1971 年伯克希尔完整年报

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CLEVELAND PUSLIC LIBRARY CORPORATION FILE BOSINESS INF. BUR BERKSHIRE HATHAWAY INC. 1971 ANNUAL REPORT TO THE STOCKHOLDERS (52 WEEKS ENDED JANUARY 1, 1972)

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Contents 1-3 Message from the Chairman 4 Accountants' Certificate Financial Statements: 5-10 Berkshire Hathaway Inc. and Consolidated Subsidiary Unconsolidated Subsidiaries: 11-16 Insurance Group 17-21 The Illinois National Bank & Trust Co. of Rockford

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Berkshire Hathaway Inc. To the Stockholders of Berkshire Hathaway Inc.: It is a pleasure to report that operating earnings in 1971, excluding capital gains, amounted to more than 14% of beginning shareholders' equity. This result - considerably above the average of American industry - was achieved in the face of inadequate earnings in our textile operation, making clear the benefits of redeployment of capital inaugurated five years ago. It will continue to be the objective of management to improve return on total capitalization (long term debt plus equity, as well as the return on equity capital. However, it should be realized that merely maintaining the present relatively high rate of return may well prove more difficult than was improvement from the very low levels of return which prevailed throughout most of the 1960's. Textile Operations We, in common with most of the textile industry, continued to struggle throughout 1971 with inadequate gross margins. Strong efforts to hammer down costs and a continuous search for less price-sensitive fabrics produced only marginal profits. However, without these efforts we would have operated substantially in the red. Employment was more stable throughout the year as our program to improve control of inventories achieved reasonable success. As mentioned last year, Ken Chace and his management group have been swimming against a strong industry tide. This negative environment has only caused them to intensify their efforts. Currently we are witnessing a mild industry pickup which we intend to maximize with our greatly strengthened sales force. With the improvement now seen in volume and mix of business, we would expect better profitability — although not of a dramatic nature — from our textile operation in 1972. Insurance Operations An unusual combination of factors - reduced auto accident frequency, sharply higher effective rates in large volume lines, and the absence of major catastrophes — produced an extraordinarily good year for the property and casualty insurance industry. We shared in these benefits, although they are not without their negative connotations. Our traditional business - and still our largest segment — is in the specialized policy or non- standard insured. When standard markets become tight because of unprofitable industry under- writing, we experience substantial volume increases as producers look to us. This was the condition several years ago, and largely accounts for the surge of direct volume experienced in 1970 and 1971. Now that underwriting has turned very profitable on an industry-wide basis, more companies are seeking the insureds they were rejecting a short while back and rates are being cut in some areas. We continue to have underwriting profitability as our primary goal and this may well mean a sub- stantial decrease in National Indemnity's direct volume during 1972. Jack Ringwalt and Phil Liesche continue to guide this operation in a manner matched by very few in the business.

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Our reinsurance business, which has been developed to a substantial operation in just two years by the outstanding efforts of George Young, faces much the same situation. We entered the reinsurance business late in 1969 at a time when rates had risen substantially and capacity was tight. The reinsur- ance industry was exceptionally profitable in 1971, and we are now seeing rate-cutting, as well as the formation of well-capitalized aggressive new competitors. These lower rates are frequently accom- panied by greater exposure. Against this background we expect to see our business curtailed somewhat in 1972. We set no volume goals in our insurance business generally — and certainly not in reinsurance — as virtually any volume can be achieved if profitability standards are ignored. When catastrophes occur and underwriting experience sours, we plan to have the resources available to handle the increasing volume which we will then expect to be available at proper prices. We inaugurated our "home-state" insurance operation in 1970 by the formation of Cornhusker Casualty Company. To date, this has worked well from both a marketing and an underwriting standpoint. We have therefore further developed this approach by the formation of Lakeland Fire & Casualty Company in Minnesota during 1971, and Texas United Insurance in 1972. Each of these companies will devote its entire efforts to a single state seeking to bring to the agents and insureds of its area a combination of large company capability and small company accessibility and sensitivity. John Ringwalt has been in overall charge of this operation since inception. Combining hard work with imagination and intelligence, he has transformed an idea into a well organized business. The "home-state" companies are still very small, accounting for a little over $1.5 million in premium volume during 1971. It looks as though this volume will more than double in 1972 and we will develop a more creditable base upon which to evaluate underwriting performance. A highlight of 1971 was the acquisition of Home & Automobile Insurance Company, located in Chicago. This company was built by Victor Raab from a small initial investment into a major auto insurer in Cook County, writing about $7.5 million in premium volume during 1971. Vic is cut from the same cloth as Jack Ringwalt and Gene Abegg, with a talent for operating profitably accom- panied by enthusiasm for his business. These three men have built their companies from scratch and. after selling their ownership position for cash, retain every bit of the proprietary interest and pride that they have always had. While Vic has multiplied the original equity of Home & Auto many times since its founding, his ideas and talents have always been circumscribed by his capital base. We have added capital funds to the company, which will enable it to establish branch operations extending its highly-concentrated and on-the-spot marketing and claims approach to other densely populated areas. All in all, it is questionable whether volume added by Home & Auto, plus the "home-state" business in 1972, will offset possible declines in direct and reinsurance business of National Indemnity Company. However, our large volume gains in 1970 and 1971 brought in additional funds for invest- ment at a time of high interest rates, which will be of continuing benefit in future years. Thus, despite the unimpressive prospects regarding premium volume, the outlook for investment income and overall earnings from insurance in 1972 is reasonably good. Banking Operations Our banking subsidiary, The Illinois National Bank & Trust Company, continued to lead its industry as measured by earnings as a percentage of deposits. In 1971, Illinois National earned well over 2% after tax on average deposits while (1) not using borrowed funds except for very occasional 2

