1983 年伯克希尔完整年报

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(34) Prem Jain BERKSHIRE HATHAWAY INC. 1983 ANNUAL REPORT TO THE STOCKHOLDERS

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BERKSHIRE HATHAWAY INC. 1983 ANNUAL REPORT TABLE OF CONTENTS Chairman's Letter 1 Appendix to Chairman's Letter 15 Accountants" Certificate 19 Consolidated Financial Statements 20 Summarized Financial Statements — Parent Company Only 37 Business Activities of The Company 38 Management's Discussion :40 Changing Price Data 45 Annual Report Letter Wesco Financial Corporation 46 Shareholder-Designated Contributions 52 Selected Financial Data 54 Directors and Executive Officers Inside Back Cover Common Stock Data Inside Back Cover

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BERKSHIRE HATHAWAY INC. To the Shareholders of Berkshire Hathaway Inc.: growth resulted from our merger with Blue Chip Stamps, but there also was an acceleration in the This past year our registered shareholders increased from about 1900 lo about 2900. Most of this pace of "natural" increase that has raised us from the 1000 level a few vears ago. With so many new shareholders, it's appropriate to summarize the major business principles we follow that pertain to the manager-owner relationship: shareholders as owner-partners, and of ourselves as managing partners. (Becuuse of the size of our • Although our form is corporate. our attitude is partnership. Charlie Munger and I think of our shareholdings we also are, for better or worse. controlling partners.) We do not view the company itseh as the ultimate owner of our business assets but, instead, view the company as a conduit through which our shareholders own the assets. In the case of at least four of the five, over 50% of family net worth is represented by holdings of • In line with this owner-orientation, our directors are all major shareholders of Berkshire Hathaway. Berkshire. We eat our own cooking. the average annual rate of gain in intrinsic business value on a per-share basis. We do not measure • Our long-term economic goal (subject to some qualifications mentioned later) is to maximize the economic significance or performance of Berkshire by its size: we measure by per-share progress. capital base will see te that. But we will be disappointed if our rate does not exceed that of the We are cerlain that the rate of per-share progress will diminish in the future — a greatly enlarged average iarge American corporation. that generate cash and consistently earn above-average returns on capital. Our second choice is to • Our preference would be to reach this goal by directly owning a diversified group of businesses own parts of similar businesses. attained primarily through purchases of marketable common stocks bu our insurance subsidiaries. The price and availability of businesses and the need for insurance capital determine any given year's capital allocation. of this two-pronged approach to business ownership and because of the limitations of conventional accounting, consolidated reported carnings may reveal relatively little about our true economic performance. Charlie and 1. both as owners and managers, virtually ignore such consolidated we consider of great importance. These figures, along with other information we will supply about numbers. However, we will also report to you the earnings of each major business we control, numbers the individual businesses, should generally aid you in making judgments about them. acquisition costs are similar, we nuch prefer to surchase S2 of earnings that is not reportable by us • Accounting consequences do not influence our operating or capital-allocation decisions. When under standard accounting principles than to purchase S1 of earnings that is reportable. This is frequently sell for double the pro-rata price of small portions (whose earnings will be largely unreportable). precisely the choice that often faces us since entire businesses (whose earnings will be fully reportable) In aggregate and over time, we expect the unreported earnings to be fully reflected in our intrinsic rate basis. We will reject interesting opportunities rather than over-leverage our balance sheet. This • We rarely use much debt and, when we do, we attempt to structure it on a long-term fixed- conservatism has penalized our results but it is the only behavior that leaves us comfortable. considering our fiduciary obligations to policyholders, depositors, lenders and the many equity holders who have

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• A managerial "wish list" wjll not be filled at shareholder expense. We will not diversify by purchasing entire businesses at control prices that ignore long-term economic consequences to our the values you can obtain by diversifying Voar own portfolios through direct purchases in the stock sharelolders. We will only do with your mones what we would do with our own. weighing fully market. • We feel noble intentions should be checked periodically against results. We test the wisdom of retaining earnings by assessing whether retention, over time. delivers shareholders at least S1 of market value for each Si retained. To date. this test has been met. We wil! continue to apply it on is five-year rolling basis. As our net worth grows, it is more difficult to use retained earnings wisely. • We will issue common stock only when we receive as much in business value as we give. This rule applies to all forms of issuance lor-debt saps, stock options. and convertible securities as well. We will not sell small portions of

• not only mergers or public stock offerings, but stock-

vour company — and that is ichat the issuance of shares amounts to -- on a basis inconsistent with the value of the entire enterprise. • You should be fully aware of one attitude Charlie and I share that hurts our financial performance: regardless of price. we have no interest at all in selling ans good businesses that Berkshire owns. and are very reluctant to sell sub-par businesses as long as we expect them to generate at least some cash and as long as we feel good about their managers and labor relations. We hope not to repeat caution io suggestions that que poor basinesses can be restored to satisfactory profitability by major 'he capital-allocation mistakes that led us into such sub-par businesses. Aod we react with great end. major additional investment in a terrible industry usually is about as rewarding as struggling in capital expenditures. (The projections will be dazzling —- the advocates will be sincere — but, in the quicksand.) Nevertheless, gin rummy manageria! behavior (discard your least promising business di each turn) is not our style. We would rather have our overall results penalized a bit than engage in il. appraising business value. Our guideline is to tell you the business facts that we would want to know • We will be candid in our reporting to you, emphasizing the pluses and minuses important in business, it would be inexcusable for us to apply lesser standards of accuracy, balance and incisiveness il our positions were reversed. We owe you no less. Moreover, as a company with a major communications others. We also believe candor benefits us as managers: the CEO who misleads others in public may when reporting on ourselves than we would expect our news people to apply when reporting on eventually mislead himself in private. the extent legally required. Good investment ideas are rare, valuable and subject to competitive • Despite our policy of candor, we wili discuss our activities in marketable securities only to appropriation just as good product or business acquisition ideas are. Therefore, we normally will not talk about our investment ideas. This ban extends even to securities we have sold (because we may purchase them again) and to stocks we are incorrectly rumored to be buying. If we deny those reports but sav "no comment" on other occasions. the co-comments become confirmation. of a majority interest in Nebraska Furniture Mart and our association with Rose Blumkin and her That completes the catechism. and we can now move on to the high point of 1983 - the acquisition Nebraska Furniture Mart foolish acquisitions, I quoted Pascal: "It has struck me that all the misfortunes of men spring from Last year. in discussing how managers with bright, but adrenalin-soaked minds scramble aiter the single cause that they are unable to stay quietly in one room." Even Pascal would have left the room for Mrs. Blumkin. for America. She had no formal education, not even at the grammar school level, and knew no English. About 67 years ago Mrs. Blumkin, then 23. talked her way past a border guard to leave Russia evening, the words she had learned in school during the day. After some years in this country, she learned the language when her older daughter laught her, every

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realize her dream of opening a furniture store. Upon secing the American Furniture Mart in Chicago In 1937. after many years of selling used clothing. Mrs. Blumkin had saved $500 with which to -. then the center of the nation's wholesale furniture activity - she decided to christen her dream Nebraska Purniture Mart. with onis $500 and no locational or product advantage goes up against rich. long-entrenched competition. She met every obstacle von would expect land a few vou wouldn't) when a business endowed recognized in Greater Omaha as Coca-Cola or Sanka) coped in a way not taught at business schools: At one early point. when her tiny resources ran out. "Mrs. B" (a personal trademark now as well he simply sold the furniture and appliances from her home in order to pay creditors precisely as had been giving, and they pressured furniture and carpet manufacturers not to sell to her. But br Omaha retailers began to recognize that Mrs. R would offer customers far better deals than they for violation of Fair Trade laws. She not only won all the cases. but received invaluable publicity various strategies she obtained merchancise and cut prices sharply. Mrs. B was then hauled into court Ai the cad of one case, after demonstrating to the court that she could profitably sell carpet at a huge discount from the prevailing price. she sold the judge $1400 worth of carpet. Today Nebraska Furniture Mart generates over $100 million of sales annually out of one 200.000 single store also sells more furniture, carpets, and appliances than do all Omaha competitors combined. square-toot store. No other home furnishings store in the country comes close to that voiume. That One question 1 always ask myself en appraising a business is how I would like. assoming I had for its owners. last rear. I had admired both the family and the business for decades, and a deal was quickly made. Mrs. B is wise as well as smart and, for far-sighted family reasons, was willing to sell the business Chairman and is on the sales floor seren days a week. Carpet sales are her specialty. She personally Bat Mrs. B. now 90, is not one to go home and risk. as she puts it. "losing her marbles". She remains sells quantities that would be a good departmental total for other carpet retailers. We purchased 90%% of the busines; -- ieaving 10% with members of the family who are involved in management — and have optioned 10%% to certain key voung family managers. Blumkin. Mrs. B's son. has been President of Nebraska Furniture Mart for many years and is widely And what managers they are. Geneticists should do handsprings over the Blumkin family. Louie regarded as the shrowdlest buyer of furniture and appliances in the country. Lovie says he had the best teacher. and Mrs. B says she had the best student. They're both riglit. Louie and his threp sons all have the Blukin business ability, work ethic, and, most important, character. On top of that. they are really nice people. We are delighted to be in partnership with them. Corporate Performance During 1983 our book value increased from $737.43 per share to $975.83 per share, or by 32%%. to circle the sun synchronize precisely with the time required for business actions to pay off? Instead. We never take the one-year figure very seriously. After all. why should the time required for a planet we recommend not less than a five-year test as a rough vardstick of economic performance. Red loghts should start flashing if the five-year average anna' hi falls much below the return on equity earned over the period be American industry in aggres e •alch out for our explanation if that occurs as Coethe observed. "When ideas fai., words come in very handy.") to $975.83, or 22.0°; compounded annually. Considering our present size, nothing close to this rate During the 19-vear tenure of present management. book value has grown from $19.46 per shar of return can be sustained. Those who believe otherwise should pursue a career in sales, but avoid one in mathematics.

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in all casect it is a conservative but reasonable edequate proxy for growth in atrinsic basiness valur We report our progress in terms of book value because In our case (bough not. by any means.

• the measurement that really counts. Book value's virtue as a score keeping measure is that it is

of intrinsic business value. east to calculate and doesn't involve the subjectivo (but important) ilgments emploved in calculation It is important to anderstand. however. that the two terms - book valur and intrinsic business value - have very different incanings. contributed capital and retained earnings. Intrinsic business valur is an economic concept. estimating Book value is an accounting concept. recording the accumulater fature cash outpur discounted to present value. Book value tells you what has been put in: intrinsic business value estimaies what can be 'aken out. An analogy will suggest the difference. Assume you spend identical amounts putting each of two children through college. would be the same. But the present value of the future payoff (the intrinsic business value) might The book value (measured of financial input) of each child's education Vary enormousiv - from zero to many times the cost of the education. So. also. do businesses having equal financial input end up with wide variations in value. per share book value considerably overstated intrinsic business value. All of that book value consisted Al Berkshire, at the beginning of fiscal 1965 when the present management look over, the $19.t6 of textile assets that could not earn. on average, anything close to an appropriate role of return. In the terms of our analogy: the investment in textile assets resembled investment in a largely-wasted rdur. ion. Now. howerer, our intrinsic business value considerable exceeds book value. There are two major masons: (1) Standard accounting principles require that common stocks boid by our insurance subsidiaries of aggregate cost or market. At the end of 1983. the markre value of this latter group exceeded be slated on our books at market value. but that other stocks we own be carried at the lower our intrinsic business value, but is not included in the calculation of book value: carrying value by $70 million pre-tax. or about 550 million after tax. This excess belongs in 12! More important, we con several businesses that possess economic Goodwil! (which is properly includable in intrinsic business valuel far larger than the accounting Goodwil that is carried than is appropriate Here. The appendix that follows this letter - "Goodwill and its Amortization: Goodwill, both economic and accounting. is an arcane subject and requires more explanation The Rules and The Realities" — explains why economic and accounting Goodwill can, and usually But students of investment and management should understand the nuances of the subject. My own You can live a full and rewarding life without ever thinking about Goodwill and its amortization. to shun businesses whose value depended largely upon economic Goodwill. This bias caused me to thinking has changed drastically from 35 years ago when I was taught to favor tangible assets and make many important business mistakes of omission, although relatively few of commission. old ones." My escape was long delayed. in part because most of what I had been taught by the same Keynes identified ray problem: "The difficulty lies not in the new ideas but in escaping from the direct and vicarious, produced my present strong preference for businesses that possess large amounts teacher had been (and continues to bel so extraordinarily valuable. Ultimately. business experience. of enduring Goodwill and that utilize a minimum of tangible assets. have an interest in understanding the business aspects of Goodwill. Whether or not you wish to tackle I recommend the Appendix to those who are comfortable with accounting torminology and who the Appendix, you should be aware that Charlie and 1 believe that Berkshire possesses very significant conomic Goodwill value above that reflected in our book value.

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Sources of Reported Earnings about 60% of Blue Chip Stamps whereas, in 1983. our ownership was 60%% throughout the first six The table below shows the sources of Berkshire's reported cernings. In 1982. Berkshire owned months and 100% thereafter. In turn. Berkshire's net interest ir: Wesco was 48% during 1982 and the first six montas of 1983. and 00% for the balance of 1983. Because of these changed owpership percentages. the first two columns of the table provide the best muasure of underlying business performance. Alled the significant gains and losses attributable to unusual sales of assets by any of the business entities are aggregated with securities transactions on the line near the bottom of the tabie, and are as meaningless, but we regard the aggregete realized and unrealized cot included in operating earnings. (We regard odd annual figure for realized capital gains or losses capital gains over a period of vears as very imporlant.) Furthermore amortization of Goodwil! is not charged against the specific businesses but. for reasons outlined in the Appendix, is set forth as a separate item. Net Earnings Earnings Before income Taxes After Tax Total Berkshire Share Berkshire Share 1983 1982 1983_ _ 1982 1983 1982 (300s omitted) Operating Farings: Insurance Group: Underwriting $ (33.872) $ (21.558) $ (33.872! $ (21,558) $ (18.400) $ (11.343) Berkshire-Waumber fextiles Net Investment Income 43.819 (100) 11.020 (1.545) 13.810 41,620 39.114 35.270 697 914 (100, Nebraska Furniture Marl'?! Associated Retail Stores 597 (1.5-5) 914 355 (63) (862) 446 27.411 3.812 3.049 14.235 1.521 See's Candies 19.352 23.884 (1.422) (1.215) 24.526 2.492 (724) 12,212 6.914 Buffalo Evening News 7.493 6.156 4.182 16,547 8,832 (226) Wesco Financial - Parent Blue Chip Stamps(2) (1.876) 2.937 (353) 2.472 4.844 21.000 (13.84+) 2.102 493 (2) 3.4-8 1,136 1.917 2.210 Mutual Savings and Loan 3.241 (798) 1.035 (6) (467) 1.524 Special GEICO Distribution Interest on Debt Precision Steel 265 (15.104) (14,996) 21,000 (12.577) 19.551 (7.3+6) (6.951) Shareholder-Designated Amortization of Goodwill Contrbutions (3.066) (891) 151 (3,066) (891) (563) 90 (1,656) (481) (532) 3.371 9.623 2.658 8.490 (563) 2.171 90 Other 10.121 Sales of securities and Operating Earnings 82.043 41.102 72,410 27.742 58.195 31.497 unusual sales of assets 67.260 S149.303

• 36.651

65,089 21.873 45.298 $ 77.753 $137,499 $ 49,517 $113.493 14.877 Total Earnings $ 46.374 1: October through December 21 1982 and 1983 are not comparable: major assets were transferred in the merger. 36-51. Charlie replaced Louie Vincenti as Chairman of Wesco late in 1983 when health forced Louie's For a discussion of the businesses owned by Wesco. please read Charlie Munger's report on pages health would cause us to consider his retirement. Louie is a marvelous man and has been a marvelous retirement at age 77. In some instances. "health" is a euphemin, but in Louie's case nothing but manager. 5

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offer for a portion of its stock. baying both from us and other sharehoiders. At GEICO's request, we The special CBICO distribution reported in the table arose when that company made a tender before The proportional nature of our sale permitted us to treat the proceeds as a dividend. Unlike tendered a quantty of shares that kept our ownership percentage the seme after the transaction as individuals. corporations net conside ably more when earnings are derived irom dividends rather than from capital gains, since the effective Federal income lax rate on dividends is 6.9% versus 28%% con less than our share of GEICO's carnings. Thus it is perfectly appropriate. from both an accounting Even with this special item added in. our total dividends from GEICO in 1983 were considerably and economic standpoint. to include the redemption proceeds in our reported earnings. It is because the item is large and unusual that we call your attention to it. companies whose marketable equity securities we own. But the table does not include earnings those The table showing vou our sources of earnings includes dividends from those non-controlled companies have retained that are applicable to our owneiship. In aggregate and over time we expect those undistributed carnings to be reflected in market prices and to increase our intrinsic business as part of our profits. That does not meen we expect all of our holdings to behave uniformly: some valm on a dollar-for-dollar basis. just as if those earnings had been under our control and reported we originally anticipated. In aggregate, we have received far more than a dollar of market value gain will disappoint us. others will deliver pleasant surprises. To date our experience has been belter than for every dollar of earnings retained. The following table shows our 1983 veerend met holdings in marketable equ'lins, All numbers represent 100% ef Berkshire's holdings. and 80% of Wesco's heldings. The portion attributable 1o minority shareholders of •esco has been excladed. No.of Shares Cos! Marke! $ 3.516 1000s omitted) 4.451.544 690.975 General Foods Corporation'*) Afflinted Publications. inc. 163.786 $ 228,698 26.603 6,850.000 CHICO Corporation 27,318 47,138 398.156 2.379.200 636.310 interpublic Group of Companies, Handy & Harman 4,056 42.231 33.088 197.200 Media General 3.191 2,580 11.191 5.618.061 250.400 R. J. Revnoids Industries. Inc.(ª) Ogilvy & Mather International 268.918 314.334 12.833 1,868,600 901.788 27.732 56,860 The Washington Pos! Company Time. Inc. 10,628 136.875 $558.863 $1.287.869 All Other Common Stockholdings 7.485 18.044 Total Common Stocks $566.348 $1.305.913 lal Wesco ouns shares in these companies. the GEICO proportional redemption last year - we would expect reported dividends from this group Based upon present holdings and present dividend rates — excluding any special items such as this group will retain that wil! be attributable to our ownership: these may total about S65 million to be approximately $39 million in 1984. We can also make a very rough guess about the earnings for the vear. These relained earnings could well have no immediate effect on market prices of the securities. Over time. however. we feel they will have real meaning. in Management's Discussion on pages 40-44. The most significant of these are Buffalo Evening News. In addition to the figures already supplied, information regarding the businesses we control appears See's. and the Insurance Group. to which we will give some special attention here.

