1981 年伯克希尔完整年报

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32 brem Jain BERKSHIRE HATHAWAY INC. 1981 ANNUAL REPORT TO THE STOCKHOLDERS

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Berkshire Hathaway Inc. 1981 ANNUAL REPORT TABLE OF CONTENTS Chairman's Letter Accountants Certificate 14 Consolidated Financial Statements 15 Quarterly Data 23 Changing Price Data 29 Business Activities of the Company 30 Business Segr.! nt Data 32 Condensed Financial Statements: Wesco Financial Corporation Parent Company only 33 33 Management's Discussion 34 Annual Report Letter: Wesco Financial Corporation Blue Chip Stamps 50 38 Chairman's October 14, 1981 Letter Describing Shareholder Designated Contribution Program .. 51 Directurs and Executive Officers . 54 Common Stock Data 54 Selected Financial Data 55

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...! Shareholder Communications taken from the Annual Reports for the years from 1977 to and including this 1981 Report is available upon request. A compilation of the letters from the principal executives of Berkshire Hathaway Inc. and Blue Chip Stamps Direct your request to the Company at 1440 Kiewit Plaza. Omaha, Nebraska 68131. 2.

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Berkshire Hathaway Inc. February 26. 1982 To the Shoreholders of Berkshire Hathaway Inc.: securities at cost) compared to 17.8% in 1980. Our new plan that allows steckholders to designate corporate Oper iting earnings of $39.7 mıllion in 1981 amounted to 15.2% of beginning equity capital (valuing charitable contributions (detailed iater) reduced earnings by about $900.000 in 1931. This program. which in 1980. we expert to continue subject to annual evaluation of our corporate tax position. had not been initiated Non-Contre lled Ownership Earnings i.e., Berkshire's share of the undistributed earnings of companies we don't control or significantly influence In the 1980 annual report we discussed extensively the concept of non-controlled ownership earnings. or prospective shareholders copies of that discussion or others from earlier reports to which we refer in but in which we. nevertheless, have important investments. (We will be glad to make available to new this repor!.) No portion of those undistributed earnings is included in the operating earnings of Berksh: "e. will be translated into tangible value for Berkshire shareho! ers just as surely as if subsidiaries we control However, our belief is that. in aggregate. those undistributed and. therefore, unrecorded earnings had earned, retained — and reported — similar earnings. unrealized capital gains for Berkshire will be extremely irregular as to time of occurrence. While market We know that this translation of non-controlled ownership earnings into corresponding realized and capriciously. Market recognition of retained earnings also will be unevenly realized among companies. values track business values quite well over long periods, in any given year the relationship can gyrate far greater than dollar-for-dollar of retained earnings in cases of companies that achieve high returns t will be disappointingly !ow or negat.ve in cases where earnings are employed non-productively, and with their augmented capital. Overall, if a group of non-controlled companies is selected with reasonable characteristics than our controlled businesses. That's understandable: the area of choice has been far In aggregate. our non-controlled business interests have more favorable underlying economic reasonable prices. But such businesses are available for purchase in their entirety only rarely, and then wider. Small portions of exceptionally good businesses are usually available in the securities markets at almost always at high prices. 3

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General Acquisition Behavior marketable securities representing small portions of businesses. We continually look for ways to employ As our history indicates, we are comfortable both with total ownership of businesses and with all. it's not worth doing well".) Inceed. the liquidity requirements of our insurance and trading stamp large sums in each area. (But we try to avoid smail commitments — "If something's not worth doing at businesses mandate major investments in marketable securities. either managerial dorain or reported rumbers for accounting purposes. (In the long run, managements Our acquisition decisions will be aimed at maximizing real economic benefits. not at maximizing stressing accounting appearance over economic substance usually achieve little of either.) Business T at X per share than 100% of T at 2X per share. Most corporate managers prefer just the reverse. Regardless of the impact upon immediately reportable earnings. we would rather buy 10% of Wonderful and have no shortage of stated rationales for their behavior. important ones in most high-premium takeovers: However. we suspect three motivations - usually unspoken - to be. singly or in combination. the (1) Leaders, business or otherwise, seldom are deficient in animal spirits and often relish increased activity and challenge. At Berkshire, the corporate pulse never beats faster than when an acquisition is in prospect. number responded will be from the list ranked by size of sales; he nay well not even know where corporations by profitability.) his corporation places on the list Fortune just as faithfully compiles ranking the same 500 (3) Many managements apparently were overexposed in impressionable childhood years to the story in which the imprisoned handsome prince is released from a toad's body by a kiss from a beautiful princess. Consequently, they are certain their managerial kiss will do wonders for the profitability of Company Target). Compar.; A(cquisitor) want to own an interest in T at the 2X takeover cost rather Inan at the X Such optimism is essential. Absen* that rosy view, why else should the shareholders of market price they would pay if they made direct purchases on their own? instead bankroll princesses who wish to pay double for the right to kiss the toad, those kisses In other words. investors can always buy toads at the going price for toads. If investors had better pack some real dynamite. We've observed many kisses but very few miracles. Nevertheless. many managerial princesses remain serenely confident about the future potency of their kisses

• even after their corporate backyards are knee-deep in unresponsive toads.

categories stand out. In fairness, we should acknowledge that some acquisition records have been dazzling. Two major are particularly well adapted to an inflationary environment. Such favored business must have two The first involves companies that. through design or accident. have purchased only businesses that capacity is not fully utilized) without fear of significant loss of either market share or unit volume, and characteristics: (1) an ability to increase prices rather easily (even when product demand is flat and than by real growth) with only minor additional investment of capital. Managers of : dinary ability. (2) an ability to accommodate large dollar volume increases in business (often produced n. re by inflation focusing solely on acquisition possibilities meeting these tests. have achieved excellent ... its in recent decades. However, very few enterprises do has now become fierce to the point of being self-defeating. possess both characteristics, and conipetition i. buy those that

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who is disguised as a toad, and who have managerial abilities that enable them to peel away the disguise. The second category involves the managerial superstars - men who can recognize that rare prince We salute such managers as Ben Heineman at Northwest Industries, Henry Singleton at Teledyne. Erwin real managerial "twofer", whose acquisition efforts have been properly focused in Category 1 and whose Zaban at National Service Industries, and especially Tom Murphy at Capital Cities Communications (a recognize the difficulty and rarity of these executives achievements. (So do they: these champs have operating talents also make him a leader of Category 2). From both direct and vicarious experience. we made very few deals in recent years, and often have found repurchase of their own shares to be the most sensible employment of corporate capital.) understanding of the economic factors compelling concentration in Category 1, our actual acquisition Your Chairman, unfortunately: does not qualify for Cargory 2. And, despite a reasonably good (We neglected the Noah principle: predicting rain doesn't count. building arks does.) activity in that category has been sporadic and inadequate. Our preaching was better than our performance. past reports. Clearly our kisses fell flat. We have done well with a couple of princes - but they were We have tried occasionally to buy toads at bargain prices with results that have been chronicled in princes when purchased. At least our kisses didn't turn them into toads. And, finally, we have occasionally been quite successful in purchasing fractionai interests in easily-identifiable princes at toad-like prices. Berkshire Acquisition Objectives even should the future of the acquired enterprise develop much along the lines of its past. We may very We will continue to seck the acquisition of businesses in their entirety at prices that will make sense. getting. But we will not normally pay a lot in any purchase for what we are supposed to bring to the well pay a fairly fancy price for a Category 1 business if we are reasonably confident of what we are party - for we find that we ordinarily don't bring a lot. liked very much. However, the price finally demanded. considerir ::Iternative uses for the funds involved. During 1981 we came quite close to a major purchase involving both a business and a manager we would have left our owners worse off than before the purchase. ine empire would have been larger, but the citizenry would have been poorer. 100% of businesses meeting our standards. Additionally, we expect an occasional offering of a major Although we had no success in 1981. from time to time in the future we will be able to purchase suggestions regarding such companies where we. as a substantial junior partner. can achieve good "non-voting partnership" as discussed under the Pinkerton's heading on page 47 of this report. We welcome economic results while furthering the long-term objectives of present owners and managers. in companies with excellent business franchises and competent. honest managements. We never expect Currently: we find values most easily obtained through the open-market purchase of fractional positions to run these companies, but we do expect to profit from them. when realized) for Berkshire and its shareholders. If they don't, we have made mistakes as to either: We expect that undistributed earnings from such companies will produce full value (subject to tax (1) the management we have elected to join; (2) the future economics of the business; or (3) the price we interests in businesses. Category (2) miscalculations are the most common. Of course, it is necessary to We have made plenty of such mistakes - both in the purchase of non-controlling and controlling dig deep into our history to find illustrations of such mistakes - sometimes as deep as two or three months back. For examy le, last year your Cheirman volunteered his expert opinion on the rosy future 180 degrees - have since been required. of the aluminum business. Several minor adjustments to that opinion - now aggregating approximately 5

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Lack mistakes far more quickly in the case of non-controlled businesses (marketable securities) than in the For personal as well as more objective reasons. however, we generally have been able to correct such contred. case of controlled subsidiaries. Lack of control. in effect. often has turned out to be an economic plus. the point where their total is greater than our reported operating earnings. We expect this situation will continue. In just four ownership positions in this category - GEICO Corporation. General Foods Corporation. R. J. Reynolds Industries. Inc. and The Washington Post Company - our share of undistributed and therefore unrecorded earnings probably will total well over S35 million in 1982. The accounting rules that entirely ignore these undistributed earnings diminish the utility of our annual return on equit! calculation, or any other single year measure of economic performance. Long-Term Corporate Performance net of at market subject to a charge reflecting the amount of taxes that would have to be paid if unrealized gains In measuring long-term economic performance, equities held by our insurance subsidiaries are valued "were actually realized. If we are correct in the premise stressed in the preceding section of this report. our unreported ownership earnings will find their way. irregularly but inevitably, into our net worth. To date. this has been the case. held equities at market. However. GAAP accounting does not prescribe this procedure, and the added An even purer calculation of performance would involve a valuation of bonds and non-insurance- purity would change results only very slightly: Should any valuation difference widen to significant proportions, as it has at most major insurance companies, we will report its effect to you. from $19.46 per share to $526.02 per share, or 21.1% compounded annually. This rate of return number On a GAAP basis, during the present management's term of seventeen years. book value has increased is highly likely to drift downward in future years. Wa hope. however, that it can be naintained significantly above the rate of return achieved by the average large American corporation. 31% - resulted from the market performance of a single investment, GEICO Corporation. In aggregate. Over half of the large gain in Berkshire's net worth during 1981 — it totaled $124 million, or about our market gain from securities during the year considerably outstripped the gain in underlying business values. Such market variations will not always be on the pleasant side. views corporate performance to be illusory as a measure of true investment results for our owners. We applaud In past reports we have explained how inflation has caused our apparently satisfactory long-ierm info the efforts of Federal Reserve Chairman Volcker and note the currently more moderate increases in various → did price indices. Nevertheless, our views regarding long-term inflationary trends are as negative as ever. not Like virginity, a stable price level seems capable of maintenance, but not of restoration. be correct further with another full recital of our views: inflation itself will be punishment enough. (Copies of Despite the overriding importance of inflation in the investment equation. we will not punish you previous discussions are available for masochists.) But. because of the unrelenting destruction of currency values. our corporate efforts will continue to do a much better job of filling your wallet than of filling your stomach. Equity Value-Added long-term rate of return. The economic case justifying equity investment is that. in aggregate, additional An additioral factor should further subdue any residual enthusiasm you may retain regarding our earnings above passive investment returns — interest on fixed-income securities — will be derived through the employment of managerial and entrepreneurial skills in conjunction with that equity capital. passive forms of investment. it is "entitled" to higher returns. A "value-added" bonus from equity capital Furthermore, the case says that since the equity capital position is associated with greater risk than seems natura! and certain. 6

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classified as a "good" business — i.e., one in which a dollar reinvested in the business logically could But is it? Several dec: 'es back. a return on equity of as little as 10% enabled a corporation to be be expected to be valued by the market at more than one hundred cents. For. with long-term taxable capital at 10% ciearly was worth some premium to investors over the equity capital employed. That was bonds yielding 5% and long-term tax-exempt bonds 3%. a business operation that could utilize equity true even though a combination of taxes on dividends and on capital gains would reduce the 10% earned by the corporation to perhaps 6%-8% in the hands of the individual investor. average of 11% or so on equity capital employed and stocks, in aggregate. sold at valuations far above Investment markets recognized this truth. During that earlier period. American business earned an that equity capital (book value). averaging over 150° on the dollar. Most businesses were "good" businesses because they earned far more than their keep (the return on long-term passive money). The value-added produced by equity investment, in aggregate. was substantial. and managers must place their feet in the future. their memories and nervous systems often remain That day is gone. But the lessons learned during its existence are difficult to discard. While investors plugger! into the past. It is much easier for investors to utilize historic pie ratios or for managers to utilize change is siow, constant rethinking is actually undesirable: it achieves little and slow's response time. historic business valuation yardsticks than it is for either group to rethink their premises daily. When But when change is great. yesterday's assumptions can be retained only at great cost. And the pace of economic change has become breathtaking: The total return achieved from such tax-exempts. of course. goes directly into the pocket of the individual During the past year. long-term taxable bond yields exceeded 16% and long-term tax-exempts 14%. the investor. no longer worth one hundred cents on the dollar to owners who are individuals. (If the business is owned Thus. with interest rates on passive investments at late 1981 levels, a typical American business is substantially for the better.) Assume an investor in a 50% tax bracket: if our typical company pays out by pension funds or other tax-exempt investors, the arithmetic. although still unenticing. changes all earnings. the income return to the investor will be equivalent to that from a 7% tax-exempt bond. exempt equivalent to the higher-bracket individual investor is just as frozen as is the coupor on a tax- And. if conditions persist — if all earnings are paid out and return on equity stays at 14% - the 7% tax- exempt bond. Such a perpetual 7% tax-exempt bond might be worth fifty cents on the dollar as this is written. again remains constant, earnings will grow at 14% per year. If the pe ratio remains constant. the price If. on the other hand. all earnings of our typical American business are retained and return on equity of our typical stock will also grow at 14% per year. But that 14% is not yet in the pocket of the shareholder. Putting it there will require the payment of a capital gains tax. presently assessed at a maximum rate of 20%. This net return. of course, works out to a poorer rate of return than the currently available passive after-tax rate. no cash dividend are an economic failure for their individual shareholders. The returns from passive Unless passive rates fall. companies achieving 14% per year gains in earnings per share while paying managers and. therefore, one they may wish to ignore. But facts do not cease to exist. either because they capital outstrip the returns from active capital. This is an unpleasant fact for both investors and corporate are unpleasant or because they are ignored. two examples. And most American businesses are currently "bad" businesses economically - producing Most American businesses pay out a significant portion nf their earnings and thus fall between the less for their individual investors after-tax than the tax-exempt passive rate of return on money. Of course. some high-return businesses still remain attractive. even under present conditions. But American equity 7

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economically. less high than previously. In fact. they are jumping somewhat higher: return on equity has It shouid be stressed that this depressing situation does not occur because corporations are jumping. improved a few points in the past decade. But the crossbar of passive return has been elevated much are few industries in which the prospects seem bright for substantial gains in return on equity. faster. Unhappily, most companies can do little but hope that the bar will be lowered significantly; there of the crossbar in future years. If the causes of long-term inflation can be tempered. passive returns are Inflationary experience and expectations will be major (but not the only) factors affecting the height likely to fall and the intrinsic position of American equity capital should significantly improve. Many businesses that now must be classified as economically "bad" would be restored to the "good" category under such circumstances. of the "bad" business. To continue operating in its present mode. such a low-return business usually must A further. particularly ironic. punishment is inflicted by an inflationary environment upon the owners retain much of its earnings — no matter what penalty such a policy produces for shareholders. with many years to run before maturity, does not take the coupons from that bond and pay one hundred Reason. of course. would prescribe just the opposite policy. An individual. stuck with a 5% bond cents on the dollar for more 5% bonds while similar bonds are available at, say. forty cents on the dollar. Instead, he takes those coupons from his low-return bond and - if inclined to reinvest - looks for the highest return with safety currently available. Good money is not thrown after bad. historic and prospective high returns on equity should retain much or all of its earnings so that shareholders What makes sense for the bondholder makes sense for the sharehoider. Logically a company with can carn premium returns on enhanced capital. Conversely: low returns on corporate equity would suggest a very high dividend Scriptures concur. In the parable of the talents, the two high-earning servants are rewarded with 100% payout so that owners could direct capital toward more attractive areas. (The retention of earnings and ence: raged to expand their operations. However, the non-earning third servant is not only chastised — "wicked and slothful" - but also is required to redirect all of his capita! to the top performer. Matthew 25: 14-30) When prices continuously rise. the "bad" business must retain every nickel that it can. Not because it is But inflation takes us through the looking glass into the upside-down world of Alice in Wonderland attractive as a repository for equity capital. but precisely because it is so unattractive, the low-return business must follow a high retention policy. If it wisnes to continue operating in the future as it has in the past - and most entities. including businesses. do - it simply has no choice. requisite daily diet of investment dollars regardless of the health of the host organism. Whatever the Fre inflation acts as a gigantic corporate tapeworm. That tapeworm preemptively consumes its level of reported profits (even if nil). more dollars for receivables, inventory and fixed assets are continuously required by the business in order to merely match the unit volume of the previous year. The less prosperous the enterprise, the greater the proportion of available sustenance claimed by the tapeworm. debt reduction or "real" dividends. The tapeworm ef inflation simply cleans the plate. (The low-return Under present conditions, a business earning 8% or 10% on equity often has no leftovers for expansion. is turning to dividend reinvestment plans. sometimes even embodying a discount arrangement that all company's inability to pay dividends, understandably. is often disguised. Corporate America increasingly but forces shareholders to reinvest. Other companies sell newly issued shares to Peter in order to pay dividends to Paul. Beware of "dividends" that can be paid out only if someone promises to replace the capital distributed.) no way are we immune from the pressures that escalating passive returns exert on equity capital. We Berkshire continues to retain its earnings for offensive. noi defensive or obligatory, reasons. But in all assured for the future - still provides, after the current capital gain tax rate (which we expect to rise continue to clear the crossbar of after-tax passive return - but barely. Our historic 21% return — not at considerably in future years), a modest margin over current after-tax rates on passive money: It would be a bit humiliating to have our corporate value-added turn negative. But it can happen here as it has elsewhere. either from events outside anyone's control or from poor relative adaptation on our part. 8

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Sources of Reported Ecrnings Blue Chip Stamps which, in turn, owns 80% of Wesco Financial Corporation. The table displays aggregate The table below shows the sources of Berkshire's reported earnings. Berkshire owns about 60% of operating earnings of the various business entities. as well as Berkshire's share of those earnings. All of the significant gains and losses attributable to unusual sales of assets by any of the business entities are aggregated with securities transactions in the line near the bottom of the table and are not included in operating earnings. Net Earnings Earnings Before Incorne Taxes After Tax Total Berkshire Share Berkshire Share 1981 1980 1981 1980 1981 1980 (000s omitted) Operating Earnings: Insurance Group: Net Investment Income Underwriting $ 1.478 $ 5.738 (2.669) 30.939 $ 1.478 $ 6.737 S 32.401 798 $ 3.637 38,823 (508) (2.669) 38.823 30.927 (1.493) 25,607 Associated Retail Stores Berkshire-Waumbec Textiles (508) 759 1,169 202 21.891 1.763 15,475 2.440 1.763 (1,057) 3.642 (2:. 7) 13.046 9,223 2,440 (1.655) 6.289 4,459 Buffalo Evening News Sec's Candies .. 1.605 4.495 7,699 (630) 4,588 (276) 1.392 2.134 (800) Blue Chip Stamps - Parent 5.814 2,916 2.145 2,171 2.775 1,590 3.060 (9,390) 1,352 1.536 1.044 Mutual Savings and Loan Wesco Financial - Parent (14.656) 3.453 2.833 766 1.974 Interest on Debt Precision Steel 1.895 (12.230) (12,649) 1,648 841 656 1,308 (6,671) 1.513 (4,809) Other' 1,693 1.344 992 Sub-total - Continuing $60,663 $61.037 5.324 $47.235 $49.189 $39.421 $37,191 Illinois National Bank* Operations 5,200 4.731 60,663 66.361 47,236 54,389 39.421 41,922 Operating Earnings Sales of securities and unusual sales of assets $98,464 37,801 19.584 33.150 15,757 23.183 11.200 $85.945 $80,386 $70,146 $62.604 $53.122 Total Earnings - all entities *Amortization of intangibles arising in accounting for purchases of businesses (i.e. See's, Mutual and Buffalo Evening News) *•Berkshire divested itself of its ownership of the Illinois National Bank on December 31. 1980. is reflected in the category designated as "Other". pages 38-50 of this report we have reproduced the narrative reports of the principal executives of both Blue Chip Stamps and Wesco are public companies with reporting requirements of their own. On companies, in which they describe 1981 operations. A copy of the full annual report of either company will be mailed to any Berkshire shareholder upon request to Mr. Robert H. Bird for Blue Chip Stamps. 5801 South Eastern Avenue, Los Angeles, California 90040, or to Mrs. Jeanne Leach for Wesco Financial important as the reported operating earnings detailed in the preceding table. The distributed portion of As we indicated earlier, undistributed earnings in companies we do not control are now fully as earnings, of course, finds its way into the table primarily through the net investment income segment of Insurance Group earnings.