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reserve balancing transactions; (2) maintaining a liquidity position far above average; (3) recording loan losses far below average; and (4) utilizing a mix of over 50% time deposits with all consumer savings accounts receiving maximum permitted interest rates throughout the year. This reflects a superb management job by Gene Abegg and Bob Kline. Interest rates received on loans and investments were down substantially throughout the banking industry during 1971. In the last few years, Illinois National's mix of deposits has moved considerably more than the industry average away from demand money to much more expensive time money. For example, interest paid on deposits has gone from under $1.7 million in 1969 to over $2.7 million in 1971. Nevertheless, the unusual profitability of the Bank has been maintained. Marketing efforts were intensified during the year, with excellent results. With interest rates even lower now than in 1971, the banking industry is going to have trouble achieving gains in earnings during 1972. Our deposit gains at Illinois National continue to come in the time money area, which produces only very marginal incremental income at present. It will take very close cost control to enable Illinois National to maintain its 1971 level of earnings during 1972. Financial Because of the volume gains being experienced by our insurance subsidiaries early in 1971, we re-cast Berkshire Hathaway's bank loan so as to provide those companies with additional capital Home & Auto occurred later in the year. funds. This financing turned out to be particularly propitious when the opportunity to purchase Our insurance and banking possess a fiduciary relationship with the public. We retain a fundamental belief in operating from a very strongly financed position so as to be in a position to unquestionably fulfill our responsibilities. Thus, we will continue to map our financial future for maximum financial strength in our subsidiaries as well as at the parent company level. Warren E. Buffett March 13, 1972 Chairman of the Board 3

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PEAT, MARWICK, MITCHELL & Co. CERTIFIED PUBLIC ACCOUNTANTS 40 WESTMINSTER STREET PROVIDENCE, RHODE ISLAND 02903 The Board of Directors and Stockholders Berkshire Hathaway Inc.: We have examined the consolidated balance sheets of Berkshire of assets and liabilities of the Berkshire Hathaway Inc. - Insurance Hathaway Inc. as of January 1, 1972 and January 2, 1971, the statements tional Bank & Trust Co. of Rockford and subsidiaries as of December 31, tained earnings and changes in financial position of Berkshire Hathaway 1971 and 1970, and the related consolidated statements of earnings, re- the statements of income and realized investment gains, paid-in, and un- Inc. for the 52 week periods ended January 1, 1972 and January 2, 1971; assigned surplus and changes in financial position of the Berkshire Hathaway Inc. - Insurance Group for the years ended December 31, 1971 and 1970; and the consolidated statements of income, changes in capital accounts and changes in financial position of The Illinois National Bank and Trust Co. of Rockford and subsidiaries for the years ended Decem- ber 31, 1971 and 1970. Our examination was made in accordance with gen- of the accounting records and such other auditing procedures as we con- erally accepted auditing standards, and accordingly included such tests sidered necessary in the circumstances. In our opinion, such financial statements present fairly the financial position of Berkshire Hathaway Inc., the Berkshire Hathaway Inc. - Insurance Group and The Illinois National Bank & Trust Co. of and January 2, 1971 in the case of Berkshire Hathaway Inc.) and the re- Rockford and subsidiaries at December 31, 1971 and 1970 (January 1, 1972 sults of their operations and changes in financial position for the years ended December 31, 1971 and 1970 (the 52 week periods ended Janu- ary 1, 1972 and January 2, 1971 in the case of Berkshire Hathaway Inc.) in accordance with generally accepted accounting principles applied on a consistent basis. Peat Marwick Mitchell & Co. March 10, 1972 4

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Berkshire Hathaway Inc. CONSOLIDATED BALANCE SHEETS January 1, 1972 and January 2, 1971 ASSETS Jan. 1, 1972 Jan. 2, 1971 Current assets: Cash and short-term investments, at cost which approximates market value $ 962,010 $ 1,351,567 Accounts receivable (less allowance for doubtful accounts: 1972—$197,708; 1971 — $215,191) 5,099,853 3,916,332 Inventories, at the lower of cost (first-in, first-out) or market (note 3) 6,030,647 8,471,798 Prepaid and deferred charges 110,290 200,341 Total current assets 12,202,800 13,940,038 Property, plant, and equipment (note 4): Property comprising land, buildings, machinery and equipment Less accumulated depreciation and amortization 14,941,903 14,919,300 12,732,699 12,425,525 Investment in unconsolidated subsidiaries (notes 1 and 2): Net property, plant and equipment. 2,209,204 2,493,775 Insurance subsidiaries 33,501,882 19,064,663 Bank subsidiary 20,116,846 Other subsidiaries 19,877,908 1,258,832 1,261,000 Total investment in unconsolidated subsidiaries 54,877,560 40,203,571 $69,289,564 $56,637,384 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current installments of long-term debt . $ $ 1,500,000 Accounts payable and accrued expenses . 3,305,390 2,014,843 Accrued Federal, State, and local taxes 174,009 Total current liabilities 247,908 3,479,399 3,762,751 Long-term debt, excluding current installments: Note payable to banks (note 7) 9,000,000 3,750,000 7½ % subordinated debentures (note 8) 641,300 641,300 Total long-term debt 9,641,300 4,391,300 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 51,898,505 44.212,973 56,986,240 49,300,708 Less 37,978 shares of common stock in treasury, at cost Total stockholders' equity . 817,375 817,375 56,168,865 48,483,333 $69,289,564 $56,637,384 Other information (notes 1, 6 and 9) See accompanying notes to consolidated financial statements. 5