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Puffalo Evening News netsspaper, since we began a morning edition a little over a year ago. is Buffalo News. First. i Clarification: our corporate name is Buffalo Evening News. Inc. but the name of the were responsible: (1) a state income tax cost that was subnormal because of a large ioss carry-forward. in 1983 the News somewhat exceeded its targeted profit margin or 10% after tax. Two factors now fully utilized, and (2) a large drop in the per-ton cost of newsprint (an unaniicipated fluke that wil! be reversed in 1984). paper's performance, nevertheless, was a significant achievement considering the economic and retailing Although our profit margins in 1983 were abort everage for newspapers such as the News, the environment in Buffalo. hard by the recent recession and that has lagged the recover:. As Buffle consumers have suffered. Buffalo has a concentration of heavy industry, a segment of the economy that was hit partir ularly so also have the paper's retailing customers. Their numbers have shrunk over the past few years and many of those surviving have cut their linage. Within this environment the News Pas one exceptional strength: its acceptance by the public. a community purchasing the paper each day. Our ratio is superb: for the six months ended September matter measured is the papers "penetration ratio" - the percentage of households within the timited States (the ranking is based on "city zone" mumbers compiled by the Audit Bureau of 30. 1983 tre News stood mumber one in weekday penetration among the 100 largest papers in the Circulations). that in such cases the penetration of either paper is necessarily lower than if there were a single In interpreting the standings. it is important to note that many large cities have !wo papers, and to themselves. Among these. the News is at the top nationally, far ahead of many of the country's paper. as in Buffalo. Nevertheless. the list of the 100 largest papers includes many that have a city best-known lailies.

• ten to twent: percentage points ahead of many well-known papers. It was not always this wav in

Among Sunday editions of these same large cailies. the News ranks number three in penetration present period. In that carlier period the Sunday paper was the Courier-Express (the News was not Bufialo. Below we show Sunday circulation in Buffalo in the vears prior to 1977 compared with the then publishing a Sunday paper). Now. of course. it is the News. Average Sundoy Circulation Year Circulation 1971 1970 314.000 306.000 1972 302.000 1974 1973 290.900 278.000 1975 1976 270,000 269.000 1984 (Current) 376.000 Papers with unusuaily high penetration in the geographical area that is of prime interest to major We believe i paper's penetration ratio to br the best measure of the strength of its franchise. local retailers, and with relatively little circulation elsewhere, are exceptionally efficient buys for close retailers. Low-penetration papers have a far less compelling message to present to advertisers.

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three factors largely account for the unusual acceptance of the News in the com aunity. these. points 2 and 3 also may explain the popularity of the Sunday News compared to that of the Sunday Counter-Express when it was the sole Sunday paper: (1) The first point has nothing to do with merits of the News. Both emigration and immigration activities of its community than is a shifting population — and. as a result. is more interested are relativels low in Buffalo. A stable population is more interested and involved in the in the content of the local daily paper. Decrease the movement in and out of a city and penetration ratios will fall. (2) The News has a reputation for editorial quality and integnity that was boned by our long- Kime editor. the legendary Alfred Kirchhofer, and that hes been preserved and extended by Sandas paper against entrenched competition. And without a Sunday edition. the News would Murray Light. This reputation was enormously important to our success in establishing a not have survived in the long run. (3) The News lives up to its name - it delivers a very unusual amount of news. During 1983. our "news hole" (editorial material - not ads) amounted to 50% of the newspaper's content (excluding preprinted inserts|. Among papers that dominale their markets and that are of comparable or larger size. we know of only one whose news hole percentagr exceeds that of the News. percentage in the high 30s. In other words, page for page. our mix gives readers over 25% Comprebensive ligures are not available. but a sampiing indicates an average pushing for higher profit margins. have cut their news holes during the past decade. We have more news than the typical paper. This news-rich mixture is by intent. Some publishers. maintained ours and will continue to do so. Properly written and edited, a full serving of news makes our paper more valuable to the reader and contributes to our unusual penetration ratio. newspaper pages as contrasted to preprinted inserts) are going to be very difficult to achieve. We had Despite the strength of the News' franchise, gains in ROP linage (advertising printed within the an enormous gain in preprints during 1983: line rose from 9.3 million to 16.4 million, revenues from $3.6 million to S8.1 million. These gains are consistent with national trends, but exaggerated in our case by business we picked up when the Courier-Express closed. on preprints is less and the business is more subject to competition from alternative means of delivery On balance. the shift from ROP to preprints has negative economic implications for us. Profitability hole percentage remains constant). thereby reducing the utility of the paper to the reader. Furthermore, i reduction in ROP linege means less absolute space devoted to news (since the news Urban. Henry never finched during the dark days of litigation and losses following our introduction: Stan Lipsey became Publisher of the Buffalo News at midgear upon the retirement of Henry of the Sunday paper - an introduction whose wisdom was questioned by many in the newspaper business. including some within our own building. Henry is admired by the Buffalo business community. he's admired by all who worked for him. and he is admired by Charlie and me. Stan worked with involved in all nuts-and-bolts aspects of the newspaper business from editorial to circulation. We Henry for several vears, and has worked for Berkshire Hathaway since 1S69. He has been personally couldn't do better. See's Candr Shops The financial results at See's continue to be exceptional. The business possesses a valuable and solid consumer 'anchise and a manager equally valuable and solid. its was toward solution. That problem concerns costs. except those for raw materials. We have enjoyed In recent verrs See's has encountered too Important problems. at least one of which is well on a break on raw material costs in recent vears though so. of course, have our competitors. One of these 8

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days we will get a nasty surprise in the opposite direction. In effect. raw material costs are largely bevond our control since wel will. as a matter of course. buy the finest ingredients that ie ca regardless of changes in their price levels. We regard product quality as sacred. On a per-pound basis, our costs (not inclading those for raw materials) have increasrd in ihe last Be! other kinds of costs are more controllable. and it is in this area that we have had problems. comperitive position and profit potential that we reverse this trend. few years at a rate significantiy greater than the increase in the general price level. It is vital to our rate of growth in these costs in 1984 will be below the rate of inflation. This confidence artes out In recent months much better control over costs has been attained and we fee! certain that our day ere took reer, and his record has been simply extraordinary, as shown by the following table: ,f our long experience with the managerial talents of Chuck Huggins. We put Chuck in charge the 52-53 Week Year Operating Number of Number of Ended About Sales Profits Pounds of Stores Open December 31 Revenues After Taxes Candy Sold at Year End 1983 (53 weeks) $133.531.000 $13,699.000 24.651.000 207 1982 123.662.000 11,875.000 24.052.000 24.216.000 202 1980 1981 112.578,000 10.779.000 199 97.715.000 7,547.000 23.985.000 24.065.000 191 1979 87.314.000 6,330.000 188 1977 1978 62.886.000 73.653.000 6.178,000 5,569.000 6,154.000 22.407.090 182 20.921.000 179 1976(53 weeks) 56.330.000 20.553.000 173 1975 50.192.000 5.132.000 1.940.000 3.021.000 19.134.000 172 1973 1974 35.050.000 41.243.000 17,813.000 17,883.000 169 170 197" 31.337.000 2.083.000 16,95÷.000 167 gains in pounds sold. The industry has the same probler. But for many years we outperformed the The other problem we foce. as the table suggests, is our recent inability to achieve meaningful industry in this respect and now we are hot. The poundage volume in our retail stores has been virtually unchanged each ypar for the past four, despite small increases every year in the number of shops (and in distribution expense as well). Of course. dollar the most important measure of retail trends to be units sold per store rather than dollar volume. On volume has increased because we have raised poices significantly. But we regari: a same-store basis (counting only shops open throughout both years) with all figures adjusted to a performance since 1979: the cumulative decline since then has been about 8%. Quantity-order volume. 52-week rear. poundage was down .8 of 1% during 1983. This small decline was our best same-store about 25% of our total. has plateaued in recent years following very large poundage gains throughout the 1970s. order area -- is due to our pricing policies and to what extent it is due to static industry volume. We are not sure to what extent this flat volume - Loth in the retail shop area and the quantity Our price increase for 1984 is much more modest than has been the case in the past lew vears, and the recession, and the extraordinary share of market we already enjoy in our primary marketing area. we hope that nex! rear we can report better volume figures to you. Bit we have no basis to forecast these. area, the West. our candy is preferred by an enormous margin to that of any competitor. In fact, we Despite the volume problem. See's strengths are many and important. in our primary marketing in stocks, price and value can differ; price is what you give. value is what you get.) The quality of believe most lovers of chocolate prefer it to candy costing two or three times as much. (In candv. as

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is every bit as good as the product. Cheerful. helpful personnel are as much a trademark of See's as ta. tomer service in our shops — operated throughout the country by us and not by franchisees - is the logo on the box. That's no small achievement in a business that requires us to hire about 2000 seasonal workers. We know of no comparably-sized organization that betters the quality of customer service delivered by Chuck Huggins and his associates. Because we have raised prices so modestly in 1984. we expect See's profits this vear to be about the same as in 1983. Insurance - Controllea Operations we don't operate. GBICO. The results for all can be summed up easily: in aggregate. the companies We both operate i murance companies and have a large economic interest in an insurance business responsibility a few vears ago, had absolutely terribme results. Fortunately: GEICO. whose policies I ve operate and whose underwriting results reflect the consequences of decisions that were my do not influence, simple shot the lights out. The inference you draw from this summary is the correct one. i made some serious mistakes a few rears ago that came home to roost. The industry had its worst underwriting vear in a long time. as indicated by the table below: Yearly Change Combined Ratio in Premiums after Policy- Written (%) holder Dividends 1972 10.2 96.2 1973 8.0 99.2 1974 6.2 105.4 1975 11.0 107.9 1576 21.9 1977 19.8 102.4 97.2 1978 12.8 97.5 1979 10.3 100.6 1980 6.0 3.9 103.1 1981 106.0 1982 (Revised) 4.4 109.7 1983 (Estimaled) 4.6 111.0 source: Best's Aggregates and Averages Best's data reflect the experience of practically the entire industry, including stock, mutual, and reciprocal companies. The combined ratio represents total insurance costs (losses incurred plus expenses) compared to revenue from premiums: a ratio below 100 indicates an underwriting profit and one above 100 indicates a loss. be more or less typical for a good many vears to come. (As Yogi Berra put it: "It will be déjà vu all For the reasons outlined in last year's report, we expect the poor industry experience of 1983 to over again.") That doesn't mean we think the figures won't bounce around a bit: they are certain to. But we believe it highly unlikely that the combined ratio during the balance of the decade will average merely to stabilize loss ratios at present levels. responsibility for the insurance operation. it would be nice for me if our shortcomings could be placed Our own combined ratio in 1983 was 121. Since Mike Goldberg recently took over most of the business has a long lead-time. Though busmess policies may be changed and personnel improved. i at his doorstep rather than mine. But unfortunately, as te have often pointed out. the insurance significant period must pass before the effects are seen. (This characteristic of the business enabled 10

[PAGE 13]

it actually occurred.) So the roots of the 1983 results are operating and personnel decisions made two us to make a great deal of moner in GEICO: we could picture what was likely to happen well before or more years back when I had direct managerial responsibility for the insurance group. quided the auto and general mability business c! Natonal Indemnity Company and National Fire and Despite our poor resuits overall, several of our managers did truly outstanding jobs. Roland Miller Marine Insurance Company to improved results. while those of competitors deteriorated. In addition. transactions where the buver's orerriding concern should te the seller's long-term creditworthiness. We have become active recently - and hope to become much more active - in reinsurance claimants and insurers who cast rely on the reinsurer's promises for a great many vears to come. In such transactions our premier francial strength should make us the number one choice of both which claimants receive periodic payments (almosi always monthly. for life) rather than a single lump- A major source of such business is structured settlements — a procedure for settling losses under prevents his squandering a large lump-som payment. Froquently. some inflation protection is built sum seltiement. This form of settlement has important lax advantages for the claimant and also must be unquestionably secure for decades to come. We believe we offer unparalleled secarity: No eto the settlemen. Usually the claimant as been seriously injured, and thus the periodic payments ether insurer we know of _ even those with much larger gross assets — has our financial strength. We also think our financial strength should recommend us to companies wishing to transfer loss reserves. In such transactions. other insurance companies pay as lump sums to assume all (or a the company transferring such claims needs to be certain of the transferee's financial strength for specified portion of) future loss payments applicable to large blocks of expired business. Here also. many years to come. Again, most of our competitors soliciting suc! business appear to us to have a financial condition that is materially inferior to ours. to us. Because of their potential size and because these operations generate large amounts of investment Potential!y. structured settlements and the assumption of loss reserves could become very significant ircome compared to premiom volume. we will show underwriting resulte from those businesses on a separate line in our insurance segment data. We also will exclude their effect in reporting our combined ratio do you. We "fron: end" no profit on structured settlemen! or loss reserve transactions. 'nd all attributabie overhead is expensed currently. Soth businesses are run by Don Wurster at National Indemnity Compa Insurance - GEICO Getro's performance during 1983 was as good as our own insurance performance was poor. Compared to the industry's combined ratio of 111. GEICO wrote at 96 after a large voluntary accrual for policyholder dividends. A few years ago I wouid not have thought GEICO could so greatly outperform the industry. its superiority reflects the combination of a truly exceptional business idea and on exceptional managemen!. Jack Borne and Bill Snyder have maintained extraordinary discipline in the underwriting area (including. crucially: provision for foil and proper loss reserves). and their efforts are now being of the deld smong insurance investment managers. The three of them are some team. further rewaried by significant gains in new business. Equally important, Lou Simpson is the class company's premium volume, an amount some 80% larger than our own volume. Thus. the major We hat: approximately a one-third interest in GEICO. That gives us a $270 million share in the portion of our tota! insurance business comes from the best insurance book in the country. This faci does not moderate bo an iota the need for us to improve our own operation. 11

[PAGE 14]

Stork Splits and stock Activity usually appears to be that a split would be a pro-shareholder action. We disagree. Let me tell you whs. We often are esked when Berkshir does not split its stock. The assumption behind this question intrinsic business value. (But note "rationalis related". not "identica' if well-regarded companies are Our of our goals is to have Berkshire Hathaway stock sell at a price rationall: reiated to its The ker to a ratonal cock price is rational shareholders. both current and prospective. generally seiling in the market at large discounts from value. Berkshire might well be priced similarly.) irrational or emotion-based decisions, some prolty silly stock prices are going io appear periodically: If the holders of a company's stock andior the prospective buvers attracted to it are prone to make in buying and selling the stocks of other companies. But we think it is in both your interest and Manir-depressive personalities produce manic-depressive valuations. Such aberrations may help us ours to minimize their occurrenor in the market for Beri shire. can buv and stock. Entering members of a shareholder "cob" To obtain only high quality shareholders is no cinch. Mrs. Astor could select her 100. but anyone cannot be screened for intellectual Capacity: emoliocal stability: moral sensitivity or acceptable .!ress. Shareholder eugenics. therefore. might appear to be a hopeless undertaking. we consistently communicate our business and ownership philosophy - along with no other conflicting In large part. bowever. we feel that high quality ownership car be attracted and maintained if messages • and then le self selection follow its course. For example. self selection will draw a far different crowd to a mustal evot advertised as an opera than one advertised as a rock concert — rven though angone can buy a ticket to either. who will understand our operations. attitudes and expectations. (Andi. fully as important. we try to Throughs our policies and communications — our "advertisements" - we try to attract investors in companies with the intention of staying a long time. And. we wart those who keep their eves dissuade those who won't.) We want those who think of themselves as business owners and invest focused on business results, not market prices. collection of them. I believe well over 90% - probably over 95% - of our shares are held by those Investors possessing those characteristics are in a small minority. but we have an exceptional who were shareholders of Berkshire or Blue Chip five rears ago. And I would guess that over 95% of our shares are hold be investors for whom the holding is at least double the size of their next of market value. we are almos! certainly the leader in the degree to which our shareholders think largest. Among companies with at least several thousand public shareholders and more than S1 billion and act like owners. Upgrading a sharebolder group that possesses these chatacteristics is not east. value. we would attract an entering class of buyers inferior to the exiting class of sellers. A! $1300. Were we to split the stock or take other actions focusing on stock price cather than business there are very fem investors wio can't afford a Berkshire share. Would a potential one-share purchaser buy the stock because of the split or in anticipation of one woold definitely downgrade the quality be better off if we split 100 for of our present shareholder group. (Could we really improve our shareholder group by trading some of our present clear-thinking members for impressionable new ones who. preferring paper to value. feel wealthier with nine S10 bills than with one $100 bill?) People who buy for non-value reasons are ikels to sell for non-value reasons. Their presence in the pictore will accentuate erratic price swings unrelated to underlying business developments. try to follow policies that attract informed long-term investors focusing on basiness values. Tust as We will try to avoid policies that attract buyers with a short-term focus on our stock price and a chance to sell • should you ever want to - in the same kind of market. We will work to keep you purchased vour Berkshire shares in a market populated by rational informed investors gou deserve it in existence. 12

[PAGE 15]

