1992 年伯克希尔完整年报

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BERKSHIRE HATHAWAY INC. 1992 ANNUAL REPORT

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Business Activities Berkshire Hathaway Inc. is a holding company owning subsidiaries engaged in this report as the Berkshire Hathaway Insurance Group. ownership percentages of other publicly traded companies. Such investments at Investment portfolios of insurance subsidiaries include meaningful equity the end of 1992 included approximately 48% of the outstanding capital stock of EIL Corporation, approximately 18% of the capital stock of Capital Cities/ABC, Inc., approximately Company, approximately 7% of the capital stock of The Coca-Cola Company, 11% of the capital stock of The Gillette approximately 11% of the common stock of Wells Fargo & Company, approximately approximately 15% of the capital stock of The Washington Post Company, 14% of the common stock of General Dynamics Corporation and convertible referred stock of Salomon Inc having approximately 14% or the total voting powel available, including information released from time to tie by the companies f that company. Much information about these publicly-owned companies is themselves. and Sunday newspaper in upstate New York. Other business activities conducted Additionally, Berkshire Hathaway Inc. publishes the Buffalo News, a daily by non-insurance subsidiaries include publication and distribution of encyclopedias and related educational and instructional material (World Book and Childcraft products), manufacture and marketing of home cleaning systems and related accessories (sold principally under the Kirby name), manufacture and sale of boxed chocolates and other confectionery products usinesses engaged in a variety of activitie of Berkshire's Board of Directors.

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BERKSHIRE HATHAWAY INC. 1992 ANNUAL REPORT TABLE OF CONTENTS Business Activities ..Inside Front Cover Owner-Related Business Principles 2 Corporate Performance vs. the S&P 500 Chairman's Letter* 5 Acquisition Criteria. .23 Independent Auditors' Report ..24 Consolidated Financial Statements.. ..25 Business Segment Data ..37 Management's Discussion.. .40 Shareholder-Designated Contributions .48 Combined Financial Statements — Unaudited - for Berkshire Business Groups ..51 Common Stock Data.. ..59 Selected Financial Data For The Past Five Years ..............60 Directors and Officers of the Company . Inside Back Cover *Copyright © 1993 By Warren E. Buffett All Rights Reserved

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Certain OWNER-RELATED BUSINESS PRINCIPLES were included in the Chairman's letter* to it is reproduced on this and the following page. Shareholdes of Berkshire Hathaway Inc. in the 1983 Annual Report. Because the material remains topical, that pertain to the manager-owner relationship: With so many new shareholders, it's appropriate to summarize the major business principles we follow • Although our form is corporate, our attitude is partnership. Charlie Munger and I think of our shareholders as owner-partners, and of ourselves as managing partners. (Because of the size of our shareholdings we also, are, for better or worse, controlling partners.) We do not view the company itself 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, over 50% of family net worth is represented by holdings of Berkshire. We • In line with this owner-orientation, our directors are major shareholders of Berkshire Hathaway. eat our own cooking. • Our long-term economic goal (subject to some qualifications mentioned later) is to maximize the average annual rate of gain in intrinsic business value on a per-share basis. We do not measure the economic significance or performance of Berkshire by its size; we measure by per-share progress. We are certain that the rate of per-share progress will diminish in the future — a greatly enlarged capital base will see to that. But we will be disappointed if our rate does not exceed that of the average large American corporation. that generate cash and consistently earn above-average returns on capital. Our second choice is to own • Our preference would be to reach this goal by directly owning a diversified group of businesses parts of similar businesses, attained primarily through purchases of marketable common stocks by our insurance subsidiaries. The price and availability of businesses and the need for insurance capital determine any given year's capital allocation. conventional accounting, consolidated reported earnings may reveal relatively little about our true economic • Because of this two-pronged approach to business ownership and because of the limitations of performance. Charlie and I, both as owners and managers, virtually ignore such consolidated numbers. of great importance. These figures, along with other information we will supply about the individual businesses, should generally aid you in making judgments about them. costs are similar, we much prefer to purchase $2 of earnings that is not reportable by us under standard • Accounting consequences do not influence our operating or capital-allocation decisions. When acquisition accounting principles than to purchase $l of earnings that is reportable. This is precisely the choice that often faces us since entire businesses (whose earnings will be fully reportable) frequently sell for double basis. We will reject interesting opportunities rather than over-leverage our balance sheet. This conservatism • We rarely use much debt and, when we do, we attempt to structure it on a long-term fixed-rate has penalized our results but it is the only behavior that leaves us comfortable, considering our fiduciary large portions of their net worth to our care. (As one of the Indianapolis "500" winners said: "To finish obligations to policyholders, depositors, lenders and the many equity holders who have committed unusually first, you must first finish.") *Copyright © 1984 by Warren E. Buffett All Rights Reserved 2