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We show below Berkshire's proportional holdings in those non-controlled businesses for which only distributed earnings (dividends) are included in our earnings. Cost Market No. of Shares (000s omitted) 451,650 (a) 420,141 (a) 703,634 (a) Aluminum Company of America Affiliated Publications. Inc. 19,359 3.297 S 14.114 18.031 Arcata Corporation (including common equivalents) 14,076 15.135 475,217 (b) 2,101.244 441.52? (a) Cleveland-Cliffs Iron Company 12.742 1,362 7,200,000 (b) GATX Corporation 66.277 17.147 13.466 2.015,000 (a) (a) GEICO Corporaiion General Foods, Inc. 47.138 199,800 66.714 21.825 4,531 36.270 711,180 (a) Interpublic Group of Companies. Inc. Handy & Harman 4,545 23.202 391.400 282,500 (a) 370,088 ia) Media General 3.709 12.329 11.088 Ogilvy & Mather International Inc. 1.764.824 (bl (b) Pinkerton's. Inc. 76.668 12,14 19.675 1.868,600 (a) 785.225 (b) R. J Reynolds Industries. Inc. .. 21.329 31.016 83.127 The Washington Post Company SAFECO Corporation 10.628 58,160 $335.615 16.131 $616.490 All Cther Common Stockhoidings 22,739 Total Common Stocks $351.745 $639.229 (a) All owned by Berkshire or its insurance subsidiaries. (b) Blue Chip and/or Wesco own shares of these companies. All numb rs represent Berkshire's net interest in the larger gross holdings of the group. detailed commentary here would prove too lengthy. Much additional financial information is included Our controlled and non-controlled businesses operate over such a wide spectrum of activitie: that in Management's Discussion on pages 34-37 and in the narrative reports on pages 38-50. However. our largest area of both controlled and non-controlled activity has been, and almost certainly will continue to be. the property-casualty insurance area. and commentary on important developments in that industry is appropriate. Insurance Industry Conditions "Forecasts", said Sam Goldwyn. "are dangerous. particularly those about the future." (Berkshire sharehoiders may have reached a similar conclusion after rereading our past annual reports featuring yo'r Chairman's prescient analysis of textile prospects.) insurance underwriting. That result already has been guaranteed by present pricing behavior, coupled There is no danger, however, in forecasting that 1982 will be the worst year in recent history for with the term nature of the insurance contract. are sold for a three year term - a weighted average of the duration of all property-casualty insurance While many auto policies are priced and sold at six-month intervals - and many property policies are frozen for the life of the contract. Thus. this year's sales contracts ("premium written" in the parlance policies probably runs a little under twelve months. And prices for the insurance coverage, of course. remaining half will be determined by sales contracts written next year that will be about 50% earned in of the industry) determine about one-half of next year's level of revenue (premiums earned"). The that year. The profitability consequences are automatic: if you make a mistake in pricing. you have to live with it for an uncomfortable period of time. 10

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you would expect in an inflationary world. When the volume gain is well up in double digits. it bodes that it has on the current and foliowing year's level of underwriting profitability. The result is exactly as Note in the table below the year-over-year gain in industry-wide premiums written and the impact underwriting experience very shortly will get worse. no matter how unsatisfactory the current level. well for profitability trends in the current and following year. When the industry volume gain is small. mutual and reciprocal companies. The combined ratio indicates total operating and loss costs as compared The Best's data in the table reflect the experience of practically the entire industry, including stock. to premiums: a ratio below 100 indicales an underwriting profit, and one above 100 indicates a less. Yearly Change Yearly Change Combined Ratio in Premium in Premium after Policy- Written (%) Earned (%) holder Dividends 10.2 10.9 96.2 1972 8.0 8.8 105.4 99.2 1973 1974 6.2 6.9 1975 11.0 9.6 107.9 21.9 19.4 102.3 1976 1978 1977 19.8 20.5 97.2 12.8 14.3 97.5 10.3 10.4 103.1 100.6 1979 1980 6.0 3.6 7.8 4.1 105.7 1981 Source: Best's Aggregates and Averages. results, particularly if the respite from major natural disasters that the industry has enjoyed in recent As Pogo would say. "The future isn't what it used to be. "Current pricing practices promise devastating years should end. For underwriting experience has been getting worse in spite of good luck, not because of bad luck. In recent years hurricanes have stayed at sea and motorists have reduced their driving. They won't always be so obliging. the coverage of policies beyond what insurers, relying upon contract terminology and precedent. had And, of course the twin inflations, monetary and "social" (the tendency of courts and juries to stretch repairs are deemed to be the responsibility uf the insurer — will advance relentlessly. expected). are unstoppable. Costs of repairing both property and people — and the extent to which these at least 10% per year probabiy is necessary to stabilize the record level of underwriting losses that will Absent any bad luck (catastrophes, increased driving. etc.), an immediate industry volume gain of automatically prevail in mid-1982. (Most underwriters expect incurred losses in aggregate to rise at least premium growth below the 10% equilibrium figure quickens the pace of deterioration. Quarterly data in 10% annually; each. of course. counts on getting less than his share.) Every percentage point of annual 1981 underscore the conclusion that a terrible underwriting picture is worsering at an accelerating rate. many insurers' balance sheets, forcing them to abandon underwriting discipline and write business at In the 1980 annual report we discussed the investment policies that have destroyed the integrity of any price in order to avoid negative cash flow. It was clear that insurers with large holdings of bonds valued. for accounting purposes, at nonsensically high prices would have little choice but to keep the money revolving by selling large numbers of policies at nonsensically lo: prices. Such insurers necessarily fear a major decrease in volume more than they fear a major underwriting loss. threatened competitor. This pressure continues unabated and adds a new motivation to the others that But, unfortunately, ali insurers are affected: it's difficult to price much differently than your most drive many insurance managers to push for business: vorship ci size over profitability, and the fear that market share surrendered never can be regained. 11

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protests by the entire industry that rates are inadequate and great selectivity should be exercised - has Whatever the reasons. we believe it is true that virtually no major property-casualty insurer - despite been willing to turn down business to the point where cash flow has turned significantly negative. Absent such a willingness. prices will remain under severe pressure. and a relatively constant midcoint of profitability: Our own view is different. We believe that very large. Commentators continue to talk of the underwriting cycle. usually implying a regularity of rhythm although obviously varying. underwriting Insses will be the norm for the industry, and that the best underwriting years in the future decade may appear substandard against the average year of the past decade. future. Our managers, particulariy Phil Liesche. Bill Lyons. Roland Miller. Floyd Tavlor and Milt Thornton. We have no magic formula to insulate our controlled insurance companies against this deteriorating maintained a substantial underwriting superiority in relation to industry-wide results. The outlook at have done a magnificent job of swimming against the tide. We have sacrificed much volume. but have Berkshire is for continued low volume. Our financial position offers us maximum flexibility, a very rare condition in the property-casualty insurance industry. And. at some point. should fear ever prevail throughout the industry, our financial strength could become an operational asset of immense value. We believe that GEICO Corporation. our major non-controlled business operating in this field. is. by virtue of its extreme and improving operating efficiency, in a considerably more protected position than almost any other major insurer. GEICO is a brilliantly run implementation of a very important business idea. Shareholder Designated Contributions was greeted with extraordinary enthusiasm. A copy of the letter sent October 14. 1981 describing this Our new program enabling shareholders to designate the recipients of corporate charitable contributions program appears on pages 51-53. Of 932.206 shares eligible for participation (shares where the name of the actual owner appeared on our stockholder record). 95.6% responded. Even excluding Buffet-related shares, the response topped 90%. of the program. Both the level of participation and of commentary surpass any shareholder response we In addition. more than 3% of our shareholders voluntarily wrote letters or notes, all but one approving paid professional proxy organizations. In contrast. your extraordinary level of response occurred without have witnessed, even when such response has been intensively solicited by corporate staff and highly- even the nudge of a company-provided return enveiope. This self-propelled behavior speaks well for the program, and speaks well for our shareholders. where gifts of their funds shall be made. The "father-knows-best" school of corporate governance will be Apparently the owners of our corporation like both possessing and exercising the ability to determine surprised to find that none of our shareholders sent in a designation sheet with instructions that the officers of Berkshire -- in their superior wisdom, of course - make the decision on charitable funds applicable to his shares. Nor did anyone suggest that his share of our charitable funds be used to match contributions made by our corporate directors to charities of the directors choice (a popular, proliferating and non-publicized policy at many large corporations). In addition. Berkshire ard subsidiaries continue to make certain contributions pursuant to local level All told, $1.783.655 of shareholder-designed contributions were distributed to about 675 charities. decisions made by our operating managers. produce substandard tax deductions — or none at all. In those years we will not effect our shareholder- There will be some years. perhaps two or three out of ten, when contributions by Berkshire will amount per share that you may designate. A reply form wili accompany the notice. and you will be given designated charitable program. In all other years we expect to inform you about Oc ober 10th of the own name or the name of an owning trust, corporation, partnership or estate. if applicable, on cur about three weeks to respond with your designation. To qualify: your shares must be registered in your stockholder list of September 30th. or the Friday preceding if such date falls on a Saturday or Sunday: 12

[PAGE 14]

fault of their own. missed the opportunity to participate. The Treasury Department ruling allowing us to Our only disappointment with this program in 1981 was that sone of our shareholders. through no proceed without tax uncertainty was received early in October. The ruling did not cover participation required that the oryners of ail designating shares make certain assurances to Berkshire. These assurances by shareholders whose stock was registered in the name of nominees, such as brokers, and additionally could not be given us in effective form by nominee holders. October 14th letter) so that. if they wished. they could prepare themselves to participate by the Noverber Under these circumstances, we attempted to communicate with all of our owners promptly (via the 13th record date. It was particularly important that this information be communicated promptly to stockholders whose holdings were in nominee name. since they would not be eligible unless they took action to re-register their shares before the record date. nominees. We therefore strongly urged those nominees, mostly brokerage houses. to promptly transmit Unfortunately: communication to such non-record shareholders could take place only through the our letter to the real owners. We explained that their failure to do so could deprive such owners of an important benefit. The results from our urgings would not strengthen the case for private ownership of the U.S. Postal Ming mows count he preme here one ord shareholder population). apparently transmitted our letter about three weeks after receipi - too late for One of the largest brokerage houses claiming to hol i stock for sixty of its clients (about 4% of our any of the sixty to participate. (Such lassitude did not pervade all departments of that firm: it billed Berkshire for mailing services within six days of that belated and ineffectual action.) contribution programs, be sure to have your stock registered in your name well before September 30th: We recite such horror stories frr two reasons: (1) if you wish to participate in future designated- and (2) even if you don't care to participate and prefer to leave your stock in nominee form. it would be wise to have at least one share registered in your own name. By so doing, you can be sure that you will be notified of any important corporate news at the same time as all other shareholders. was conceived by Charlie Munger. Vice Chairman of Berkshire and Chairman of Rlue Chip. Irrespective The designated contributions idea, along with many other ideas that have turned out well for us. of titles, Charlie and I work as partners in managing all controlled companies. To almost a sinful degree. we enjoy our work as managing partners. And we enjoy having you as our financial partners. Warren E. Buffett Chairman of the Board 13

[PAGE 15]

Certified Public Acountants Kiewit Plaza Building Thirty-Sixth and Farnam Streets Peat, Marwick, Mitchell& Co. (402) 348-1450 Omaha, Nebraska 68131 Ihe Board of Directors and Stockholders Berkshire Hathaway Inc.: We have examined the consolidated balance sheets of Berkshire Hathaway Inc. 198: and the related consolidated statements of earnings, stockholders and consolidated subsidiaries as of January 2, 1982 and January 3, equity and changes in financial position for each of the years in the three yea: period ended January 2, 1982. Our examinations were made in included such tests of tie accounting records and such other auditing accordance with generally ricepted auditing standards and, accurdingly, procedures as we considered necessary in the circumstances. We did not Wesco Financial Corporation, the assets relating to such as reflected in examine the consolidated financial statements of Blue Chip Stamps and the accompanying consolidated financial statements constitute 23 percent and 24 percent of the consolidated totals for 1981 and 1980, and total revenues constituting 43 percent, 37 percent and 35 percent of the con- solidated totals for 1981, 1980 and 1979, respectfvely. These consolidated financial statements were examined by uther auditors whose report thereon has been furni. -i to us and our opinion expressed herein, insofar as it relates to the •uuunts included for Blue Chip Stamps and Wesco Financial Corporation, is based solely upon the report of the other auditors. auditors, the aforementioned consolidated financial statements present In our opinion, upon our examinations and the report of other subsidiaries at January 2, 1982 and January 3, 1981 and the results of falriy the financial position of Berkshire Hathaway Inc. and consolidated their operations and the changes in their financial position for each of the years in the three year period ended January 2, in confornity with generally accepted accounting principles applied on a consistent basis. Peat, Marish, hith pole. March i, 1992 14

[PAGE 16]

Berkshire Hathaway Inc. CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED SUBSIDIARIES ¡dollars in thousands! ASSETS jan. 2. 1982 jan. 3. 1981 Cash 7,232 9,993 Investments, other than investments in affiliates: Fixed maturities, principally bonds (market value: Marketable equity securities (Notes 2 and 3) Jan. 2, 1982 — S164,075: Jan. 3. 1981 — $159.5121 205.078 Invested cash. U.S. Treasury bilis and other short-term investments 541.269 525.947 187.802 at cost which approximates market 63,529 50.546 Investment in Wesco Financial Corporation (Note 5) Total investments, other than affiliates 910,876 68.874 751.295 Accounts receivable from customers, agents and others (Note 6) 49,901 63.040 Real estate, equipment. furniture and leasehold improvements. at Inventories (Note 7) 22,120 23.802 49.861 Deferred insurance premium acquisition costs cost less allowance for depreciation and amortization (Note 8) 51.472 12.313 51.484 Other assets 35,123 14.163 S1.010.581 33.943 S1.157911 LIABILITIES AND STOCKHOLDERS EQUITY Unearned premiums Losses and loss adjustment expenses $ 190,970 62.269 199.128 51.915 64.262 73.201 Accounts payabie. accruals and other liabilities Liability for uncedeemed trading stamps 64.053 13.759 43.452 Deferred income taxes Current income taxes 97.768 87.089 63.329 7.919 Term debt payable (Notes 9 and 10) 70.416 104.344 Minority shareholders interests 59.851 638.448 615.367 Stockholders' equity: Common stock of S5 par value. Authorized 1.250.000 shares: Capital in excess of par value issued 1.214,283 shares 6.071 3.517 5.071 3.517 Unrealized appreciation of marketable equity securities. net of Retained earnings (Notes 9 and 11) provision for deemed applicable income taxes 354.058 196.475 135.010 560.121 436.052 291.454 Less common stock in treasury, at cost (Jan. 2. 1982 shares: Jan. 3. 1981 - 228.224 shares)

• 227,774

40.658 40.838 Total stockholders' rquity 519.463 395.21+ Commitment and contingent liability (Notes 14 and 16) S1.157.911 S1.010.581 See accompanying Notes to Consolidated Financial Statements. 15

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Berkshire Hathaway IDC. CONSOLIDATED SIATEMENTS OF EARNINGS AND CONSOLIDATED SUBSIDIARIES (dollars in thnusands except per share amounts) Saturday neores! December 31. Fiscal Year Ended 1981 1980 1979 Income Items: Insurance premiums earned $159,013 263,374 $185.187 49,187 259.200 $181,949 38,966 247.952 Interest and dividend income Net sales and service revenues 30.440 Equity in earnings excluding realized investrent gain of Wesco Financial Corporation (Note 5) 478.696 7.120 10200 Cost and expense items: Insurance losses and loss adjustment expenses 103.417 155.661 118,230 Cost of products and services sold 93,756 54,119 160,261 Insurance uncurwriting expenses 60,219 Selling. general and ordininistrutive expenses 11.486 84.188 Interest and financing costs 9.185 418.439 432.083 Earnings from continuing operations including minority interest in consolidated subsidiaries. before applicable income taxes and realized 60,257 12.091 60.074 13.943 46.540 Income taxes applicable to above investment gain 9.796 48,166 8.443 46.131 7.647 35,844 5,883 Minority interest applicable to above ... Earnings from continuing operations before Equity in earnings before securities losses realized investment gain 39.723 38.484 30,951 uf unconsolidated banking subsidiary, divested as . ' Dec. 31, 1980 (Note 4) 4.731 4,960 Realized investment gain - continuing operations. Earnings before realized investment gain 39.723 43,215 35,921 Equity in securities losses of unconsolidated banking net (Note 13) 22,881 10,790 6,896 subsidiary, divested as of Dec. 31. 1980 (Note 4) (883) Net earnings $ 62,604 53.122 $ 42.817 Average shares outstanding 985.322 1.027.145 1.027.145 Per share: Earnings from continuing operations before Earnings before realized investment gain realized investment gain $ 40.27 40.27 $ 37.47 42.07 $ 30.14 34.97 Net earnings S3.47 51.72 41.68 See accompanying Notes to Consolidated Financial Statements. 16