"marketability" and "liquidity". sing the praises of companies with high share tomoser Chose who Our of the ironies of the stock market is the emphasis on activity: Broke s. using forms such as camot fill vour pocket will confidentle All vour carl. But investors should understand that what is good for the croupier is not good for the custonor A hyperacite stock market is the pickpoiket of enterprise. rate in its shares of 100 per vear. If a purchase and sale of the stock each extract commissions of For example, consider a typical company carning, say. 12", on equity: Assume a very high turnover owners of our hypothetical company will pay. in aggregate. 2%o of the company's net worth annually 1', (the eate may be much higher on low-priced socks) and of the stock trades at book value. tire and means that ie of them are lost to the owners through the "frictional" cost of transfer. (And this for the privilege of transterring ornership. This activity does nothing for the earnings of the business. calculation does not count option trading. which toald incretse frictions! costs still further.) that would arise if a governmental unit were to impose a new 16%%o tax on earnings of corporations All that makes for a rather expensive game of musical chairs. Can you imagine the agonized cry or investors? Bo market activity. incestors can impose upon theaselves the equivalent of such a lax. trading is included, is today abnormally low! ape a curse for owners. not a blessing - for they mean Nors when the market trades 100 million shares fand that kind of volume, when over-the-counter that owners are paving twice as much to change chairs as thes are on a 500-million-share day. If 100- the chair-changing tax for investors in aggregate would total about S7.a billion million-share days persist for a year and the average cost on each purchase and sale is 156 a share. -an amount roughis a to thr combined 1982 profts of Exxon. General Motors. Mobi! and Texaco. the four largest companies in the Portune 500 over 12"o of both net worth and no! income of the entire Fortune 500 list. Under our assumption These companies had a combined net worth of $75 billion et vearend 1982 and accounted for investors, in aggregale. ever! vear forfeit all carnings from this staggering som of capital merely to S2 billion annually - sums paid for chair-changing advice — require the forfeiture by investors of satisty their penchant for "financial Gip-Hopping". In addition, investment management fees ot over all carings of the five largest banking Manufacturers Manever and 1. P. Morgan). These expensive activities may decide who cats the pie. organizations (Citicorp. Bank America. Chase Manhattan. but they don't enlarge it. of the capital allocalion process. We think that this argument is specious and that. on balance. (We are aware of the pie-expanding argument that savs that such activities improve the rationality hyperactive equity markets subvert rational capital allocation and act as pie shrinkers. Adam Smith feit that all noncollusive acts in a free market were guided by an invisible band that led an economy add as an invisible foot that trips up and slows down a forward-moving cconomy.) to mavimum progress: our view is that casino-type markets and hair-trigger investmeni management «boat 30 points, or a little over 2°». Depending on the size of the transaction. the difference between Contrast the hyperactive stock with Berkshire. The bid-and-ask spread in our stock currently is trading inveiving only d few shares) to perhaps 1e*o (in large trades where negotiation can reduce proceeds received be the seller of Berkshire and cost to the bever may range downward from 4% (in in fairly large transactions. the spread on all trading probably does not average more than 2%. both the markrt-maker's spread and the broker's commission). Because most Berkshire shares are traderi probably rune 3"ø per gear. Thus our owners. in aggregate. are paving perhaps 6:100 of 1°, of Berkshire's Meanwinnectae turnover in Berkshire stock fexcluding inter-dealer transactions, gifts and bequests) small cost. but for less than average. Splitting the stock would increase that cost, downgrade the market value annually for transfer privileges. By this very rough estimate, thats $900.000 - not a quality of our shareholder populetion, and encourage a market price less consistently related to intrinsic business value. We see no offsetting advantages. 13

[PAGE 16]

Miscellancous businesses we tell our advertisers that repetition is a key to rosuits (which it is), so we will agein Last year in this section I ran a small ad to encourage acquisition candidates. In our communications repeat our acquisition criteria. We prefer: (2) demonstrated consis'ent earning power (future projections are of little interest to us, nor (1) large purchases (at least S5 million of after-lax earnings!. (3) businesses earning good returns on equity while employing little or no debt. are "turn-around" situations). (5) simple businesses (if there's lots of technology. we won't understand it). (4) management in place (we can't supply it). (6) an offering price (we don't want to waste our time or that of the seller by talking. even preliminarily: about a transaction when price is unknown). We will not engage in unfriendly takeovers. We can promise complete confidentiality and a very fast anster customarilv within five minutes — as to whether trire interested. We prefer to buy for cash. but will consider issuance of stock when we receive as much in intrinsic business value as business in the past. For the right business — and the right people - we can provide a good home. we give. We invite potential sellers to check us out be contacting people with whom we have done .... About 96.4°% of all eligible shares participated in our 1983 shareholder-designated contrittions program. The total contributions made pursuant to this program -- disbursed in the early days of 198.1 but fully expensed in 1983

• were $3.066.501. and 1353 charities were recipients. Although

the response measured by the percentage of shares participating was extraordinarily good. the response large number of new shareholders acquired through the merger and their lack of familiarity witl: the measured be the percentage of holders participating vas not as good. The reason may well be the program. We urge new shareholders to read the description of the program on pages 52-53. thai your shares are registered in the actuel owner's name. not in "stree" or nomince name. Shares If vou wish to participate in fcture programs, we strongly urge that you immediately make sure not so registered on September 28. 1984 will not in eligible for any 1984 pregro. .. = of each company voted against the merger, and no requests for appraisal were made. In 1983. we The Blue Chip/Berkshire merger wen! off without a hitch. Less than one-tenth of 1% of the shares gained some tex efficiency from the merger and we expect to gain more in the future. to 1.137.778 shares at the beginning of fiscal 1965. the rear present maragenient assumed responsibility. One interesting sidelight to the merger: Berkshire now has 1.146.909 shares outstanding compared ror every 1% of the company you owned et that time, you now would own 99%. Thus. all of today's assets — the News, See's, Nebraska Furniture Mart. the Insurance Group. $1.3 billion in marketable stocks. etc. - have been added to the original textile assets with virtually no net dilation to le original owners. of Berkshire Hathaway, we will be glad to send you the Compendiam of Letters from the Annual We are delighted to have the former Blue Chip shareholders join us. To aid in your understanding Reports of 1977-1981. andor tip 1982 Armual report. Direct your raquest io the Company at 1440 Kiewit Plaza. Omaha, Nebraska 08131. Warren E. Buffett March 14. 1984 Chairman of the Board 14

[PAGE 17]

BERKSHIRE HATHAWAY INC. Goodwill and its Amortization: The Rules and The Realities usage. For example. a business may be well liked. even loved. by most of its customers bur possess This appendix deals only with cconomic und accounting Goodwill - not the goodwill of everyday a dime of economic Goodwill.) And. regrettably. a business may be disliked by its customers but no economic goodwill. (AT&T, before the 'ceakup. was generaliy well thought of. but possessed not possess substantial. and growing. economic Goodwill. So. just for the moment. forget emotions and focus only on economics and eccounting. tribe fair value of the identifiable assets that are acquired. Frequently the sum of the fair values put When a busines is purchased. accounting principles require that the purchase price first be assigned In that case. the difference is assigned to an asser account entitled "excess of cost over equity in net on the assets fafter the deduction of liabilities) is less than the total purchase price of the business. assets acquired". To avoid constant repetition of this mouthfel. we will substitute "Goodwill". Accoonting Goodwill arising from businesses purchased before November 1970 has a special the business bought is retained. That means no amortization charges to gradually extinguish that asset standing. Except under rare circumstances. it can remain an asset on the balance sheet as long as need be made against carnings. Goodwill. it must be amortized over not more than 40 rears through charges - - of equal amount in The case is different. however, with purchases made from November 1970 on. When these create what managements (including us) usually ciect. This annual charge to earnings is not ailowed as a ... to the carrings account. Since 40 years is the maximum period allowed. 40 vears is tax deduction and. thus. has an effect on after-tax income that is roughly double that of most other expenses. That's how accounting Goodwill works. To see how it differs from economic reality. let's look at an example close at hand. We'll round some figures, and greatly oversimplify. to make the example rasier to follow. We'll also mention some implications for investors and managers. million of net tangible assets. (Throughout this discussion, accounts receivable will be classified as Blur Chip Stamps bought See's early in 1972 for $25 miltion. at which time See's had about Se tangible assets, i definition proper for businees analysis.| This level of tangible assets was adequate ir: condect the business without use of debt. except for short periods seasonally. See's was earning about S2 million after tax at the lime. and such earnings seemed conservatively representative of future carning power in constant 1972 dollars. can be expected to produce earnings on such assets considerably in excess of market rates of return. Thus our first lesson: businesses logically are worth far more thar net tangible assets when they The capitalized value of this excess retorn is economic Goodwill. tax on net tangible asses that was earned by See's - doing it. furthermore, with conservative accounting In 1972 (and not) relatively few businesses could be expected to consistently ear the 25%% after and no financial leverage. It was not the fair market value of the inventories. receivables or fixed assets that produced the remium rates of return. Rather it was a combination of intangible assets. particularly a pervasive fasorable reputation with consumers based upon countless pleacant experiences they have had with both product and personnel. Such a reputation creates a consumer franchise that allows the value of the product to the franchises are a prime source of economic Goodwill. Other sources include governmental franchises purchaser, rether then its produciion cost, to be the major determinant of selling price. Consumer not subgect io protit regulation. such as television stations, and an enduring position as the low cost producer in an industry. 15

[PAGE 18]

over net tangible assets required that a Goodwill account of this amount be established as an asset Let's return to the accounting in the Sce's example. Blue Chip's purchase of See's at $17 million asset. By 1983. after 11 sears of such charges. the S17 million had been reduced to about $12.- on Blue Chip's books and that $425.000 be charged to income annually for 40 years to amertize that million. Berkshire, meanwhile, owned 60%% of Blue Chip and, therefore. also 60°ø of See's. This ownership meant that Berkshire's balance sheet reflected 60°% of See's Goodwill, or about $7.5 million. In 1983 Berkshire acquired the rest of Blue Chip in a merger that required purchase accounting as contrasted to the "pooling" treatmeat allowed for some mergers. Under purchase accounting. the "fair value" of the shares we gave to for "paid") Blue Chip holders had to be spread over the net assets acquired from Blue Chip. This "fair value" was measured. as it almos' always is when public companies use their shares to make acquisitions. by the market value of the shares given up. The assets "purchased" consisted of 40% of everything owned by Blue Chip (as noted. Berkshire already owned the other 60%). What Berkshire "paid" was more than the net identifiable assets wo received by $31.7 million. and was assigned to two pieces of Goodwill: S28.t million to See's and $23.3 million to Boffalo Brening News. components: the S7.5 million remaining from the 1971 purchase. and $28.4 million newly created by After the merger. therefore, Berkshire was left with a Goodwill asset for See's that had two the 10"" "purchased" in 1983. Our amortization charge now will be about $1.0 million for the next 28 years. and $.7 million for the following 12 years. 2002 trough 2013. and amortization charges for two pieces of the same asset. (We repeat our usual disclaimer: we have In other words. different purchase dates and prices have given us vastly different asset values no better accounting system to suggest. The problems to be dealt with are mind boggling and require arbitrary rules.) deducted as costs in the earnings statement each vear since acquisition of See's were not true economic But what are the economic realities? One reality is that the amortization charges that have been costs. We know that because See's last year earned $13 million after taxes on about S20 million of the total original cost of our accounting Goodwill. In other words, white accounting Goodwill regularly net tangible assets - a performance indicating the existence of economic Goodwill far larger than decreased from the moment of purchase, economic Goodwill increesed in irregular but very substantial fashion. Another reality is that annual amortization charges in the future will not correspond to economic costs. It is possible, of course. that See's econoric Goodwill will disappear. But it won't shrink in even decrements or anything remotely resembling them. What is more likely is that the Goodill will Incrense -- in current. if not in constant. dollars - because of inflation. with inflation. To illustrate how this works. let's contrast a See's kind of business with a more mundane That probability exists because true economic Goodwill tends to rise in nominal value proportionally business. When we purchased See's in 1972. it will be recalled. it was earning about S2 million on $8 million of net tangible assets. Let us assume that our hypothetical mundane business then had $2 million of carnings also, but needed S18 million in net tangible assets for normal operations. Earning only 11% on required tangible assets. that mundane business would possess little or no economic Goodwill. for $18 million. In contrast. we paid $25 million for See's, even though it had no more in earnings A business like that, therefore. might well have sold for the value of its net tangible assets, or and less than half as much in "honest-to-God" assets. Could less really have been more, as our purchase price implied? The answer is "yes" - even if both businesses were expected to hove fat unit volume - as long as you anticipated, as we did in 1972. a world of continuous inflation. have on the two businesses. Both would need to double their nominal earnings to St million to keep To understand why. imagine the effect that a doubling of the price level would subsequently themselves even with inflation. This would seem to be no great trick: just sell the same number of units at double carlier prices and. assuming prefit margins remain unchanged. profits also must double. 16

[PAGE 19]

investment in net tangible assets, since that is the kind of economic requirement that inflation ustally But. crucially. to bring that about, both businesses probably would have to double their nominal imposes on businesses. both good and bad. A doubling of dollar sales means correspondingly more dollars must be emploved immediately in receivables and inventories. Dollars emploged in fixed assets will respond more slowly to inflation. but probably just as surely. And all of this inflation-required investment will produce no improvement in rate of return. The motivation for this investment is the survival of the business. not the prosperity of the owner. had to commit an additional S8 million to finance the capital needs imposed by inflation. The mundane Remember, however. that See's had net tangible assets of only S8 miilion. So it would oniy have business, meanwhile. had a burden over twice as large — a need for $18 million of additional capital. be worth the value of its tangible assets. or S36 million. That means its owners would have gained After the dust had settled. the mundane business. now earning S4 million annually. might still only a dollar of nominal value for every new dollar invested. (This is the same dollar-for-dollar result ther would have achieved if they had added money to a savings account.) See's. however. also earning million. might be worth S50 million if valued fas it logically million in nominal value while the owners were putting up only $8 million in additional capital - would be) on the same basis as it was at the time of our purchase. So it would have gained $25 over S3 of nominal value gained for each S1 invested. up S8 million in additional capital just to stay even in real profits. Any unleveraged business that Remember, even so. that the owners of the See's kind of business were forced by inflation to ante requires some net tangible assets to operate (and almost all do) is hurt by inflation. Businesses needing little in the way of tangible assets simply are hurt the least. .... long on tradition, short on wisdom - held that inflation protection was best provided by businesses And that fact. of course. has been hard for many people to grasp. For years the traditional wisdom It doesn't work that way. Asset-heavy businesses generally earn low rates of return - rates that often laden with natural resources, plants and machinery, or other tangible assets ("In Goods We Trust"). barely provide enough capital to fund the inflationary needs of the existing business, with nothing left over for real growth, for distribution to owners, or for acquisition of new businesses. dears arose from ownership of operations that co. bined intangibles of lasting value with relatively In contrast, a disproportionate number of the g eat business fortunes bui!t up during the inflationary minor requirements dor tangible assets. In such cases earnings have bounded upward in nominal phenomenon has been particularly evident in the communications business. That business has required dollars, and these dollars have been largely available for the acquisition of additional businesses. This little in the way of tangible investment • • yet its franchises have endured. During inflation. Goodwill is the gift that keeps giving.

• and there is plenty of it around - is another matter. When an overexcited management purchases

But that statement applies, naturally. only to true economic Goodwill. Spurious accounting Goodwill a business at a silly price. the same accounting niceties described carlier are observed. Because it cant go anywhere else. the silliness ends ap in the Goodwill account. Considering the lack of managerial discipline that created the account. under such circumstances it might better be labeled "No-Will". Whatever the term. the 40-vear ritual typically is observed and the adrenalin so capitalized remains on the books as an "asset" just as if the acquisition had been a sensible one. ... If vou cling to any belief that accounting treatment of Goodwill is the best measure of economic reality. I suggest one final item to ponder. Assume a company with S20 per share of net worth. all tangible assets. Further assume the company has internally developed some magnificent consumer franchise. or that it was fortunate enough to obtain some important television stations by original FCC grant. Therefore. it earns a great deal on tangible assets, say $5 per share, or 25%%. 17

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With such economics. it might sell for S100 per share or more, and it might well also bring that price in a negotiated sale of the entire business. (just as would a corporate purchaser boying the whole company). Should the investor impute a $2 Assume an investor buys the stock at $100 per share. paying in effect $80 por share for Goodwill per share amortization charge annually ($80 divided by 40 years) to calculate "true" earnings per share? And. if so. should the new "true" earnings of S3 per share cause him to rethink his purchase price?