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entire businesses at control prices that ignore long-term economic consequences to our shareholders. We • A managerial "wish list" will not be filled at shareholder expense. We will not diversify by purchasing will only do with your money what we would do with our own, weighing fully the values you can obtain by diversifying your own portfolios through direct purchases in the stock market. etaining earnings by assessing whether retention, over time, delivers shareholders at least $l of marke • We teel noble intentions should be checked periodically against results. We test the wisdom o value for each $I retained. To date, this test has been met. We will continue to apply it on a 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 stock options, and convertible securities as well. We will not sell small portions of your company - and rule applies to all forms of issuance — not only mergers or public stock offerings, but stock-for-debt swaps, that is what 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: are very reluctant to sell sub-par businesses as long as we expect them to generate at least some cash regardless of price, we have no interest at all in selling any good businesses that Berkshire owns, and and as long as we feel good about their managers and labor relations. We hope not to repeat the capital- that our poor businesses can be restored to satisfactory profitability by major capital expenditures. (The allocation mistakes that led us into such sub-par businesses. And we react with great caution to suggestions projections will be dazzling — the advocates will be sincere - but, in the end, major additional investment in a terrible industry usually is about as rewarding as struggling in quicksand.) Nevertheless, gin rummy managerial behavior (discard your least promising business at each turn) is not our style. We would rather have our overall results penalized a bit than engage in it. • We will be candid in our reporting to you, emphasizing the pluses and minuses important in appraising business value. Our guideline is to tell you the business facts that we would want to know if our positions it would be inexcusable for us to apply lesser standards of accuracy, balance and incisiveness when reporting were reversed. We owe you no less. Moreover, as a company with a major communications business, candor benefits us as managers: the CEO who misleads others in public may eventually mislead himself on ourselves than we would expect our news people to apply when reporting on others. We also believe in private. extent legally required. Good investment ideas are rare, valuable and subject to competitive appropriation • Despite our policy of candor, we will discuss our activities in marketable securities only to the 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 say "no comment" on other occasions, the no-comments become confirmation. 3

