGO, ILLINOIS 60603 The Illinois National Bank & The Board of Directors Trust Co. of Rockford Rockford, Illinois: National Bank & Trust Co. of Rockford We have examined the consolidated statement of condition of Illinois and the related consolidated statements of income, changes in capital accounts, and subsidiaries as of December 31, 1970 and source and application of funds for the year then ended. Our examination was made in accordance with generally accepted auditing standards, and accord- ingly included such tests of the procedures as we considered necessary in the circumstances. accounting records and such other auditing position of Illinois National Bank & Trust Co. of Rockford and subsidiaries at In our opinion, such financial statements present fairly the financial December 31, 1970 and the results of its operations and changes in capital ac- counts for the year then ended, in conformity with generally accepted accounting principles applied on a basis consistent with that of the preceding year. of funds for the year ended December 31, 1970 presents fairly the information in our opinion, the accompanying consolidated statement of source and application shown therein. Peat, Marwick mitchell+ Co. January 15, 1971 21

[PAGE 24]

The Illinois National Bank & Trust Co. of Rockford (Subsidiary of Berkshire Hathaway Inc.) AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CONDITION with comparative figures for 1969 December 31, 1970 ASSETS 1970 1969 Cash and due from banks $ 15,156,585 $ 19,917,661 Investment securities (note 2): United States Government obligations 15,128,838 11,227,704 Obligations of states and political subdivisions 36,626,896 36,005,053 Other securities 210,000 210,000 Loans (note 3) 50,840,852 47,962,992 Bank premises and equipment, at cost less accumulated depreciation (note 4) 1,624,221 1,825,164 Accrued interest receivable and other assets 1,738,877 1,040,477 $121,326,269 $118,189,051 LIABILITIES AND CAPITAL ACCOUNTS Demand deposits 52,478,179 58,237,471 Time deposits 49,095,130 41,317,347 Total deposits . 101,573,309 99,554,818 Accrued taxes and other expenses 679,122 638,453 Total liabilities 102,252,431 100,193,271 Reserve for loan losses (note 5) 860.445 800,271 Capital accounts: Common stock, $20 par value. Authorized and issued 100,000 shares 2,000,000 2,000,000 Surplus 5,000,000 5,000,000 Undivided profits 10,137,393 9,119,509 Reserve for contingencies 1,001,000 1,001,000 Reserve for asset re-evaluation 75,000 75,000 Total capital accounts 18,213,393 17,195,509 $121,326,269 $118,189,051 See accompanying notes to consolidated financial statements. 22

[PAGE 25]

The Illinois National Bank & Trust Co. of Rockford (Subsidiary of Berkshire Hathaway Inc.) AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME with comparative figures for 1969 Year ended December 31, 1970 Operating income: 1970 1969 Interest and fees on loans $4,079,889 $3,820,358 Income on federal funds sold 316,798 392,335 Interest and dividends on: United States Government obligations • 580,266 1,003,301 Obligations of states and political subdivisions 1,718,516 1,154,524 Trust department 280,038 342,976 Service charges on deposit accounts 151,551 219,891 Other 403.999 247,796 Total operating income 7,531,057 7,181,181 Operating expenses: Salaries 1,298,380 1,159,126 Pensions, profit sharing, and other employee benefits 151,391 113,551 Interest on deposits 2,028,709 1,694,877 Interest on federal funds purchased 3,573 12,538 Net occupancy expense of bank premises 358,468 301,557 Equipment rentals, depreciation, and maintenance 271,978 260,087 Provision for loan losses (note 5) 51,790 61,600 Other 661,286 558,132 Total operating expenses 4,825,575 4,161,468 Income before income taxes and securities gains or (losses) and extraordinary item 2,705,482 3,019,713 Applicable income taxes: Current 454,407 1,060,974 Deferred 29,599 (21,884) Total applicable income taxes 484,006 1,039,090 Income before securities gains or (losses) and extraordinary item 2,221,476 1,980,623 Securities gains or (losses) 367,296 (788,879) Applicable income taxes (178,592) 416,528 Income before extraordinary item Securities gains or (losses) — net of applicable income taxes 188,704 (372,351) 2,410,180 1,608,272 Extraordinary item — tax benefit received from parent (note 7) 633,000 Net income $3,043,180 $1,608,272 Income per share (based on 100,000 shares during 1970 and 1969): Income before securities gains or (losses) and extraordinary item $22.21 $19.81 Net income 30.93 16.08 See accompanying notes to consolidated financial statements. 23

[PAGE 26]

The Illinois National Bank & Trust Co. of Rockford (Subsidiary of Berkshire Hathaway Inc.) AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN CAPITAL ACCOUNTS Two years ended December 31, 1970 Balances January 1, 1969 Common stock $ 2,000,000 Surplus 5,000,000 Undivided profits 8,764,531 Reserve for contingencies 1,001,000 Reserve for asset re-evaluation 75,000 Total capital January 1, 1969 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 note 5) (78,294) Total capital December 31, 1969 17,195,509 Changes in undivided profits in 1970: Net income 3,043,180 20,238,689 Cash dividends ($20.00 per share) (2,000,000) Provision to reserve for loan losses from undivided profits net of tax (note 5) (25,296) Balance December 31, 1970 . $18,213,393 Balance December 31, 1970: Common stock $ 2,000,000 Surplus 5,000,000 Undivided profits 10,137,393 Reserve for contingencies 1,001,000 Reserve for asset re-evaluation 75,000 Total capital December 31, 1970 $18,213,393 See accompanying notes to consolidated financial statements. 24