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Berkshire Hathaway Inc. CONSOLIDATED STATEMENTS OF EARNINGS 52 weeks ended January 1, 1972 Current and deferred Revenues (expenses) before Federal income taxes Federal income taxes (expense) benefit (See Note 5) earnings Net Textile operations Net sales $26,011,267 Cost of sales, administrative and selling expense 25,777,924 Earnings from textile operations $ 233,343 (33,188) 200,155 Interest and dividends Interest and dividend income . 81,273 Interest (expense) (594,885) Net interest expense (513,612) (513,612) Corporate administrative costs (134,676) (134,676) Equity in earnings (excluding realized invest- ment gains) of unconsolidated subsidiaries Insurance subsidiaries 6,433,482 (1,211,620) 5,221,862 Bank subsidiary Earnings before investment gains and extraor- 2,273,391 (106,211) 2,167,180 dinary item 8,291,928 (1,351,019) 6,940,909 Investment gains Insurance subsidiaries 1,027,287 (308,262) Bank subsidiary 719,025 34,391 (8,793) 25,598 Net investment gains 1,061,678 (317,055) 744,623 Earnings before extraordinary item 9,353,606 (1,668,074) 7,685,532 Extraordinary item - gain on liquidation or retirement of textile properties Net earnings $9,353,606 (1,668,074) 7,685,532 mon stock Net earnings per share of outstanding com- Earnings before investment gains and extraor- Investment gains dinary item $7.09 .76 Extraordinary item Net earnings $7.85 See accompanying notes to consolidated financial statements. 6

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52 weeks ended January 2, 1971 Federal income taxes Current and deferred Revenues (expenses) before Federal income taxes (expense) benefit (See Note 5) earnings Net Textile operations $24,568,567 . Net sales Cost of sales, administrative and selling (24,461,279) $ 107,288 (62,541) 44,747 expense Earnings from textile operations Interest and dividends 60,285 Interest and dividend income (580,835) (520,550) 144,910 . Interest (expense) (375,640) Net interest expense (63,443) 17,557 (45,886) Corporate administrative costs Equity in earnings (excluding realized invest- ment gains) of unconsolidated subsidiaries 2,638,710 (586,837) 2,051,873 Insurance subsidiaries 2,643,039 (28,915) 2,614,124 Bank subsidiary Earnings before investment gains and ex- 4,805,044 (515,826) 4,289,218 traordinary item Investment gains (301,047) 358,819 (301,047) Insurance subsidiaries 358,819 57,772 Net investment gains Bank subsidiary 57,772 4,862,816 (515,826) 4,346,990 Earnings before extraordinary item 281,839 $5,144,655 (63,351) 218,488 Extraordinary item - gain on liquidation or retirement of textile properties (579,177) 4,565,478 Net earnings Net earnings per share of outstanding com- mon stock Earnings before investment gains and ex- $4.38 traordinary item .22 .06 Investment gains $4.66 Extraordinary item Net earnings 7

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Berkshire Hathaway Inc. CONSOLIDATED STATEMENTS OF RETAINED EARNINGS 52 week periods ended January 1, 1972 and January 2, 1971 Jan. 1, 1972 Jan. 2, 1971 Balance January 2, 1971 . . $44,212,973 $39,647,495 Net earnings 7,685,532 4,565,478 Balance January 1, 1972. $51,898,505 $44,212,973 CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION 52 week periods ended January 1, 1972 and January 2, 1971 Funds provided: Jan. 1, 1972 Jan. 2, 1971 Net earnings $ 7,685,532 $4,565,478 Nonfund items: Add depreciation and amortization 459,746 520,235 Deduct gain on liquidation or retirement of textile properties (281,839) Deduct equity in undistributed earnings of unconsolidated subsidiaries (6,179,824) (2,769,929) Total nonfund items (5,720,078 (2,531,533 Funds derived from operations 1,965,454 2,033,945 Long-term debt financing 9,000,000 Proceeds from sale of textile properties 532,477 Other 2,167 10,967,621 2,566,422 Funds used: Investment in unconsolidated subsidiaries 8,496,332 1,989,271 Repayment of long-term debt 3,750,000 1,500,000 Additions to property and equipment, net . 175,175 250,806 Purchase of treasury stock 205 12,421,507 3,740,282 (Decrease) in working capital ($ 1,453,886) ($ 1,173,860) Changes in working capital: Increase (decrease) in current assets: Cash and short-term investments ($ 389,557) ($ 735,433) Receivables 1,183,521 (2,480,689) Inventories (2,441,151) (797,780) Decrease (increase) in current liabilities: Prepayments, etc. (90,051) (144,384) Current installments of long-term debt 1,500,000 Accounts payable and accrued expenses (1,290,547) 1,789,479 Accrued Federal, State and local taxes 73,899 1,194,947 (Decrease) in working capital ($ 1,453,886 (S 1,173,860) See accompanying notes to consolidated financial statements. 8