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BERKSHIRE HATHAWAY INC. To the Shareholders of Berkshire Hathaway Inc.: present management took over) book value has grown from $19 to $7,745, or at a rate of 23.6% Our per-share book value increased 20.3% during 1992. Over the last 28 years (that is, compounded from earnings and appreciation of portfolio securities, with the remainder coming from the issuance of During the year, Berkshire's net worth increased by $1.52 billion. More than 98% of this gain came new stock. These shares were issued as a result of our calling our convertible debentures for redemption was their alternative. Most holders of the debentures on January 4, 1993, and of some holders electing to receive common shares rather than the cash that to do it, but a few made the move in December and therefore received shares in 1992. To sum up what who converted into common waited until January happened to the $476 million of bonds we had outstanding: $25 million were converted into shares before yearend; $46 million were converted in January; and $405 million were redeemed for cash. The conversions were made at $11,719 per share, so altogether we issued 6,106 shares. Berkshire now has 1,152,547 shares outstanding. That compares, you will be interested to know, to Partnership, Ltd. acquired control of the company. 1,137,778 shares outstanding on October 1, 1964, the beginning of the fiscal year during which Buffett We have a firm policy much value as we give. Equal value, about issuing shares of Berkshire, doing so only when we receive as valued our shares highly. So be it: We wish to increase Berkshire's size only when doing that also however, has not been easy to obtain, since we have always increases the wealth of its owners. in our past illustrates. On that occasion, we had a significant investment in a bank Those two objectives do not necessarily go hand-in-hand as an amusing but value-destroying experience was hell-bent on expansion. (Aren't they all?) When our bank wooed a smaller bank, its owner demanded whose management a stock swap on a basis that valued the acquire's net worth and earning power at over twice that of insisted on one other condition: "You must promise me," he said in effect, "that once our merger is done the acquirer's. Our management - visibly in heat - quickly capitulated. The owner of the acquiree then and I have become a major shareholder, you'll never again make a deal this dumb." You will remember that our goal is to increase our per-share intrinsic value - for which our book value is a conservative, attained in a smooth manner. Smoothness is particularly elusive because of the accounting rules that apply but useful, proxy - at a 15% annual rate. This objective, however, cannot be to the common stocks owned by our insurance companies, whose portfolios represent a high proportion of Berkshire's net worth. Since 1979, generally accepted accounting principles (GAAP) have required that these securities be valued at their market prices (less an adjustment for tax on any net unrealized appreciation) our annual results to gyrate, especially in comparison to those of the typical industrial company. rather than at the lower of cost or market. Run-of-the-mill fluctuations in equity prices therefore cause have on short-term results - we show on the facing page our annual change in per-share net worth and To illustrate just how volatile our progress has been -and to indicate the impact that market movements compare it with the annual results (including dividends) of the S&P 500. You should keep at least three points in mind as you evaluate this data. The first point concerns the The impact of these businesses on both our absolute and relative performance has changed over the years. many businesses we operate whose annual earnings are unaffected by changes in stock market valuations. were a major drag on performance, averaging far less than would have been the case if the money invested Early on, returns from our textile operation, which then represented a significant portion of our net worth, in that business had instead been invested in the S&P 500. In more recent years, as we assembled our 5

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collection of exceptional businesses run by equally exceptional managers, the returns from our operating businesses have been high - usually well in excess of the returns achieved by the S&P. A second important factor to consider - and one that significantly hurts our relative performance - liability whereas the S&P returns are pre-tax. To comprehend the damage, imagine that Berkshire had is that both the income and capital gains from our securities are burdened by a substantial corporate tax owned nothing other than the S&P index during the 28-year period covered. In that case, the tax bite the S&P. Under present tax laws, a gain for the S&P of 18% delivers a corporate holder of that index would have caused our corporate performance to be appreciably below the record shown in the table for This is a structural disadvantage we simply have to live with; there is no antidote for it. a return well short of 13%. And this problem would be intensified if corporate tax rates were to rise. and I are virtually certain that the return over the next decade from an investment in the S&P index will The third point incorporates two predictions: Charlie Munger, Berkshire's Vice Chairman and my partner, be far less than that of the past decade, and we are dead certain that the drag exerted by Berkshire's expanding capital base will substantially reduce our historical advantage relative to the index. stock forecasters is to make fortune tellers look good. Even now, Charlie and I continue to believe that Making the first prediction goes somewhat against our grain: We've long felt that the only value of short-term market forecasts are poison and should be kept locked up in a safe place, away from children fis to make fortune delan soufood and also from grown-ups who behave in the market like children. However, it is clear that stocks cannot that fact makes us quite confident of our forecast that the rewards from investing in stocks over the next forever overperform their underlying businesses, as they have so dramatically done for some time, and decade will be significantly smaller than they were in the last. Our second conclusion - that an increased capital base will act as an anchor on our relative performance - seems incontestable. The only open question is whether we can drag the anchor along at some tolerable, though slowed, pace. volatility of the stock market, by the concentration of our equity holdings in just a few companies, and We will continue to experience considerable volatility in our annual results. That's assured by the general catastrophe insurance. We not only accept this volatility but welcome it: A tolerance for short-term swings by certain business decisions we have made, most especially our move to commit large resources to super- improves our long-term prospects. In baseball lingo, our performance yardstick is slugging percentage, not batting average. The Salomon Interlude is more fun than running Berkshire and I count myself lucky to be where I am. of America's Most Admired Corporations, conducted last September, Salomon ranked second among 3ll The Salomon post, though far from fun, was interesting and worthwhile: In Fortune's annual survey companies in the degree to which it improved its reputation. Additionally, Salomon Brothers, the securities subsidiary of Salomon Inc, reported record pre-tax earnings last year - 34% above the previous high. clearly deserve special mention. It is no exaggeration to say that without the combined efforts of Salomon Many people helped in the resolution of Salomon's problems and the righting of the firm, but a few executives Deryck Maughan, Bob Denham, Don Howard, and John Macfarlane, the firm very probably I will forever be grateful to them. would not have survived. In their work, these men were tireless, effective, supportive and selfless, and key to our success in getting through this trouble. The firm's problems were not only severe, but complex. Salomon's lead lawyer in its Government matters, Ron Olson of Munger, Tolles & Olson, was also At least five authorities - the SEC, the Federal Reserve Bank of New York, the U.S. Treasury, the U.S. 6