We believe managers and investors alike should view intangible assets from two perspectives: (1) in analysis of operating results - that is. in evaluating the underlying economics of a business unit - amortization charges should be ignored. What a business can be expected to earn on Goodwill. is the best guide to the economic attractiveness of the operation. It is also the best unleveraged net tangible assets. excluding any charges against carnings for amortication of guide to the current value of the operation's economic Goodwill. (2) In evaluating the wisdom of business acquisitions. amortization charges should be ignored also. They should be deducted neither from errnings nor from the cost of the business. This means forever viewing purchased Goodwill at it. full cost. before any amortization. Furthermore. cost should be defined as including the full intrinsic business value - not post the recorded involved at the time of merger and irrespective of whether pooling treatment was allowed. accounting value - of all consideration given. irrespective of market prices of the securities and the News was considerably more than the $51.7 million entered on our books. This For example, what we truit paid in the Blue Chip merger for 40% of the Goodwill of See's disparity exists because the market value of the Berkshire shares given up in the merger was less than their intrinsic business value, which is the value that defines the true cost to us. perspective (2). A good business is not always a good purchase - although it's a good place to look Operations that appear to be winners based upon perspective (1) may pale when viewed from fot one. that provide reasonable returns measured by (2). Accounting consequences will be totally ignored. We will tre to acquire businesses that have excellent operating economics measured by (1) and $79 million vou see stated on the asset side of our balance sheet, and S17 million of negative Goodwill At vearend 1983. net Goodwill on our accounting books totaled $62 million. consisting of the that is offset against the carrying value of our interest in Mutual Savings and Loan. We believe net economic Goodwill far exceeds the S62 million accounting number. 18

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PEAT Peat, Marwick, Mitcheil & Co. Certified Pubie Accountant» MARWICK Kicwit Plaza Burlding Thur-Sith and Faram Strcet Omaha. Nebraska 68131 The Board of Directors and Stockholders Berkshire Hathaway Inc.: We have examined the consolidated balance sheets of Berkshire Hathaway Inc. and consolidated subsidiaries as of December 31, 1983 and January 1, 1983 and consolidated statements cf earnings and changes in financial position for each of the years in the three year period ended December 31, 1983. Our examinations were made in accordance with generally accepted auditing standards and, accordingly, included such tests of the accounting other auditing procedures as we considered necessary We did not examine the consolidated financial statements of Blue Chip Stamps and Wesco Financial Corporation which statements reflect total assets constituting 25 percent at January i, at January 1, 1983 and for each of the years in the two years then ended, 1983 and total revenues constituting 49 percent and 47 percent in 1982 and 1981, respectively, the related consolidated totals. These financial statements were examined by other auditors whose reports thereon have been furnished to us and our opinion expressed herein, insofar as it relates to Blue Chip Stamps and Wesco Financial Corporation as of and prior to January 1, 1983, is based solely upon the report of the other auditors. In out opinion, aforementioned consolidated financial statements present based upon our examinations and the report of other the financial position of Berkshire Hathaway Inc. and consolidated at December 31, 1983 and January 1, 1983 and the results of their operations and the changes in their financial position for each of the years in the three-year period ended December 31, 1983, in conformity generally accepted accounting principles applied on a consistent basis, as restated (note 1). Peat, Minish, Mithly 8. March 16, 1984 19

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CONSOLIDATED BALANCE SHEETS And Consolidated Subsidiaries BERKSHIRE HATHAWAY INC. (dollars in thousands) Dec. 31. Jan. : 1983 1983 Cash ASSETS (Restated) Investments. other than investments in affiliates: 6.161 7.762 Fixed maturities, principally bonds (market value: Marketable equity securities (Notes 4 and 5) Dec. 31. 1983 - S204,801: Jan. 1. 1983 -- S182.153) 208.245 Invested cash. represented by various short-term investments 1.232.150 979.024 189.330 at cost which approximates market ... 75.343 58.765 Total investments. other than affiliates 1.515.738 1.227.119 Investment in Mutual Savings and Lean Association (Note 6] Accounts receivable from customers, agents and others (Note 7) 27.004 Inventories (Note 8) ........ 72.813 113.770 23.758 Real estate, cquipment, furniture and leasehold improvements, at 37.516 26.039 Goodwill of acquired businesses ..... cost less allowance for depreciation and amortization (Note 9) 69.749 Other assets 79.327 63.020 48.08-1 57.993 13.823 $1.856,392 $1.533.28- Losses and loss adjustment expenses .... LIABILITIES AND STOCKHOLDERS EQUITY 212,706 S 193.477 Unearned premiums ........ Liability for unredeemed trading stamps 55,783 60.669 58.414 Current income taxes .. Accounts pavable. accruals and other liabilities 58.094 60,240 194,462 8,511 22.007 50.552 Deferred income faxes (Note 10) ............. Minority shareholders' interests Ter debt and other borrowings (Notes 11 and 128.984 149.987 17.990 169.947 101.177 737.199 805.801 Stockholders' equity (Notes 12. 13, and 14): Common stock of $5 par value. Authorized at Dee. 31. 1983. at Dec. 31. 1983. 1.375.183 shares, at Jon. 1. 1983. 1.214.283 1.500.000 shares. at lan. 1. 1983. 1.250.000 shares: issued Capital in excess of par value shares, including shares held in treasury 157.377 6,876 3.51. 6.071 Unrealized appreciation of marketable equity securities. net of Retained earnings provision for deemed applicable income laxes 513.925 481.953 358.121 100.+32 ires common stock in treasury. at cost (Dec. 31. 1983. 228,274 1.16C.131 768.141 shares: Jan. 1. 1983, 227.774 shares) ... 10.938 40.658 Total stockholders' equity 1.119.193 727.483 Commitments (Note 15) $1.856,392 $1.533.284 See accompanying Notes to Consolidated Financial Stalements 20

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BERKSHIRE HATHAWAY INC. CONSOLIDATED STATEMENTS OF EARNINGS And Consolidated Subsidiaries (dollars in thousands except per share amounts) Fiscal Year Ended Suturday nearest December 31. 1983 1982 1981 Income items: (Restated) Sales and service revenues Insurance pramiums earned S 152.480 381.674 $152.945 (Restated) 306.564 $159.013 312.105 Interest and dividend income .... 85.903 58.003 54.035 Equity in carnings excluding realized investment gain of Mutual Savings and Loan Association 3.669 3.960 4.081 623.726 521.472 529.23- Cost and expense items: Insurance losses and loss adjustment expenses 134.109 Insurance underwriting expenses .......... Cost of products and services sold 214.362 121.996 52.243 177,508 103.417 52.508 193.080 Interest and financing costs Selling, general and administrative expenses 122.023 15.104 110.021 101.028 54.119 14.995 14.656 537.841 477.028 466.300 Earnings from operations including minority before applicable income laxes and before interest in consolidated subsidiaries. Income taxes applicable to above (Note 16) .. realized investment gain ... 10,353 85.885 44.444 2.524 62.93-1 13.154 75.532 Minority interest applicable to above 7.337 41.920 49,780 10.423 10.057 Realized investment gain. net (Note 17) Carnings before realized investment gain 45.298 68.195 31.497 39.723 14.877 22.881 Net earnings 113.493 $ 46.374 $ 62,604 Average shares outstanding 1.066.709 986,509 986.322 Per share: Earnings before realized investment gain 63.93 Net earnings 106.40 31.93 S 47.01 ÷0.27 63.47 See accompanying Notes to Consolidated Financial Statements 21

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BERKSHIRE HATHAWAY INC. And Consolidated Subsidiaries CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION (dollars in thousands) Fiscal Year Ended Saturday nearest December 31. 1983 1982 1981 Funds provided: (Restated) (Restated) From operations: Net earnings S113.493 $ 46.374 $ 62.60+ Minority interest in earnings 8.801 20.609 13.108 Earnings including minority interest 122.294 66.983 75.712 Charges (credits) not requiring (providing) funds: Iquity in undistributed earnings of unconsolidated subsidiaries (3.046) (58.756) 7.09- (534) (1.681) Decrease (increase) in accounts receivable Depreciation and amortization 57.972 7.953 6,563 222 Decrease (increase) in inventories (3.871) 3.063 941 Increase (decrease) in losses and loss Decrease in unearned premiums adjustment expenses (2,631) 19,229 (3.855) 2.507 (11.012) (8.158) Increase (decrease) in liability for unredeemed trading stamps 429 (4.022) 209 Increase (decrease) in liability for income laxes applicable to earnings (13.817) 7.620 6.018 Increase (decrease) in accounts payable. accruals Other and other liabilities …...... (999) (3.892) 8.228 72.660 11.111 (20.110) 6.553 (70.887) 7.883 Proceeds from issuance of debt, net of expense Funds provided from (used in) operations 194.954 154.665 -... 41,900 (3.90-) 83.595 Issuance of common stock in Blue Chip merger Decrease in cash 1.913 4.241 _S351.532 $37.995 $ 87.836 Funds used: Purchase of minority shareholders' inierest in net Purchase of majority interest in net tangible assets of tangible assets of Blue Chip Stamps $108.987 $- .... Goodwill - excess of purchase cost over value of net Nebraska Furniture Mart. Inc. 35,045 - tangible assets acquired 66.682 Net assets of acquired businesses 210.714 Additions to property, plant and equipment, net 40.963 6.210 9.229 6,363 Dividends paid to minority stockholders Repayment of debt 2,245 6.677 890 1.210 1.154 Cost of net purchases (sales) of investments: Bonds and other fixed maturity securities 70,424 18.611 (16,748) 3.720 49.663 18.276 U.S. Treasury bills and short-term obligations Marketable equity securities 39,237 (7.865) 16,08- Unconsolidated subsidiaries 45 Net purchase of investments 92.755 25.050 73.642 Increase in cash 262 $351,532 $ 37,996 S 87.836 See accompanying Notes to Consolidated Financial Statements 22

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And Consolidated Subsidiaries BERKSHIRE HATHAWAY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollors in thousands except per share amounts) December 31. 1983 Inc. (the "Company" or "Berkshire") consolidated with accounts of all of its subsidiaries except Mutel The accompanying Consolidated Financial Statements include the accounts of Berkshire Hathan sr certain other subsidiaries in which the Company's aggregate investment is minor. Savings and Loan Association ("Mutual") and a wholly-owned subsidiary of Mutual. and excrp: It accounts for this investment pursuant to the equity metnod of accounting. Accounts of cert. The Company at December 31, 198: ned. beneficially. 80.1% of Mutual and Mutual's subsidi.: December 31. 1983. and Wesco's subsidiaries other than Mutual and Mutual's subsidiary) are current: subsidiaries (Wesco Financial Corporation — hereafter "Wesco" - 80.1% beneficially ounci Consolidard Financial Statements. The accompanying Consolidated Financial Statements for prior consolidated but were not included on a consolidated basis in the Company's previously issur; periods" Net Barnings or Stockholders' Equity results from the restatements. Income items for 1982 periods or dates have been restaied to conform to current consolidation practices. No change in prior and 1981 as previously reported are reconciled to those reported in the accompanying Consolidated Statements of Earnings as follows: restalesi Deduct: Equity in earnings of Wesco incladed above As previously reporiod 1982 1981 S479.391 Add: Revenues of Wesco herem consolida' ed (6.408) $478.696 As restated 48.489 57.658 (7,120) S521.422 S529.234 diverse businesses. See Note 20. Consolidated financial position and results reflec! those of companies engaged in a number ot (2) Corporate changes vears prior to the merger. Berkshire owned approximately 59.6% of Blue Chip's outstanding shares During 1983. Blue Chip Stamps ("Blue Chip") was merged with and into the Company. For severa! In the merger. Berkshire issued shares of its common stock and provided for payment of cash in lira be Berkshire. The Company accounted for the transaction as a purchase of the minority interest :: of issuance of fractional shares for the 40.4% of Blue Chip's outstanding shares not already own-c Blue Chip's net assets. beneficially. to the same extent as previously owned by the merged Blue Chip. Thus, See's Cane! In the merger, subsidiaries of the merged Blue Chip became subsidiaries of Berkshire, directly » Financial Corporction and wholly-owned subsidiaries of Mesco became 80.1% beneficially owned Is Shops. Incorporated and the Buffalo Evening Vews became wholly-owned by Berkshire, and Wesse 80.1% ownership of Wesco Financial Corporation) to a newly formed wholly-owned subsidiary. After Berkshire. Just prior to the merger. Blue Chip transferred its promotional service business fand its the merger, such subsidiary adopted the name of its former parent company and it continues to operate directly the promotional services business as a wholly-owned subsidiary of Berkshire under the name and style of Blue Chip Stamps. of Nebraska Furniture Mart. Inc., a corporation engaged in the business of retailing of home furnishings On September 30. 1983. Berkshire purchased for cash the majority of the outstanding capital stor k Consolidated Statement of Earnings for 1983. Results of operation of the business from the date of purchase are reflected in the accompanvine and purchase of majority interest in Nebraska Furniture Mart. Inc. took place at the beginning of the The pro forma figures shown in the following table assume that the merger ci Blue Chip Stamp periods presented: Pro forma net earnings ... Pro forma income items 1983 1982 $691.962 Pro forma net earnings per share $120.127 $613.236 S 104.74 $ 63.993 23 $ 55.80

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BERKSHIRE HATHAWAY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) And Consolidated Subsidiaries (dollars in thousands) December 31. 1983 (3) Significant Accounting Policies and Practices (a) Accounts of Berkshire and cortain of its subsidiaries are maintained on the basis of a 52- Accounting Period 53 week fiscal rear ending with respect to December 31. For 1983, the accounting period period of the insurance subsidiaries, the newspaper subsidiary and certain other of the consolidated companies. ib) Investments in obligations with fixed dates of maturity - - bonds and redeemable pref Ted Investments in Securities. Other Than Affiliotes stocks amortization of are stated at cost. adjusted where appropriate for accretion of discornt or premium. Investments in marketable equits securities held by members of the Insurance Group are carried at market value. Investments in marketable equity securities held by Perkshire carried at the lower of aggregate cost or market. and be consolidated subsidiaries which are not members of the Insurance Group are or average cost method, but in part under the last-in. first-out ('LIFO"| method. stated at cost. determined principally under the first-in. first-out ("FIFO"). Real Estate. Equipment. Furniture and Leaschold Improvements These items of property (including significant betterments and renewals) are carried at cost. depreciated principally on a straight line basis over their useful lives estimated at the date of acquisition. Maintenance. repairs and renewals of a minor nature are generally charged to operations as incurred. (r) Goodill or Negotive Goodwill of Acquired Businesses The difference between purchase cost and the fair value of the net assets of acquired businesses is amortized on a straight line basis over forty vears. (11 for financial reporting purposes, premium acquisition costs such as commissions. premium Premium Acquisition Costs taxes and a portion of certain other underwriting costs are deferred. subject to ultimate anticipated i avestment income: such deferred costs are charged against financial statement recoverability generally estimated on a company by company basis without regard to insurance accounting and income fax reporting purposes. premium acquisition costs are income in subsequent periods when the related premiums are carned. For statutory charged against income when incurred. Losses and Coss Adjustment Expenses The Insurance Group provides for losses and loss adjustment expenses for unsettled cases aggregate liability with respect to incurred but not reported losses. Estimates of liability based on estimates of ultimate liability with respect to reported cases. plus estimates of insurers. The liability provision is reduced for amounts recoverable on account of reinsurance relating to assumed reinsurance are based on loss reports received from the primary ceded: these reductions amounted to S10.115 and S6.620 at December 31. 1983 and 1982. respectively. An aggregate liability amounting 1o $8.182 and S3.566 at December 31. 1983 and 1982. respectively, was additionally established at present value on a contract-by-contract basis with respect to periodic payment settlement contract obligations ("Structured Settlements") of members of the Insurance Group. The range of interest rates used to discount those 24

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BERKSHIRE HATHAWAY INC. NOTES TO CONSOLIDATED FINANCIAL. STATEMENTS (Continued) And Consolidated Subsidiaries ¡dollars in thousonds! December 31. 1983 (3) Significant Accounting Policies and Practices (Continued) average of approximately 12%. The specific rate applicable to a given contract is dependent liabilities. for financial reporting purposes. ranged from 10% to 15"ø with a weighted and lax reporting purposes, these liabilities were discounted at a rate of 7%o as prescribed upon market rates at the inception date of the contract. For statutory insurance accouting by regulatory authority. Additionally at December 31. 1983. an aggregate liability amounting to S8.055 was established Indemnity Company. a member of the Berkshire Insurance Group. Such amount is equal with respect to portfolio reinsurance obligations assumed in December. 1983 by National insurers a gose obligations were assumed. Such consideration was based on estimates of to the aggregate cast consideration received by National Indemnity from unrelated ceding ita respect to the assamed obligations. No income or loss in 1983 was recorded with both the ultimate loss amount. which is limited to S13.575. and the timing of loss payments respect to these portfolio reinsurance trensactions. Incurred losses and loss adjustment expenses in the accompanying Consolidated Statements collection in accordance with statutory accounting requirements for insurance companies. of Harnings are net of recoveries of salvage and subrogation collected or in process of relating principalls to automobile physical damage coverages, are not recognized as they Ans additional amounts that may be recoverable as salvage or on account of subrogation. are considered immaterial in the aggregate. thi Insurance l'remiums Insurance premiums are recognized as revenues ratably over the terms of the policies. Unearned premiums are computed on a monthly or daily pro rata basis and are stated at December 31. 1983 and 1982, respectively. after deduction for reinsurance placed with reinsurers in the amount of $1.647 and 51.717 Dividends to policyholders. primarily relating to workers' compensation coverages. are ¡eflected in the accompanving statements of earnings as a deduction from earned premiums. This reduction amounted to $4.955 for 1983. S3.262 for 1982. and S3.534 for 1981. (i) Stamp Service Accounting Trading stamp retenues and related redemption costs of Blue Chip Stamps, a consolidated of the trading stamps. A liability for unredeemed trading stamps is maintained baced on subsidiary engaged in the promotional services business. are recognized upon issuance estimates of the future cost of redemption merchandise and service: the estimates are including. among other factors. the probable effects of Blue Chip's declining volume of periodically revised to toke into account the effect of changing facts and circumstances stamp issuance. Income Taxes Current income taxes payable at December 31. 1983 were determined taking into account Blue Chip Stamps and its subsidiaries also filed a consolidated Federal income tax return that a consolidated Federal income tax return will be filed by Berkshire and its subsi liaries. for periods up to the merger of Blue Chip into Berkshire. Deferred or prepaid income taxes are recegnized in the accompanying Consolidated Financial in the financial statements in time periods that differ from those in which they are included Statements with respect to certain items of income ani deductions which are recognized 25

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BERKSHIRE HATHAWAY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) And Consolidated Subsidiaries (dollars in thousands except per share amounts! December 31. 1983 (4) Investments in Marketable Equity Securities A summary of investment in marketable equity securities is as follows: December 31. 1983 Unrealized Cost Guin Market Carrying Common stock of: Value General Foods Corporation GEICO Corporation $ 47.138 The Washington Post Company R.J. Reynolds Industries. Inc. 260,210 168.273 $ 351.018 67.215 5 398.156 All others 75.877 10.628 126.247 71.620 331,830 235.488 $ 398.156 197.543 124.973 200.850 135.875 136.875 302.140 $362.126 197,136 $ 741.073 $1.303.199 $1.232.150 january 1. 1983 Cost Unrealized Gain Marker Carrying Common stock of: Value General Foods Corporation GRICO Corporation 47.138 The Washinglon Post Company R.J. Reynolds Industries. Inc. 180.372 83,657 $ 262.462 21.612 309,600 All others 159.837 :0.628 21,970 105.299 $ 309.600 135.120 92.612 202.342 89.785 103.240 188.786 $481.632 295.257 103.240 287.613 3 534.106 $1.015.738 $ 979.024 The 3741.073 net excess of securities at December 31. 1983 represented unrealized gains of $741.781 less an unrealized loss aggregate market value over aggregate cost of marketable equity of S70s. (5) Investment in GEICO Corporation Corporation is included in marketable equity securities. The market and balance sheet carving value At both December 31. 1983 and January 1. 1983. an investment in common shares of GEICO of this investment was $398 156 at December 31. 1983 and $309,600 at January 1, 1983: the cost to the Company of this investment is $47,138. Although the shares possessed approximate 334% of the of Insurance of the District of Colombia, the corporate domicile of GEICO. to maintain an independent voting rights of all GEICO shares outstanding, Berkshire is required by Order of the Superintendent the independent proxy. Also. under the Order, no officer or director of Berkshire, or any affiliate or proxy arrangement for voting of these shares. Berkshire is prohibited from seeking or causing to change divests Berkshire of its voting rights with respect to its GEICO holdings, Berkshire does not use the subsidiary of Berkshire, is permitted to serve as a director of GEICO. As a result of the Order. which equit! method of accounting for its investment in GEICO. as dividend income $21 million from GEICO Corporation. This transaction was structured as a In September, 1983, in an unusual and non-recurring transaction, Berkshire received and recorded redemption by GEICO of shares of its common stock but to Berkshire it was equivalent to a dividend received in this Berkshire share. Dividend income from GEICO in 1982 amounted to approximately $3,754. ($3.81 per Berkshire share), and in 1981 approximately $3.218 ($3.26 per Berkshire share). 26