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Berkshire Hathaway Inc. CONSOLIDATEN STATEMENT OF STOCKHOLDERS' EQUITY AND CONSOLIDATED SUBSIDIARIES (dollars in thousands) Common Capital in 36.071 Stock Per Value Excess of Unrealized $3.517 Appreiction" Reicined Stockhoiders Total Balance at December 30, 1978 $ 60.934 S(11.871) $195.515 Earings $254,166 Net earnings 1979 42.317 42.817 Change in 1973 in net Balance at December 29, 1979 unrealized appreciation 7.979 344.962 47.979 6.071 3.517 108.913 (11.871) 238.332 Net earnings 1980 53.122 53.122 Change in 1980 in net unrealized appreciation 26.097 26.097 Treasury shares reacquired Balance at January 3. 198: in 1930 (28.967) (28.967) 6.071 3.517 135.010 (40.832) 291,454 395.214 Net earnings 1981 62.604 62,604 Change in 1981 in net unrealized appreciation 61.465 61.465 Tret: ury shares reissued in 1981 180 180 Balance at January 2, 1982 $6.071 $3.517 $196.475 S(40.658) $354.056 $519.463 • Common stock renresents the aggregate par value of 1.214,283 issued shares of the Company's common stock. " Net unrealized appreciation represents the excess of carrying value of marketable equity securities over their S5 par value per snare. Issued shares include shares held as Treasury stock. **• Treasury stock reflects the cost of reacquired shares of the Company's issued common stock. At December 30. cost, less deemed applicable income taxes, adjusted for applicable minority interest, if any. 1978. 187.138 shares of the Company's issued common stock were held as Treasury stock, of which the Company Company acquired 41,086 shares in an exchange transaction whereby the Company divested of its banking held 136,637 shares, and insurance subsidiaries of the Company held 50.501 shares. On December 31, 1980 the as Treasury stock, of which 225,988 shares were held by the Company and 1,786 shares were held by an insurance subsidiary, see Note (4). At January 2, 1982. 227.774 shares of the Company's issued common stock were held subsidiary of the Company. See accompanying Notes to Consolidated Financial Statements. 17

[PAGE 19]

Berkshire Hathaway Inc. CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION AND CONSOLIDATED SUBSIDIARIES (dollars in thousands) Saturday nearest December 31.. Fiscal Year Ended 1981 1980 1979 Funds provider: From operations: Net earnings $ 62.604 Minority interest in earnings 11.162 $ 53,122 61,378 8,256 $ 42,817 49,220 6.403 Charges (credits) to earnings not requiring (providing) funds: Earnings including minority interest 73.756 Increase (decrease) in unpaid insurance losses and Equity in undistributed earnings of unconsolidated subsidiaries (5.834) (6.473) (9,019) Increase (decrease) in unearned insurance picniums loss adjustment expenses (11.012) (8.158) 1.431 (323) 16.827 4,236 Depreciation and amortization of property, plant Decrease (increase) in deferred insurance premium and equipment, including leaseholds 5,753 5.144 4,651 Decrease (increase) in accounts receivable acquisition costs 1,850 2,370 {511) (6.948) 194 1.682 (40) Increase (decrease) in liability for income taxes Decrease (increase) in inventories 1.902 (2.675) Increase (decrease) in liability for unredeemed trading stamps applicable to earnings 5,697 209 (3,471) (861) (518) 692 Increase in accounts payable, accruals and Other other liabilities (1,050) 8,453 3.952 4.055 895 4,809 (574) 71,316 (2.450) 59.992 65.433 60.895 11.675 Proceeds from issuance of debt, net of expense Funds provided from operations Decrease in cash $ 74,077 2.761 $130.356 4.931 $ 60,895 Funds used: Additions to propertv, plant and equipment, net of disposals 5.741 Dividends paid to minority ste-khoiders Repayment of debi 6,576 $ 6,835 502 10,857 1,972 6,567 502 2,233 520 Purchase of shares of Blue Chip Stamps from minority Cost of net purchases (sales) of investments: U.S. Treasury bills and short-term coligations 18,276 12,983 32.374 29,954 705 (42.884} Marketable equity securities Bonds and other fixed inaturity securities 61,258 45 78.343 26.735 740 63,929 Unconsolidated subsidiaries (100) Net purchase of investments 112.162 47,680 Increase in cash 1,923 $ 74,077 $130,356 $ 60,895 See accompanying Notes to Consolidated Financial Stotements. 18

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Berkslire Hathaway Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AND CONSOLIDATED SUBSIDIARIES (dollars in thousands) January 2. 1982 (1) Summary of Significant Accounting Policies and Practices (a) Basis of Presen ution The accompanying Consolidated Financial Statements include the accents of Berkshire Hathaway Inc. (the January 2. 1982. Wholly-owned subsidiaries. the accounts of which are consolidated. include companies "Company" or "Cerkshire") consolidated with accounts of its subsidiaries which were majority owned at engaged in the property/casualty insurance business (the "InsuranceGroup"), textile products manufacturing. and apparel retailing. Additionally included in consolidation are the accounts of Biue Chip Stamps ("Blue owned subsidiaries. Blue Chip is engaged in the promotional services business. its wholly-owned subsidiaries Chip"). a Calitornia corporation, approximately 60% owned by the Company, and Blue Chip's wholly- include See's Candy Shops, incorporated ("See's") engaged in the candy business, and the Buffalo Evening News (the "News") which publishes a newspaper. Blue Chip owns approximately 80% of the outstanding capital stock of Wesco Financial Corporation ("Wesco"). investment in Vesco is accounted for in the accompanying Consolidated Financial Statements pursuant Berkshin e's economic interest in Wesco represents slightly less than 50% of that company; accordingly. the in the equity method of accounting. Accounts of subsidiaries engaged in the property and casualty insurance business are maintained on the basis of a calendar year. Accounts of Berkshire, its textile and retailing subsidiaries. Blue Chip and See's operations of the textile and appare! retailing businesses covered the 52 weeks ended january 2. 1982. The are maintained on the basis of a 52-53 week fiscal year ending with respect to December 31. The 1981 1981 operations of Blue Chip and See's covered the 52 week perio! ended Decrmber 26. 1981. Accounts of the News are maintained on the basis of a calendar year. (b) Investments in Securities. Other Than Affiliates Investments in obligations with fixed dates of maturity: including convertible bonds and redeemable preferred stocks, are stated at cost, adjusted where appropriate for accretion of discount or amortization of premium. Investments in marketable equity securities held by members of the Insurance Group are carried at market valve. Investments in marketable equity securities held by Berkshire and by subsidiaries of Berkshire which are not members of the Insurance Group are carried at the lower of aggregate cost or market. Blue Chip, at both December 26, 1901, and at December 27. 1980 held an investment in non-voting, stock of trading market for this stock. PH's principal assets are equity securities of Pinkerton's. Inc. ("PI"). Blue Pinkerton Holding Corporation ("PHC") which is reflected in other assets at its cost of S4.163. There is no Chip also holds non-voting securities of PI. the cost of which ($19.201) is included in marketable equity in the equity of PI c. approximately 37% at December 26, 1981. (35% at December 27, 1980), but because securities. Blue Chip's interest in PI. both direct and indirect (through PHC), represents a beneficial ownership the equity method of accounting. Berkshire's economic interest in the equity of Pl is reduced to approximately this interest is represented by non-voting stock. Blue Chip does not aucount for this interest pursuant to 22% at January 2, 1982. taking into account the minority interest of Blue Chip which is outstanding. (c) Insurance Premiums Insurance premiums are recognized as revenues ratabiy over the terms of the policies. Unearned premiums are computed on a monthly or daily pro rata basis and are stated after deduction for reinsurance placed acquisition costs such as commissions, premium taxes and a portion of certair: other underwriting expenses, with reinsurers in the amount of $1.617 at December 31, 1981 and S2,264 at December 31, 1980. Premium for financial reporting purposes, are deferred and charged against income as the related premiums are earned. For statutory insurance accounting and' income tax reporting purposes, premium acquisition costs are charged against income when incurred. Dividends to policyholders, primarily relating to workers' compensation coverages, are reflected in the accompanying statements of earnings as a deduction from earned premiums: this reduction amounted to $3.534 for 1981, $2.405 for 1980 and $3.221 for 1979. 19

[PAGE 21]

Berkshire Hathaway Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) AND CONSOLIDATED SUBSIDIARIES (dollars in thousands) January 2. 1982 (1) Summary of Significant Accounting Policies and Practices (Continued) (d) Losses and Loss Adjustment Expenses The Insurance Group provides for losses and loss adjustment expenses based on (1) aggregate case basis losses, and (3) estimates received from primary insurers with respect to assumed reinsurance. The resulting estimates for losses reported, relating to direct premiums written. (2) estimates of incurred but not reported liability provision is reduced for amounts recoverable on account of reinsurance amounting to $6.162 at net ef recuveries of salvage and subrogation collected or in process of collection in accordance with statutory December 31. 1981 and $4.742 at December 31, 1980. Incurred losses and loss adjustment expenses are lo automobile physical damage coverages, ar: not recognized as they are considered immaterial in requirements; additional arnounts recoverable as salvage or on account of subrogation, relating principally the aggregate. (e) Stamp Service Accounting Blue Chip recognizes stamp revenues and related redemption costs upon issuance of its trading stamps. A the future cost of redeription merchandise and service; the estimates are periodically evaluated. At the liability account for unredeemed trading stamps is maintained consisting of management's estimates of was decreased. and the estimated redemption service cost - which was increased, with the effect of end of 1980, such an evaluation resulted in revision to both the estimated rate of redemption - which increasing Berkshire's 1980 net earnings by approximately S970 (94 cents per share). There were no comparable revisions of the estimate in 1979 or 1981. (f) Real Estate. Equipment. Furni are and Leasehold Improvements repairs and renewals of a minor nature are generaily charged to operations as incurred. (g) Inventories Inventories are stated at cost, determined for Berkshire and for the News under the last-in, first-out ("LI"O") method. Inventories of other members consolidated are stated at the lower of cost or market, with cost determined under the first-in, first-out or average cost methods. (h) Income Taxes Berkshir: and its eligible (over 80% owned domestic) subsidiaries file a consolidated Federal income tax return. Blue Chip and its subsidiaries alse file a consolidated Federal income tax return. Amounts included direct or apportior ed Federal taxes of the companies whose accounts are consolidated. in the consolidated balance sheets for current Federal income taxes payable ur recoverable include the Provision has been made for deferred taxes with respect to Berkshire's equity in undistributed earnings of The cumulative amount so provided was $4,645 at January 2. 1982 and $3.560 at January 3, 1981. Blue Chip. on the assumption that such earnings will eventually be distributed, taxable as dividend income. Deferred or prepaid income taxes are recognized in the accompanying Consolidated Financial Statements in time periods that differ from thos. in which they are included in the income tax returns filed for the with respect to certain items of income and deductions which are recognized in the financial latements companies. The principal such "timing difference." for which deferred income taxes of S5.664 at January note 1(c) above). Other assets include prepaid income taxes of Blue Chip amounting to S12,178 at December 2, 1982 and $6.515 at January 3. 1981 are recognized, is deferred insurance premiuin acquisition costs (see stamp redemption expenses. 26, 1981 and $11.211 at December 27, 1980 primarily in recognition of timing differences with respect to The liability for deferred income taxes ieflected in the consolidated talance sheets also includes S76,407 at January 2. 198 the net excess of market value over cost of marketable equity securities held by members of the ind $52.504 at January 3. 1981 representing amounts computed at capital gain rates on Insurance Group. 20

[PAGE 22]

Berishire Hathaway Inc. NOTES TO CONSOLIDATED FINANCIAI. STATEMENTS (Continued) AND CONSOLIDATED SUBSIDIARIES (dollars in thousunds) January 2. 1982 (2) Investments in Marketable Equity Securities A summary of the aggregate cost and aggregate approximate market value of investments in marketable equity securities is as follows: January 3, 1982 Carrying Insurance Group Held by Cost Market Value $203,856 Berkshire 25,471 S536.748 Blue Chip Stamps and its wholly-owned subsidiaries 79.050 27,934 $536.748 96,306 25,471 79.050 S368.387 S660.988 $641.268 January 3. 1981 Carrying Held by Cost Marke:, Value Insurance Group $237.016 Blue Chip Stamps and its wholly-owned subsidiaries Berkshire 79.891 21.526 $424,530 95.017 22,407 $424.530 79.891 21,526 S338.433 $541.95ł SE 25.947 1982 represented unrealized gains less unrealized losses as follows: The net excess of aggregate market value over aggregate cost of marketable equity securities heid at January 2. Berkshire. Insurance Blue Chip and Group owned subsidiaries its wholly- Combined Total Unrealized gains $278,997 Unrealized losses 6.115 $ 20,327 608 $299.324 6.723 Net excess of gains S272.882 $ 19.719 S292.601 (3) Investmen! in GEICO Corporation shares of GEICO Corporation, the approximate market value of which was $199.800 and the approximate cost of Included in marketable equity securities held by the Insurance Group at December 31, 1981 are 7.200,000 common which was $47,000. The shares possessed approximately 35% of the voting rights of all GEICO shares outstanding at December 31. 1981. With respect to these shares of GEICO held by members of the Insurance Group, Berkshire is required, pursuant to Order of the Superintendent of insurance of the District of Columbia, the corporate domicile independent proxy. Also, under the Order. no officer or director of Berkshire, or any affiliate or subsidiary of Berkshire. of GEICO. to maintain an independent proxy arrangement. It is prohibited from seeking or causing to change the is permitted to serve as a director of GEICO. As a result of the Orde- Berkshire is divested of its voting rights with respect to its holdings of GEICO and, accordingly, does not use the equity method of accounting for this investment. (4) Investment in the Illinois National Bank and Trust Co. of Rockford stock of the Illinois National Bank and Trust Co. of Rockfurd, a national bank conducting a commercial banking From April 1, 1969 to December 31, 1980, the Company owned approximately 98% of the outstanding capital operation in Rockford, Illinois. The Federal Bank Holding Company Act, as amended, required the Company to from its shareholders 41.086 shares of its issued common stock in exchange for its interest in the bank. thereby divest of control of the bank prior to january 1, 1981. Accordingly, as of December 31, 1980. the Company reacquired accomplishing the required divestiture. as earnings from "discontinued operations" in the accompanying statements of earnings for these years. That portion of the Company's earnings in 1979 and 1980 representing equity in earnings of the bank is reflected 21

[PAGE 23]

Berkshire Hathaway Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) AND CONSOLIDATED SURSIDIARIES (dollars in thousands) January 2. 1982 (5) Investment ia Wesco Financial Corporation Blue Chip's cost plus Blue Chip's equity in Wesco's undistributed earnings since date of acquisition. The unamortized Wesco Financial Corporation is approximaiely 80% owned by Blue Chip. The investment in Wesco is stated at excess of Blue Chip's equity in net assets of Wesco over its carrying value was $18.806 at the end of 1981 and $19,430 under the caption "Equity in earnings excluding realized investment gain of Wesco Financial Corporation" in the at the end of 1980. This excess is being amortized by Blue Chip over 40 years: ancual amortization (S624) is reflected California and has subsidiaries engaged in the stel products service business. Wesco and its consolidated subsidiaries Statement of Earnings for each of the past three years. Wesco owns Mutual Savings and Loan Association. Pacadena. hold investments in marketable securitics which at December 31. 1981 had a cost of Sº1.307 and a market value of $99.472. Summarized consolidated financial information of Wesco and its subsidiaries appears eisewhere in this report. Net earnings of Berkshire for 1980 benefited approximately S1,293 ($1.26 per share) from the transaction. In 1980. Wesco's savings and Ican su' sidi,. "'dito afteen branches and recorded a gain from the sale transaction. (6) Receivables Accounts receivable from, customers, agents and others was mace up of the following: Jan. 2. 1992 lan. 3. i981 Insurance Group: Investment income due and accrued Agents' balances and premiums in course of collection $ 21.596 5.907 21.759 Reinsurance recoverable on loss payments 5.653 5,273 Amounts due from sales of securities .. 33.477 321 5.665 33,300 603 Trade accounts receivable cí other businesses. net of allo vances for doubtf! accounts.. 16.424 16,561 Total receivables $ 49.901 $ 49.861 (7) Inventories A summary of inventories fellow's: Jan. 2. 1982 Jan. 3. 1981 Textile business ... ... $ 5,643 Other Candy business Retailing business 6.077 S 7,700 4.765 5,635 5,642 4,200 6.260 $ 22.120 $ 23.802 The carrying amnunts for inventories determined under the LIFO method were approximately $3.566 and $1.425 less than their aggregate replacement cost a! year-end 1981 and 1980, respectively. (8) Real Estate, Equipment, Furniture and Leasehold Improvements The composition of property, plant and equipment at the end of the past two years is shown below: jan. 2 1982 Jan. 3. 1981 Land $ 3,889 Buildings 19,318 3,957 Machinery and equipment 56,152 19,248 Furniture, fixtures and leasehold improvements 98.628 19.269 11.391 59,840 Less accumulated depreciction and amortization 47,156 42.952 94,436 S51.472 $ 51.484 22

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Berkshire Hathaway Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) AND CONSOLIDATED SUBSIDIARIES (dollars in thousands) January 2. 1982 (9) Term Debt Payable At the and of the past two years Berkshire's consolidated term deb' payable wes as follows: Jan. 2. 1982 Jan. 3. 1981 Berkshire: 94% Senior Netes maturing March 1, 1985 to March 1. 1993 at $7:7 annually 8% Senior Notes inaturing through March i. 1993 at S1.143 annualiy $ 16.571 7,000 17.714 7,000 12%% debentures maturing from August 1, 1991 through 8% debentures due 1985, with 1% additional participating interest August 1, 2005 at $4,004 annually 60.000 60.000 Other notes and debentures maturing through 1992 in varying aunual contingently payable 6,500 6.600 installments. with interest at rates varying from 7½% to 9% 92.889 2,718 94.349 3.035 Consolidated Subsidiaries: Term loan payable to bank. by Blue Chip Stamps 5.000 Other notes maturing through 2006 in varying installments. with interest at rates varying from 6% to 15% 4,879 4.995 $ 97.768 S104.344 and allow the noteholders io demand prepayment at par within 60 days of notice that, during the lifetime of Warren Berkshire's Senior Note Agreements include limiting terms relating to sales of assets, mergers and consolidations. less than 15% of the Company's outstanding capital stock. The Senior Note Agreements also impose a limitation E. Buffett. his ownership of stock of the Company, together with that of certain family affiliates, has decreaser to upon "restricted payments" by Berkshire. That term includes investinents by Berkshire in subsidiaries not bound by the terms of the Agreements, dividends and other equity distributions. Berkshire's investment in Blue Chip Stamps January 2. 1982 were free of restriction by this provision. the balance is restricted. is a "restricied payment" under the terms of the Agreements. Retained earings of approximately $98.000 as of Principal payments on term debt outstanding at january 2. 1982 are required as follows: 1982 $ 2.150 1983 1,536 1985 1984 1.479 8,863 Thereafter 1986 81,293 2.447 $97,768 23

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24 Berkshire Hathaway Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) AND CONSCLIDATED SUBSIDIARIES (dollars in thousands/ January 2, 1982 (10) Lines of Credit - Sabsequent Loan Agreeinent balances. Borrowirgs urder the line require collateral in the form of marketable securities with a value of at least Blue Chip has a bank line of credit of $10,000 expiring June 30. 1983 requiring maintenance of S500 compensating 150%, of the amounts bo.iowed. Interest rates on borrowings under the line are at the Lank's prime rate or below. borrowings (none at Dec. 26. 1981) which may be outstanding from time to time bear interest based on broker Additionally. Blue Chip and certain of its subsidiaries maintain stockbrokerage margin accounts. Margin account call rates. Boston. for which it agreed to maintain average balances with the Bank of 5% of the line plus 5% of any borrowings During 1980 and 1981. the Company had a $10.000 line of credit arrangement with The First National Bank of under the line. The line was not used in 1980 nor in 1981. Bank if Boston (the "Bark"). The Agreement provides for loans of up to $50 million by the Band to the Company In March, 1982. the Company entered into a Revolving Credit and Term Loan Agreement with the First National during a revolving term period which extends to February 28. 1985. The outstanding balance of the loans on Februar: 28. 1995 will be repayable in sixteen equal quarterly installments. Durino the revolving term period of the Agreement. of ¼ of 1%. Loans during the revolving term period will bear interest at the Bark's Bar- (prime) rate for domestic the (minpany will pay the Bank a committment fee on the unused portion of the commitment at the per annum ra: above the London Inter-ilank Offering Rate (LIBOR) for Eurodollar deposits. After the revolving term period, the money borrowings under the Agreement. or if the Company elects a form of loan involt ing Eurrdollars, a: ½ of 1%% interest rates payable on the loans will be ¼ of 1% over Base rate for outstanding domesti- vorrowings or ¾ of 1% committment and the repayment of borrowings in twelve equal quarterly installments if Warren E. Buffett ceases to over LIBOR for Eurodollar borrowings. The Agreement includes provisi ns for termination by the Bank of its act as chairman and chief executive officer of the Company or if total borrowings by the Company and its consolidated subsidiaries exceed a formula amcunt, generally 35% of Capitalization as defined. (11) Dividend Restricticis - insurance Subsidiaries extent that not more than approximately S70 million of dividends could be paid in 1982 by insurance subsidiaries Payments of dividends by Insurance Group members are restricted by insurance statutes and regulations. to the to the Company: without prior regulatory approvals.