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Justice - had important concerns about Salomon. Attorney for the Southern District of New York, and the Antitrust Division of the Department of If we were to resolve our problems in a coordinated and prompt manner, we needed a lawyer with exceptional legal, business and human skills. Ron had them all. Acquisitions business with excellent economic characteristics and a management that we like, trust and admire. Such Of all our activities at Berkshire, the most exhilarating for Charlie and me is the acquisition of a attitude one might find appropriate in looking for a spouse: It pays to be active, interested and open-minded, acquisitions are not easy to make but we look for them constantly. In the search, we adopt the same but it does not pay to be in a hurry. childhood reading of the story about the frog-kissing princess. Remembering her success, they pay dearly In the past, I've observed that many acquisition-hungry managers were apparently mesmerized by their for the right to kiss corporate toads, expecting wondrous transfigurations. Initially, disappointing results your effort when you've forgotten your aim.") Ultimately, even the most optimistic manager must face only deepen their desire to round up new toads. ("Fanaticism," said Santyana, "consists of redoubling reality. Standing knee-deep in unresponsive toads, he then announces an enormous "restructuring" charge. In this corporate equivalent of a Head Start program, the CEO receives the education but the stockholders pay the tuition. much of a sport — but my results matched those of acquirers who courted higher-priced toads. I kissed In my early days as a manager I, too, dated a few toads. They were cheap dates - I've never been and they croaked. pro (who, like all pros who have had anything to do with my game, wishes to remain anonymous). Said After several failures of this type, I finally remembered some useful advice I once got from a golf the pro: "Practice doesn't make perfect; practice makes permanent." And thereafter I revised my strategy and tried to buy good businesses at fair prices rather than fair businesses at good prices. mental sates de mily, an abe a makes of what we no for for a the company's annual premiums are about $90 million and profits about $IO million. Central States is holders who are unable themselves to pay because they have become disabled or unemployed. Currently which includes sons Bill, Dick and John - retains 18% ownership of the business and will continue to based in Omaha and managed by Bill Kizer, a friend of mine for over 35 years. The Kizer family - sell the company, my executor will, and I'd rather pick the home for it.") National Indemnity was an had good luck with sequels; I believe we, too, will. outstanding business when we bought it and continued to be under Jack's management. Hollywood has however, our subsidiaries sometimes make small "add-on" acquisitions that extend their product lines or Berkshire's acquisition criteria are described on page 23. Beyond purchases made by the parent company, distribution capabilities. In this manner, we enlarge the domain of managers we already know to be outstanding — and that's a low-risk and high-return proposition. We made five acquisitions of this type in 1992, and million in sales that makes Nursemates, a leading line of shoes for nurses, and other kinds of shoes as one was not so small: At yearend, H. H. Brown purchased Lowell Shoe Company, a business with $90 to contribute modestly to Berkshire's value in the future. well. Our operating managers will continue to look for adi-on opportunities, and we would expect these 7