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BERKSHIRE HATHAWAY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) And Consolidated Subsidiaries (dollars in thousands) December 31. 1983 (6) Investment in Mutual Savings and Loan Association of Blue Chip Stamps into the Company (See Note 2). Mutual was for several years 80.1% beneficially Mutual is 80.1% beneficially owned by Berkshire at Decembe: 31. 1983. Until the merger in 1983 owned by Blue Chip. The investment in Mutual of $27.004 and S23.758 at December 31. 1983 and such equity over cost of the investment. The unamortized excess of equity over original cost was 1982. respectively. represents this 80.1% equity in Mutual's net assets less the unamortized excess of $17 558 at the end of 1983 and $18.182 at the end of 1982. Summarized financial information of Mutual is as follows: December 31 Balance Sheet Data 1983 1982 Assets Cash and marketable securities $143.461 $112.309 Loans receivable. net 106,831 123.329 Other assets 15.944 12,690 S266,236 S248.328 Liabilities and Sharehoider's Equity Other liabilities Savings accounts* $203.284 $167.537 7!.. 28.432 Total liabilities 210.831 195.969 Shareholder's equity, substantialty restricted 55,405 52,359 $266.236 S248.328 "Included in Mutual's liobility for savings occounts is $15.025 at December 31. 1983 and $15.008 at December 31. 1982. representing an account maintained for Wesco Financial Corporation, Mutual: parent company. Earnings Statement Dato 1983 1982 1981 Total revenues S22.741 $23.360 $24,945 Net income $ 3.047 910 3.457 (7) Receivables Accounts receivable from customers, agents and others were made up of the following: Dec. 31, Jan. 1. 1983 1983 Trade accounts receivable, net of allowances for Agents' balances and premiums in course of collection doubtful accounts $42,390 20.856 S 20.569 22.082 Investment income due and accrued Reinsurance recoverable on loss payments 9.014 324 5.926 659 Amounts due from sales of securities . 229 64.534 Total receivables ... S72.813 $113.770 27

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BERKSHIRE HATILAWAY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) And Consolidated Subsidiaries (dollars in thousands) December 31, 1983 (8) Inventories as follows: Inventories of the various consolidated businesses at the end of the current and prior year were Dec. 31. 1983 lan. 1. 1983 Candy business Reailing of apparel Retailing of home furnishings $ 5,724 7.964 $ 5.616 Textile business Steel service business 6.893 5.850 5.802 Other 5.424 41.355 5,369 5,661 4.897 $37.516 $26.039 The carving amounts for inventories determined under the LIFO method were approximately $7.078 and $7,348 less than their aggregate replacement cost at year-end 1983 and 1982 respectively. (9) Real Estate, Equipment, Furniture and Leasehold improvements past two vears is shown below: The composition of property: plant and equipment. on a consolidated basis, at the end of the Dec. 31. 1983 Jan. 1. 1983 Buildings Land 37.758 7.486 6.309 30.720 61.236 59,375 29.437 Machinery and equipment Furniture. fixtures and leasehold improvements 26.009 Less accumulated depreciation and amortization 137,200 67.451 121.130 58.110 $ 69.749 63.020 The liability for deferred Deferred Income Taxes $188.071 at December 31. 1983, and $139.270 at January 1. 1983 relating to unrealized appreciation income laxes reflected in the Consolidated Balance Sheets includes included in carrying value of marketable equity securities. The remainder of this liability relates to items of income and deductions that are recognized for financial reporting parposes in time periods that differ from those in which they are recognized for income tax reporting purposes. (11) Revolving Credit and Term Loan Agreements which provided for loans of up lo S50 million to each during the revolving term period of the In 1982. Berkshire and Blue Chip cach entered into a Revolving Credit and Term Loan Agreement Agreements. In May 1983. the Agreements were terminated without penalty: thereafter in 1923 neither Berkshire nor its subsidiaries had outstanding bank borrowings. banks. The revolving credit period under the new Agreements extends to January 31. 1987. During In February, 1984, Berkshire entered into new Revolving Credit and Term ican Agreements with million outstanding. For borrowings daring the revolving credit period, Berkshire will pay interest at this period, the banks will make loans to Berkshire, at Berkshire's request, aggregating up to $175 no! more than the respective bank's prime rate. For unused portions of the commitments. Berkshire will quarterly pay fees at the per annum rate of 4 of 1%. Any borrowings outstanding under the April 30. 1987. Berkshire may borrow specified amounts within the aggregate limits of the Agreeirents Agreements at January 31. 1987 will be repayable in sixteen equal quarterly installments commencing for a specified term of up to one year at fixed interest rates. Subject to the expiration of the term 28

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BERKSHIRE HATHAWAY INC. And Consolidated Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (dollars in thousonds! December 31. 1983 (11) Revolving Credit and Term Loan Agreements (Continued) the Agreements apon repayment of borrowings thereunder. periods with respect to any such borrowings. Be kshire may at any time, without penalty. terminate to act es chairman and the chief executive officer of the Company or if total borrowings of the Company repayment of borrowings thereunder in twelve equal quarterly installments if Warren E. Buffeti ceases and its consolidated subsidiaries exceeds a formula amount. generally 35% of Capitalization as deñned. (12) Term Debt Payable and Other Borrowings Consolidated term debt and other borrowings were as follows: Dec. 31. Jan. 1. 1983 1983 Berkshire: 8 Senior Notes maturing through March 1, 1993 94% Senior Notes maturing March 1. 1985 to at $1.143 annually ... $ 14.285 $ 15.:28 12%%, debentures maturing from August 1. 1991 through March 1. 1993 al S777 annuaily ....... 7.000 7.000 8%, debentures due 1985. with 1% additiona! participating August 1. 2005 at S4.004 annually 60.000 60,000 Other notes and debentures maturing through 1992 interest contingently payable ....... 6.600 6,600 in varying annual installments. with interest at rates varying from 7%o l0 9: ..... 1.560 1.829 89,445 90.857 Consolidated Subsidiaries: 9%% note. secured by land, building and assignment of leases. 10%*o notes maturing in june. 1991 ..... 25.000 25.000 Notes maturing through 2006 in varving installments. with interest due in monthly installments through March, 2007 5.166 5,228 al rates varying from 6% lo 15% ...... 9.373 9.862 Berkshire — revolving credit agreement borrowings Total consolidated term debt ........... 128,984 130.947 39,000 $128.984 S169.947 Berkshire's Senior Note Agreements include limiting terms relating to sales of assets, mergers and consolidations, and allow the noleholders to prepayment at par within 60 days of notice that. during the lifetime of Warren E. Buffett. his ownership of stock of the Company, together with that of certain family affiliates. has decreased to less than 15% of the Company's outstanding capital stock. Among the covenants of Berkshire's varicus borrowing agreements, the Senior Note Agreements approximately $146 million as of December 31. 1983 were free of restriction. the balance is res ricted include the most limiting of provisions restricting retained earnings. Thereunder, retained earnings of Principal payments on term debt outstanding at December 31, 1983 are required during the succeeding five vears as follows: 1984 $1.916 1985 9.287 1987 1986 2,740 2.846 1988 2,808 29

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BERKSHIRE HATHAWAY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) And Consolidated Subsidiaries (dollars in thousands) December 31. 1983 (13) Stockholders' Equity Accounts Changes in Stockholders' Equity accounts during the most recent free years were as follows: Net lorralized Appreciation. Retained Earnings Trasury Stock Balance a! January 3. 1981 $135.010 S291.454 $40.8.8 Increase during 1981 in unrealized appreciation included Income laxes deemed applicable to above in carrying value of marketable equity securities (23.903) 85,368 Net carnings 1981 62.60+ Value of 450 treasury shares reissued in 1981 (180) Increase during 1982 in unrealized appreciation included Balance at January 2. 1982 196,475 354.058 40.658 Income taxes deemed applicable to above ... in carrving value of marketable equity securities 224.509 (62,863) Net earnings 1982 46.374 Balance at January 1. 1983 358.121 400.432 40.658 Increase during 1983 in unrealized appreciation inciuded Income taxes deemed applicable to above in carrying value of marketable equity securities 172.633 (+8.801) Net earnings 1983 113.493 Value of 500 treasury shares acquired in Blue Chip merger 280 Balance at December 31. 1983 5181.953 S513.925 $-10.938 Company: and 2.286 shares were held be two insurance subsidiaries of the Company. Al December 31. 1983. 225.988 shares of the Company's issued common stock were held be tho shares of its $5 par value shares for the 40.4% in Blue Chip's net assets that it did not already own. On July 28. 1983. Berkshire increased by $805 its issued common stock when it exchanged 100.300 Additionally in recording this transaction S153.860 was credited to capital in excess of par value. (14) Dividend Restrictions - Insurance Subsidiaries "gulations. to the extent that not more than approximately $104 million could be paid to the Compan 'ayments of cividends by Insurance Group members are restricted by insurance statutes an in 1984 by insurance subsidiaries of the Company, without prior regulatory approvals. (15) Lease Commitments Berkshire's retailing subsidiary: Associated Retail Stores, Inc. occupies rea! property which is commitment has been capitalized in the accompanying consolidated financiai statements. Additionally. subject to a 15 year lease commitment to the New York State Industrial Development Agency: the Berkshire and subsidiaries of Berkshire have significant commitments outstanding with respect to real estate occupied under agreements classified as operating lease, minimum rentals under which were as follows at December 31. 1983: Year 1984 $ 7.753 1985 6.710 1986 5,626 1987 4,761 1988 1.001 Thereafter 12.074 Total rental expense. including cquipment rentals, charged to consclidated earnings was $12.477 for 1983. $12.809 for 1982. and $10.219 for 1981: such figures include contingent real estate rentals in excess of stated minimums amounting to $3.412 for 1983. $3,265 for 1982. . "d $3.071 for 1981. 30

[PAGE 33]

BERKSHIRE HATHAWAY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) And Consolidated Subsidiaries (dollars in thousands) December 31. 1983 (16) Income Taxes earnings and to realized investment gain as shown below. The consolidated statements of carnings relects charges for income taxes applicable to operating Applicable income toxes Applicable to Operating earnings …........ 1983 1982 Realized invest nent loss -- Mutual Savings Realized investment gain of consolidated companies $ 10,353 20.498 $ 2.524 1981. 13.734 $ 13.15* (80) 11,450 30.85 $16.178 S 24.601 These taxes are comprised of: State .... Federal............ $ 26.826 Foreign 3.920 $11.85+ 105 4.203 $ 21,414 3.024 31 S 30.851 $16,178 136 $ 24.604 computed at the Federal statutory rate. Charges for income taxes are reconciled in the table which follows to hypothetical amounts 1983 Net carnings including minority interesi. 1982 1981 before applicable income laxes ........ Hypothetical a nounts applicable to above .. $153.145 $83.161 $100.3:6 Decreases, resulting from: computed at the Federal statutory rate (46%) .. $ 70.446 $38.254 $ 46,145 35% dividends received credit Tax-exempt interest income .... (4.310) Rate differential relating to realized ... (25.925) (13.873) (3.722) (12,828) (3.190) State income taxes, less Federal income investment gains ….. (11,737) (5.384) (5.736) Net other differences. lax benef!. 2.117 2.619 Total income taxes …........ 260 (1.716) (1.378) 1.591 $ 30,851 $16.178 $ 24.604 *Pre-tax net earnings for 1982 includes a realized investment loss of $2.426 of Mutual. was insubstantial so that total income taxes as shown above essentially represent current income tax For each of the past three years, the net change in prepaid/deferred taxes applicable to earnings expense. 31

[PAGE 34]

BERKSHIRE HATHAWAY INC. And Consolidated Subsidiaries NOTES TO CONSOLIDATED FINANCIA' '"ATEMENTS :Con'..: di (doliors in thousar: ; December 31. 19. (17) Realized investment Gain A summary of met realized investment gain for each of the past three years is presented in the following table: 1983. 1982 1981 Applicable incr ne taxes Pre-lax net gain realized by consolidated companies $67.260 S41.143 (20,4981 (13.734) S37.382 (11,450) Applicable minority interest 11.4 ..13.051) 15.955 22.881 Equity in net realized loss of Mutual Savings and Loon Association. an unconsolidated subsidiary (1.078) Realized investment gain, net $45.298 $14.677 $22.38 OÉGNMA backed real estate mortgage certificates. The Company's equity in such loss (net of applicable In February 1982. Mutual Savings and Loan Association sustained a loss of $2.426 on the sale minorit; interests and income laxes) was approximately S1.078. specific identification of securities sold results in lower applicable income tax. identified cost is used. The cost of securities sold is usually determined on a first-in. first-out basis: occasionally. when (18) Pension: Pians are covered under either emplover-sponsored or union-sponsored pension plans. Total pension expense Emplovees of Berkshire and it: consolidated subsidiaries who meet certain eligibili's requirements charged to consoldiated carnings was S2.362 for 1983. S2,636 for 1982 and $2.547 for 1981. which includes, as to certain of the plans, amortization of prior service costs over a 30-vear period. Berkshire and its subsidiaries generally fund pension costs as accrued. its consolidated subsidiaries were last performed as of various dates from January 1. 1981 to june 1. The latest actuarial evaluations of employer-sponsored defined benefit plans of the Company and ranging from 6% to 10%. segregated as between overfunded and underfunded plans. together with 1983. The actuarial present values determined for accumulated benefits. using interest assumptions assets avcilable for benefits as of that date. are presented in the following tabie. Overfunded plans plans Actuarial present value of accumulated benefits: Not vested Vested ..... $16.403 $13.597 1.059 683 Total $17.462 $14,280 Assets available for benefits $25.980 S12.109 32

[PAGE 35]

BERKSHIRE HATHAWAY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) And Consolidated Subsidiaries (dollars in thousands except per share amounts) December 31. 1983 (19) Quarterly Data A summary of earnings by quarter for the past two years is presented in the following table. This information is unaudited. 1st 2nd 3rd 4th 1983 Quarter Quarter Quarter"! Quarter!) Earnings before realized investment gain Income items $130.875 $138.039 $144.320 _S210.186 9.254 8.551 27.885 22.502 Realized investment gain 10.120 20.938 11.326 2.912 Vet carnings $ 19.374 $ 29.÷92 $ 39.211 $ 25.+10 Per average outstanding share: Earnings before realized investment gain 9.38 8.67 $ 24.31 $ 19.52 Net earnings 19.6+ 29.90 34.19 22.16 Income ilems 1982 S118.343 $126.337 S110.005 S165.787 Realized investment gain (loss] Earnings before realized investment gam 13.426) 7.955 7.472 3.508 12.562 2.500 4.477 11.326 Net earnings 4.521 S 9.972 7.985 $ 23.888 Per average outstanding siare: Earnings before realized investment gain Net earnings 8.06 7.57 4.59 10.11 8.09 3.56 12.74 24.22 (") Revenues o; $21.000 and earnings of $19.551 in the third quarter of 1983 rolect dividend income recorded by Berkshire in a GEICO Corporation share redemption tronsaction (See Note 5). Per share figures for the 1983 3rd quarter include S17.05 representing such dividend income. to randy business revenues and carnings are significantly higher in the fourth quarter of the gear in the fourth quarter. Newspaper revenues and earnings also peak in tie fourth quarter of the veer. compared to corlier quarters. More than half of See's Candies annual sales are normally recorded 33

[PAGE 36]

BERKSHIRE HATHAWAY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continuedi And Consolidated Subsidiaries (dollars in thousands) December 31. 1983 (20) Business Segmeni Data The tables below reflect data for each of the three most recent fiscal years. broken down as to business segments. Revenues 1983 1982 1981 Insurance $217.729 Candy 133.616 $194.736 122.770 $198.032 Steel service center Newspaper 90,161 Retailing of apparel 16.266 63.030 112.794 Textiles Retailing of home furnishings 41.997 37.183 46.521 54.669 28.910 42.609 49.239 26,611 21.755 30.339 Revenues not identified with segments 38,436 37,489 42.590 S623.725 S521.472 S529.234 Operating Profit Before Taxes 1983 1982 1981 Candy C Insurance 30.938 26.697 20.062 23.4•10 40,301 20.517 Steel service center Newspaper 19,039 3.201 (1.244) 914 793 (1246) Retailing of apparel 697 1.763 3.222 Textiles Retailing of home furnishings 3.642 Pre-lax operating profits not identified (100) (1,5+5) (2.669) Corporate expenses with segments 21.173 19,227 (3.066) (1.272) (1.227) 18,615 (891) (1.784) (1,129) Shareholder designated contributions Interest expense 115.104) _(14.995) (14.656) S 85.885 S 44.444 $ 62.934 depreciation and amortization of tangible and intangibie assets have been taken into account. See Amounts are stated before deduction of any applicable minority interest. Charges or credits for belon. Realized investment gains are not reflected. Capital Expenditures _1983 1982 1981 Insurance 2,406 282 342 788 2.931 2.711 3.528 645 Newspaper Candy Steel service center 159 Retailing of apparel 1.269 315 335 Uther Textiles 470 2.588 577 972 358 720 859 398 647 $ 6.346 S 9,965 6.989 Excludes expenditures which were part of business acquisitions. 34

[PAGE 37]