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Berkshire Hathaway Inc. NOTES TO CONSOLIDATED FINANCIAL STATMENTS (Continued) AND CONSOLIDATED SUBSIDIARIES (dollars in thousands) January 2. 1982 (12) Income laxes The consolidated statements of earnings reflects charges for income taxe › applicable to: 1981 Operating Realized investment gain - continuing operations arnings $12,091 1930 1979 10.421 $13.513 2,401 $ 9,796 Security losses of bank (345) 2.703 $22,512 S17,999 $12,499 These taxes are comprised of: Siste Federal $19,948 2,428 $15,348 Foreign 136 2,489 $10.786 162 1,583 130 $22,512 $17,999 $12,499 hypothetical amounts computed at the Federal statutory rate. Income laxes appliceble to operating earnings as set forth above, are reconciled in the table which follows to 1981 1980 1979 Earnings from conrinuing operations inclading minority interests. beior applicabie income taxes and realized investment gain $60,257 $64.805 $51.509 Hypothetical amounts applicable to above computed at Decreases, resulting from: Federal statutory rate (46%) $27,718 $29,810 $23,736 85% dividends received credit Tax-exempt interest income (11,146) (3,190) (3,042) (8,640) (6.012) (2.747) :00% exclusion relating to equity in net earnings of: Illinois National Bark (3.275) (4.050) (2.176) (2,282) Benefits from unconsolidated subsidiaries Wesco (530) (4,041! Increases, resulting from: State income taxes, less Federal income tax benefit 1,413 1,216 821 Berkshire provision, at rate applicable to dividends, with respect to its equity in Blue Net other differences Chip's operating earnings (288) 859 777 578 1259) 580 Total income taxes applicable to operating earnings $12,091 $13.943 $ 9,796 The above Fedural incorne tax expense represents amounts assessed currently, adjusted for changes in amounts previously considered prepaid or deferred as follows: 1981 Currently assessed applicable to operating income $13,482 1980 1979 Change in prepaid (972) $11,638 Change in deferred liability arising from operations $12,091 (419) 1.158 1,147 $ 9,480 (115) 431 $13443 $ 9.796 25

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Berkshire Hathaway Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) AND CONSOLIDATED SUBSIIARIES (dollars in thousands) january 2, 1982 (12) Income Taxes (continued) redemption expenses. The change in the deferred liability arising from operations relates to the following: The change in prepaid income taxes relatos to timing differences primarily in reporting Blue Chip's stamp 1981 1980 1979 Undistributed income of Blue Chip Stamps 808 $ 730 S Deferred insurance premium acquisition costs (851! 235 536 Other timing differences (376) 193 (366) $ (419) $ 1.158 S (285) (115) Income taxes deemed applitable to realized investment gain are essentially equal to amounts computed at the Federal statutory rate of 28% applicable to long-term capital gains. (13) Realized Investment Gain - Continuing Operations A summary of net realized investment gain - continuing operations - for each of the past three years is presented in the following table. 1981 1980 1979 Pre-tax net gain realized by the Applicable income taxes Company and consolidated subsidiaries $34.739 (10,÷21) $15.934 (4.401) $ 9,385 Applicable minority interest .......• (2,179 (609) (2.702) 6,487 (196) 22,139 10.924 Equity in net realized Financial Corporation, an unconsolidated subsidiary gain (loss) of Wesco $22,881 742 $10,790 (134) 409 Realized investment gain — continuing oporations, net $ 6,896 The cost of securities sold is nsuaily determined on a first-in, first-out basis; occasionally, when specific identification of securities sold results in lower applicable income tax, identified' cost is used. (14) Lease Commitments Associated, Blue Chip, and subsidiaries of Blue Chip had significant lease commitments outstanding. the min- imum rentals under which were as follows at January 2, 1982: Year Associated Blue Chip Total 1982 $1.626 1983 1.279 $ 3,957 1984 1.018 3.611 $ 5,583 1985 734 3,134 4,890 1986 1.753 555 2,498 4,152 10,889 2,226 2.781 3,232 Thereafter 12.642 there were no capital lease commitments pertaining to real property; any such commitments with respect to equipment 'eases of Berkshire and its consolidated subsidiaries in effect at January 2, 1982 are ciassified as operating leases: leares entered into are considered immaterial. Total rental expense charged to consolidated net earnings was $9.797 for 1981. $10,145 for 1380, and $9.026 for 1979, including contingent real estate rentals in excess of stated minimum amounting to S3.071 for 1981. $2.726 for 1980, and S2.699 for 1979. 26

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Berkshire Hathaway Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) AND CONSOLIATED SUBSIDIARIES (collars in thousands) January 2. 1982 (15) Pension Plans under either employer-sponsored or union-sponsored pension plans. Total pension expense charged to consolidated Employees of Berkshire and its consolidated subsidiaries who meet certain eligibility requirements are covered earnings was $3.118 for 1981, S1.917 for 1980. and $2.454 for 1979. which includes, as to certain of the plans. amortization of prior service costs over a 30)-year period. Berksnire and its subsidiaries generalry fund pension costs as accrued. subsidiaries were last performed generally as of December 31. 1980 or 1981. The actuarial present values determined The latest actuarial evaluations of employer-sponsored defined benefit plans of the Company and its consolidated for accumulated benefits. using interest assumptions ranging from 6% to 10%. segregated as between overfunded and underfunded plans, together with assets available for benefits as of that date. are presented in the following table. Overfunded Underfunded plans pians Actuarial present value of accumulated benefits: Vested $ 5.987 $ 6.336 349 $18.639 Not vested 1.442 Total $20.081 Assets available for benefits 512,255 $18,903 (16) Litigation Evening News, Inc., filed an action against such subsidiary in the United States District Court under Federal antitrust On October 28. 1977 the Buffalo Courier-Express. Inc., a principal competitor of Blue Chip's subsidiary, Buffalo of the Sunday edition in place of its Saturday weekend edition and publication of Saturday and holiday editions. laws seeking to enjoin certain practices allegedly engaged in by the News in connection with the proposed initiatien thus providing competition for the existing Sunday edition of the Courier-Express. In addition to seeking an injunction. and counterclaim denying all liability and seeking affirmative relief of treble damages in an unspecified amount. the complaint seeks treble damages in an unspecified amount, attorneys' fees and costs. The News has filed an answer injunction, attorneys' fees and costs against the Courier-Express on the ground, among others, that the Courier- Federal antitrust laws. The Courier-Express was sold to the Minneapolis Star and Tribune Co. in 1979 and the Express seeks to monopolize the Sunday newspaper business in the Buffalo metropolitan area in violation of the litigation has been relatively dormant since that time. The company is presently unable to predict what effect. if injunctions it is seeking, the Comp'ay has stated the News probably will be forced to cease operations and liquidate; any, this transaction will have on the lawsuit. If the Courier-Express is successful in obtaining the kinds of permanent however, with discovery incomplete, the outcome of the action and the News potential exposure. if any. is uncertain. adverse effect on the consolidated financial position of Berkshire. notwithstanding its potentially severe impact upon It is the opinion of management of Berkshire that the ultimate outcome of this litigation will not have a materiall! the News. (17) Quarterly Data Results of operations for the four quarters of 1981 and 1980 appearing on the following page is incorporated in these Financial Statements b; this reference. (18) Business Segment Data Information as to business segments is shown on page 32 and is incorporated in these Financial Statements by this reference. 27

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2. Berkshire Hathaway InC. (dollars in thousands except per share amounts) QUARTERLY DATA This information is unaudited. 1st 2nd Quarter 3rd Quarter** 4th 1981 Quarter Quarter Earnings before realized investment gain Income items $113.388 $115.184 $103.592 $146.532 9.133 Realizad investment gain 5.713 12,580 10.972 7.801 11.817 2.407 2.181 Net earnings $ 14.816 $ 23.552 $ 10.208 $ 13.998 Per share. Net earnings Earnings before realized investment gain 15.06 9.26 11.13 23.88 10.35 7.91 $ 11.98 14.19 1980 Earnings from continuing operations before Income items $116.914 $119.662 $104.788 $150.793 Equity in earnings - before securities realized investment gain 8,956 9.001 6,193 14.324 losses - Illinois National Bank' 1.289 10.079 1.078 1.055 1.309 Realized investment gain Earnings before realized investmeni gain 10.255 1,110 7,248 1.255 15.633 7.271 271 Net earnings S 17.526 S. 11,189 8.503 $ 15.904 Per share: Earnings from continuing operations Earnings before realized investment gain before realized investment gain $ 9.98 8.73 8.76 10.89 9.81 7.06 6.03 13.95 8.28 15.22 Net earnings 17.06 15.48 •Berkshire divested itself of its interest in the Illinois National Bank on December 31: 1980. *Candy business revenues and earnings are normally seasonally higher in the fourth quarter, compared to earlier per share) resulting from revisions to estimation factors applied in computing Blue Chip's liability for unredeemed quarters of the year. Additionally, 4th quarter of 1960 earnings include (1) a benefit of approximately $970 (94 cents $1,293 ($1.26 per share) attributable to sale by Wesco's savings and loan subsidiary of its fifteen branches (See Note trading stamps (See note 1(e) to Consolidated Financial Statements), and (2) the Company's equity of approximately (5) to Consolidated Financial Statements). 28

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[PAGE 31]

Berkshire Hathaway Inc. BUSINESS ACTIVITIES OF THE COMPANY AND ITS SUBSIDIARIES (a) Underwriting of property and casualty insurance. The insurance business is conducted through several lanuary 2. 1982 are National Indemnity Company and National Fire and Marine Insurance Company, companion carriers sharing a wholly-owned subsidiaries referred to throughout this report as the "Insurance Group. " Principal insurance subsidiaries reinsurance opechon is also conducted through National indemnity and through Columbia Insurance Company. a home office in Omaha. Nebraska, and specializing in non-standard automobile and general liability insurance. A Nebraska domiciled insurer. "Home state" multiple line property and casualty insurance operations are conducted coverages are provided by other subsidiaries of the Company, principally: Cypress Insurance Company. Pasadena. through subsidiaries formed for that purpose in Colorado, Kansas. Minnesota. Nebraska and Texas. Workers compensation Company, Alexandria. Louisiana. (Redwood succeeded in 1980 to the business formerly conducted by a branch office California, Redwood Fire and Casualty Insurance Company. Los Angeles. California and Southern Casualty Insurance of National Indemnity.) Home and Automobile Insurance Company, based in Chicago. is a subsidiary of the Company which underwrites non-standard automobile and general liability insurance. to the operations and from policyholders funds derived from unearned premiums and loss reserves. The insurance busiress generates significant amounts of investment income. both from capital funds committed Massachusetts. operations of which by the Company or its predecessors dates back to 1889. and maintains sales (b) Manufacturing and selling of woven textile products. The company owns a weaving mill in New Bedford. offices in New York City and Los Angeles: a Canadian subsidiary maintains a textile products sales office and warehouse in Toronto. Canada. In 1980, operations of a subsidiary textile operation in Manchester. New Hampshire. purchased in 1975, were discontinued. Sales are through employces to home fabric jobbers and converters. menswear converters, industrial fabrics and Products of the textile business include curtain and bedspread materials, apparel fabrics and industrial fabrics. apparel fabrics converters. custom and ready-made curtain manufacturers. bedspread manufacturers, retail chain and through Associated Retail Stores, Inc.. ("Associated"). Associated has been a wholly-owned subsidiary of the Company (c) Retailing of popularly priced women's and children's apparel. The Company's retailing business is conducted or a now-merged predecessor of the Company, since 1966. Associated's headquarters and central warehouse are in 60.000 square feet of selling and non-selling floor area, located in eleven states, principally in the midwest (Chicago) Long Island City, New York; it had 88 ratail outlets at January 2. 1982. ranging in size from 2.00G square feet to and in northeastern states. engaged directly in the promotional services business. and wholly-owned subsidiaries of Blue Chip are engaged in (d) Blue Chip Stamps. Blue Chip is an approximately 60% owned subsidiary of the Company. Blue Chip is the candy business — See's Candy Shops. Incorporated. and the newspaper business - Buffalo Evening News. Inc. used by business organizations to attract or retain customers (mainly a conventional trading stamp program). (i) The promotional services business. Blue Chip offers two principal types of promotional services: (1) those and (2) those used by businesses or other entities for internal purposes (motivation programs). in the California-Nevada area. Revenues of the trading stamp service component declined dramatically in the Blue Chip's trading stamp service. started in 1956. continues to be the pre-eminent trading stamp operation early 1970's after peaking at S124 million in the fiscal year ended February 28. 1970. but have been relatively stable over the past several years. Such revenues were $15.6 million in 1981 compared to $16.7 million in 1980 and $15.9 million in 1979. However, such revenues are expected to drop materially in 1982. One Southern California supermarket chain which accounted for about 51% of the 1981 trading stamp service revenues has in the trading stamp business: its management believes trading stamps are an effective point-of-purchase sales told Blue Chip that it will discontinue giving trading stamps effective April 1. 1982. Blue Chip intends to stay promotien device for certain retailers. Blue Chip currently has 37 - Jrapon outlets, compared to 41 one year ago and a peak number of 90. travel in order to stimulate sales or productivity: promote attendance or safety. or perform other employee Blue Chip Motivation, a separate division. tailors programs for businesses using awards of merchandise and programs vary greatly as to size and duration with the result that revenues of this division fluctuate from year motivational functions. The division concentrates its sales efforts generally in Western United States. Motivation 30

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Berkshire Hathaway Inc. BUSINESS ACTIVITIES OF THE COMPANY AND ITS SUBSIDIARIES (Continued) and other confectionary products of high quality in two large kitchen facilities in California. See's is believed (ii) See's Candy Shops, Incorporated. Blue Chip purchased See's in 1972. See's produced boxed chocolates to be one of the largest candy manufacturers distributing through its own chain of retail shops: it now has 199 in tweive western and midwestern states including Hawaii. during the Thanksgiving-Christmas season, when high shop volume is augmented by quantity sales to organizations A significant degree of seasonality exists in this business: about 50% of cach year's candy sales is generated at reduced prices. Blue Chip in 1977. It publishes a daily newspaper in Buffalo. New York. Advertising revenues of the News. (iii) Buffalo Evening News, Inc. The assets of this entity, subject to certain liabilities. were purchased by representing most of its revenues. peak during the fourth quarter of the year due to holiday advertising. The News is involved in litigation proceedings. See Vote (16) to the accompanying Consolidated Financial Statements. Corporation, through Blue Chip's ownership of approximately 80% of the outstanding stock of Wesco In the Company's In addition to the above businesses. the Company has approximately 48% economic interest in Wesco Financial Chip's investment in Wesco. Wesco invests in marketable securities and real estate. and owns all of the outstanding Consolidated Financial Statements included in this report. the equity method of accounting is reflected for Blue Steel Warehouse. Inc. ("Precision"). Further discussion of the business of Mutual and Precision is included at pages stock of Mutual Savings and Loan Association. Pasadena. California ("Mutual"). Wesco also owns 100% of Precision 40 to 41 of this report. 31

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[PAGE 34]

Berkshire Hathaway Inc. PARENT COMPANY ONLY - CONDENSED FINANCIAL STATEMENTS (dollars in thousands) Balance Sheets cn. 2 982 Jan. 3. 1981 Income: Statements of Earnings 1981) 1980 1979 1979 27.966 Assets: Investment in wholly-owned From subsidiaries: 1,723 subsidiaries (includes unreslized Interest S 474 33.325 539 5.146 695 703 12,785 2,775 appreciation of marketable equity Dividends - Property" Dividends - Cash $477,300 41.290 21.955 7,692 (4,617) 2,397 subsidiaries) securities held by insurance Undistributed earnings 103.827 2.558 Interest and dividends — 75.628 32.071 59.867 36.267 44.662 Investment in Blue Chip Stacaps Investment in marketable equity Cash and invested cash 25.471 Gross profit (loss) from textile other investments 2.677 1.083 70 9,987 (5.729) (647) Accounts receivable and inventories of at cost 10 product sales *her asset: 4.042 Other income (loss) (253) 78.617 565 3.157 63.300 _(807) 4,838 ÷9.607 37 46,640 parent compan; 's textile business Costs and expenses: Lisbilities and stockholders' equity: Administrative and selling Accounts payable and accrued expenses of textile business Term debt payable expenses 6.044 Current and deferred income taxes 92,889 7.553 Corpor: i, administration•• 2,689 104,190 5.257 94,349 102,530 628 Income taxes Interest expense 10.745 2.579 3.194 893 2.944 6.078 3.172 647 13 27 1979 16.013 10.178 6,790 486 459 Net earnings S62.604 $53.122 S42.817 1,199 151 Stockholders' equity (See Consolidated Balance Sheet) S623.652 519.462 $497.744 395.214 • Dividends received in property were in the form of shares of Blue 2,159 146 *• Corporate administration costs in 1981 reflect contributions pursuant Chip Stamps stock. 4,651 51 to shareholder designated contributions prugram. Wesco Financial Corporation is an approximately 80% owned subsidiary of Blue Chip Stamps: Blue Chip Stamps Wesco Financial Corporation is approximately 60% owned by Berkshire. Berkshire's economic interest in Wesco. therefor, is about 48% 1979 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 86,185 (doliars in thousands) December 31 90,646 Balance Sheets 1981 1950 Statements of Earnings 1981 1980 1979 30,864 19,350 Assets: Financial revenues: 181,949 41.089 Financial: Interest on loans. loan fees Cash and temporary cash $ 28,100 123,755 $ 54,972 and service charges Investments, at cost investments 149,656 105.875 Interest and dividends 106,356 24,407 315.618 14.137 164.648 frora investments Loans receivable 34? 338 16.843 Gain or sales of brarches Other assets Other 797 from their ompanies. Steel service: Financial expenses: Cash and temporary cash Accounts receivable and investments 3.328 :.695 Interest on notes payable Interest on savings deposits 11,151 General and administrative 00 1979 Property, plant and equipment. ret inventories :1.788 6,112 6,175 income taxes Other assets 21.386 158 19.187 166 Net income from Steel service: financial operations 6.163 10000940000012920 7,845 (4,895) (4,338) 5,130 $337.034 S361.525 Revenues Costs and expense. 46.986 Liabilities and stockholders' equity: 24.224 3.742 Financial liabilities: Savings duposit $168,366 including income taxes Net income from steel 45.039 Notes payable Other liabilities. including 73,719 27,966 Net income before service operations 1.947 incorne taxes 254.133 12.048 Realized securities securites gains 8.110 Steel service liabilities: Other liabilities. including Note payable ... 2.138 2.188 Net income gains (losses) $ 9.779 1.669 (170) 73 income taxes.. 2.247 1.121 Stockbolders' equity Total liabilities 109.461 227,573 258,568 4.435 $337.034 S351,525 102.957 33