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Berkshire Hathaway Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS January 1, 1972 and January 2, 1971 (1) Principles of Consolidation and income accounts until realized. This results in a Subsidiaries Not Consolidated fluctuation in the difference between the Company's The accounts of Berkshire Hathaway Inc., the parent carrying value and its equity in the book values of company, are consolidated with the accounts of Bourne those subsidiaries. Mills of Canada, Ltd., a wholly-owned Canadian textile On January 1, 1972, the Company held cash and sales subsidiary. Intercompany balances and trans- short-term investments of approximately $3,000,000 actions are eliminated in consolidation. which were transferred on January 10, 1972 to insur- The Company owns 100% of the outstanding stock ance subsidiaries as additional capital. Such transfer has of National Fire & Marine Insurance Company and sub- been given retroactive effect in the current balance stantially 100% of the outstanding stock of National sheets of the Company and the insurance subsidiaries. Indemnity Company, both casualty insurance under- Detailed financial statements of the Berkshire writers. National Indemnity Company has three wholly- Hathaway Inc. insurance group and The Illinois National owned subsidiaries engaged in the casualty insurance Bank & Trust Co. of Rockford and Subsidiaries (the bank business; Cornhusker Casualty Company, formed in subsidiary) are presented elsewhere herein. 1970; Lakeland Fire and Casualty Company, formed in 1971; Home and Automobile Insurance Company, pur- (3) Inventories chased in 1971. Berkshire Hathaway Inc. also owns A summary of inventories follows: approximately 98% of the outstanding stock of The Stock in process Raw materials and supplies Jan. 1, 1972 $ 510,394 Jan. 2, 1971 Illinois National Bank and Trust Co. of Rockford as a Cloth 1,331,472 $ 543,660 result of purchase in 1969. The investments of Berkshire $6.030.647 4,188,781 1,425,216 $8,471,798 6,502,922 Hathaway Inc. in its insurance and bank subsidiaries are carried at cost plus the equity in accumulated undistrib- uted earnings since acquisition. Berkshire Hathaway Inc. (4) Property, Plant and Equipment records as income its share of earnings and realized The Company's general policy is to provide for de- investment gains or losses of these subsidiaries. preciation over the estimated useful lives as allowed by Three immaterial subsidiaries (an insurance agency, taxing authorities. Except for new additions subsequent a printing and a publishing operation) have not been to 1965 which are depreciated on the double-declining consolidated and investments therein are carried at cost. balance method, depreciation is provided on the straight- (2) Equity in Book Values of Subsidiaries Not line basis. The composition of property, plant and equip- Consolidated ment is shown below: Land Jan. 1, 1972 Jan. 2, 1971 The carrying values of $54,877,560 at January 1, 1972 Machinery and equipment Buildings 2,345.977 87,116 $ 2,345,977 87,116 and $40,203,571 at January 2, 1971 for all unconsolidated subsidiaries were, respectively, $911,000 and $2,124,000 Furniture and fixtures and 11,873,592 11,891,239 in excess of the Company's equity in book values re- leasehold improvements 635,218 14,941.903 594,968 flected in the accounts of the subsidiaries as of those Less accumulated depreciation 14,919,300 dates. No part of the excess has been allocated between tangible and intangible assets as the effect on income of and amortization 12.732.699 $ 2,209,204 $ 2,493,775 12,425,525 such allocation would not be material and the excess is not being amortized as management believes its value Depreciation expense recorded in 1971 was $459,746 is not declining. and $520,235 in 1970. Book values for insurance subsidiaries reflect their (5) Income Taxes stock investment portfolios at market value, whereas investment gains or losses are not recognized in their The Company and all of its subsidiaries eligible for inclusion have joined in the filing of consolidated Federal 9

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Berkshire Hathaway Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued tax returns since 1968. The resulting liability for 1971 become secured; the Company will maintain $10,000,000 was apportioned to the members in ratio of their sepa- in "tangible asset value" (defined to mean, generally, net rate return liabilities. Deferred income tax expense of assets other than investment in subsidiaries plus insurance subsidiaries, relating to prepaid policy acqui- term debt outstanding); the Company will maintain sition costs not reportable as income for purposes of $45,000,000 net worth; no equity distributions, which Federal income taxes, is not apportioned but is charged term includes dividends, will be made in an amount to income of the insurance subsidiaries. The parent's exceeding 50% of net income accumulations after 1969; share, based on its equity, of such deferred tax expense insurance subsidiaries will maintain minimum net worth was approximately $580,000 for 1971 and $872,000 of $19,750,000; the bank subsidiary will maintain a for 1970. minimum net worth of $17,000,000. For 1970 the consolidation for U. S. tax purposes The agreement also limits the Company's ability, resulted in a reporting of a U. S. net consolidated oper- without consent of the banks, to pledge or dispose of any ating loss. In the 1970 return, tax losses of the parent substantial portion of its assets, to incur additional in- company and insurance subsidiaries were offset against debtedness for borrowed money, or to enter into ordinary taxable income of the bank subsidiary, and business combinations; subsidiaries may not issue capital losses of the insurance subsidiaries were offset in additional shares of their capital stock, options therefor, consolidation against capital gains of the parent and bank or securities convertible thereto except pro rata to subsidiary. For these reasons, the tax effects in 1970 existing shareholders' nor may the Company or any were not proportionate to the pretax income items subsidiary sell, transfer or otherwise dispose of the reflected in the 1970 statement of earnings. stock of a subsidiary. (6) Pension Plan The Company has a noncontributory pension plan (8) 72% Subordinated Debentures for salaried employees. Benefits are funded through the Debentures bear interest at the rate of 7½ % payable medium of an independently trusteed fund, the assets February 1 and August 1 and will be due on August 1, of which exceed the actuarially computed vested and 1987. The debentures are not secured by any lien and nonvested benefits. Pension expense of $26,000 was are not convertible; they are subordinated to senior accrued for 1971 and also for 1970, which amount repre- indebtedness which includes indebtedness of the Com- sents approximate normal costs less amortization of the pany for money borrowed. The debentures may, at the overfunded position at August 1, 1968 on a ten-year Company's option, be redeemed at 105% through basis. No amounts were actually contributed to the July 31, 1973 and thereafter at 100%. The indenture Trust during either year. under which the debentures are issued requires the (7) Long-Term Debt Company to provide for the retirement by redemption, The Company was liable under the terms of a May through a sinking fund, on August 1 in each of the years 1971 loan agreement with certain banks for $9,000,000 1973 to and including 1986, of one-fifteenth of the total as of January 1, 1972. The agreement calls for repayment amount of debentures issued. Redemption through the in twelve quarterly principal installments of $500,000, sinking fund shall be at principal amount plus accrued the first of which will be payable on June 30, 1973, plus interest. a final installment of $3,000,000 on June 30, 1976. (9) "One-Bank Holding Company" Status Proceeds of the loan were used to prepay $4,875,000 The Company is a bank holding company under balance of a $7,500,000 prior term loan then outstanding Federal legislation enacted in 1970. It has filed with the to the same banks, the balance of the proceeds were for Federal Reserve Board an irrevocable election to divest working capital and investment in subsidiaries. Interest of its holdings in The Illinois National Bank & Trust Co. is payable quarterly in arrears at ½% over the prime rate for 90-day commercial loans of The First National has been made as to how it will effect such divestiture, of Rockford prior to January 1, 1981. No determination Bank of Boston which serves as the agent bank. and so long as the Company controls the bank, it is The agreement contains provisions, among others, subject to the restrictions imposed upon it by the that: the banks may at any time require the debt to Federal Bank Holding Company Act. 10