NOTES TO CONSOLIDATEN FINANCIAL STATEMENTS (Continued) And Coasolidated Subsidiaries BERKSHIRE HATHAWAY INC. (dollars in thousands) Decomber 31. 1983 (20) Business Segment Data (Coni.: ted) Depreciation and Amortization of Tangible Assets 1983 1982 1981 Candy Insurance 2.264 550 2.087 651 1.80-1 644 Newspaper 2.557 2.354 2.263 Retailing of apparel Steel service center 633 614 203 610 400 248 Retailing of home furnishings 689 228 Textiles 610 483 556 J!her .. 532 528 7.953 7.092 S 6.563 Amortization of Intang sle Assets 1983 1982 1981 randy 314 714 S 144 S 4-44 Retailing of home furnishings Newspaper 29 29 128 Mutual (624) 162+) 1624) 532 S (151) (151) Identifiable Assets at Year-End 1983 1982 1981 Identified with segments: Candy --. tangible assets Insuratice $1.322.160 $1.059.670 $ 825.635 35.472 27.927 28.757 13.246 27,365 Newspaper - tangible assets

• goodwill

37.703 12.802 37.620 32.895 Steel service center

• goodwill

17.672 23,506 15.337 930 18.285 957 Retailing of apparel 13.435 16.002 12,830 Retailing of home furnishings

• goodwill
• tangible assets

35.970 20.274 Textiles 14.789 90.261 12.878 15.521 Other 28,155 976.021 29.287 1.576.980 1,274,310 Not identified with segments: Investment in unconsolidated subsidiaries 27.216 24.055 19.068 Corporate cash and marketable securities of parent and non-insurance subsidiaries 252.196 234.879 204.7-48 S1.856.392 $1.533.28- S1.199.837 35

[PAGE 38]

BERKSHIRE HATHAWAY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued! And Consolidated Subsidiaries (dollars in thousands) December 31. 1983 (20) Business Segment Data (Continued) Revenues of the Insurance Segment Premiums written 1983 1982 1981 Premiums earned: $149.819 $149.091 S148.000 Specialized auto and general liability Reinsurance Worker's Compensation* 68,140 18,849 69.026 Home State multiple 'ines 26.889 15.951 73.177 Structured settlements and 35.328 37.552 27.408 18,193 29.446 38,197 portfolio reinsurance Investment income Total premiums earned 3.266 3.008 152,÷80 65.249 152.945 $1.791 159,013 39.019 $217.729 2194.735 $198.032 *Worker's Compensation coverage written by the Home State Compromies. as part of their multiple line business, is not disoggregated from their fotal corned premiums. Insurance Segment Operating Profit Before Taxes Underwriting gain (loss): 1983 1982 1'81 Specialized Worker's Compensation ... auto and general liability S(14.880) Home State multiple lines Reinsurance (8.387) (1.091) $(12.647) 2.658 $ 3.020 Structured settlements and (8.83+) (3.949) (7.524) (3,720) 2.822 (641) portfolio reinsurance Net investment income Total underwriting (680) (96) gain (loss) (33,872) 64.810 (1.558) 41.620 38.823 1.478 $ 30.932 S 20.062 S+0.301 from the transactions was recorded in any of te past three years. Portfolio reinsurance obligations were first assumed near the end of 1983 and no gain or loss 36

[PAGE 39]

PARENT COMPANY ONLY — SUMMARIZED FINANCIAL, STATEMENTS BERKSHIRE HATHAWAY ING (dollars in thousands) Financial Statements of Berkshire Hathaway Inc. and consolidated subsidiaries and 'he notes thereto. These summarized financial statements should be read in corjunction with the Consolidated presented elsewhere herein. Balance Sheets Dec. 31. Assets 1983 Jan. 1. 1983 investment in marketable equity securities at cost Cash and invested cash 1.492 S 230 Investment in subsidiaries (including unrealized appreciation of (market: Dec. 31, 1983 - $188.056: Jan. 1. 1983 - $68.893) 139,976 59.570 net of taxes, amounting to S481.953 at Dec. 31. 1983 ind marketable equity securities owned by insurance sudsidiaries. Accounts receivable and inventories of parent S358.121 at Jan. 1. 1983) 1.062.695 793.612 Other assets company's textile business 10.039 8.3÷6 3.821 6.166 S1.221.023 $868.274 Accounts payable and accrued expenses Liabilities and Stockholders' Equity 10,291 Current and deferred income taxes Term debt and other borrowings 89.445 129.857 6.582 101.830 2.094 140.791 4.352 Stockholders equity (See Consolidated Balance Sheets) 1.119.193 727.483 $1,221.023 S868.274 Statements of Earnings 1983 1982 1981 Income items: From subsidiaries: Dividends Interest S 105.414 347 S 12.139 440 33.86-4 474 Undistributed earnings 4.000 +4.926 41.290 109.761 57.505 75.628 Interest and dividends - other investments .......... 7.736 2.120 2,677 Gross profit from textile products sales 1,992 Income tax credit Other income 5.205 1.176 882 (253) 565 6.352 131.046 61.683 78.617 Cost and expense items: Administrative and selling expenses Corporate administration" of textile business 4.338 2.1÷7 2.005 2.486 2.689 2.579 Interest expense 11.068

• 10.818

10.745 17.553 15.309 16.013 Net earnings S113.493 S15374 $62.60+ "Corporate administration costs include contributions pursuant to shareholder designated contributions program. 37

[PAGE 40]

BUSINESS ACTIVITIES OF THE COMPANY AND ITS SUBSIDIARIES BERKSHIRE HATHAWAY INC. Decoming 31. 1983 several wholly-owned subsidiaries referred to throughout this report as the "Insurance Group". National (a) Underwriting of Property and Casualty Insurance. The insurance business is conducted through Indemnity Company and National Fire and Marine Insurance Company: companion carriers sharing insurance, are principal insurance subsidiaries of the Company-A reinsurance operation is conducted a horne office in Omaha, Nebraska and specializing in non-standard cutomobile and general liability through National Indemnity and through Columbia Insurance Company, a Nebraska domiciled insurer. formed for that purpose in Colorado. Kansas and Nebraska. Underwriting operations of a similar "Home state" multiple line property and casualty insurance operations are conducted through subsidiaries company in Texas were discontinued in 1983. following discontinuance in 1982 of underwriting of worker's compensation insurance: Cypress Insurance Company. Pasadena. California. Redwood Fire activities ofa Minnesota home state subsidiary. Three subsidiaries of Berkshire specialize in underwriting and Casualty Insurance Company. Los Angeles. California and Southern Casualty Insurance Company. Insurance Group. for several years underwrote non-standard autom Alexandria. Louisiana. Home and Automobile Insurance Conpany, another subsidiary member of the principaliy in the Chicago area. Because of highly unfavorable results from such business. its underwriting elle and general liability insurance ecivities were substantially curtailed in 1983. funds committed to the operations and from policyholders' fands derived from unearned premiums The insuranue business generates significant amounts of investment income. both from capiial and loss reserves. 1983 through the merger of Blue Chip Stamps. See's produces boxed chocolates and other confectionary ¡b) The Candy Business. See's Candy Shops. Incorporated became wholly-owned by Berkshire in products of high quality in two large kitchen facilities in California. See's is believed to be one of retail shops in thirteen western and midwestern states including Hawaii: additionally: it operates four the largest candy manufacturers distributing at retail through its own chain of stores. It now has 207 quantity order centers. A significant degree of seasonality exists in this business. About 50% of cach vear's candy sales is generated during the Thanksgiving-Christmas season. when high shop volume is augmented by quantity sales at reduced prices to businesses and other organizations. (c) The Newspaper Business. This business is operated by the Buffalo Evening News. Inc. The assets of the entity New York. an evening and Saturday edition of its newspaper. In October, 1977 it introduced a Sunday were purchased by Blue Chip Stamps in April 1977. It then published in Buffalo. principal competitor. The competitor ceased publication in September: 1982, whereupon the News edition. whereupon it became a defendant in quite costly and prolonged lit gation brought by its prejudice pursuant to a stipulation of the parties. The newspaper is now the only daily newspaper began publishing a morning edition. Later in September. 1982. the litigation was dismissed with serving the entire Buffalo metropolitan area. In February. 198-, it ranked 22nd among the nations daily newspapers in daily circulation. the Company's merger with Blue Chip Stamps. it is now 100% owned by the Company. The News was 59.6% beneficially owned by the Company through July 28. 1983. As a result of ... tex ile weaving mill together with yarn preparation equipment in New Bedford. Massachusetts. Operation Berkshirr's executive offices are in Omaha. Nebraska. Berkshire owns and operates directly a engaged, to a limited extent, in the manufacture and sale of branded ('K&W") chemical products used of the textile basiness by the Company or its predecessors dates back to 1889. Berkshire is also directly in the automotive after-market. This business operates from Los Angeles. California and Bloomington. 38

[PAGE 41]

BUSINESS ACTIVITIES OF THE COMPANY AND ITS SUBSIDIARIES (Confinard! BERKSHIRE HATHAWAY INC. below. Berkshire onse number of other subsidiaries engaged in various business activities as described it sells popularit priced women's and. in a number of stores. children's apparel. Associated's executive. (i) Associated Retail Stores. Inc. 100%% owned. operates a chain of retail stores through schich Island City. New York. It operated 90 purchasing and administrative offices, together with its central distribution unit are located in Long northeastern states. retailing outlets at March 1. 1984. in eleven midwest and September 30. 1983, sells at retail furniture. carpeting, appliances. televisions and bedding. Its store N-braska Furniture Mart. Inc.. 90°% ownership of which was acquired by Berkshire on in the Limited States. It has sizeable warehousing facilities near its retail outlet permitting it to serve in Omaha, Nebraska is believer be Berkshire management to be the largest single furniture retail store a trade area within a radius or indicate Nebrasta Furniture Mart to be the leading retailer of its products in its marketing area. about 300 miles from Omaha. Local consumer preference studies in 1983 to continue the promotional services business which had for mand yeers been operated be Blue Chip Stamps. Los Angeles. California. 100% oned at December 31. 1983. was formed the 59.6°, owned company of the same name that was merged into Berkshire in 1983. business block in downtown Pasadena. California which is improved with a nine-story office building Wesco Financial Corporation. 80.1% beneficially owned at Decembor 31. 1983. owns a having approximatels 124.000 square feet of net rentable ared. four commercial store buildings and a multi-story garage. Approximately 22.000 square feet of space in the office building are used by The rest of the property is leased to outside parties. Wesco owns. in addition to Mutual. 100",, of Wesco as its headquarters or ceased to Metual Savings and Deon Association. wholly-owned by Wesco. Precision Steel Warehouse. Inc. ownership interest extended from Januar:: 1977. Thus. for several years prior to the merger. Berkshire's The merged Blue Chip Stamps owned a controlling interest in Wesco from 1973. Its 80.1%% beneficial ownership of Wesco amounted to about 47.7%%, since Berkshir in those vears owned 59.6°% its beneficial ownership of Wesco. of the merged Blue Chip. The Company's merger of Blue Chip resulted in the increase to 80.10% of Corporation. I engages in metal service center business. operating a service conter in Franklin Park. (v) Precision Steel Warehouse, Inc., as indicated above. is directly owned by Wesco Financial to industrial customers' illinois and another in Charlotte. North Casolina. It purchases cold rolled products which are processed room specialty items to industrial markets. specifications. Through a subsidiary, it also processes and distributes tool owned by the Company at December 31. 1983. is a California chartered savings and loan company. (vi) Mutual Savings and Loan Association. wholip-orned by Wesco and thus 80.1'o beneficially statements. Mutual operates trom its Pasadena beadquarters office and a satellite office in a shopping Berkshire accounts for its ompership of Mutual on an equity basis in the accompanying financial mail across the street. -... December 31. 1983. The company and its subsidiaries emploved approximately 4.500 persons on a fall time basis at 39

[PAGE 42]

FINANCIAL. CONDITION AND RESULTS OF OPERATIONS MANAGEMENT'S DISCUSSION AND ANALYSIS OF BERKSHIRE HATHAWAY ING. Results of Operations Berkshire's operations are diverse For purposes of ihis discussion. results are disaggregated to permit separate discussion of the ore significant sources. Consolidated after-tax earnings for the past three veers are summarized by principal source as follows: Net After-Tax Earnings (Loss) Source 000s Omitted 1983 1982 1981 Insurance anderwriting S (18.400) S(:1.345) 6.470 $ 5,466 798 Newspaper business Candy business 11.498 8.518 43.789 (255) (359) Interest and dividend income 72.892 {6.951) 40.345 Other operating items. net Interest and financing costs (7.346) (6.671) 1.033 (211) 1+3 Earings before realized investment gains $ 68.195 $ 31.497 Realized ir: estment gain, net 45.298 14.877 539,723 22,881 Nel earnings $113.493 246.374 S62.604 Insurance underwriting company members of the Insurance Group is presented below. on the basis of generally accepted A summary of the combined underwriting results of the several property/casualty insurance accounting principles ("CAAP"). for the past three vears, with dollars in thousands: 1983 1982 1981 Amount Amount %% Amoun! % Premiums written S149.819 XX $149.091 XX $118.000 XX Premiums carned 152,÷80 100.0 152.945 100.0 159.013 100.0 Losses and loss expenses 134.109 87.9 121.996 79.8 103.417 54.118 34.0 65.1 Underwriting expenses 52.243 3-3 52,507 34.3 186.352 122.2 174.503 114.1 157.535 99.1 Underwriting gain (loss) - pre-lax (33.872) (21.558 1,478 Applicable income taxes 15.172 10,213 (680) After-tax earnings (loss) $(18,400) ...... $ 111.45 = 798 to premiums earned (hereafter. the "loss and expense ratic") is an indicator of underwriting profitability. The percentage figure shown in the above table representing the ratio of total losses and expenses in the industry based on data assembled for statutory reporting purposes. Of course. underwriting The figure is comparable bat not identical to the "combined ratio" that is computed for companies results are profitable to the extent that the ratio is less than 100% and unprofitable to the extent that the ratio exceeds 100%. subsidiary and significantly curtailed such activities vi Home and Automobile Insurance Company. in 1963. Berkshire discontinued the underwriting activities of a Texas home-ste insurance In 1982. the underwriting activities of a Minnesota home state operation were discontinued although aggregate pre-tax underwriting losses approximating $13.i million in 1963. $8.5 million in 1982 and some of its policies remained in force in a run off condition in 1983. These three subsidiaries generated $1.7 million in 1981. The loss and expense ratios in the aggregate for the three operutions were 162.5% lor 1983. 131.4%% 'or 1982 and 107.3% for O! course. theso figures had significant impact on he total figures for the Group presented abor.. Berkshire reinsuranre operations were hurt in both 1983 and 1982 by weather related lorses. The loss and expense ratio: were 131.2% for 1983. 127.5% for 1932 and 112.6% for 1981, on earned premiums of $27-23 milion per year. 40

[PAGE 43]

BERKSHIRE HATHAWAY INC. MANAGEMENT'S DISCUSSION (Continued) were approximately S101 million in 1983, substantially unchanged from the preceding (wo vears. The Lamed premiums by Berkshire's continuing insurance operations. other than reinsurance operations. corresponding loss and expense ratio from this business was 111.5'% for 1983. up from 105.8'%, for 1982 and 93.0%0 ior 1981. its negative effect on industry profits is more pervasive and thus increases as its duration extends. For several pears. price competition has been intense in the property casualty insurance industry: techniques that allow them to obtain prices higher than those obtained by competitors. Price cutting Berkshire's insurance subsidiaries generally do not command market position or possess marketing anticipate improved underwriting results during the near term for Berkshire's continuing insurance in the industry does not appear to be abating to any significant degree, so there is little reason 1o operations Loss Reserve Development estimates ef the value ef unpaid claims for loss occurrences preceding the valuation date. Such unpaid Thr liability of the Insurance Group for umpaid losses and loss adjustment expenses reflects dains include those for losses which havo been reported to the insurer as well as those ior losses is inberent in the process of establishing the liability amount. A technique for measuring the degree which the insurer has not vet heard about (incured bat not reported or "INR"). Estimation error of estimation error in the stated liability is termed "development" of the reserves. The following table loss adjustment expenses as established for Berkshire's Insurarce Group at she end of the vears indicated sets forth a one-pear development which comparison is made of (1) the liability for losses and to 121 such liability as developed one year later, with dollars in thousands: Liobility for losses and foss adjustment expenses_ One rear development As established al As dereloped (cost) or savings December 31 one vear later 1981 138. $193.477 197.485 (4.008) 190.970 193.566 (2.596) (2.10) 1930 199.128 190.979 8.149 (1.40%) 4.1% have been established at the end of the indicated dears if management had known then all of the Bsures in the column headed "A: developed one rear later" represent the liabilities that would information with respect to such liabilities that came to light in the succeeding year. In the financial are deducted from losses incorred, or developments costs are added to losses incurred, in the perior statements, the development of reserves affects the statements of earnings in that development savings $4.008.000 adverse development of pre-1983 losses. For 1982, stated losses and loss expenses incurred losses and loss expenses incurred as stated in the table amounting to $103.417.000 is net of $8.149.000 amounting to $121.396.000 included $2.596.000 adverse development of pre.1982 losses. and 1981 favorable development of pre-1981 losses. sear the celates to loss occurrences proceding such rear, it does not complete the measurement of While a one gear development does reveal the charge or credit to earnings of the development estimation error in the originally established Hability: Three. fre or even ien year developments are of liability: Significant variances that were not revealed by a one vear development are frequently made to obtain a more accurate measurement of the degree of error that exisied in the original estimates frecaied by such tonger period developments. certaints that some development cost or development savings will be recognized in subsequent periods Because estimaton error is inherent in the process of establishing the liability amount. it is a expenses. Such cost or savings could well he substantial. with respect to Berkshire's December 31. 1983 balance sheet liability for losses and loss adjustment 41

[PAGE 44]