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8 Berkshire Hathaway Inc. FINANCIAL CONDITION AND RESULTS OF OPERATIONS MANAGEMENT'S DISCUSSION AND ANALYSIS OF Results of Operations 13 This discussion should be read in conjunction with the Selected Financial Data. the Business Segment 12 Operating profit before taxes is shown in the Business Segment Data. The impact of income taxes is not Data and with the Consolidated Financial Statements and notes thereto appearing elsewhere in this report. proportional to the pre-tax income of the Company's business segments because of the tax-free nature of segments. Also. the minority interest in Blue Chip's segments is significant. Therefore, presented below municipal bond interest income and the virtually tax-free nature of dividend income earned by certain is a summary of net earnings - after giving effect to income taxes and after deduction of the applicable minorit. interest - for the past three years. Berkshire's Net Earnings (000s omitted) After Taxes 1981 1980 1979 Insurance: Underwriting gain 798 Net investment income 32.401. $ 3.537 507 $ 2.214 20,105 It Equity in operating earnings' of: Sub-total - Insurance 33.199 :244 22.320 Wesco Financial Corporation? Blue Chip Stamps and its wholly-owned subsidiaries 7.884 3.95 ' 6,456 44.299 _(73-) 1.371 4,885 4,793 3.739 Textiles and retailing (4.576) (3.472) 41.956 32,980 2.128 Net unallocated costs - principally interest? (2.019) Earnings from continuing operations before Equity in earnings (before securities losses realized investment gain 39.723 38.484 30,961 in 1980) of Illinois National Bank 4.731 Realized investment gain, net* Earning: before realized investment gain 39.723 22.881 43.215 4.960 9,907 35.921 10 6.896 Net earnings $62,604 $53.122 $+2.817 ' "Operating earnings" of Blue Chip has been computed before deduction of its interest expense, net of tax effect. Any significant realized gain or loss from sale of securities by Blue Chip and Wesco is excluded from the computation 18 of "operating earnings" of these subsidiaries. 16 16 :''Operating earnings" of Wesco for 1980 include gain from sale of Mutual Savings and Loan Association's fifteen 14 branches. Berkshire's share of such gain included in the above tabie was $1.293,000 in 1980. 34 'Net unallocated costs include Berkshire's proportionate share of Blue Chip's interes! expense, net of tax effect. 50 *Realized investment gair: includes Berkshire's proportionate share of any significant net securities gains or losses B3 of Blue Chip. Wesco and the illinois National Bark. 76 created the tax or generated the benefit; amounts so assigned may differ from amounts allocated to the Income taxes have been assigned in the above tabulation to the income or deduction items which various legal entities in accordance with tax sharing agreements effective as between the entities. 67 40 73 34

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9 Berkshire Hathaway Inc. MANAGEMENT'S DISCUSSION (Continued) Insurance declined. A summary of underwriting results of the Insurance Group for the past three years is as follows: Premium volume of the insurance Group declined significantly in 1981. The underwriting gain also (Dollars in thousands) 1981 1980 1979 Amoun: Amount Amount Premiums written $148.000 XX $184.86+ XX $186.185 XX Premiums earned 159.013 100.0 185.187 100.0 181.949 100.0 Losses and loss expenses 103.417 65.1 118.230 63.9 120.337 66.1 Underwriting expenses 54.118 34.0 60.219 32.5 57.870 31.8 157.535 99.1 178.449 96.4 178.207 97.9 Underwriting gain (pre-tax) S 1,478 0.9 6.738 3.6 3.742 2.1 automobile and general liability lines underwritten through National Indemnity Company and National A major portion of the total husiness of our insurance Group is representerd by the traditional specialized when industry price competition is fairly intense (as it was in 1981). the number of "specialty" risks Fire and Marine Insurance Company. The volume of this business is subject to significant fluctuation; offered at acceptable prices to our companies declines significantly. About 55% of the Insurance Groups earned also declined; this was. similariy, the result of competitors willing to write business at rates lower 1981 decline in premiums earned was recorded in this price-sensitive business. Reinsurance premiums than we were willing to match. Decline in Homestate premium volume reflects principally the discontinuance in late 1980 of our iowa corporation. Workers' compensation underwriting gains declined: some favorable loss reserve developmentsare reflected While underwriting profits of the specialized businesses declined. these operations remained profitable. in 1981 results for this business, but in lesser amounts than in the prior two years. 1980 and 97.1% for 1979. That ratio is the sum of the ratio of losses and loss adjustment expenses to The statutory combined ratio for our Insurance Group was 100.3% for 1981. compared to 96.6% for premium figures are reduced, in our calculation. for dividends to policyholders. In the property/casualty premiums earned plus the ratio of statutory underwriting expenses incurred to premiums written. Both industry. this ratio is an indicator, where a ratio of 100% indicates break-even (i.e.. costs and expenses are equal to the related premiums). higher than 100% indicates an underwriting loss, and less than 100% indicates an underwriting gain. The computation of the statutory combined ratio takes into account written premiums without regard to when those premiums may be earned. Generally accepted accounting principles as applied to premium acquisition costs (underwriting expenses) do not provide deferral of such of those costs as are deemed "period costs. " ie.. those deemed as continuing without regard to volume: statutory accounting practice results in no deferral of premium acquisition costs. A common result for periods in which there is a sizeable difference between premiums written and premiums earned 100% (such as occurred with respect to our Group for 1981). or. conversely, reflection of an underwriting may be reflection of an underwriting gain for a period for which the combined ratio was slightly over as compared to the preceding year. The increases reflect both (1) an increased yield earned on total average Investment income of the Insurance Group increased fairly significantly in both 1980 and 1981, each investments (with the yield measured on cost). and (2) an increased total of investments: in each year. a than was derived from increased yield. Berkshire contributed $28.750.000 additional equity capital to greater portion of the increase in investment income was derived from the increased level of investments the Insurance Group in 1980: the funds contributed represented part of the proceeds of its public debt offering in August. 1980: additional funds for investment by the Insurance Group have been generated by their operations. 35

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Berkshire Hathaway Inc. MANAGEMENT'S DISCUSSION (Continued) Blue Chip and its Wholly-Owned Subsidiaries three constituent businesses are shown in the table below. The figures are before deduction of interest Amounts contributed to Berkshire's earnings in each of the past three years by each of Blue Chip's expense. do not reflect any realized securities gains. and are net of applicabie or deemed applicable 1981 (000s omitted) 1980 1979 See's Candies $6.042 S4.212 Buffalo Evening News Promotional services 2.134 (292) 3.060 $3.448 (816) (1.333) 1.624 $7.88+ S6.456 $3.739 with respect to substantially unchanged unit volume, while ingredient costs increaser only moderately. See's profits in 1981 rose sharply to an all-time record. Revenues were up about 15% from 1980. See's earnings increased about 20% over 1979; the dollar vciume of candy revenue: in 1980 exceeded The Company's management considers See's earning performance in 1981 to be phenomenal. In 1980. those of 1979 by approximately 12% due almost completely to price increases, and 1980 cost increases from 1979 were a lesser percentage increase. of Blue Chip includes approximately $970,000 from revisions to its estimated liability for redemption of The contribution to Berkshire's earnings in 1980 (the prior year) by the promotiona: services segment its trading stamps. Revisions of the estimation factors used to determine that liability are required 1981 from Blue Chip's promotional services business was substantially unchanged from 1980 except for periodically, with the last prior revisions occurring in 1976. The contribution to Berkshire's earnings in the revisions, was slightly higher than in 1979 principally as the result of higher investment earnings the benefit to the prior year of those revisions. The 1980 profit contribution, other than that reflecting reduced in amount from year-to-year. The steady reduction in the loss reflects a combination of aggressive The Buffalo Evening News has recorded an operating loss in each of the past three years. steadily losses in specific areas including litigation expenses and labor contract provision "buy-out" expenses. price increases. intense efforts at general cost containment. and reduction or elimination of expenses or the latter incurred in order to allow the News to benefit from equipment modernization. Wesco Financial Corporation Company's equity in earnings of Wesco Financial Corporation. 80% owned by Blue Chip. defined in As shown in the table presented at the beginning of this discussion of results of operations. the $4.885.b. • includes our equity of $1.293.000 in a gain recorded by Wesco's savings and Ican subsidiary remaining approximately the same in 1980 as it was in 1979. However. the 1980 figure of should more appropriately be compared to a 1980 figure of $3.592.000 from sources other than the sale from sale of its branches. so that Berkshire's 1981 equity in Wesco's earnings, amounting to $3.950.000. of branches, and to a figure of $4.793.000 for 1979. The profits of Mutual Savings, the principal Wesco operation. are under pressure from both high interest rates - reducing its net interest margin - and from competitive pressures created by removal. in part. of the distinctions between banks and savings and loan associations. Textiles and Retailing business in 1981. Competitive pressures were severe. and operations were significantly curtailed to avoid A significant operating loss - $2.669.000 before credit for tax benefit — was recorded from our textile to have precluded the 1981 loss from being even greater. Retailing profits were also under pressure in building of inventories. The shut-down of the Manchester. New Hampshire operation in late 1980 appears 1981. resulting in some decline from 1980 in pre-tax profits of Associated Retail Stores. In 1981, Associated increased the number of stores it operates, enabling its revenues to remain at nearly the same level as in 1980, but its total costs increased. 36

[PAGE 38]

Berkshire Hathaway Inc. MANAGEMENT'S DISCUSSION (Continued) Net Unallocated Costs issuance in August. 1980 of its S60 million 12¾% debentures due 2005. The debt was outstanding for Interest expense increased in 1981 from 1980. and increased in 1980 from 1979 as a result of Berkshire's all of 1981. but only during the last five months of 1980. Liquidity and Capital Resources management's opinion, the fiduciary nature of obligations to policyholders of Berkshire's insurance Berkshire's corsolidated balance sheet at January 2. 1982 reflects continuing significant liquidity: In subsidiaries and to savers of Blue Chip's trading stamps requires maintenance of high liquidity, and considerably above industry norms in Berkshire's insurance subsidiaries allows those operations to management expects to meet this requirement with a significant margin of safety. Maintenance of liquidity perform their underwriting function with a sule view towards underwriting profitability: they are not forced to accept premiums to maintain positive cash !...* reinvestment in property, planı and equipment. Generally, management tends to avoid deployment of Berkshire's businesses are not capital-intensive: i.e., they do not require significant investment or assets in businesses of such a nature: on the contrary. Berkshire desires to own companies engaged in businesses that produce positive cash flow. $254 million at the end of 1978 to S519 million at the end of 1981. the net increase amounting to $265 Berkshire's total equity capital has more than doubled over the past three years, from approximately million. Realized and unrealized securities gains during the three years represent approximately S175 not expect the Company to rely upon a high degree of leverage in its financing at any time in the foreseeable million of the increase. Debt is used by Berkshire in relati rely modest amounts. and management does future. Management is averse to reliance on any significant amount of short-term debt. In August. 1980. repayable through operation of a sinking fund in the vears 1991 through 2005. No significant debt financing Berkshire issued, in a public offering. S60 million 12%% debentures, the principal amount of which is occurred in 1981. In March. 1982. the Company obiained a $50 million revolving loan committment from the First National Bank of Boston. Berkshire did not undertake the :980 debenture financing nor obtain when attractive opportunities arise to profitably use the funds. Management believes that such opportunities the 1982 revolving loan committment because of any specific needs, but rather to have the funds in place may preseni themselves when credit is extremely expensive or even unavailable. The Parent company is largely dependent upon dividends received trom its subsidiaries to provide subsidiaries are subject to regulatory restrictions: the possibility that such restrictions may significantly its own cash requirements including debt service requirements. Dividenú of five of its insurance subsidiaries (so that a limitation as to one company would not be a limitation as restrict dividend payments to the Parent is provided for (1) by retaining direct ownership by the Parent to all). (2) by direct ownership by the Parent of shares of Blue Chip Stamps. und (3) by retention of significant liquid assets at the Parent company level. Inflation businesses. Generally. Berkshire receives current revenues in any year which have substantially the same Berkshire's management does not believe that. to date. inflation has seriously affected Berkshire's purchasing power as the dollars which represent its current costs. Very few of Berkshire's costs are stated in dollars which are other than current dollars. insurance businesses. particularly since premium rates are established well in advance of incurrence of Very large changes in the rate of inflation that were not anticipated could seriously impact Berkshire's the related costs. Management believes that to date. however, underwriting results have not been impacted materially by inflation or changes in inflation rates. 37

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The 1981 Annual Report of Blue Chip Stamps included the following letter to Blue Chip stockhoiders from the Chairman and the President of that Company. To Our Shareholders assets) for the calendar year 1981 increased to $20.895.000 (S4.03 per share) from $16.564.100 ($3.20 per Consolidated operating income (i.e.. before all net gains from sales of securties, mortgages and important fixed share) in the previous year. increased to $27.626.000 (S5.33 per snare) from $20.389.000 ($3.94 per share) in the previous year. Consolidated net income (i.e.. after net gains from sale of securities, mortgages and important fixed assets) (80%% cwned). Precision Steei (80%-owned), and Buffalo Evening News. Inc. (100%-owned). in addition to the We have four major subsidiaries. See's Candy Shops. Incorporated (100% owned). Mutual Savings reporting years just ended breaks down as follows (in 000s except for per-share amounts): basic business (primarily trading stamps) operated by the parent company. Our consolidated income for our two Blue Chips equity "n sales of securties Net gains on Net operating income (oss, of Mutual Siee! Buttalo All other nei mongages and important lixed Blue Chip Year ended about See's' Savings*? Business Evening News"? operating income" assets"> consolidated net inconie December 31.1981 S10.647 $1.560 (531) Per Blue Chip share .. 2.06 65 30 (.10) $5.826 $6.731 3,825 1 30 $27.626 1.12 5.33 December 31. 1980 7,270 1.205 (1,472) Per Blue Chip share 1.40 .81 23 (.28) 5,380 .74 20,389 1.04 3.94 •Atter increasing income by amortization of the discount from Mutual Savings book value at which the interest was acquired and eliminating •After reducing income by amorization of intangibles arising trom purchase of See's at a large premium over its book value • After reducing income Dy amortization of relatively minor intangibles arsing at acquisition of the newspaper gains and iosses from sale by Mutual Savings of securities mortgages and importan! !ixed assets •*After deduction of interest and other corporate expenses In each yea. tere was an operatg loss from promitional services activities before residual consolidated net income was credited with (!) dividends and interest resulting primarly from investment of the funds dividends in computing rederal income taxes. plus (ir) Blue Chip's share of dividends. interest and rent from securities and real esiate available through 'float" caused by frading stamps issued bu. st ye! redeemed. plus (i) income tax benelli caused by 85% exclusion of adjustment of Blue Chip's stamp liability account in the amount of $1.747 or $ 34 per Blue Chip share. net of taxes. as explained below held by the Wesco Financial Corporation group outside its savings and ion and steel service activities. plus i) in 1930 a net *The 1980 figures comprise $2.332 or $ 45 per Blue Chip share attributable to Mutual Savings sale of 15 branch offices. as explained below under "Promotional Servic's Rusiness and Miscellaneous Sources of Operating Income " under "Mutual Savings and Loan Association," and $1.493 or S 29 per Blue Chip share of net secunties gains realized by the various entities inciuding Mutual Savings. net of taxes and minority interest The 1981 figures relate solely io such net securities gains The foregoing breakdown (of the same aggregate earnings) differs somewhat from that used in our audited financial statements because we believe it better explains what is really happening than does our accompanying consolidated We take the pains to prepare our unconventional breakdown of earnings and to furnish it in this letter income statement in conventional form. Generally. we are trying to improve our annual letter to shareholders each year so as better to disciose the things we would want to be told if the roles were reversed and we were passive investors. However, we make no effort to provide fresh or novel descriptions. Repetition seems ideas are part of our fixed business catechism. Accordingly. where previously used words, sentences or appropriate to us where facts remain both true and arlaytically important over many years and where certain paragraphs appear adequate we simply repeat them, inserting up-to-date numbers SEE'S CANDY SHOPS, INCORPORATED The earnings of our 100%-owned subsidiary, See's Candy Shops. Incorporated, increased 43.7% last year. a See's for exactly ten years. Comparative figures for See's for the entire ten-year period of our ownership are set phenomenal performance considering the general state of retailing in the current recession. We have now owned