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In 1992 our only deal was with Bill Kizer, father of nine. It won't be easy to keep this string going in 1993. made one purchase in 1991, buying H. H. Brown, which is run by Frank Rooney, who has eight children. Then again, a trend has emerged that may make further acquisitions difficult. The parent company Sources of Reported Earnings of Goodwill and other major purchase-price accounting adjustments are not charged against the specific The table below shows the major sources of Berkshire's reported earnings. In this presentation, amortization view the earnings of our businesses as they would have been reported had we not purchased them. I've businesses to which they apply, but are instead aggregated and shown separately. This procedure lets you managers than one utilizing GAAP, which requires purchase-price adjustments to be made on a business-by- explained in past reports why this form of presentation seems to us to be more useful to investors and business basis. The total net earnings we show in the table are, of course, identical to the GAAP total in our audited financial statements. (000s omitted) Berkshire's Share of Net Earnings (after taxes and Pre-Tax Earnings minority interests) 1992 1991 1992 1991 Operating Earnings: Insurance Group: Underwriting H. H. Brown (acquired 7/1/91) Net Investment Income $(108,961) $(119,593) 331,846 $ (71,141) $ (77,229) 355,067 13,616 305,763 285,173 Buffalo News 27,883 Kirby... Fechheimer. 47,863 37,113 17,340 13,698 12,947 28,163 14,384 35,726 22,795 7,267 Scott Fetzer Manufacturing Group Nebraska Furniture Mart 35,653 17,110 42,390 26,123 19,883 8,072 Wesco - other than Insurance See's Candies 42,357 31,954 25,501 World Book 15,153 Amortization of Goodwill 29,044 22,483 12,230 19,503 9,195 Interest Expense* Other Purchase-Price Accounting Charges (4,702) (98,643) (7,385) (4,113) (6,021) (4,687) 72,223 (7,634) (89,250) (62,899) (8,383) Other... Shareholder-Designated Contributions. 77,399 (6,772) 36,267 (4,913) ales of Securitie perating Earning 460,680 89,937 400,508 347,726 $ 550,617 192,478 59,559 124,155 Total Earnings - All Entities $ 592,986 $ 407,285 $ 439.908 *Excludes interest expense of Scott Fetzer Financial Group and Mutual Savings & Loan. Includes $22.5 million in 1992 and $5.7 million in 1991 of premiums paid on the early redemption of debt. you will also find our segment earnings reported on a GAAP basis. Our goal is to give you all of the A large amount of additional information about these businesses is given on pages 37-47, where financial information thot charlie and I consider significant in making our own evaluation of Berkshire. 8

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"Look-Through" Earnings We've previously discussed look-through carnings, which consist of: (1) the operating earnings reported in the previous section, plus; (2) the retained operating earnings of major investees that, under GAAP if these retained earnings of investees had instead been distributed to us. Though no single figure can accounting, are not reflected in our profits, less; (3) an allowance for the tax that would be paid by Berkshire than does the GAAP number. be perfect, we believe that the look-through number more accurately portrays the earnings of Berkshire I've told you that over time look-through earnings must increase at about 15% annually if our intrinsic business value is to grow at that rate. Our look-through earnings in 1992 were $604 million, and they to get there, our operating subsidiaries and investees must deliver excellent performances, and we must Will need to grow to more than $1.8 billion by the year 2000 if we are to meet that 15% goal. For us exercise some skill in capital allocation as well. it does guide our decision-making: When we allocate capital today, we are thinking about what will maximize We cannot promise to achieve the $1.8 billion target. Indeed, we may not even come close to it. But look-through earnings in 2000. term results as well. After all, we were thinking long-range thoughts five or ten years ago, and the moves We do not, however, see this long-term focus as eliminating the need for us to achieve decent short- disappointing harvests, something is wrong with the farmer. (Or perhaps with the farm: Investors should strategy.) Just as you should be suspicious of managers who pump up short-term earnings by accounting understand that for certain companies, and even for some industries, there simply is no good long-term maneuvers, asset sales and the like, so also should you be suspicious of those managers who fail to deliver for extended periods and blame it on their long-term focus. (Even Alice, after listening to the Queen lecture her about "jam tomorrow," finally insisted, "It must come sometimes to jam today.") figures are necessarily very rough. (The dividends paid to us by these investees have been included in The following table shows you how we calculate look-through earnings, though I warn you that the the operating earnings itemized on page 8, mostly under "Insurance Group: Net Investment Income.") Berkshire's Approximate Berkshire's Share of Undistributed Berkshire's Major Investees Ownership at Yearend Operating Earnings (in millions) 1992 1991 1992 1991 The Coca-Cola Company .. Capital Cities/ABC, Inc... 18.2% 18.1% 7.1% 48.1% 8.2% ( 3.4% (") 7.0% Federal Home Loan Mortgage Corp... General Dynamics Corp GEICO Corp. ....... 48.2% 14.1% 10.9% 11.0% - Guinness PLC...... The Gillette Company 2.0% 1.6% Wells Fargo The Washington Post Company 14.6% & Company.... 11.5% 14.6% 9.6% Berkshire's share of undistributed earnings of major investees $298 Hypothetical tax on these undistributed investee earnings (42) $230 Reported operating earnings of Berkshire 348 316 (30) Total look-through earnings of Berkshire $604 $516 (2) Calculated on average ownership for the year (1) Net of minority interest at Wesco (3) Excludes realized capital gains, which have been both recurring and significant 9