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Berkshire Hathaway Inc. INSURANCE GROUP Financial Statements 1971 and 1970 11

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Berkshire Hathaway Inc. INSURANCE GROUP STATEMENTS OF ASSETS AND LIABILITIES December 31, 1971 and 1970 ASSETS 1971 1970 Bonds, at amortized value (note 3) Stocks, at market value: $ 84,079,023 $ 51,609.294 Common (cost, 1971, $14,295,089; 1970, S9,854,347) Preferred (cost, 1971, S983,247; 1970, $985,937) 15,804,273 998,631 10,254,310 1,041,065 Real estate, equipment and furniture, at cost less allowance for depreciation 16,802,904 11,295,375 Cash and bank deposits. 1971, $342,808; 1970, $264,401 (note 4) 1,312,772 Agents' balances and premiums in course of collection less ceded reinsur- 4,563,077 1,191,235 812,474 Reinsurance recoverable on loss payments ance balances payable of 1971, $570,071; 1970, $531,069 7,131,037 Investment income due and accrued 440,396 3,036,395 Federal income taxes recoverable (note 5) Amounts due from sale of securities 1,500,148 206,513 898,223 258,479 98,350 Prepaid acquisition costs Other 172,984 Excess cost over market value of subsidiary 6,771,656 55,984 $123,313,932 333,422 4,990,146 : 74,245,955 LIABILITIES, CAPITAL STOCK AND SURPLUS Unearned premiums (note 7) Losses and loss adjustment expenses (note 6) 52,990,625 25,516,268 : 29,758,739 Contingent commissions Funds held under reinsurance treaties 1,025,737 17,482,957 268,151 516,720 Taxes, licenses and fees Other expenses 347,788 331,728 908.500 134,622 Federal income taxes: Agents' and policyholders' deposits 787,429 940,979 781,218 Current Amounts due for purchase of securities Deferred 3,742,611 1,002,500 1,331,182 2,527,588 Other liabilities Mortgage and contract payable on rental property 140,160 9,845 1,894,590 19,014 88,070,796 23,982 Capital stock and surplus (note 8): 54,412,137 Common stock of $10 par value per share. Authorized 500,000 shares 1971, issued 400,000 shares. Authorized Common stock of $100 par value per share. 250,000 shares 1970; issued 250,000 shares 4,000,000 2,500,000 Authorized 20,000 shares 1971; 10,000 shares 1970; issued 20,000 Paid-in surplus shares 1971; 10,000 shares 1970 2,000,000 21,391,886 7,851,250 1,000,000 Unassigned surplus 14,482,568 1,851,250 35,243,136 Other information (notes 1, 2, and 9) $123,313,932 74,245,955 19,833,818 See notes to financial statements of Berkshire Hathaway Inc. - Insurance Group. 12

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Berkshire Hathaway Inc. INSURANCE GROUP STATEMENTS OF INCOME AND REALIZED INVESTMENT GAINS Years ended December 31, 1971 and 1970 Underwriting income: 1971 1970 Net premiums written $66,455,532 $ 45,086,095 Less increase in unearned premiums Premiums earned 5,588,326 5,913,583 60,867,206 39,172,512 Losses and loss expenses incurred 40,783,230 26,857.814 20,083,976 12,314,698 Underwriting expenses: Commissions and brokerage 15,331,620 10,995,200 Salaries and other compensation Taxes, licenses and fees . 1,667,167 1,182,607 Other underwriting expenses 1,325,562 886,085 Increase in prepaid acquisition costs 1,667.362 1,232,287 (1,316,962) (1,651,156) 18,674,749 12,645,023 Net underwriting gain (loss) 1,409,227 (330,325) Investment income: Interest on bonds Dividends on stock 4,429,701 2,320,228 Real estate income 595,041 561,879 221,085 195,233 5,245,827 3,077,340 Investment expenses 272,199 4,973,628 2,870,173 207,167 Profit from underwriting and investments 6,382,855 2,539,848 Other income 53,910 98 Income before Federal income taxes and realized gain or loss on investments 6,436,765 2,539,946 Federal income taxes (credit) (note 5): Current 625,647 Deferred (276,567) 586,565 1,212,212 709,446 432,879 Income before realized gain or loss on investments 5,224,553 2,107,067 Realized gain (loss) on investments 1,027,764 (301,166) Less Federal income taxes on gain 308,405 719,359 (301,166) Net income $ 5,943,912 $ 1,805,901 See notes to financial statements of Berkshire Hathaway Inc. - Insurance Group. 13