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Reproduced from 1981 Annual Report of Blue Chip Stamps. Profits DOu: ds o! Numbe: of siores open Number of Year ended about Sales alter taxes candy soid at year end December 31. 1981 $112.578,000 S11,130.000 24.052.000 199 December 31. 1980 97.715.000 7.747.000 24.065.000 191 December 31. 1979 87.314.000 6,473.000 23.985.000 188 December 31. 1978 73.653.000 6.289.000 22.407.000 182 December 31. 1977 62,886.000 5.262.000 20.921.000 179 December 31. 1976 56.333.000 5.618.000 20.553.000 173 December 31. 1975 50.492,000 5.308.000 19.134.000 172 December 31. 1974 41.248.000 3.229.000 170 December 31, 1973 35.050.000 2.069.000 17.883,000 17.813.000 169 December 31, 1972 •These earnings ligures are a little higher than Blue Chip Stamps snare of Sees earning shown in the tabie on page 1 because Blue Chias 31.337.000 2.332.000 16.954,000 167 share reflects (i) amorization of intangibles ar" taxes on See's dividends received by Blue C: ; trom purchase of See's stock at a large premium over book value and (il) state income even though prices were increased at a rate which turn out to be somewhat higher than the inflation rate. Shop See's aggregate sales in pounds held up well Isst year, heing essentially unchanged from the previous year registered an aggregate decrease in poundage of 1.6%. Christmas season quantity order sales to businesses sales increased, but only because of the impact of additional stores. Shops operating throughout both years revenues up about 15%. See's profits rose sharply to an all-time record declined for ine first time since the 1974 recession. Ingredient costs in 1981 increased only moderately and. with conservative. Our record as foreteliers of the future is often poor, even with respec: to businesses we have See's is by far the finest business we have ever purchased, exceeding our expectations. which were quite owned for many years, and we so greatly underestimated See's future that we were lucky to acquire it at all Huggins. who has spent his working life in its business, to run the company in his and its traditional way. Chuck However, we have at least had the good sense all these last ten years to want See's chief executive. Chuck k.nd of quality enterprise he and his predecessors and co-workers have created Huggins is a splendid man and a splendid manager. it is no minor privilege to be associated with him and the candy-store business remains subject to extraordinary cost pressures, offset to some extent in 1981 by Boxed chocolate consumption per capita in the United States continues to be essentially static, and the subnormai increases ir. ingredient costs. When See's increases prices each year to reflect cost pressures, it never knows whether consumer resistance will cause net profits to fall instead of rise. Thus far, consumers have which, aided by large recent gains. has turned out to be quite satisfactory. This stair been willing to keep buying in the amounts required to keep See's profits rising irregu'sv at an average rate continue forever if, on average, See's costs keep increasing faster than the general rate of inflation. Moreover. in fairs logically cannot some future years commodity and ingredient prices will rise sharply and unexpectedly, causing unanticipated decreases in profits. See's seasonal sales peak becomes more extreme each year, causing many operating problems and a growing Perhaps because price increases deter purchases for personal consumption more than purchases for gifts. concentration of See's net income in the single month of December. detail. So far as we know the candy-store business continues to be terrible to mediocre for all other companies. See's success to date becomes even inore remarkabie when its industry background is examined in more seasonality of the business which requires staffing and maintenance of stores at minimum levels grossly which tend to suffer from a combination of (1) Iow sales per square foot of retailing space plus (2) the greai unjustified by sales during about 90% of each year. customers prefer the taste and texture of See's candy, as well as the extremely high level of retailing service We believe that See's exceptional profits occur. despite all the problems. mainly because both new and ola expensive natural candy ingredients plus expensive manufacturing and distributing methods that ensure which characterizes its distribution. This customer enthusiasm is caused by a virtually fanatic insistence on square foot in the siores. frequently iwo to three times those of competitors, and by a strong preference by gift rigorous quality control and cheerful retail service. These qualities are rewarded by extraordinary sales per recipients for See's chocolates, even when measured against much more expensive brands amounted to $38.3 million and incided liquid assets adequate to finance See's substantial annual build-up of At the end of 1981. the portion of Blue Chip's consolidated net worth represented by its interest in See's pre-Christmas inventories. Obviously, based on See's 1981 earnings of $1 i. 1 million, this investment in See's is worth considerably more than its carrying value in Blue Chip's consolidated balance sheet.

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Reproduced from 1981 Annual Report of Blue Chip Stamps. Lasi year we made "a guarded forecast that See's earnings would increase at least moderately in 1981." In 1982 See's will try again to increase earnings and a modes: increase is quite conceivable. MUTUAL SAVINGS AND LOAN ASSOCIATION Our equity in Mutual Savings' operating income declined sharply in 1981 to S3.393.000 from S4. 181.000 in the previous year and loan associations suffered large operating losses and some falled and were absorbed by stronger Earing these reduced profits was an achievement of some note, Jecause in 1981 almost all other savings companies under pressure from governmental regulatory authorities. The financial pressure has continued into associated with past and anticipated inflation and removal of much former regulation limiting rate competition for 1982. The troubles are caused by a borrowed-short, lent-long position, combined with high current interest rates savings accounts. Associations have been forced io pay interest faies to hold savings accounts which are higher than can be covered by locked-in yields from long-term, fixed-rate mortgages acquired years ago in what now seems like a different world princiule for soft sciences (like business. politics. economics and law) that bad ideas are born good. A The sorry state of the savings and loan industry is one more example of the operation of Garrett Hardin's well-intentione + idea of some kind works fine for a while, then stops working and goes into reverse. as did the governmental regulation to force savers to take an inadequate reiurn in an inflationary period. If. as seems likely. basic savings and loan idea of borrowing short and lending long to an extreme degree while depending on course when the danger flags siart flying as the cherished ideas of the pasi are faithfully followed. Unfortunately. Harain's principle is part of an inevitable human legacy. tragedy can be averted. partially. only by reversing another perverse phenomenon interferes here - the tendency of the mind to rejec the message from a danger signal which is inconsistent with a cherished idea the savings and loan industry we started coping better with reality when it stopped waving the danger "ags at us Ai Mutual Savings we were 1o0 blind for too long, exactly as Hardin would have predicted, but like the rest of and started using them to poke us in the head and stomach. modest profits despite having a substantial borrowed-short, lent-long position, including a fixed-fate mortgage The eventual result of our efforts to cope with reality has been that Mutual Savings has continued to make portfolio bearing what is probably the very lowest average interest rate among all U.S. associations (7.6% per annum at the end of 1981). The 1981 profits occurred, notwithstanding this handicap, because Mutual Savings (1) so far as we know, a higher ratio of shareholders equity to total interest-bearing liabilities than any other (2) a higher-than-normal proportion of assets in short-term, interest-bearing cash equivalents: and mature U.S. association: (3) a far-higher-than-normal proportion of assets in intermediate-term. tax-exempt bonds and utility preferred stocks producing a tax-equivalent yield of aboui double that prevailing on the mortgage Mutual Savings' balance sheet at the end of 1981 is set forth in summary form in Note 1 to our portfolio of the typical association. accurnpanying financial statements. offices. one incident of hich was retention of only the lowest-yielding mortgages, albeit those with the shortest Mutual Savings' unusual asset-liability structure was caused in part by the sale in 1980 of all its branch remaining terms. I. sali.r, tili branch offices in 1980 the institution shortened sail to aliow for hurricane danger flags had on our generally cautious nature. A hurricane came in 1981. the end of which is yet to be seen. conditions, not because a hurricane was clearly foreseen, but because of the effect that being poked with or less permanently. Mutual Savings will have greatly penalized future earings through sale of its branch offices. There is. of course, a price to be paid when caution purchases sately. If interest rates decline sharply and more shareholders equity at the end of 1980. on which its operating income was only S3.5 million in 1981. or at the Moreover, what Mutual Savings has left is no jewel of a business. As it keeps its books it had $48.5 million in inadequate rate of 7.2% per annum. However, as Blue Chip reports eainings from its equity in this purchased at a large discount from its book value on the books of Mutual Savings. At the end of 1980 Blue less-than-mediocre business, the results are somewhat better because Blue Chip's equity was originally $19.4 million, and this equity contributed $3.4 million to Blue Chip's consolidated earnings in 1981, or at the rate Chip's equity in Mutual Savings was carried in Blue Chip's consolidated balance sheet, net of minority interest, at of 17.5% per annum. including $.6 million of amortization into income. at the rate of 1/40th per year, of the discount from book value at which the equity originally was purchased

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Reproduced from 1981 Annual Report of Blue Chip Stamps. Some additional perspective on the current situation may be obtained by examining the following table: Blue Chip's snare of the Annual percentage Biue Chip's average equity in casn dividend paid return on Elve Chip's Calendar Mutual Savings as carried n by Mutual Savings equity trom ine Mutua: year Blue Chip's consolidated balance sheet during the year Savings Cindend_. 1975 $11.975,000 S1.932.000 16.1% 1976 20.570.000 3.226.000 15.7 1977 23.928.000 3.845.000 16.1 1978 25.285.000 5.287.000 20.9 1979 25.630,000 6.728.000 26.3 1980 22,381,000 9 852.000 44.0 1981 18,778.000 1.922,000 10.2 making sales and reinvestments involving mortgages which will have the effects of bringing the market value of In 1982 for sure. and perhaps in 1983. Mutual Savings will realize reportable, tax-deductibie losses by its assets closer to their book value and causing recognition for accounting and income-lax purposes of a portion of the real economic deterioration already in place. caused by interest rates at current leveis. Such sales and reinvestments will almost surely cause suspension of dividends from Mutual Savings io its parent preceding table. However, the income and cash-flow effecis of a portfolio restructuring at Mutual Savings. after corporation. Wesco, in 1982. ending for at least a year or two the important cash flow shown in the immediately partially offsetting favorable income-tax effects. could quite conceivably increase in a very matchai way the dividends Mutual Savings will be abie to pay at a later time. perhaps as early as 1984 All restructuring decisions will be made with a view to long-ierm benefit. ignoring considerations of image to present a challenge which, so far, we haven't fully figured out how to meet. We do have a lot of options. But, no matter what is done, it looks to us as if operating a savings and loan association in the future is going including expansion by acquisition, with or without additional investment in Mutual Savings. and we are trying to keep all options open as we ride out the storm. profits. sufficient at least to permit payment of dividends causing realization of a satistactory rate of return on the We do not have any intention to sell Mutual Savings. We hope that it will ultimately find a way to earn higher carrying value of Blue Chips equity both Mutual Savings and Wesco, is no exception. In our view the record he has created is better than those of No savings and loan executive has had an easy time in the last few years. Louis Vincenti, chief executive of his peers. reflecting both unusual talent and a very high sense of stewardship for savers and shareholders. PRECISION STEEL WAREHOUSE, INC. acquired for approximately $15 million on February 28. 1979. It owns a long-established steel service center Our 80%-owned Precision Steel subsidiary, located in the outskirts of Chicago at Frankin Park, Illinois, was sold under its own brand names. Precision Steel's operating businesses contributed $1.560.000 to our business and a subsidiary engaged in the manufacture and distribution of tool room supplies and other products proportionately attributable to operations in the first three quarters of 1981. in the last quarter of 1981 and cunsolidated net income in 1981 compared with $1.205,000 in 1980. The increase in earnings was more than the first quarter of 1982, earnings have declined substantially, reflecting severe recessionary conditions in Even under recessionary conditions operations remain profitable, and we anticipate no great change in earnings for the full year 1982 business at its 1981 level is about $14 million, on which the business earned $1.9 million in 1981 or at a rate of The minimum shareholders' equity, at Blue Chip's carrying value, required to operate Precision Steel's 13.6% per annum. on the unleveraged equity capital required to operate its business would be difficult, and we supplied some We knew when we purchased Precision Steel that earning a return, satisfactory under inflationary conditions. reservations concerning financial leverage but are willing, as in this case, to borrow money to purchase as part leverage by borrowing the purchase price, refinancing at a fixed rate as soon as practicable. We ordinarily have of our mix of businesses a clean and moderately profitable company like Precision Steel where inventories carried on the LIFO basis represent a substantial part of total assets and where reported earnings are expected usually to turn up in cash, absent optional expansion. Financial Corporation, a public company with shares traded on the American Stock Exchange. For more Both Mutual Savings and Precision Steel are owned by Blue Chip Stamps through 80% control of Wesco complete information, we encourage Blue Chip shareholders to outain a copy of Wesco's 1981 annual report. 41

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Reproduced from 1981 Annual Report of Blue Chip Stamps. Simply make your request to. 315 East Colorado Boulevard Wesco Financial Corporation Pasadena. California 91109 Attention: Mrs. Jeanne Leach. Treasurer BUFFALO EVENING NEWS, INC. million. It now constitutes only approximately 328.5 million of our consolidated net worth, as a result of about $5.5 Our 100%-owned subsidiary. Buffalo Evening News, Inc.. was acquired in April 1977 for approximately $34 million of aggregate after-tax operating losses after acquisition. This iranslates roughiy into $11 miilion of aggregate operating losses before taxes. to S1.091.000 from $2.805.000 in the previous year, which in turn had declined from $4.617.000 in 1979 However, the operating loss. before taxes. of the News in 1981 was lower than that of 1980. having declined increases. intense efforts at general cost containinent, and reduction or elimination of expenses or losses in The steady reduction in operating loss has been made possible by a combination of aggressive price in order to allow the News to benefit from equipment modernization, and (3) the strike losses of 1980. A lot of three specific categories: (1) litigation expense. (2) expense of "buy-outs" from labor contract provisions made effort has gone into reducing the overall operating loss -- except that more "buy-outs" would have been preferred -- and the :981 results reflect some success We predicted accurately the financial improvement in 1980 and 1981. For 1982 we confidently predict a lack of improvement. We anticipate terrible market conditions for the News in 1982 retailers is sharply and permanently reducing the demand for the advertising service provided by the two main Buffalo has been hit harder than the average U.S. City by the current recession, and the attrition rate among newspapers. In 1981 the News and the Buffalo Courier-Express, the News' main competitor, ran 4.000.000 lines of advertising (10% of their aggregate retail advertising linage) from retailers which by the end of 1982 ^ ther will not be in business at all or will be in business as mere remnants of their former selves. Although th Courier-Express is bearing a share of the retailing contraction, ihat will not stem the losses faced by the News. advertising price increases in the recent past. The News. for instance, increased circulation revenues by 15.2% It is particularly discouraging that continuing operating losses occur despite aggressive circulation and in 1981, a figure exceeding that achieved in many cities less affected by the recession, helping cause a small • irculation prices later in 1982. Based on the News' experience to date, it does not dare go faster in raising nut painful reduction in weekday subscribers, and will be forced io be conservative when it again increases ir auertising prices also appears very dim. Greater, not smaller, operating losses for the News almost surely lie c: culation prices. And. with a retarling contraction now in progress. the outlook for any above-normal increases immediately ahead have also been a number of adverse developments in newspaper economics not limited to areas like Buffalo Not all of the difficulties come from purely regional trends. Since publication of our 1980 annual report there which are bearing more than their share of the current recession. Certain important print advertisers. once world has changed. the Washington Star. Once by far the strongesi daily newspaper in what remains a thought certain te rely almost 100% on newspapers. are expermenting with alternate forms ci delivery. As the prosperous and growing Washington. D.C. metropolitan area, has ceased publication, as has the Philadelphia Bulletin, which once occupied a position of seemingly impregnable dominance in its city. The Bulletin was late in starting a Sunday edition, never caught up on Sunday. and eventually lost its weekday advantage as well. cascading to extinction. The ranking of the News among the nation's evening newspapers has been moving steadily upward, not because its circulation is growing but because large evening newspapers are disappearing. have been reported to be losing money. including but by no means limited to the Boston Heraid American, the In many of America's remaining two-oi-more-metropolitan-newspaper cities. one or two of the newspapers Los Angeles Herald Examiner. the New York Post, the New York Daily News. the Seattle Post Intelligencer. the only five metropolitan areas (above 250.000) in tne U.S. where two separately owned and economically Trenton Times, the Cleveland Press. the Detroit Evening News and the Detroit Free Press. in fact. we know of competing daily newspapers are both now profitable - Houston, Dallas. Denver. San Antonio and Chicago. the weaker papers in Denver. San Antonio and Chicago are marginal. Houston and Dallas are booming sunbelt cities aided by the OPEC energy cartel, and we suspect that profits in prosperous than Buffalo, where both newspapers have the same owner. That operating trends can be poor even Even more ominous, operating trends have been poor in a number of two-daily-newspaper cities, more under such conditions tends to confirm that more aggressive pricing by the News and its main competitor in 42

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Reproduced from 1981 Annual Report of Blue Chip Stamps. wars - is not likeiy to cause termination of the operating miseries of the News. Pricing in Buffalo. with sone Buffalo - which: might appear akin to the solution hoped for by airlines when they anticipate the end of price limitec exceptions, is aiready quite aggressive, all factors considered. The economic demand for both reading when prices are increased only as much as necessary to cover inexorabie increases in the energy-intensive and material and advertising service is price-sensitive, and does not necessarily increase. or even remain static. peopie-intensive operating costs of our newspaper. Economic forces are at work which are plainly beyond anyone's control. and we are catching at least our share of a widespread mala se. We know of no easy solution. in Buffalo, and commeni extensively concerning successes. We recommend exactly the opposite emphasis to It is. oi course. a temptation when writing an annual letter to shareholders to gloss over difficulties. like those we re-tell and extend the history of the News. Creating the largest single section of our annual letter This year we business managers who report to us, and we believe in practicing what we preach. Accordingly. year after year. surpass ail previous records published without opposition on Sundays. As we expiained in detail in our 1977 through 1980 annual reports. the The News had no Sunday edition when acquired. The principai competitor, the Buffalo Courier-Express. long-term survival of the News clearly required that it inaugurate a Sunday edition. Of that there was simply no question. Real trouble has been the invariable eventual outcome for every other daily newspaper in the United city. exciusively on weekday publication while a significant seven-day competitor enjoyed a Sunday monopoly States, no matter how extreme its past record of prosperity and popularity, which relied overiong. in an important In fact, only three other "no-Sunday" papers, competing against such "with-Sunday" papers in important cities. survived as late as 1977, even though many such "no-Sunday" papers once had long histories of profitability Moreover. the three other survivors all were in serious trouble in 1977. And since then one of the three survivors. derived from dramatic advantages in weekday circulation and advertising over their "with-Sunday" competitors the Cincinnati Post, has been preserved, after incurring huge losses. only through the grace of its competitor's the Federal Newspaper Preservation Act of 1970. A second of these "no-Sunday" survivors of 1977. the absorbing it into a minority share of a joint operation with approval of the U.S. Attorney General as required by newspaper-chain owner (Scripps-Howard), under distress conditions, to a wealthy Cleveland man who forthwith Cleveland Press, after also incurring huge losses. was recentiy sold by its experienced Ohio-based spent millions of dollars inaugurating a Sunday edition. Even after so recognizing the cause of its difficulties. and despiie tying Sunday circulation to a very substantial daily circulation base, the Cleveland Press now appears create a Sunday edition at a timely point in its history. The only other remaining "no-Sunday" survivor is the New almost surely doomed to continuing and apparently irreversible operating losses by its reluctance of inability to which has announced it must have a Sunday edition to survive. Prospects for its survival looked virtually ni unti York Post, controlled by the able Rupert Murdoch, which has been losing many millions of dellars per year and New York City, announced it was tired of losing money and was looking for a buyer. If the New York Daily News 1981 when the New York Post's principal competitor, the New York Daily News, Dy far the biggest newspaper in eventually closes. the New York Post may well survive, aided by the Sunday edition it would then surely have. In any event, one way or another. within a very few years the "no-Sunday" paper. competing in an importan! American city against a "with-Sunday" competitor. will be as extinci as the dodo bira.! it cared at all about its long-term future. in response, an antitrust lawsuit was filed by the competing paper which Under such circumstances, the News commenced publishing Sundays late in 1977. as it plainly had to do if for the first time faced the prospect of competition on Sundays as weil as weekdays. The lawsuit, in turn. resulted in some interlocutory (i.e.. temporary and no: final) injunctions which, among other things, created severe promotion practices of the News. commonplace within the newspaper industry, while similar but more disruptions in normal circulation procedures under midwinter conditions and restricted certain business aggressive practices of the competing paper were not prohibited. for reversal of the injunctions, the Federal Court of Appeals reasoned that the generally pro-competitive antitrust These interlocutory injunctions against the News were reversed on appeal in 1979. In its unanimous decision laws snould not be used in an anti-competitive fashion by enjoining normal promotional practices. such as those used by the News. in the course of normal competition such as inauguration of a Sunday edition. circulation and advertising linage c/ the News Sunday edition. Success in the market had to be won slowiy. if it Of course. the elimination of the harmful interlocutory injunctions did not automatically improve the could be won at all, through creating a des rabie value for customers. Moreover, achieving success was made suffered by the News as a result of the interlocutory injunctions and accompanying publicity. Damage inflicted more difficult by the fact that it was beyond the power of the appellate court to reverse cortain materiai damage decided that different delivery procedures would have been appropriate. on an infant at birth impairs its subsequent life even after the people in charge of the operating room have has been recognized by subscrihers for editorial merit and rewarded by steady circulation growth, needed Despite the damage at birth. there was a gradual trend toward success. The Sunday edition of the News 43