[PAGE 27]

The Illinois National Bank & Trust Co. of Rockford (Subsidiary of Berkshire Hathaway Inc.) AND SUBSIDIARIES CONSOLIDATED STATEMENT OF SOURCE AND APPLICATION OF FUNDS with comparative figures for 1969 Year ended December 31, 1970 1970 1969 Funds provided: Net income $ 3,043,180 $ 1,608,272 Increase in deposit accounts Proceeds from sale of banking premises, net of gains 2,018,491 469,378 Additions to reserve for loan losses exclusive of $25,296 1969, $78,294) Depreciation 125,499 232,610 189,728 charged to undivided profits Decrease in cash and due from banks 110,840 207,080 4,761,076 Other, net 3,326,499 Total funds provided $10,291,696 $ 5,800,957 Funds used: Dividends Increase in investment securities 2,000,000 1,175,000 4,522,977 2,506,961 Increase in loans before charge-offs of $75,962 ($84,111 in 1969) 2,953,822 Purchase of banking premises 1,051,654 Other, net 157,166 289,386 777,956 Total funds used 657,731 $10,291,696 $ 5,800,957 See accompanying notes to consolidated financial statements. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1970 (1) Basis of Presentation: The consolidated financial statements include the accounts (3) Loans: of the Bank and its wholly-owned subsidiaries, Brown Build- Loans have been reduced by unearned discount and ing Corporation and Illinois National Safe Deposit Company. consumer credit loan payments. Unearned discount was Income is reported on the cash basis for tax purposes and $2,185,639 on December 31, 1970 and $2,206,028 on December applicable deferred taxes have been provided for in the 31, 1969. Consumer credit loan payments totaled $10,901,329 on December 31, 1970 and $11,031,809 on December 31, 1969. consolidated financial statements (see note 7). (4) Bank Premises and Equipment: (2) Investment Securities: Bank premises and equipment are recorded at cost less amortization of premium. Investment securities are stated at cost, adjusted for accumulated depreciation of $1,265,043 and $1,061,740 at The approximate market value of December 31, 1970 and 1969, respectively. Depreciation investments at December 31, 1970 and 1969 was $52,440,000 charged to expense totaled $232,610 for 1970 and $189,728 for and $44,023,000, respectively. 1969. Depreciation is computed on the straight-line method Investment securities, at cost less premium amortization, for building and automobiles and on an accelerated method of $9,126,786 and $8,069,083 at December 31, 1970 and 1969, for improvements, equipment, and drive-in and parking respectively, were pledged to secure public deposits and for facilities. Deferred taxes have been provided for depreciation other purposes required by law. taken on certain of these assets on an accelerated basis for tax purposes and straight-line basis on the books. 25

[PAGE 28]

The Illinois National Bank & Trust Co. of Rockford (Subsidiary of Berkshire Hathaway Inc.) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued (5) Reserve for Loan Losses: (6) Pension and Profit Sharing Plan: ended December 31, 1970 were as follows: Transactions in the reserve for loan losses for the year The Bank has a non-contributory pension plan and a profit sharing plan for all officers and employees with two 1970 1969 full years of service. No pension contribution was required Balance at beginning of year $800,271 $599,009 for 1970; the profit sharing expense was $111,496 for 1970. Provision charged to: The total pension and profit sharing expense for 1969 was Operating expenses 51,790 Undivided profits 50,502 165,876 61,600 $97,138. As of January 1, 1970 the book value of the pension trust 902,563 826,485 assets exceeded the actuarial values of the vested benefits of Less loans charged off, net of recov- the participants. eries of $33,844 in 1970 and (7) Tax Benefits Received From Parent: $57,897 in 1969 42,118 Balance at end of year $860,445 26,214 The federal income tax benefit is the result of the con- $800,271 solidated tax position of the Bank's parent, Berkshire Hatha- way Inc. and certain other subsidiaries. In 1970 the con- based on a five-year moving average ratio of net charge-offs The loan loss provision charged to operating expenses is solidated net loss of the group resulted in a recovery of the to total loans over the past five years, including the current Bank's entire current federal income tax liability. Deferred federal income taxes resulting from the differ- year. Additional provisions provided under the Treasury Tax ence between the accrual basis of accounting for book pur- formula of the Internal Revenue Service are charged to poses and the cash basis of accounting for tax purposes have undivided profits net of the tax effect. been provided in the consolidated financial statements. 26

[PAGE 29]

[PAGE 30]

[PAGE 31]

BERKSHIRE HATHAWAY INC. DIRECTORS *WARREN E. BUFFETT, Chairman *KENNETH V. CHACE *MALCOLM G. CHACE, JR. DANIEL COWIN JOHN WILLIAM SCOTT *Member of Finance Committee OFFICERS KENNETH V. CHACE, President J. VERNE McKEnzIe, Vice President and Treasurer RALPH RIGBY, Vice President JOHN WILLIAM ScotT, Vice President GENERAL COUNSEL Ropes & GraY, Boston, Massachusetts AUDITORS PEAT, MARWICK, MITCHELL & Co. TRANSFER AGENT and REGISTRAR THE FIRST NATIONAL BANK OF BostoN, Boston, Massachusetts

[PAGE 32]

BERKSHIRE HATHAWAY INC. Execulive 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