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Insurance Operations Shown below is an updated version of our usual table presenting key figures for the property-casualty insurance industry: Yearly Change in Premiums Combined Ratio Written (%) After Policyholder Dividends 1981.. 3.8 1983. 1982. 3.7 106.0 5.0 109.6 1984 8.5 112.0 1986. 1985 22.1 118.0 1987 22.2 116.3 1989 1988 9.4 108.0 4.5 104.6 1990. 3.2 105.4 1992 (Est.) .. 1991 (Revised) 2.4 4.5 109.6 109.2 2.7 108.8 114.8 from premiums: A ratio below 100 indicates an underwriting profit, and one above 100 indicates a loss. The combined ratio represents total insurance costs (losses incurred plus expenses) compared to revenue The higher the ratio, the worse the year. When the investment income that an insurer earns from holding policyholders' funds ("the float") is taken into account, a combined ratio in the 106 - 110 range typically produces an overall break-even result, exclusive of earnings on the funds provided by shareholders. About four points in which caused the largest insured loss in history. Andrew destroyed a few small insurers. the industry's 1992 combined ratio can be attributed to Hurricane Andrew, it awakened some larger companies to the fact that their reinsurance protection against catastrophes was Beyond that, far from adequate. (It's only when the tide goes out that you learn who's been swimming naked.) One major insurer escaped insolvency solely because it had a wealthy parent that could promptly supply a massive transfusion of capital. or 30 miles north of where it actually did and had hit Louisiana further east than was the case. All in Bad as it was, however, Andrew could easily have been far more damaging if it had hit Florida 20 all, many companies will rethink their reinsurance programs in light of the Andrew experience. which are the policies that other insurance companies buy to protect themselves against major catastrophic As you know we are a large writer - perhaps the largest in the world - of "super-cat" coverages, losses. Consequently, we too took our lumps from Andrew. suffering losses from it of about $I25 million, an amount roughly equal to our 1992 super-cat premium income. Our other super-cat losses, though, were negligible. This line of business therefore produced an overall loss of only 52 millon for the year. (In addition, our investee, GEICO, suffered a net loss from Andrew, after reinsurance did not affect our operating earnings, but did reduce our look-through earnings.) recoveries and tax savings, of about $50 million, of which our share is roughly $25 million. This loss In last year's report I told you that I hoped that our super-cat business would over time achieve profit margin. But I also warned enormously profitable or enormously unprofitable." Instead, both 1991 and 1992 have come in close you that in any given year the line was likely to be to a break-even level. Nonetheless, I see these results as aberrations and stick with my prediction of huge annual swings in profitability from this business. only when two things happen. First, the direct insurer or reinsurer we protect must suffer losses of a Let me remind you of some characteristics of our super-cat policies. Generally. they are activated 10