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Reproduced from 1981 Annual Report of Blue Chip Stamps considering the substantia! Sunday-circulation lead of its principal competitor. Great credit must be given to deserves and has received increased acceptance by the Greater Buffaio community. The circulation of the Murray Light, Editor of the News. and other editors and reporters, for consistent delivery of a product which News' Sunday edition was over 183.000 copies in February 1982. up from approximately 178.000 copies in February 1981 which, in turn, was up from 173.000 copies in February 1980. We expec: Sunday gains to weekday News continues to be greatly preferred to the weekday Counter-Express by both readers and continue. Weekday circulation decreased slightly in 1981. after increases in both 1980 and 1979. and the advertisers. As this is written we believe that, measured against levels twelve months earlier and ignoring at both papers meaningless temporary fluctuations caused ty special promotion, circulation at the Courier-Express is essentially unchanged on both weekdays and Sundays whereas at the News Sunday circulation is up about 3%. the Courier-Express. and the weekday circulation split in the close-in areas most important to advertisers and weekday circulation is down about 2%. The News' total weekday circulation is still more than twice that of remains considerably more favorable to the News than the split in total circulation. Moreover, to this point the News has pretty well held its own on weekdays as a strictly afternoon newspaper without following the practice in the afternoon newspaper has gone "all-day" by commencing publication of a morning edition for limited most other major two-competing-newspaper cities (e.g... in Dallas. Houston, Seattle, Detroit and Denver) where distribution by street sales and home delivery in outlying areas. Or: Sundays, the Courier-Express continues to have a ittle less than 60%% of the two newspapers combined circulation. but we believe it was essentially unchanged during the last two years at about 60%. Or perhaps a bit higher. We do not know precisely the News' share of the combined advertising revenues of the two newspapers. Presumably the Courier-Express losi at le-st as much money as the News last year. in a none-too-predictable fashion when employers are unable to incur additional costs without bearing Overall, this situation is not desirable for our employees or shareholders. And labor relations are affected unacceptable losses. bargained settlements over many years have helped create collective bargaining agreements some of which Approximately 83% of the News' employees are members of its 13 different labor unions which through contain provisions, designed to save jobs, which prevent technological change. With occasional exceptions. all improve, frorn its own point of view. in the expiring collective bargaining agreement. with the net effect that (1) in recent years. as each new collective bargaining agreement was negotiated the union involved sought to the newspaper was often left weaker on account of inefficient operations and (2) there was often some leapfrogging of benefits. giving a particular union more than its proportionate share of aggregate avariable economic advantage at the Courier-Express and the general state of the newspaper business in Buffalo. had greatly reduced profits of By the time Blue Chip Stamps purchased the News in 1977. this process. combined with a similar process and the leapfrogging process ended in favor of conservative pattern settlements. one of the two major both newspapers. In fact, profits were so minima! that unless more rapid technological progress were allowed in major city after major city, on both sides of the Atlantic. In recognition of these facts. the Courier-Express in the newspapers eventually would be torced to cease pubiication, as has happened in response to similar pressures years immediately preceding 1977 obtained needed union concessions and suffered no strikes. purchased the News that the enterprise-destroying pattern of labor relat ons which had killed so many There were also grounds for optimism concerning labor relations at the News. We believed in 1977 when we up-trom-the-ranks labor-relations executive, Richard Feather. whorn we istantly admired and trusted as metropolitan newspapers was unlikely to kill the News in Buffalo. For one thing, the News had an fair-minded and constructive and perceived as likely to be so regarded by union members at the News. For another, we made a point. before closing the acquisition. of meeting some of the union leaders and their the News. Production people and reporters alike cared about the quality of their product. causing us to conciude counsel, and they likewise impressed us favorably. Further, we noticed a great professionalism in empioyees at that they would care similarly about the security and continuation of a common enterprise. Still further. we Indeed. the enterprise is so old and its jobs so well regarded that jobholders of all kinds have for decades urged perceived a high level of friendship and communication among employees of the News, across craft-union lines something niore like a family business than might seem possible to anyone not familiar with it. Finally, we had their relatives and friends to join the News, often in different craft unions. creating as the years went by plan to seek destruction of long-established benefits. although we did hope to use negot ated voluntary enjoyed constructive reiations with diverse and major labor unions elsewhere and did not enter Buffalo with any "buy-outs" to make some particularly important reductions in future costs. All these factors. together with the News' long history of labor peace, contributed to our willingness to purchase the News, although at least two 44

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Reproduced from 1981 Annua! Report of Blue Chip Starr.,?s. other prospective buyers. perhaps more fearful of the risks from having an unusually large number of separate unions, had refused to pay the asking price for the paper. which frequently caused operating losses for the News and disappointing wage and salary increases for union Until 1980 the long no-strike history continued much as we expected, despite economic forces and troublus members and other employees. requires that 14 different groups (the News' management plus all 13 unions). without any exception, understand However, with 13 different unions and serious external pressures from competition and inflation, labor bear considerate of one another at all times. Even in the presence of the unusually favorable conditions for labor well the common danger, and. even if moving backward in inflation-adjusted economic terms. be wise and peace at the News. such unanimous wisdom and restraint are a lot to expect. g.ven (1) the limitations of human nature. including that on management's side of the table. (2) the tradition, carried over from a different era. at each union that its main preoccupation should be vigorously to enhance and protect the interests of its own members, and (3) the fact that technological changes do not arrive at a steady pace and with effects allocated equally to each union. insert new manning requirements, and new requirements of pay for work even if not performed, into its collective The long labor peace ended in December 1980. when one small unior, group went on strike in an effort to striking union group's demands. ignored a picket line and reported for work, but, finally, most of the News bargaining agreement. Most of the other unions' members, recognizing the pattern-breaking nature of the pressmen refused to continue working, and the News was unable to continue publishing be overstated. An area-wide metropolitan newspaper which is ciosed down by a strike while a similar competitor The gravity of the strike, its harmful effect on the potentiality for continued existence of the News. can hardly approximately the same annual profit (or loss) as before. Instead, because the competing paper gains continues publishing does not merely lose a lot of money while the strike goes on and then return to publishing at that it fairly soon reaches a point where it is unwise to reopen at all. For instance. in Montreal what had long been circulation rapidly during the strike. the closed-down paper usually suffers such a loss of compettive position the overwhelmingly dominant English-language newspaper recentiy lost many millions of dollars. before its ultimate expiration, in a fruitless and foolisi attempt to reopen alter a strike of several months during which its main competitor continued to publish. except to prepare to face rationally whatever degree of impaired position resulted from the strike. Clearly. If the Such being the acts of life, the News had no practicable alternative, when its strike occurred in 1980. lo settle its disagreement with the striking union group in any manner unfair to other unions invoived, under strike was an extended one. the sensible decision would be not to renew publication. Nor was the News willing conditions of common external hazard, in serial bargaining of union contracts. A resolution of the dispute unfair to unions which had settled earlier would lead to a ruinous resumption of leapfrogging to the ultimate detriment u. ino News and al! its employees, including those attempting to take the tirst jump. cause the strike to end in iwo days without. in the News view. unfairness to unions which had settled earlier Fortunateiy, the amount of good will and good sense at the News was sufficient, as the maiter worked out, to caused a small loss of competitive position. Both economic results. of course. diminish the capacity of the News However. the strike augmented the News' pre-tax losses by several hundred thousand dollars in 1980 and also to compensate its employees in the future as well as its prospects for beginning to pull its economic weight for shareholders. advances. With a very few exceptions the News' economic difficulties in recent years have come in spite of an In 1981 there was no major labor crisis at the News although hardships were being shared instead of ultimare survival of the News continues to depend not only on its competitive position but also on repetitive overall attitude of understanding in its employees and not on account of a lack of such understanding. The success on the part of management and all unions in dealing fairly and wisely with one another. under very difficult conditions, changing habits formed in a different era commenced publishing on Sundays, remains pending. However. the litigation has been dormant in 1981. The litigation against the News, filed by former owners of the Courier-Express in 1977 when the News following purchase of the Courier-Express by the Minneapolis Star and Tribune Company, which has a history of result of this preference. the Courier-Express is now a more effective competitor than it was under its preferring the exercise of business and journalistic skills over court battles. On the other hand. possibly as a former owners. And even though we anticipate an unsatisfactory 1982 year, we anticipate better operating results in the more However, the improved Courier-Express is not making headway agains the News. which is aiso improving remote future. Because we own what we believe to be one of society's best service institutions and much the profits consistent with its value to Buffalo and appropriate to our level of investment. This generally has been the better of Buffalo's two major newspapers, we still hope and expect that the News in due course will earn annual

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Reproduced from 1981 Annual Report of Blue Chip Stamps. outcome for the better of two competing seven-day newspapers. and despite some nev: economic varabies affecting metropolitan newspapers. we believe that such outcome is likely for the News. News. Sharehoiners can easily calculate that the reported losses of the News are a small part of the economic This is not to say that we will ever really get well. considering ail effects of our initial decision to buy the detriment our decision created. While convention doesn't require reporting of "opportunity cost" losses to squarely. If we hadn't purchased the News in 1977 but had simply earned returns on the unspent purchase price shareholders, we believe they are just as important as conventional reported losses and should be faced just as $70 million in value of other assets. Curning over $10 million per year, in place of the Buffalo Evening News and comparable with the average earning powd: of the rest of our shareholders egity. we would now have about its current red ink. No matter what happens in the future in Bu faio we are about 100% sure to have an econom. place lower than we would have occupied if we had not made our purchase. In a period like the present one. extended peried is almost impossible to make up through later success. after allowing for probable returns from where passive returns on capital before inflation are high, an inadequate or negative return persisting for any alternative capital uses. When other capital is sprinting, remaining in the starting blocks for a long time prevents one from ever catching the field situation. That strategy is ciearly for the News to keep doing the verv best job it can for its city. its employees. its Of course. we can't now relive the pasi but must simply adopt the correct bus ness strategy for the present rela ve strength. our intolerable losses. and our labor-trouble weakness makes the long-term future look readers and its advertisers. seven days a week, unless and until some combination of our principal competitors the future. If it ever does. we will face it. But we will first exert every effort to make certain it never occurs hopeless. There is no such situation now and we think it extremely improbable that such a situation will occur in believing as we do that the News has both the product and the accentance that should make its efforts successful. advertising is stable-to-inching ahead. and we could easily improve our consolidated operating earnings and the The News remains a salable property. even with its current troubles. so long as its share of circulation and percentage return we ear? on our sharehniders investment by selling the News and reinvesting the proceeds. conviction that Buffalo will have a reasonably felicitous future as a city and that the fine people who work at the after tax effects. in profit-eamir. assets. That we are not even slightly tempted to do so demonstrates our provision of sound service to its customers. We still plan to stay with the News until it either expires. Or, far more News will ultimately succeed in making it a sound business for its owners and employees. through continued likeiy. becomes a scliu earne and employer record to date and the nature of the situation. We therefore repeat to shareholders our warning in previous years Despite our confidence in the probable long-ierm suucess of the News. caution is appropriate based on the regarding wha: we now believe are unlikely contingencies: "If the litigation continues and if the competing paper succeede in somehow changing the law as enunciated by the Federal Court of Appeals and in obtaining he be forced to cease operations and liquidate, at an after-tax cost which could exceed S10 million. kinds of injunctions it is seeking. Or if any extended strike shuts down the Buffalo Evening Naws. It will probably PROMOTIONAL SERVICES BUSINESS AND MISCELLANEOUS SOURCES OF OPERATING INCOME earnings from our promotional services (mainly trading stamp and motivation) business, after deduction of The final components of our consolidated met operating income last year were provided by (1) operating interest and other Wesco generai corporate expense, from securities and real estate held by Wesco outside the interest and other general parent company expense. plus (2) our share of operating earnings. after deducion of savings and loan and steel service activities of its subsidiaries. and other general expense and income taxes, last year. down to S3.659.000 from S4.293.000 after (properly) The promotional services business operated at a sharply decreased profit. after parent company interest investment of the funds available through "fioat" caused by trading stamps issued but not yeir deemed Our giving it credit for the entire income (dividends and interest, plus income tax benefits caused by dividends) from shareholders should not be discouraged by the decrease in after-tax profit, which was attributable to the fact that favorable revisic 1s in our estimates of our lability io redeem outstanding trading stamps were made in 1980 $1,747.000, and. therefore, in the absence of such revisions after-tax profit would have improved last year. but not in 1981. The revisions. which by their nature will not frequentiy recur, increased 1980 after-tax profit by compared with $16.672.000 in 1980, they are expected to drop materially in 1982. By the time this report is Although trading stamp service revenues decreased by only a minor amount to $15.619.000 in 1981 stamp revenues: 1981 and which has recently been for sale, will have publicly announced that it will distributed, we understand that the Stater Bros. supermarket chain, which accounted for 51% of our trading discontinue giving trading stamps on April 1. 1982. Loss of the Stater Bros. account will present us with a serious

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Reproduced from 1981 Annual Report of Blue Chip Stamps. challenge: We must not only continue our efforts in adding to our customer base (for example, in the retail gascline trade. where we have recently had considerable success) but aiso try to replace the lost grocery commitment to Stater Bros. We are as convinced as ever that trading stamps are an effective point-of-purchase business by signing up a competing grocery chain, which we have been unable to do in the past because of our sales promotion device for supermarkets. service stations. bowling alleys and the like. We intend to remain in the trading stamp business. was many times greater than the curren. level - Is large in relation to current issuances. (Trading stamp In our trading stamp business our "float" - resulting from past issuance of trading stamps when volume revenues peaked at S124. 180.000 in fiscal 1970. and our 1981 revenues of $15.619.000 therefore represented a will decline greatly. The decline in "float" in recent years. however, has proceeded at an extremely siow rate. and decline of 87% from peak volume., Eventually. unless starip issuances improve. earnings from investing "float" our reserved liability for trading stamp redemption was Sr. 262.000 at yearend 1981. shareholders to review. accounting for trading stamp reder ption liability (which involves estimating the number As discussed extensively in previous annual reports (particularly for fiscal 1976). which we urge of stamps that will ultimately be redeemed and the cost per stamp) is a difficult process under any percentage. We periodically revise our estimated future redemption liability as conditions warrant. in 1980 we circumstances, but pi 'ticularly su in an inflationary economy and when stamp issuances declire by a large made revisions increasing operating income as above described. as explained in detail in Note 2 to our accompanying financial statements Motivation business revenues decreased to $1.446.000 from $2.771.000. but are eypected to rise in 1932 deduction of interest and oiher Wesco general coporate expense. from securities and real estate held by Wesco One final item, augments our consolidated no: operating income. Our share of operating earnings. after outside the savings and loan and steel service activities of its subsidiaries. amounted to $1.665.000 in 1981. ccinpared with $695.000 in the previous year. NET GAINS ON SALES OF CORPORATE SECURITIES, MORTGAGES AND IMPORTANT FIXED ASSETS than might be expected in a consolidated enterprise of our size at the ciose of 1981, as we report consolidated In our total assets. located among our five operating businesses. we hold considerably more corporate securties revenues of $246 millich and consolidated net worth of $169 million (see Note 3 to our accompanying consolidated financial statements). in which they are owned. For instance, the trading stamp business owns liquid assets to provide for ultimate Most of these holdings of corporate securities are held because of the very nature of the particular business redemption of stamps. and the savings and loan business holds liquid assets to provide for repayment of savings account holders. The remaining security holdings exist temporarily. primarily in Wesco Financia! Corporation, pending their disposition to provide funds for use in buying additional businesses. preferred stocks. Most ho dings. therefore. are of common stocks. Our reported operating earnings include only Only Mutual Savings, which is barred by law from owning most common stocks, has significant holdings of the dividends from our stockholdings. after taxes. And. because the corporations whose common stock we own siock we own, we also realize : egularly net capital gains from sales of portions of our hoidings. also have and reinvest earnings not paid out as dividends. a process which ultimately raises market value of the such businesses adjust to changing conditions. In 1980 the sale of branch office facilities by Mutual Savings fell In addition, our various wusinesses occasionally sel! important buildings. machinery or other fixed assets. as into this category. No significant sale of fixed assets occurred in 1981. our totai share of the net gains from sale of corporate securities was $1.493.000. Our aggregate share of all in 1980 our share of the gain from sale of Mutual Savings branch office facilities was $2.332.000. and types of special gains combined was $3.825.000 in 1980. compared with $6.731.000 in 1981, all from the sale of securities. PINKERTON'S, INC. At yearend 1981 we owned non-voting stock representing 37% of the equity in Pinkerton's, Inc.. the leading national security and investigation service company. rather buy stock we can't or won't vote than absolute controi. We think the rationality of use-of-capital decisions Our ownership of this non-voting interest demonstrates that, when all factors are considered, we often would is improved when the repertoire of a corporate manager includes purchases of business interests which do not augment the number of people to whom the manager can give orders. However, we have generaliy observed a low interest among corporate managers in pissive investments, even when available at much better

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Reproduced from 1981 Annual Report of Blue Chip Stamps. price/earnings and price/book vaiue ratics than controlling positions. The strong preference for controlling positions is ordinarily justified by (1) expected improvenients frum a. change in control based on a high appraisal investee and (2) a low appraisal of the likelihood that the managers of the corporate investee, if free to act of the business skills of the managers of ine corrurate investor cumpared to the managers of the corporate independentis: will make decisions which best serve the interesis of ultimaie shareholders. Our view is different. and, although we expect always to concentrate cur activities primani, in operating businesses, we also have an uncommon interest in passive positions for the following reasons (1) We know that our business skills are frequentiy inferior by a wide margin to tnose of others. as we (2) We believe that many corporate managers can be trusted to serve the shareholders' interests even can prove from comparative figures and our audited record reflecting gross errors: (3) We think the advantage of buying at a nen-premium price, because control is absent, often when the shareholders have no practical power in contro! or replace management: (4) Our consolidated enterprise includes operating businesses required by their nature to own counterbalances the disadvantage, if any. from lack of control: We hope to become better known for our uncommon willingness to own "non-voting-partnership" interests in cignificant passive investments. businesses and to attract other offerings like that which produced ou. Pinkerton's holding. And we are sure. wnit better or one whit more in its shareholders interests if we had purchased voting control. based on five years' observation from our non-voting position, that Pinkerion's wouldn't have been managed one constituting marketable securities. is substantially below current market value. See Note 3 to our accompanying Our total investment in Pinkerton's at cost was $23.364.000. which, with respect to the major portion thereof financial statements. Only the dividends we receive from Pinkerton's are included in our reported income. These heading: "Promotional Services Business and Miscellaneous Sources of Operating Income." The part created by dividends have increased regularly in recent years, creating part of the income reported above under the Pinkerton's dividends was $1.730.000 in 1981 and $1.429.000 in 1980. CONSOLIDATED BALANCE SHEET AND OTHER DATA large outstanding promises to others. As explained in Note 3 to the accompanying financial statements. the Our consolidated balance sheet retains a strength befitting a company whose consolidated net worth supports aggregate market value of our marketable secunties was higher than their aggregate cost at December 26. value substantialiy in excess of carrying value. We remain in a prudent position when total debt is compared to 1981. In addition, an office building and related real estate owned by Wesco Financial Corporation has a market total net worth and total liquid assets When combined with our practice of doing a certain amount of long-ierm borrowing in advance of specific need. Retaining the impeccable bank credit facilitated by a prudent balance sheet position is very important to us. it gives us maximum financial flexibility to face both hazards and opportunities. and Analysis" are presented beginning on page 13. We invite your careful attention to these items and to our Sections entitled "Principal Business Activities." 'Selected Financial Data" and "Management's Discussion audited financial statements. A LOOK BACK AND A LOOK AHEAD We began the 1970s with a single business. trading stamps, which was destined to decline in a small fraction of its former size, and a portfolio of securities. offsetting stamp redemption liabilities, which had been selected by instance. contained a substantial amount of very-long-term. low-coupon municipal bonds of issuers with declining credit ratings.) (1) trading stamps and other promotional services. (2) See's Candy Shops. Incorporated. (3) Mutual Savings. We began the 1980s with five constituent b.sinesses instead of one. In order of acquisition they are: (4) Buffalo Evening News. and (5) Precision Steel. Our five constituent businesses have more in common than might be noted by a casual observer: (1) They are all high-grade operations suffused to a considerable extent with the business ideas of Benjamin Franklin, manned by high-grade people operating within a long tradition emphasizing reliable and effective service, and (2) When functioning properly each business will usuaily generate substantia amounts of cash not claimed by compuisory reinvestment in the same business and therefore available for purchases of new businesses or debt repayment.