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Berkshire Hathaway Inc. INSURANCE GROUP STATEMENTS OF CHANGES IN FINANCIAL POSITION Years ended December 31, 1971 and 1970 Funds provided: 1971 1970 From operations: Net earnings including investment realized gains of $1,027,764; 1970, Loss $301,166 $ 5,943,912 $ 1,805,901 Charges (credits) to income not requiring funds: Increase in loss and loss expense reserves 23,231,886 7,599,378 Increase in unearned premium reserves . 8,033,311 6,624,378 Increase in funds held under reinsurance treaties 509,017 610,596 Increase in deferred taxes 874,346 709,446 Increase in current income taxes 1,260,979 Increase in accrued taxes and expenses 276,049 233,780 (Increase) decrease in agents' balances and uncollected premiums, net (4,094,642) 202,819 Increase in prepaid insurance acquisition costs (1,781,510) (1,651,156) Depreciation 78,407 67,173 Increase in accrued investment income (717,159) (353,872) (Increase) decrease in reinsurance recoverable loss payments (440,396) 302,668 Decrease (increase) in agents' and policyholders deposits (153,550) 467,801 Other, net 30,311 17,201 Funds provided from operations 33,050.961 16,636,113 Proceeds from sale of capital stock 8,500,000 2,000,000 From investments sold or matured: Bonds 73,402,063 18,968,089 Common stocks 2,362,779 5,274,745 Preferred stocks 163,190 902,857 75,928,032 25,145,691 Total funds provided S117,478,993 $43,781,804 Funds used: Cost of investments purchased: Bonds $106,166,036 $37,513,192 Common stocks 6,829,009 5,952,789 Preferred stocks 160,499 171,468 113,155,544 43,637,449 Payments on mortgage note payable 9,169 9,168 Purchase of equipment, net of disposals 199,944 110,645 Increase in cash 3,750,603 24,542 Excess of purchase cost over market value of assets of acquired subsidiary 363,733 $117,478,993 $43,781,804 See notes to financial statements of Berkshire Hathaway Inc.

• Insurance Group.

14

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Berkshire Hathaway Inc. INSURANCE GROUP STATEMENTS OF PAID-IN AND UNASSIGNED SURPLUS Years Ended December 31, 1971 and 1970 PAID-IN SURPLUS 1971 1970 Beginning of Year $ 1,851,250 351,250 Excess of proceeds over par value of capital stock issued. 6,000,000 1,500,000 End of year $ 7,851,250 $ 1,851,250 UNASSIGNED SURPLUS Beginning of year $14,482,568 $11,303,670 Net income . 5,943,912 1,805,901 Increase in net unrealized appreciation of investments 1,306,083 1,505,757 Increase in deferred income taxes on unrealized appreciation of investments (340,677) (132,760) End of Year $21,391,886 $14,482,568 See notes to financial statements of Berkshire Hathaway Inc.— Insurance Group Berkshire Hathaway Inc. INSURANCE GROUP NOTES TO FINANCIAL STATEMENTS December 31, 1971 and 1970 (1) Basis of Presentation aggregate amount of $2,013,620. This resulted in an The financial statements of the Berkshire Hathaway excess of cost over net assets at the date of acquisition Inc. Insurance Group include those of National Indemity straight-line basis over a three-year period. The opera- in the amount of $363,733, which is being amortized on a its wholly-owned subsidiaries, plus those of National Company (a subsidiary of Berkshire Hathaway Inc.), and tions of Home and Automobile Insurance Company for Fire & Marine Insurance Company, owned 100% by the three months ended December 31, 1971 are reflected Berkshire Hathaway Inc., on a combined basis, with in the combined statements of income for 1971. eliminated. significant intercompany transactions and balances (3) Bonds (2) Organization and Purchase of Bonds are carried at amortized cost in the accom- Bonds with amortized costs of $3,555,219 and $2,397,309 panying combined statements of assets and liabilities. During 1970 National Indemnity Company formed were on deposit with insurance departments of various Cornhusker Casualty Company and in 1971 formed states at December 31, 1971 and 1970, respectively. Lakeland Fire and Casualty Company. In exchange for assets, National Indemnity Company received 100% (4) Real Estate and Equipment of the outstanding stock of both companies. Real estate consists of the Home Office Building and In addition, National Indemnity Company purchased related real estate owned by National Indemnity Com- 100% of the outstanding stock of Home and Automobile pany and is included in the statements of assets and Insurance Company on September 30, 1971 for an liabilities at cost less accumulated depreciation of 15

[PAGE 18]

Berkshire Hathaway Inc. INSURANCE GROUP NOTES TO FINANCIAL STATEMENTS, Continued $300,443 and $264,401 at December 31, 1971 and 1970 respectively. Provision for depreciation of real estate with other insurers in the amounts of $6,709,550 and and equipment is based upon the estimated useful lives $2,791,815 at December 31, 1971 and 1970, respectively. of the building and equipment, and is computed under (7) Unearned Premiums the straight-line method. During 1971 and 1970, opera- Unearned premiums are computed on the monthly tions were charged $78,407 and S67,173, respectively for depreciation. retrospectively rated policies and are stated after deduc- pro rata basis and include provisions for refunds under (5) Federal Income Taxes tion on account of reinsurance placed with other insurers Hathaway Inc. in filing a consolidated Federal income The Insurance Companies join with Berkshire in the amounts of $5,738,332 and $3,666,374 at De- cember 31, 1971 and 1970, respectively. tax return. Federal income tax recoverable included in the group statements of assets and liabilities at De- (8) Stockholders' Equity able by the Insurance Companies from carryback of cember 31, 1970 represented the amount of tax recover- during the two years ended December 31, 1971: The following additional common stock was sold loss reported for 1970. An application for refund was their apportioned share of a consolidated net operating National Indemnity Company, $10 par value common stock: filed and the refund received during 1971. Separate November 1970 — 50,000 shares for $2,000,000 Federal income tax returns filed by the Insurance Com- May 1971