MANAGEMENT'S DISCUSSION (Continued) BERKSHIRE HATHAWAY INC. Candy Business A summary of results io Berkshire from the candy busmess for the past three years is as follows: 000s omitted Profit Applicable income Applicable minorit! before laxes taxes interes! Vel earnings 1983 S26.697 $13.712 51.487 1992 :3.440 12.178 $.792 $11.498 181 20.517 10.748 4.303 6.470 5.466 Serkshire and its previously 59.6% owned subsidiary that owned See's prior to the merger. See's "nis business became wholly-oned by Berkshire in 1983 as it result of the merger between candy sold. as a result of price increases that were greater than cost increases in both vears. The cernings have increased in each of the past two vears on substantially similar physical quantity of elimination. effective for the iost half of 1983. of the minority interest in See's business had a pronounced effect on Berkshire's earnings for 1983 versus earlier gears, as indicated above. Newspaper Business Berkshire's results from operation of the Buffalo News for the past three years is as follows: 000s omitted Profit floss! Applicable income Applicable mmority Net before taxes laxes i interes! earnungs floss) 19183 $19.039 1982 1981 (1.2÷4) S9.000 51.521 $8,518 (1.246) (66-11 (765) (22+) (255) (2231 (359) of publication of the competing Buffalo Courier-Express. Both advertising and circulation revenues of A dramatic turnaround to profitability of the Buffalo News resulted in 1983 after the 1982 cessation the News increased significantly in 1983. as unit volume and prices both increased. Costs rose somewhat iess than anticipated because of a decline in newsprint prices. of 1983. It is now 100% owned by Berkshire, as a resuit of the Berkshire-Blue Chip merger in 1983. The Vows was 59.6°c Leneficially owned by Berkshire in earlier years and during the first half 42

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MANAGEMENT'S DISCUSSION (Continuedi BERKSHIRE HATHAWAY INC. Interest and Dividend income consolidated subsidiaries also retain investments in income producing securities issued by non-affiliates. This income is earned principally by the Insurance Group. Berkshire, Wesco and certain other A summary of this category of income for the past three tears follows: 000s omitter Applicable Applicable Profit income minorily Net before taxes laxes interest earnings 1983 $85.903 $9.467 S3,544 $72.892 1982 58.003 8.906 5.308 43.789 1981 54.035 8,966 4.723 40,346 portion represents dividend income of which only 15% is taxable at the full Federal corporate rate. A portion of this income is received with respect to tax-exempt obligations, and a significant significantly in 1983. however, Berkshire's Insurance Group received and recorded as dividend income Total interest and dividend income has increased as the amount of investments has increased. More recurring transaction. That transaction accounteo for about 27% of Berkshires after-tax interest and $21 million ($19.55 million after lax-effect! from GRICO Corporation in a single unusual and non- dividend income for 1983 and is more fully described in Note 5 to the accompanying Consolidated Financial Statements. and total dividend income. on an after-lax basis. recorded by the Group with respect to this investment The Insurance Groups investment in GEICO represents about 33% of GEICO's outstanding stock. amounted to $24,319.000 in 1983. $3.754.000 in 1982 and $3.218.000 in 1981. Realized Investment Gain recorded from realized gains recorded when appreciated securities are sold. Management's decision A significant component of Berkshire's wet carnings in each of the past three years has been on reported earnings is not a consideration. Thus the amount of earnings Berkshire may derive from to sell any of Berkshire's investments is based on a number of factors, but the impoet of the decision realized investment gains, if any. for any given period tends to fluctuate significantly.

[PAGE 46]

MANAGEMENT'S DISCUSSION (Continued) BERKSHIRE HATHAWAY INC. Liquidity and Capital Resources In management's opinion. the fiduciary nature of obligations to policyholders of Berkshire's insurance Berkshire's consolidated balance sheet at December 31. 1983 reflects continuing significant liquidity: of high liquidity: management expects to continue to meet this requirement with a significant margin subsidiaries. to savers of Blue Chip's trading stamps and its other obligations requires maintenance insuranor subsidiaries to perform their underwriting function without a view towards cash flow. It of safety: Maintenance of liquidity considerably above industry norms is intended to permit Berkshire's control of the Nebraska Furniture Mart became available. also permits quick response to business acquisition opportunities. such as occurred in 1983 when reinvestment in property, piant and equipment. Generally. management tends to avoid deployment Berkshires businesses are not capital-intensive: i.e.. they do not require significant investment or of assets in businesses of such a nature: on the contrary. Berkshire desires to own companies engaged acquiring moresuch operations or expanding existing operations into areas where above-average capital in businesses that produce positive cash flow: it plains funds and obtains credit with a view towards strength creates competitive advantage to them. $395 million at the end of 1980 to over St.1 billion at the end of 1983. the net increase amounting Berkshires total equite capital has almost tripled over the past three years. from, approximately to 5724 million. About $155 million of the increase resulted from Berkshire's issuance of shares of unrealized securities gains during the three gears represent approximately S430 million of the increase its common stock to acquire the outstanding minority interest of Blur Chip Stamps. Realized and in relatively modest amounts, and management does not expert Berkshire to rely upon a high degree and reinvested operating earnings i. ¿ho three pears were about 3139 million. Debt is used by Berkshire of leerrage in its financing at any time in the foreseeable future. Nanagement is averse to reltance issued in a public offering in 1980. repayable in the vears 1991 through 2005. Berkshire put into o1 any significant amount of short-term debt. Berkshire has outstanding S60 million 12%° debentures place on February 22. 1984. S175 million Revolving Credit and Term Loan Agreements with banks. it is thus in position to acquire significant businesses should an opportunity arise to do so. Inflation businesses. Generally: Berkshire receives current revenues in any year which have substantially the Berkshire's management does not beliere that. to date. inflation has seriously affected Berkshire's •re stated! in dollars which are other than current dollars. same pun hasing power as the dollars which represent its current costs. Very few of Berkshire's costs Berkshire's insurance business, particularly since premium rates are established well in advance of irry large changes in the rate of inflation that were not anti ipated could serious!y impact incurrence of the related! costs. Management believes that to date. however. underwriting results have not been impacted materially be inflation or changes in inflation rates. 44

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SUPPLEMENTAL INFORMATION ON THE BERKSHIRE HATHAWAY INC. EFFECTS OF CHANGING PRICES (dollars in thousands except per shore amounts) of current consolidation practices. The Financial Accounting Standards Board "PASB") requires This information is unaudited. Historical figures shown herein have been determined on the basis portions of the financial statements. The method of measuring the impact from inflation is in the disclosure be certain companies of supplementary data intended to reflect the effects of inflation on development stage and conceivably subject to future changes. Therefore, evaluation of the data presented should be made with caution and onis with reference to other financial data. Selected Financial Data As Reporled And As Adjusted For General Information constant dollars. The latter is determined by the Consumer Price Index. This table presents certain prescribed data as reported* and then as adjusted to average 1983 Fiscal Year Ended Soturdos nearest December 31. 1983 1982 1981 — 1980 1979 Total revenues: As reported* S 623.726 623.726 $521.472 5.38,247 $529.234 $536.41+ 579.961 648.565 $509.659 As adjusted 699.550 Earnings from continuing operations before Total as reported" realized investment gain: Total as adjusted 68.195 68.195 $ 31.497 32.510 $ 39.723 $3.530 S 38.484 46.530 $ 30.961 +2.497 Per share as reported" 03.93 Per share as adjusted 53.93 31.93 32.96 $ 70.27 14.13 $ 37.47 15.30 30.1- +1.37 Stockholders equity: As reported" $1.119.193 S727.483 As adjusted 1.119.19.8 750.885 $519.463 569.25-4 S395.21+ $77.841 S344.962 173,490 Market price per share at year end: Historical amount $ 1310:00 $ 775.00 $ 560.00 As adjusted 1.310.00 799.93 613.68 $ 425.09 513.86 $ 320.00 $39.23 Average consumer price index 11967 = 100) 298.4 289.1 272.3 276.8 217.4 "Or as would have been reported following current consolidation practices. Gain In Purchasing Power From Holding Net Monetary Items or payable aze "monetary items". At the end of each of the last six years. Berkshire held. on a li general, assets or liabilities which are fixed in terms of the amount of cash held. receivable coronicated basis, net monctary liabilities. i.e.. consolidated monetary items which were liabilities exceeded concolidated monetary items which were assets. In an inflationary period, a gain in purchasing power results Som holding net monetary liabilities. since this calculation presumes that ihe net resalting from this calculation, as to Berkshire and its consolidated subsidiaries for each of the past labilities can he redeemed with dollars of declining value. The calculated purchasing power gain five years - stated in average 1983 dollars - is as follows: 1983 $ 8.470 1980 1982 6,475 1979 .. $17.805 12.611 1981 13.835 Additional FASB Requirements and depreciation thereon, and reporting the net effect on reported net income of these restatements. Another BASB requirement is for restating at "current cost" inventories, assets used in production Since these items are not relatively material to Berkshire's operating income or financial position. this idorr.'.*: •:: been omitted. 45

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The 1983 Annual Report of Wesco Financial Corporation incuded the following letter to Wesco stockholders from the Charman of the Cornpany. To Our Shareholders: ser urties, mortgages and important fixed assets) for the calendar vear 1983 increased to Consolidated ordinary operating income (i.e., before all net gains from sales of $8.507,000 (51.20 per share) from $7,221,000 ($1.02 per share) in the previous year. Consolidated net income (i.e., after net gains from sales of securities, mortgages and important fixerd assets) decreased to $10,553,000 ($1.48 per share) from $11,502,000 ($1.62 per shares in the previous year Wesco has Iwo major subsidiaries, Mutual Savings, in Pasadena, and Precision Steel. headquartered in Chicago and engaged in the steel warehousing and specialty metal producis businesses. Consolidated net income for the two vears just ended breaks down as follows (in 000s except for per-share amounts): Ordinary Net on Sales of Net Gains Operating Income of Precision Ordinary Net All Other Morlgages and Securities, Wesco Mutual Steel Operating important Fixed Consolidated Year Ended Savings Businesse's Income"!! Assets'2: Net Income Nacomber 31, 1983 $3.046 $1.622 53,839 52,046 $10,533 Per Wesco share 13 23 .54 .28 1.48 December 31, 1982 3,482 327 3.112 7,281 11,502 Per Wewe o share 19 .05 .48 .60 1.62 1. it.: keeler isomere sesene neef othe s ofgee pptp Br een cos goge es pring en thee Mute d Smuige headquatien ..http0 ice soesdedd1o0ed estese esdoodend us onedeosdegon slente and marketeisde Prtep oftet bo n losee ies arted! on orlens mottende Der hrd! beatn ot S! d3 000or Sd per Wescoshare The 1983 8: heure -mriore se. "on, dd or gog per dem pechaee or eprd ee sonter dotte seabred throughout the c onsolicatedd beat pleis petsek dosee e ned se usat- poee M tsp er. dard eod toore used in our audited financial statements and press releases, which follow standard The loregoing breakdown (ottho same aggregate earnings) differs somewhat from that accounting convention. The supplementary breakdown of earnings is furnished because it is considered usciul to shareholders. Mutual Savings Mutual Savings' ordinary net operating income of $3,046,000 in 1983, represented a decrease of 12.5%% from the $3,482,000 figure the previous vear. In both vears such erdinary net operating inconse, while economically real and probably of at least average possible becauso such earnings came from income tax savings obtained through inclusion Gualty as reported savings and loan industry incomes go, was below the top quality oi Mutual Savings in the consolidated income lax return of a parent corporation. Earnings so derived trom income tax savings are not of the top quality possible because they have less cushion in reserve against future adversity than earnings trom ordinary operating aind are recoverable from the I.R.S. in the event of future operating losses. inc ome on which income taxes have been paid in full in cash at the highest corporate rate 46

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Reproduced fro: 1983 Annual Report of Wesco Financial Corporation Separate balance sheets of Mutual Savings at vearend 1982 and 1983 are set forth at from $168 million the vear before, (2) a very high ratio of shareholders' equity to savings the end of this annual report. They show (1) total savings accounts rising to $203 million ar count liabilities (probably the highest for any mature U.S. savings and loan association), marketable securities, and (4) a mortgage loan portfolio of about $106 million at the end of Bl a substantial portion of savings account liabilities offset by cash equivalents and theendot 1983 bore a fixed average interest rate of only 7.48%, probably the lowest forany 1983, down 12% from the $121 million at the end of 1982. The morgage loan portfolio at U.S. savings and loan association and far below the average interest rate which now must be paid to hold savings accounts. from i success many vears ago as a construction lender at above-average interest rates, The capital-rich, mortgage-loan-interest-rate-poor position of Mutual Savings camo plus (2) sale in 1980 by Mutual Savings of all branch offices (except for one satellite office in i major shopping conter across the street from the Pasadena headquarters) under terms 131 drastic curtailment by Mutual Savings of mortgage lending following the sale of its where only the lowest-vielding mortgage loans from its large portfolio were retained, plus branch offices. vielding, fixed-rate mortgage loan portfolio aro moro than offset by favorable effects from Mutual Savings has remained profitable because the adverse effects from its low- its large shareholders' equity and a tax-equivalent vield on its marketable securities (utility preterred stocks, tax-exempt bonds and common stocks) considerably higher than that prevailingon the mortgage loan portiolio ofatypical savings and loan association. The low- veling, fixed-rate mortgage loan portfolio has shrunk from pay-backs at 8.5% per year overtholast three years, and the shrinkage is expected to continue at about the same rate. occurred in recent vears in interest rates and the regulatory structure of the banking and Mutual Savings' has adapted in its own way to the dramatic changes which have savings and loan industries. At Mutual Savings, as well as the rest of the savings and loan industry, the standard practiceused to be to borrow short from savers while lending long on fixer-rate mortgages, to have high financial leverage for shareholders' equity and to grant mortgagors casy prepayment terms. The practice was profitable for decades but always involved something like a "hurricane risk," and the equivalent of a hurricane came in 1981-82 as interest rates rose to unprecedented levels and caused widespread losses. Results were goor for shareholders before 1981-82 only because interest rates were stable tory structure which both fostered growth and protected operating margins by requiring or rose slowly as mortgage-loan portfolios steadily and rapidly expanded under a regula- that on all insured savings accounts fixed rates be paid that were slightly higher than the low rates specified for banks. Thus a small deposit-attracting rate advantage over banks was given to savings and loan associations, while competitive pressure was dampened for both ipes of institution. ‹ hanging interest rates of former year are plainly gone with the wind, as are the former Although interest rates have subsided from the 1981-82 peak, the low and slowly government decreced limits on interest rate competition for savings accounts and the lavontism tor savings and loan associations over banks. But an agency of the U.S. govern- montES LI.C.) continues to insure savings accounts in the savings and loan industry, jusi as it did before. The result may well be bolder and bolder conduct by many savings and loan associations. A sort of Gresham's law ("bad loan practice drives out good") may take effect

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Reproduced from 1983 Annual Report of Wesco Financial Corporation for fully competitive but deposit-insured institutions, through increased copying by cau- fious institutions of whatever apparent-high-vield loan and investment strategies seem to allow e ompetitors to bid away their savings accounts and yet report substantial earnings. If so, if "bold conduct drives out conservative conduct." there eventually could be wide- spread insolvencies caused by bold credit extensions come. : grief. whenever interest rates are rising rapidly, evon when the credit quality of mortgagors or other borrowers is excellent. increase its reported carings next vear would be a near-absolute cinch. For instance. Developing & short-term operating plan for Mutual Savings which would sharply savings de counts could be expanded greatly by paving a high rate of interest on "jumbo" deposits in $100,000 multiples, and proceeds plus cash equivalents on hand could be placer in long-term mortgages at a substantial curreni interest spread while, in addition, someorigination fees could be "front-ended" into income. However, taking long-term risks into a count, it is much harder to find a sound operating plan. Money is the ultimate competitive, commodity-lype business on the lending side but also finds that, with tungible commodity. In the now order of things, an association is not only in a tough, decontrol of government-insured rates paid savers, every competitive association has virtually unlimited creditto fund increased lending, by paying premiums over interest rates generally prevailing on savings accounts. Under such conditions, when all risks are consid- reeding luding those created by that portion of competitors motivated primarily by short- termelterts, it is quite naturally difficult to ear over a long period an attractive return on shareholders equity. How could it be otherwise? A ten years ago, about the time Mutual Savings reacted to new conditions by curtailing new adjustable-rate mortgages under which some portion (but far from all) of the interest- lending, most other associations decided instead to keep lending aggressively but under ¡ale-fluctuation risk is shifted to the homeowner. Despite widespread use of these new «dustable-rate mortgages, savings and loan industry earnings remain dependent to a materialextent, as theyalways were, on an interest rate spread attributable to: (1) borrowing short while lending long, and/or (2) making loans which can be priced high enough to provide a profit only because they involve a very material credit risk, compared to the riskof ovning goverment-backed securities of comparable maturitv. be high interest-rate-fluctuation risk, the result tends to be that each year of reported Under present conditions of strong ‹ ompetition from bold competitors ac ompanied attractive earnings ox curs ond in the absence of two now much more likely events: (1) sharple rising interest rates, and (2) widespread credit losses. Thus, cach good year Pecause there have been no hurricanes. Mutual Savings has a considerable share of this reported is a lot like the year when a Texas hurricane insurer reports satisfactory earnings operating strategy with which it is satisfied, and it continges to seek one. Just as Mutual uncomtortable position and will continue to have it. It has not yet developed a long-term being adopted to some extent by other savings and loan associations and major banks), it savings has boon idiosyncratic in the past as it sold branch offices in 1980 la practice now will probably be idiosyncratic in the future, It will seck some non-standard way ofrendering sex ially constructive service while operating with acceptable profits accompanied by an deceptable level of risk for sharcholders capital, likely gains considered. 48