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Reproduced from 1981 Annual Report cí Blue Chip Stamps. businesses, once good investments when inflation was low, are now, under it ilationary conditions, unable to The second of these two common characteristics gets more important every year as inflation continues. Many produce much. if any, cash even when physicai volume is constant. Any such business, always cash-starved even while reporting apparently satisfactory profits. is not a candidate, absent some special facior. io become a net worth had increased to approximately $169 million, Jp 267% in ten years. afte: paymeni of regular dividends. Our balance sheet net worth at March 4, 1972 was about $46 million. By the end of 1981 our balance sheet the end of 1981 this equity was worth about $26.7 million more than balance sheet cest. Our average annual At March 4. 1972 our equity in aggregate securities was worth about S3 million less than balance sheei cost. A! total percentage return earned on shareholders' investment over the ten years ending Deceinber 26. 1981 was approximately 15% per annum. without counting the favorable swing from unrealized loss to unrealized profit in our equity in marketable securities. The percentage return earned was acceptable in a moderate-inflation environment, considering the headwinds in our initial trading stamp business. was approximately 19%. This percentage return fluctuates from year to year, depending upon various factors In 1981. the year just ended. our total percentage return on the beginning invesiment of our shareholders including changes in amounts of capital gains realized. The percentage return figure for any one year is not very significant. although the average figure over a pu..ud of years, and the trend in such average figure. are of vital importance sharehciders' investment in the next ten years than we have in the ten years just pasi. Our total percentage We hope to earn a higher average (though sharply fluctuating) annual total percentage return on reiurn on shareholders investment is now depressed by our substantial cornmitment to the Buffalo Evening to time to acquire additional businesses which eventually will produce higher returns than the assets disposed of News, producing losses instead of profits. We are trying to correct this condition. Moreover, we expect frum time to fund their purchase. A better experience in the future is far from a sure thing, but it may well be achieved if future errors, headwinds. and reverses are no worse lhan the ample numicer characterizing our pasi. investment, our performance as a company may not do very much for our shareholders as investors if inflation However, even if we succeed in increasing our average annual total nercentage return on shareholders' continues at the present rate. As we point out year after year. "A 16% return on equity obviously won't do much in real terms for shareholders if the inflation rate is 16%. or even 11% when we aiso allow for income taxes imposed on owners who must report taxable 'profits' while only maintaining their position on the purchasing-power treadmill." know of no adequate countermeasure. generally available to corporate managers who wish to protect Inflation is a very effective form of indirect taxation on capital represented by holdings of common stock. We shareholders, to this form of indirect taxation. But, even so. we think a habit of always tninking about sharehoiders' interests in real terms. instead of rationalizing growth of managed assets regardless of real effects conscious effort, perhaps with occasional inadvertent lapses. to have and reinforce this habit. on shareholders, is quite useful and may fairly be expected of corporate managements. We make a very shareholder interests. have intensified our resistance to most proposals that we issue new common stock. We For one example. low stock prices, caused by inflation, together with our preoccupation with real haven't issued a new share, for any reason, for a long time. With rare exceptions American corporations now exception. And, quite ciearly, a corporation can't further its own shareholders' long-term interests by diluting. cannot get as much intrinsic value as they give when new commor stock is issued. Our corporation is no through new stock issuances, the value underlying each cutstanding share. Our unwilingness to accept any such dilution explains our long-unchanged common stock capitalization. to issue new stock and (3) strong balance sheet position are all likely to enjoy increased recognition in future We believe that our (1) heavy emphasis on the cash-generating characteristics of businesses. (2) reluctance years as i ualities to be emphasized by selectors of common stocks for investment. Cordially yours. Chores I Manger Smile a Kayyal Charles T. Munger Doriald A. Koeppel March 18, 1982 Chairman of the Board President 49

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24 The 1931 Annual Report of Wesco Financial Corporation included the following letter from Louis R. Vincetti, Chairan of the Board and President of Wesco. TO THE STOCKHOLDERS OF WESCO FINANCIAL CORPORATION and its subsidiaries for 1981 amounted to $9,779,000 ($1.37 Consolidated net income of Wesco Financial Corporation Savings were $304,000 compared with S13,618,000 in 1980. During 198i, real estate loan disbursements by Mutual Sources of net income are as follows: per share) compared to $10,045,000 ($1.41 per share) in 1981. Mutual Savings, at the present time, is not active in real estate new environmi nt that will exist for this industry in the future. lending. We are unable to predict with any confidence the We expect to adapt successfully to whatever that new en- 1981 1980 vironment will be. Wesco Financial Corporation Mutual Savings and Loan (Parent Company).. $2,705,000 $ 1,358,000 at December 31, 1981 compared with $158,366,000 at 1980 Savings accounts at Mutual Saving; totaled $149,168,000 Precision Steel Warehouse, 3,458,000 7,353,000° for deposits of $100,000 or more which are not subject to rate year end. Savings accounts can be maintained by competing Realized securities gains inc.. 1,947,000 1,504,000 control. Mutual Savings could substantially increase the total amount of its savings accounts by the payment of a larger rate (losses) 1,669,000 (170,000) of return on such types of accounts. Mutual Savings has not savings accounts of Mutual Savings were in this category. done so. At December 31, 1981, approximately 6% of the total $9,779,000 $10,045,000 the Securities and Exchange Commission. It provides mucin This annual report contains Form 10-K, a report filed with previous years. We now show separately the amount realized Our statement of income for inis year differs from that of subsidiaries. Of particular interes! is the table on page 3 detailed information on the operations of Wesco anc its on securities gains (losses). showing the rate spread beiween the combined yields on subsidianes for 1981 is in contrast with the substantial Insses The continuance of positive carnings by Wesco and its loans and investments and the combined cost of savings and borrowings. being reported by most other savings and loan associations the disposition in 1980 of the branch offices of Mutual Savings and holding companies. The result is, in part, attributable to cash dividend from 5.11½ per share to $.12½ per sture, On january 27, 1982, Wesco increased its regular quarterly and to the substantial stockholders equity of $109,461,000 at payable March 16, 1982 to stockholders of record as o! the December 31, 1981 which is 32% of assets. close of business on February 23, 1982. the high and volatile interest rates in existence for that year. loan business generally, in 1981, is in large part attributable to The unprecedented poor performance of the savings and Louis R. Vincenti The outlook for 1982 is for more of the same. Chairman of the Board and President •This amount differs from $6.243,000 which was reported in our 1980 annual report. The difference represents realized securities $1,110,000 by Mutual Savings which is now shown separately with other losses of realized secunties gains andi losses. 50

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25 contributions program, was mailed on October 14, 1981 to all persons who were then record-owners of the The letter reproduced on this and the following 2 pages, describing the Company's shareheider designated Company's common stock. BERKSHIRE HATHAWAX INC. 1440 KIEWIT PLAZA TELEPHONE: (502) 312-1110 OMARA, NEBRASKA 59131 WARREN E. BUFFETT, CHAIRMAN OCTOBER 14, 1981 To the Shareholders of Berkshire Hathaway Inc.: most years, should produce a significant benefit for charities of your choice. Or. September 30, 1981 Berkshire received a tax ruling from the U.S. Treasury Department that, in owns - will be able to designate recipients of charitable contributions by our company. You'll name the Each Berkshire shareholder -- on a basis proportional to the number of shares of Berkshire that he to our shareholders from making such designations. charity; Berkshire will write the check. The ruling states that there will be no personal tax consequences Thus, our approximately 1500 owners now can exercise a perquisite that. although routinely exercised -- by the owners in closely-held businesses, is almost exclusively exercised by the managers in more widely- hald businesses. In a widely-held corporation the executives ordinarily arrange all charitable donations. with no input at all from shareholders. in two main categories: (1) Donations considered to ! enefit the corporation directly in an amount roughly commensurate with the cost of the donation; and (2) Donations considered to benefit the corporation indirectly through hard-to-measure, long-delayed feedback effects of various kinds. I and other Berkshire executives have arranged in the past, as we will arrange in the future. all .. = been quite low, and very likely will remain quite low, because not many gifts can be shown to produce cheritable donations in the firsi caregory. However, the aggregate level of giving in such category has roughly commensurate direct berefits to Berkshire. with ordinary corporate prectice and had no better practice to substitute. What bothers me about ordinary In the second category, Berkshire's charitable gifts have been virtualiy nil, because I am not comfortable peers are responding than on an objective evaluation of the donee's activities. Conventionality often corporate practice is the way gifts tend to be made based more on who does the asking and how corporate overpowers rationality. the corporate manager, who usually is heavily influenced by specific social pressures on him. Frequently A common result is the use of the stockholder's money to implement the charitable inclinations of there is an added incongruity; many corporate managers deplore governmental allocation of the taxpayer's dollar but embrace enthusiastically their own allocation of the shareholder's dollar. personal judgments by writing checks on my bank acount for charities of your choice. i feel it inappropriate For Berkshire, a different model seems appronriate. Just as I wouldn't want you to implement your to write checks on your corporate "bank account" for charities of my choice. Your charitable preferences are as good as mine and, for both you and me, funds available to foster charitable intorests in a tax- üeductible manner reside largely at the corporate level rather than in our own hands. 51

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26 larger public companies. If you and I each owned 50% of a corporation, our charitable decision making Under such circumstances. I believe Berkshire should imitate more closely-held companies, not on our available charitable funds. Any balance available after the "operations-related" contributions would would be simple. Charities very directly related to the operations of the business would have first claim ownership interest. If the manager of our company had some suggestions, we would listen carefully - be divided among various charitable interests of the two of us, on a basis roughly proportional to our would behave as if we were a partnership. at the final decision would be ours. Despite our corporate form, in this aspect of the business we probably through a large, fairly widely-held corporation. Our Treasury ruling will allow such partnership-like Wherever feasibie, I believe in maintaining such a partnership frame of mind. even though we operate behavior in this area. Here's the procedure: (1) About Noveinber 13th we will notify all beneficial owners, who also are owners of record, that "×" dollars per share are available for desigcated contributions. This year we are going to allocate corporate contribution will decrease proportionately.) For example, if you own, and have registered $2 per share, or approximately $2 million if all shareholders participate. (If they do not. our total in your name, 1,000 shares on November 13th you may direct us to make contributions total- ing $2,000. (2) Stockholders must let us know, in writing, by December 10th of not more than three charities to whom they wish contributions sent and the amount for each. if more than one charity is named. personal ubligation of yours or of your family. (This is necessary to conform with the Treasury You will be asked to certify that such a contribution by Berkshire does not fulfill any outstanding ruling.) If any designated organization is not easily identifiable as a charity entitling Berkshire to a tax deduction, you must attach evidence that contributions to that organization are deductible under 170(c) of the Internal Revenue Code. Where such evidence is submitted any U.S. charity will qualify, including a private charitable foundation. (3) During December Berkshire Hathaway will make the designated contributions in cash or appreciated securities. The recipient charities will be iold, unless you request otherwise, that the contributions were made at your request. November each year so that we can make an informed estimate of our tax position and contributions Our decision as to "x" (or whether any contributions at all will be made) must be delayed until base. In some years, though we may report substantial income and pay substantial income taxes. of intricacies in the tax law that I'm not sure I'm up to exnlaining. In those years we will not call for contributions would provide virtualiy no reduction in corporate tax. This apparent anomaly occurs because stockholder-designated contributions. degree of participation in this plan and your comments about it will be important factors affecting whether In the years when we do request such designations, amounts are likely to vary sigrificantly. Your and at what. level we continue the program. We'll let you know in the annual report what the reaction shareholders (before considering hard-to-measure positive feedback effects benefiting Berkshire). Just Of course. even though this procedure is tax efficient, contributions still will result in cost to our because an item is tax-deductible doesn't mean that it's free. Very roughly, S2 million of contributions designated by shareholders will reduce our net income by about $i million. percentage gain in net worth for the year will be about ¼ of 1% less than otherwise would be the case. Here's some perspective on those numbers. If all shareholders participate in the 1981 program, our will allow us to make contributions totalling about 10% of those made in 1980 by Mobil Oi., the fifth Historically, that gain has averaged over 20% per annum. This minor dent in our economic performance largest American corporate donor. 52

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27 on the November 13th mailing date. If your shares are held by a broker. a depository institution, or other Please particularly note that shareholders may participate only if shares are held in their own name shareholder records on November 13th, you will hear from us about a week after that date with derailed nominee, you are urged to reregister these shares promptly in order to participate. If you are on the instructions and a form to return. Holdings of all sizes will be eligible. right down to holdings of a single share (a species with which we are abundantlv blessed). that a large and growing number of major corporations have charitable policies pursuant to which they I am pleased that Berkshire donations can become owner-directed. It is ironic, but understandable. will match gifts made by their employees (and - brace yourself for this one - many even match gifts "understandable" because much of the stock of many large corporations is owned on a "revolving door" made by directors) but none, to my knowledge. has a plan matching charitable gifts by owners. I say basis by institutions that have short-term investment horizons, and that lack a long-term owner's perspective. quarterly with the SEC. The flip-flopping in positions revealed by many of these filings makes the adjective Large investing institutions and investment managers are required to file lists of their holdings managers quite naturally will identify subsconsciously more closely with employees' interests than with "investment" ludicrous as appliea to these institutions and advisors. In such circumstances many corporate shareholders' interests. If a great many shareholders themselves do not think and hehave like owners. it is understandable that managers will not think of them as owners. each... ar more than 98% of our shares are owned by people who were shareholders at the beginning of r own shareholders are a different breed. As I mentioned in the 1979 annual report, at the end of I intend to acknowledge in all feasible ways. The designated contributions policy is an example of the yir. This long-term commitment to the business reflects an owner mentality which, as your manager. that intent. Sincerely. Warren E. Buffett 53

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40 Berkshire Hathaway Inc. DIRECTORS AND EXECUTIVE OFFICERS WARREN E. BUFFETT. Director and Chairman of the Board Chief Executive Officer of the Company KENNETH V. CHACE, Director President of the Company and Chief Operating Officer of the Textile Operations of the Company MALCOLM G. CHACE. JR.. Director Retired, Former Chairman of the Board of Directors of the Company J. VERNE MCKENZIE. Director Vice President. Secretory and Treasurer of the Company CHARLES T. MUNGER, Director Chairman of the Board of Blue Chip Stamps Vice Chairman of the Board of the Company COMMON STOCK DATA Shareholders The Company had approximately 1.600 record holders of its common stock at March 5. 1982. Market Prices 1981 High Low 1980 High Second Quarter First Quarter 485 Third Quarter 525 425 Fourth Quarter 590 520 480 First Quarter . 340 LOW Second Quarter. 320 260 460 460 Third Quarter 400 245 Fourth Quarter . 475 300 375 investing its earnings in expansion of its businesses rather than paying cash dividends. Berkshire has not declared a cash dividend since 1957. No change is contemplated in Berkshire's policy of 54

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Berkshire Hathaway Inc. (dollars in thousands - except per share amounts) SELECTED FINANCIAL DATA Fiscal Year Ended Saturday Nearest December 31. 1977 1978 1979 1980 1981 Revenues of consolidated companies: Insurance premiums earned $143.087 $186.073 $181.949 $ 185.187 Interest and dividend income 16.796 24.293 30.440 38.966 $ 159.013 49.189 Other revenues of consolidated companies 201.752 235.578 247.952 259.200 263.374 Equity in earnings excluding significant not consolidated: securities gains or losses of companies Wesco Financial Corporation S 5.715 $ 7.417 $ 8,784 Illinois National Bank* 3.550 4.242 4.960 3.804 4.731 7.120 Earnings: Earnings from continuing operations Earnings from discontinued operations' before realized investment gain $ 19.922 3.550 $ 25.742 4.242 $ 30.961 4.900 38,484 39.723 4.731 Earnings before realized investment gain 23.472 29.984 35.921 43.215 39.723 Realized investment gain, net - including equity in significant securities gains or losses of companies not consolidated 6.921 Net earnings 30.31 $ 39.242 9.258 6,896 9.907 $ 42.817 53.122 S 22.881 62.50+ Average shares of common stock outstanding -- in thousands 1,038 1.029 1.027 1.027 986 Earnings per share: Earnings from continuing operations Earnings before realized investment gain before realized investment gain 19.20 22.62 25.02 29.29 38.15 29.15 $ 34.97 30.14 37.47 1.6 42.07 40.27 Net earnings 51.72 63.47 40.27 Balance Sheet items (at end of Fiscal Year): $646.678 S757.612 $892.265 S1.010.581 $1.157.911 55.104 57.071 55.099 Minority shareholders interest 52,097 104.344 97,768 $7.926 48.520 59.851 70.416 Shareholders equity - total 206.735 254,166 344.962 395.214 519,463 Shareholders gu!!- per outstanding share 199.17 247.00 335.85 400.80 526.57 *The Company divested of its interest in the Illinois National Bank as of December 31, 1980. The Company's equity in cornings of that former subsidiary for years prior to 1981 is reflected above as earnings from discontinued operations. 55

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1981 56

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BERKSHIRE HATHAWAY INC. Executive Offices - 1440 Kiewit Plaza, Omaha, Nebraska, 68131 1981