• 100,000 shares for $4,500,000

the Internal Revenue Service (with the exception of panies for years through 1968 have been examined by January 1972 - 50,000 shares for $2,000,000 National Fire & Marine Insurance Company, $100 par National Fire & Marine Insurance Company which has value common stock: been examined through 1964), and certain deficiencies April 1971

• 5,000 shares for $1,000,000

have been proposed. The companies are not fully in January 1972 — 5,000 shares for $1,000,000 agreement with the proposed deficiencies, but any addi- have been retroactively reflected as of December 31, The 1972 additions were made on January 12 and tional Federal taxes resulting from such deficiencies would not have a significant effect on the financial 1971 in the accompanying financial statements. statements. various insurance departments of the states in which Surplus is restricted for dividend purposes by the Home and Automobile Insurance Company filed separate Federal income tax returns for its operations the companies do business. months ended December 31, 1971 will be included in through September 30, 1971. Its income for the three (9) Subsequent Event the aforementioned consolidated tax return. formed Texas United Insurance Company as a wholly- On March 1, 1972 National Indemnity Company (6) Unpaid Losses and Loss Expenses owned subsidiary. In exchange for cash and securities is after the deduction of amounts for reinsurance placed The net reserve for unpaid losses and loss expenses in the amount of $1,000,000 the Company received all of the issued common stock. 16

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Berkshire Hathaway Inc. BANK SUBSIDIARY The Illinois National Bank & Trust Co. of Rockford Financial Statements 1971 and 1970 17

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Berkshire Hathaway Inc. BANK SUBSIDIARY The Illinois National Bank & Trust Co. of Rockford AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CONDITION December 31, 1971 and 1970 ASSETS 1971 1970 Cash and due from banks $ 17,832,686 $ 15,156,585 Investment securities (note 2): United States Government obligations 12,633,150 15,128,838 Obligations of states and political subdivisions 42,884,431 36,626,896 Other securities 5,864,759 210,000 Bank premises and equipment, at cost less accumulated depreciation (note 4) Loans (note 3) 54,031,811 51,183,296 Accrued interest receivable and other assets 1,522,546 1,252,113 1,624,221 1,396,433 $136,021,496 $121,326,269 LIABILITIES AND CAPITAL ACCOUNTS Demand deposits $ 51,208,396 $ 52,478,179 Time deposits 64,639,857 49,095,130 Total deposits 115,848,253 101,573,309 Accrued taxes and other expenses 813,769 679,122 Total liabilities 116,662,022 102,252,431 Reserve for loan losses (note 5) 854,671 860,445 Capital accounts: Common stock, $20 par value. Authorized and issued 250,000 shares (100,000 in 1970) (note 8) . 5,000,000 2,000,000 Surplus 5,000,000 5,000,000 Undivided profits 7,503,803 10,137,393 Reserve for contingencies 1,001,000 1,001,000 Reserve for asset re-evaluation 75,000 18,504,803 18,213,393 Total capital accounts $136,021,496 $121,326,269 Other information (notes 1 and 6) See accompanying notes to consolidated financial statements of Bank Subsidiary. 18

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Berkshire Hathaway Inc. BANK SUBSIDIARY The Illinois National Bank & Trust Co. of Rockford AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME Years ended December 31, 1971 and 1970 Operating income: 1971 1970 Interest and fees on loans Income on Federal funds sold $4,006,094 $4,129,567 Interest and dividends on: 109,271 316,798 United States Government obligations 708,058 Obligations of states and political subdivisions 568,926 2,093,649 1,717,251 Trust department 227,684 12,600 Service charges on deposit accounts 336,362 280,038 Other 137,345 151,551 Total operating income 306,616 354,321 7,925,079 7,531,057 Operating expenses: Salaries Pensions, profit sharing, and other employee benefits 1,351,500 1,298,380 Interest on deposits 137,717 151,391 Interest on Federal funds purchased 2,732,651 2,028,709 Net occupancy expense of bank premises 1,632 3,573 Equipment rentals, depreciation, and maintenance 329,305 358,468 Provision for loan losses (note 5) . 288,761 271,978 Other 35,900 720,702 51,790 Total operating expenses 661,286 5,598,168 Income before income taxes and securities gains 4,825,575 2,326,911 2,705,482 Applicable income taxes (note 7): Current Deferred 121,000 (12,288) 29,599 Income before securities gains Total applicable income taxes 108,712 29,599 Securities gains 2,218,199 2,675,883 Applicable income taxes (note 7) 35,201 367,297 Net income Securities gains, net of applicable income taxes. (9,000) 26,201 367,297 $2,244,400 $3,043,180 Income per share (based on 250,000 shares during 1971 and 1970) (note 8): Net income Income before securities gains $8.87 $10.70 8.98 12.17 See accompanying notes to consolidated financial statements of Bank Subsidiary. 19