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Peproduced from 1983 Annual Report of Wesco Financial Corporation Eventually, by maintaining unusual capil strength and liquidity, and by having a parent corporation which does likrwise, Mutual Savings hopes to stand in particular favor perhaps dramaticaliy, and perhaps involving additional shareholder investment in Mutual with lederal and state regulatory authorities and be in a position soundly to expand again. Savings by the parent corporation. As partota program for the anticipated eventual sound expansion of the savings and lently paid about 2% per annum more than most competitors on so-called "mone Inan business, Mutual Savings in 1983, without heavy promotion or advertising, consis- market rato accounts" of moderate size. This type of savings account is repayable on demand without penally and allows up to three withdrawals by check each month. Most o Mutual Savings' "money market rate decounts" are in the range of $10,000 to $100,000. carnings to a small extent and caused the bulk of the reported $36 million growth in saving». Mutual Savings' practice of bidding up slightly for this one type of account penalized 198% Precision Steel Wesco's Precision Steel subsidiary, located in the outskirts of Chicago at Franklin Park. roughly book value for a company which carried its inventories on a conservative LIFO Illinois, was acquired for approximately $15 million on February 28, 1979. The price was accounting basis and which contained significant cash balances. More important, it had reached its position from a modest beginning through maintenance of sound, customer- oriented business values inculcated overa long time bya gifted founder and his successors. Precision Steel owns a well-established steel service center business and a subsidiary engaged in the manufacture and distribution of tool room supplies and other specialty metal products. Precision Steel's businesses contributed $1,622,000 to ordinary net operating income in 1983. up 396% compared with S327,000 in 1982. Most of the increase was caused by (1) ot an unusual loss which occurred in 1982 from correction of a business mistake (in which generally improved conditions in the cold-rolled strip steel market, and (2) absence in 1983 the present chairman of Wesco personally participated), namely a venture in the measuring lo0: distribution business which with better judgment would not have been authorized. Underthe leadership of David Hillstrom, Precision Steels businesses are now satisfac- tory, taking into account the financial leverage put into Wesco's consolidated picture incident to their acquisition. The improvement irom disappointing performance in 1982 is wek ome. No dramatic change is expected in 1984 in either direction. Shortly after Wesco's purchase of Precision Steel, a substantial physical expansion ci steel warehousing tacilities was authorized, involving a new building in Charlotte, North Carolina. The new building and the whole North Carolina operation are now successtul, contributing $7,605,000 to sales in 1983 at a profit percentage higher than has, prevailed in the long-established Chicago headquarters' facility. Precision Steel's businesses, despite their mundane nomenclature, are steps advanced on the quality scale from mere commodity-type businesses. Many customers of Precision Steel, needing dependable supply on short notice of specialized grades of high- and remembrance when supplies are short, rightly believe that they have no fully compara- quality, cold-rolled strip steel, reasonable prices, technical excellence in cutting lo order, ble alternative in Precision Steel's market area. Indeed, many customers at locations remote from Chicago and Charlotte (for instance, Los Angeles) seek out Precision Steel's service. 49

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Reprovuced from 1983 Annual Report of Wesco Financial Corporation Wesco remains interested in logical expansion of Precision Steels businesses, using liquid assets available. All Other Ordinary Net Operating Income expenses, rose to $3,839.000 in 1983 from $3,412,000 in 1982. Sources were rents All other ordinary net operating income, net of interest paid and general corporate 152.609,000 gross, including rent from Mutual Savings) from Wesce: Pasadena office building block (predominanily leased to outsiders although Mutual Savings is the ground floor tenant and interest and dividends from cash equivalents and marketable securities hold be Precision Steel and its subsidiaries and at the parent company level. Net Gains on Sales of Securities, Mortgages and Important Fixed Assets Wisco's aggregate special net gains, combined, after income taxes, declined to S2.0-16,000 in 1983 trom S4,281,000 in 1982. The 1982 net gain consisted of 56,706,000 from sales of securities, offset by a loss of $2,425,000 from Mutua! Savings' sales ot mortgage backed securities. There were no losses from sales of mortgages or mortgage- backed securities in 1983. Consolidated Balance Sheet and Related Discussion Wescos consolidated balance sheet relains a strength befitting a company whose consolidated networth supports large outstanding promises to others. As indicated in Note markelable equity securities was higher thar their aggregate cost at December 31, 1983 Dy 2 lo the accompanying financial statements, the aggregate market value of Wesco's about 529 million. In addition, Wesco's Pasadena office building block (containing abour substantially in excess of carrying value. The mortgage debt ($5, 166,000 at 9.25% fixed) 165.000 net rentable square feet including Mutual Savings' space) has a market value against this real property now exceeds its depreciated carrying value (53,077,000) in Wesees balance sheet at December 31, 1983. Wesco remains in a prudent position when total debtis compared to total shareholders equity and total liquid assets. Wesco's practice has been to do a certain amount of long-term borrowing in advance of specific need, in order to have maximum financial dexibility to face both hazards and opportunities. course be used in one or more business extensions. The extension activity, however, Itis expected thatthe balance sheet strength of the consolidated enterprise will in due requires some patienco, as suitable opportunities are not always present. As indicated in Schedule I accompanying Wesco's financial statements, common elsewhere pending sale to fund business extension, tend to be concentrated in a very few stockinvestments, both those in the savings and loan subsidiary and those heldtemporarily companie's. Through this concentration practice better understanding is sought with respect to the tew decisions made. The ratio of Wesco's annual consolidated net income to consolidated shareholders' equity: about 9% in 1982-83. is not vet attractive from the Wesco shareholders point of view: Wesco, started as a savings and loan holding company in what became a very tough business, has been proceeding slowly under shortened sail instead of trying to make tast time be getting all canvas aloft. However, progress ultimateiy helptul to shareitoiders is not restricted to what shows up in the income account. Recent increases in balance sheet strength are expected to be useful in the future. 50

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Reproduced from 1983 Annual Report of Wesco Financial Corporation per share to 14½ cents per share, pavable March 7, 1984 to shareholders of record as of the On January 26, 1984, Wesco increased its regular quarterly dividend from 13%2 cents close of business on February 14, 1984. Commission, and includes detailed information about Wesco and its subsidiaries as well as This annual report contains Form 10-K, a report filed with the Securities and Exchange audited financial statements bearing extensive footnotes. We invite vour careful attention to these items. Retirement of Louis Vincenti Late in 1983 Louis Vincentiretired from Wesco on account of health. He had served 28 vears, the last 10 vears as Chief Executive Officer. Before joining Wesco, as a partner in Hahn and Hahn, he was one of Southern California's great attorneys. Before practicing law he had starred spectacularly as both student and athlete at Stanford. net worth of Wesco is about $124 million, and, in addition, cash dividends of about $26 Wesco had a net worth of about $5 million when he joined it in 1955. As he retirs the million have been paid out to shareholder over the vears. The consolidated enterprise first made extraordinary prolits as d construction lender, then went through the 1981-82 crisis period in the savings and loan industry reporting steady profits, paving dividends which increased each vear, and piling up more capital outside the troubled savings and loan business ds a start was made at diversifying sources of operating income. Tho entire record was accompanied by much philanthropic and public service and service to the savings and loan industry by Mr. Vincenti. Ail who know him admire him, in whom generosity, acuity, diligence and a totally forthright manner are so happily joined. In a career of extraordinary length as well as distinction, he came to work before 7:30 each morning until very shortly before he retired at age 77. There are not many men in the world like Louis Vincenti. Wesco has been a very fortunate corporation to be guided so long by such a man. Mr. Vincentis colleagues who replaced him are Charles T. Munger as Chairman and Chiet Executive Officer of Wesco and Mutual Savings and Harold R. Dettmann as President of Mutual Savings. Mr. Munger also is Vice Chairman of Berkshire Hathaway Inc., 80%- owner of Wesco. Mr. Deltmann for many vears served as operating manager next in line lo Mr. Vincent. CharloT Monger Chairman of the Board Charles T. Munger February 3, 1984 51

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BERKSHIRE HATHAWAY INC. SHAREHOLDER-DES:GNATED CONTRIBUTIONS of shareholder-designated contributions. Portions of that letter follow: On October 14. 1981 a letter was sent to shareholders giving the reasons for initiation of a progran in most vears. should produce a significant benefit for charities of vour choice. "On September 30. 1981 Berkshire received a tax ruling from the U.S. Treasury Department that, he owns - will be able to designate recipients of charitable contributions by our company. You'll "Each Berkshire shareholder - on a basis proportional to the number of shares of Berkshire that consequences to our shareholders from making such designations. name ihe charity: Berkshire will write the check. The ruling states that there will be no personal tax exercised by the owners in closelv-beld businesses. is almost exclusively exercised by the managers "Thus. our approximately 1500 owners now can exercise a perquisite that. although routinely in more widely-heid businesses. input at all from shareholders, in two main categories: "In a widely-held corporation the executives ordinarily arrange all charitabl: onations. with no (1) Donations considered to benefit 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. charitable donations in the first category. However. the aggregate level of giving in such category has "1 and other Berkshire executives have arranged in the past. as ie will arrange in the future, all been quite low, and very likely will remain quite lov. because not many gifts can be shown to produce roughly commensurate direct benefits to Berkshire. | comfortable with ordinary corporate practice and had no better practice to substitute. What bothers "In the second categorv. Berkshire's charitable gifts have been virtually nil, because I am not me about ordinary corporate practice is the way gifts tend to be made based more on who does the Conventionality often overpowers rationalitv. asking and how corporate peers are responding than on at objective evaluation of the donee's activities. of the corporate manager, who usually is heavily influenced by specific social pressures on him. "A common result is the use of the stockholder's money to implement the charitable inclinations of the taxpayer's dollar but embrace enthusiastically their own allocation of the shareholder's dollar. Frequently there is an added incongruity: many corporate managers deplore governmental allocation your personal judgments by writing checks on my bank account for charities of your choice. I feel "For Berkshire, a different model seems appropriate. Just as I wouldn't want you to implement il inappropriate to write checks on vour corporate "bank account" for charities of my choice. Your interests in a tax-deductible manner reside largely at the corporate level rather than in our own hands. charitable preferences are as good as mine and. for both vou and me, funds available to foster charitable 52

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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 claim on our available charitable funds. Any balance available after the "operations-related" contributions would be simple. Charities very directly related to the operations of the business would have first lo our ownership interest. If the manager of our company had some suggestions. we would listen would be divided among various charitable interests of the two of us. on a basis roughly proportional carefully - but fae final decision would be ours. Despite our corporate form. in this aspect of the business we probably would behave as if we were a partnership. operate through a large, fairly widely-held corporation. Our Treasury ruling will allow such partnership- "Wherever feasible, I believe in maintaining such a partnership frame of mind, even though we like behavior in this area that « large and growing number of major corporations have charitable policies pursuant to which "Tam pleased thai Berkshire donations can become owner-directed. it is ironic. but anderstandable. they will match gifts made by their employees fand - brace fourself for this one - many even match gifts made by directors) but none. to my knowledge. has a plan matching charitable gifts by owners. I sav "understandable" because much of the stock of many large corporations is owned on a "revolving door" basis by institutions that have short-term investment horizoas. and that lack a long-term owner's perspective end of each year more than 98% of our shares are owned by people who were shareholders at the "Our own shareholders are a different breed. As I mentioned in the 19:9 annual report. at the as your manager. I intend to acknowledge in all feasible ways. The designated contributions policy beginning of the vear. This long-term commitment to the business refrets an owner mentality which. is an example of that intent." latter vear, 96.4%, of eligible shares participated and contributed a total of S3.066.501 to 1353 charities. Contributions were S2 per share in. 1981. $1 per share in 1982. and S3 per share in 1983. in the In addition. Berkshire and subsidiaries continue to make certain contributions pursuant to local level decisions made by our operating managers. deductions - or none at all. In those vears we will not effect our shareholder-designated charitable There may be an occasional year when contributions by Berkshire will produce substandard tax program. In all other years we expect to inform you about October 10th of the amount per share that vou may designate. A reply form will accompany the notice, and you will be given about three weeks the name of on owning trust, corporation. partnership or estate. if applicable, on our stockholder list to respond with your designation. To qualify. your shares must be registered in your own name or of September 30th. or the Friday preceding if such dote folls on a Saturday or Sundas. 53

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BERKSHIRE HATHAWAY INC. (dollars in thousands except per share amounts) Selecied Financial Data Fiscal Year 196-1 1969 1974 Revenues of consolidated companies: Insurance premiums earned S Interest and dividend income Sales and service revenues 49.983 $ 25,256 40.427 $ 60.574 2.052 32.592 8.030 Earnings (loss): Earnings (loss) from continuing operations Realized investment gain (loss). net before realized investment gain or loss" S (2.824) $ 2.694 Earnings from discontinued operations** 1.165 4.090 (1,340) 4.290 1.093 Net earnings (loss) S (2.824) $ 7.953 $ 7.043 Average shares of common stock outstanding - in thousands -171 985 980 Earnings (loss! per share: Earnings (loss) from continuing operations Net earnings (loss) before realized investment gain or loss (2.41) (2.41) 2.74 8.07 $ 4.38 7.1! Balance Sheet items fat end of Fiscal Year): Total assets Term debt and other borrowings $ 27.887 2,500 $ 95,746 7.419 S216.214 21,830 Minority shareholders' interest Shares of common stock Shareholders' equity - total 22.139 43.918 88.199 outstanding - in thousands 1,138 980 980 Shareholders' equity — per outstanding share 19.16 44.83

• 90.04

December 31. Data have been restated if required to conform to current consolidation practices. Data have not The 1964 fiscal year ended October 3. 1964. All other years presented ended on ihe Saturday nearest been restated, with respect to years prior to the merger of Diversified Retailing Company, Inc., to give retroactive effect to the merger. An increase of 56,470 Berkshire shares resulted from that transaction in 1978. "The loss for 1964 includes a write-down of $3.000 recognized in that year with respect to textile properties subsequentiy sold or abandoned. December 31. 1980. The Company's equity in earnings of that former subsidiary for years prior lo 1981 is • The Comnany divested of its interest in The Illinois Notional Bank & Trust Co. of Rockford as of reflected above as earnings from discontinued operations. 54

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Fiscal Year 1979 1980 1981 1982

• ..

1983 Revenues of consolidated companies: 286.493 181.949 S 185.187 S 32,890 300.837 159.013 12.414 312.105 15945 54.035 306.56•4 $ 152,480 381.674 Sales and service revenues Insurance premiums carned 58.003 85.903 Interest and dividend income Earnings: 30.961 1.960 6,896 S 38.484 9.907 39.723 S 4.731 22.881 14.877 31.497 Earnings from continuing operations 68.195 before realized investmeni gair: 45.298 Earnings from discontinued operations"* Realized investment gain, net S 12.812 53.122 62.604 S16.374 $ 113.493 Net earnings Average shares of common stock -1.027 1,027 986 987 1.067 outstanding - in thousands Earnings per share: 53.93 Earnings from continuing operations 30.1- 41.68 51.72 37.47 63.47 40.27 31.93 before realized investment gain 17.01 106.40 Net earnings Balance Sheet items $1.199.837 130.192 $1.533.281 (at end of Fiscal Year): $ 933,288 $1.054.111 519.463 81.762 169.947 S1.856.392 101.177 128.984 Term debt and other borrowings Total assets 59.891 85,790 136.869 344.962 395.214 70.111 727.483 1.119.193 17,990 Minority shareholders' interest Shareholders equity - total 987 Shares of common stock 1.027 986 987 1.147 Shareholders equity - outstanding - in thousands 335.85 100.80 526.52 737.43 975.83 per outstanding share 55

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BERKSHIRE HATHAWAY INC. DIRECTORS AND EXECUTIVE OFFICERS WARREN . BuPPETT. 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 MICHAE. A. GOLDBERG. Vir* President 1. VERNE MCKENZIE Director Vice President. Secretary and Treasurer of the Company CHARLES T MUNGER. Director Vice Chairman of the Boord of the Got pony Chairman of the Board of Blue Chip Stamps Chairman of the Board of Wesco Financiol Corporation COMMON STOCK DATA Shan.hoiders The Company had approximately 2,900 record holders of its common stock at February 29. 1984. Marke! Prices regularly quoted in the NASDAQ System under the symbol BKHT. The high and low bid prices for The common stock of Berkshire Hathaway Inc. is traded in the over the counter market and is stock in each quarter of 1983 and 1982 is set forth in the following table. The quotations represent prices belween dealers and do not include cetail markup, markdown or commission. They do not represent actual transactions. 1983 High Low 1982 High Low First Quarier Third Quarter Second Quarter 985 995 775 1.245 890 First Quarter .. 560 Fourth Quarter '.385 905 Second Quarter 520 470 465 Third Quarter .......... 555 1,240 Fourth Quarter .........775 540 420 Dividends policy of investing its earnings in expansion of its businesses rather than paying cash dividends. Berkshire has not declared a cash dividend since 1967. No change is contemplated in Berkshire's hock Transfer Agent the Company's common stock. Certificates to be transferred should be mailed directly to the Transfer The First National Bank of Boston. P.O. Box 644. Boston. MA 02102 serves as Transfer Agent for Agent, preferably by registered mail. Certificates to be transferred should not be mailed to the Company. 57

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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 Textile Operations of the Company President of the Company and Chief Operating Officer of the MALCOLM G. CHACE, JR. Director Retired, Former Chairman of the Board of Directors of the Company MICHAEL A GOLDBERG, Vice President J- VERNE MCKENZIE, Director Vice President, Secretary and Treasurer of the Company CHARLES T. MUNGER, Director Vice Chairman of the Board of the Company Chairman of the Board of Blue Chip Stamps Chairman of the Board of Weseo Financial Corporation COMMON STOCK DATA Shareholders The Company had approximately 2,900 record holders of its common stock at February 29, 1984. Market Prices The common stock of Berkshire Hathaway Inc. is traded in the over the counter market and is regularly quoted in the NASDAQ System under the symbol BKHT. The high and low bid prices for stock in each quarter of 1983 and 1982 is set forth in the following table. The quotations represent prices between dealers and do not include retail markup, markdown or commission. They do not represent actual transactions. 1983 High Low 1982 High: Low First Quarter Second Quarter 995 Third Quarter 985 890 .775 First Quarter Fourth Quarter 1,245 905 Second Quarter . 560 1,385 Third Quarter 520 465 1,240 Fourth Quarter 775 555 470 420 540 Dividends policy of investing its earnings in expansion of its businesses rather than paying cash dividends. Berkshire has not declared a cashi dividend since 1967. No change is contemplated in Berkshire's Stock Transfer Agent the Company's common stock. Certificates to be transferred should be mailed directly to the Transfer The First National Bank of Boston, P.O. Box 644, Boston, MA 02102 serves as Transfer Agent for Agent, preferably by registered mail. Certificates to bè transferred should not be mailed to the Company.

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