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Berkshire Hathaway Inc. BANK SUBSIDIARY The Illinois National Bank & Trust Co. of Rockford AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN CAPITAL ACCOUNTS Years Ended December 31, 1971 and 1970 Common stock $2,000,000 Surplus Undivided profits contingencies Reserve for for asset re- Reserve evaluation Balance, January 1, 1970 Add: $5,000,000 $9,119,509 $1,001,000 $75,000 Less: Net income 3,043,180 Provision to reserve for loan Cash dividends (2,000,000) losses profits, net of tax (note 5) from undivided (25,296) Balance, December 31, 1970 Add: 2,000,000 5,000,000 10,137,393 1,001,000 75,000 Excess of loan loss provision Net income 2,244,400 over allowable tor tax pur Other Joses, net of tax (note 5) 18,668 Less: 28,342 Transfer to common stock related Cash dividends (2,000,000) Transter to surplus to stock dividend (note 8) 3,000,000 (3,000,000) Transfer to undivided profits 3,000,000 (3,000,000) 75,000 (75,000) Balance, December 31, 1971 $5,000,000 $5,000,000 $7,503,803 $1,001,000 See accompanying notes to consolidated financial statements of Bank Subsidiary. CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION Funds provided for investment: Years ended December 31, 1971 and 1970 Increase in: 1971 1970 Capital funds: Net income Other, net Cash dividends declared. $ 2,244,400 (2,000,000) $3,043,180 47,010 (2,000,000) (25,296) Net changes in capital funds • 291,410 1,017,884 Deposits Decrease in: Other, net 14,274,944 580,866 2,018,491 368,746 Cash and due from banks 4,761,076 Total $15,147,220 $8,166,197 Funds used: Invested in earning assets: Loans Investment securities $ 2,844,218 Direct lease equipment 9,416,606 $2,953,822 89,430 4,522,977 374,569 12,350,254 7,851,368 ncrease in cash and due from bank dditions to bank premises and equipment 120,865 Other, net 2,676,101 31,667 283,162 Total $15,147,220 $8,166,197 See accompanying notes to consolidated financial statements of Bank Subsidiary. 20

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Berkshire Hathaway Inc. BANK SUBSIDIARY The Illinois National Bank & Trust Co. of Rockford AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) Basis of Presentation December 31, 1971 and 1970 accounts of The Illinois National Bank and Trust Co. of These consolidated financial statements include the 1971 1970 Provision charged to: Balance at beginning of year $860,445 $800,271 its wholly-owned subsidiaries, Brown Building Corpo- Rockford (a subsidiary of Berkshire Hathaway Inc.) and Undivided profits Operating expenses 35,900 51,790 896,345 902,563 50,502 ration and Illinois National Safe Deposit Company. All nated in consolidation. significant intercompany transactions have been elimi- Less loans charged off recoveries of $29,232 in 1971 net of Transfer to undivided profits (i) and $33,844 in 1970 35,900 5.774 42,118 (2) Investment Securities Balance at end of year $854,671 $860,445 amortization of premium. The approximate market value Investment securities are stated at cost, adjusted for (1) Provision charged to operating expenses not deduct- ible for tax purposes. Transferred to undivided of investments at December 31, 1971 and 1970 was profits net of tax, in accordance with regulations $64,042,000 and $52,440,000, respectively. of the Comptroller of the Currency. Investment securities of $9,136,472 and $9,126,786 (6) Pension and Profit-Sharing Plans pledged to secure public deposits and other purposes at December 31, 1971 and 1970, respectively, were a profit-sharing plan for all officers and employees with The Bank has a noncontributory pension plan and as required or permitted by law. 1971 was $3,951; no contribution was required for 1970. two full years of service. The pension contribution for (3) Loans in 1971 and 1970, respectively. The profit-sharing expense was $111,395 and $111,496 consumer credit loan payments. Unearned discount was Loans have been reduced by unearned discount and value of the pension trust assets exceeded the actuarial As of January 1, 1971 and January 1, 1970, the market December 31, 1970. Consumer credit loan payments $1,934,534 on December 31, 1971 and $2,185,639 on values of the vested benefits of the participants. totaled $7,104,662 on December 31, 1971 and $10,901,329 (7) Federal Income Taxes on December 31, 1970. on a consolidated basis with its parent, Berkshire The Bank's Federal income tax returns are prepared (4) Bank Premises and Equipment consolidation is recorded as a reduction of the current Hathaway Inc. The Federal income tax benefit from cost less accumulated depreciation of $1,480,008 and Bank premises and equipment are recorded at income tax provision in the Consolidated Statement of Depreciation expense totaled $222,540 for 1971 and $1,265,043 at December 31, 1971 and 1970, respectively. Income. Federal income tax benefits realized were $72,605 in 1971 and $633,000 in 1970. $232,610 for 1970. Depreciation is computed on the difference between the accrual basis of accounting for Deferred Federal income taxes resulting from the on an accelerated method for improvements, equipment, straight-line method for building and automobiles and purposes have been provided in the consolidated finan- book purposes and the cash basis of accounting for tax and drive-in and parking facilities. cial statements. qualified properties under current Federal income tax Investment credit resulting from acquisitions of (5) Reserve for Loan Losses penses is based on a five-year moving average ratio of The loan loss provision charged to operating ex- current tax liability. regulations is recorded as a direct reduction of the including the current year. Additional provisions pro- net charge-offs to total loans over the past five years, (8) Capital Accounts vided under the Treasury Tax Formula of the Internal $3,000,000 by a transfer from surplus representing the On April 12, 1971, capital stock was increased of the tax effect. Revenue Service are charged to undivided profits net 2½-for-1 stock split effected in the form of a stock par value of 150,000 shares issued in connection with a the years ended December 31, 1971 and 1970 were in the reserve for loan losses for 1971. Per share amounts for 1970 have been restated to dividend approved by the shareholders on January 12, as follows: reflect the additional shares issued. 21

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BERKSHIRE HATHAWAY INC. DIRECTORS WARREN E. BUFFETT, Chairman KENNETH V. CHACE MALCOLM G. CHACE, JR. JOHN WILLIAM SCOTT

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BERKSHIRE HATHAWAY INC. Executive Offices - 97 Cove Street, New Bedford, Massachusetts 02744