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given amount - that's the policyholder's "retention" - from a catastrophe; and second, industry-wide insured losses from the catastrophe must exceed some minimum level, which usually is $3 billion or by the first super-cat that meets the policy terms, but instead cover only a "second-event" or even a of the U.S., the entire U.S., or everywhere other than the U.S. Also, many policies are not activated third- or fourth-event. Finally, some policies are triggered only by a catastrophe of a specific type, to the policyholder if a specified catastrophe occurs. (Now you know why I suffer eyestrain: from such as an earthquake. Our exposures are large: We have one policy that calls for us to pay $100 million watching The Weather Channel.) State Farm, which neither buys nor sells reinsurance). Therefore, we have the capacity to assume risk Currently, Berkshire is second in the U.S. property-casualty industry in net worth (the leader being on a scale that interests virtually no other company. We have the appetite as well: As Berkshire's net good business. The saying, "a fool and his money are soon invited everywhere," applies in spades in worth and earnings grow, our willingness to write business increases also. But let me add that means reinsurance, and we actually reject more than 98% of the business we are offered. Our ability to choose between good and bad proposals reflects a management strength that matches our financial strength: • game the evil pay a mage ace in has per a bites on price are appropriate. simply extrapolate past experience. If there is truly "global warming," for example, the odds would What constitutes an appropriate price, of course, is difficult to determine. Catastrophe insurers can't Furthermore, in recent years there has been a mushrooming of population and insured values in U.S. shift, since tiny changes in atmospheric conditions can produce momentous changes in weather patterns. coastal areas that are particularly vulnerable to hurricanes, the number one creator of super-cats. A hurricane that caused * dollars of damage 20 years ago could easily cost 10x now. could occur in Charleston, S.C.? (It struck in 1886, registered an estimated 6.6 on the Richter scale, and Occasionally, also, the unthinkable happens. Who would have guessed, for example, that a major earthquake New Madrid, Missouri, which suffered an estimated 8.7 shocker in 1812. By comparison, the 1989 San caused 60 deaths.) And who could have imagined that our country's most serious quake would occur at increase in strength. Someday, a U.S. earthquake occurring far from California will cause enormous losses Francisco quake was a 7.1 - and remember that each one-point Richter increase represents a ten-fold for insurers. premiums differs from our accounting for other insurance premiums. Rather than recording our super- When viewing our quarterly figures, you should understand that our accounting for super-cat cat premiums on a pro-rata basis over the life of a given policy, we defer recognition of revenue until a loss occurs or until the policy expires. We take this conservative approach because the likelihood of super-cats causing us losses is particularly great toward the end of the year. It is then that weather tends to kick up: Of the ten largest insured losses in U.S. history, nine occurred in the last half of the year. In addition, policies that are not triggered by a first event are unlikely, by their very terms, to cause us losses until late in the year. The bottom-line effect of our accounting procedure for super-cats is this: Large losses may be reported in any quarter of the year, but significant profits will only be reported in the fourth quarter.

of funds developed from insurance," or in the vernacular, "the cost of float." Float - which we generate As I've told you in each of the last few years, what counts in our insurance business is "the cost premium reserves minus agents' balances, prepaid acquisition costs and deferred charges applicable to assumed in exceptional amounts - is the total of loss reserves, loss adjustment expense reserves and unearned reinsurance. The cost of float is measured by our underwriting loss. 11

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The table below shows our cost of float since we entered the business in 1967. (1) (2) Cost of Funds Approximate on Long-Term Yearend Yield Underwriting LosS (In $ Millions) Average Float (Ratio of 1 to 2) Govt. Bonds 1968 1967. profit $17.3 profit 19.9 less than zero less than zero 5.50% 1969 $ 0.37 profit 23.4 less than zero 5.90% 1971 1970 32.4 1.14% 6.79% profit profit 52.5 less than zero 5.81% 6.25% 1972 69.5 less than zero 1973 profit 73.3 less than zero 5.82% 9.30% 7.27% 1975 1974 7.36 79.1 12.96% 8.13% 11.35 102.6 87.6 less than zero less than zero 7.30% 8.03% 1976 1978 1977 profit profit 190.4 139.0 less than zero 8.93% 7.97% 1979 profit profit 227.3 less than zero 10.08% 1980 profit 228.4 237.0 less than zero less than zero 11.94% 1981 1982 profit 21.56 9.77% 13.61% 231.3 220.6 48.06 33.87 14.64% 11.84% 10.64% 1983 1984 18.98% 11.58% 1985. 55.84 44.23 390.2 253.2 11.34% 7.60% 9.34% 1986 797.5 55.43 7.00% 1988 1987 11.08 1,266.7 4.38% 9.00% 8.95% 1,497.7 0.74% 1990 1989 26.65 24.40 1,541.3 1.58% 7.97% 1992 1991 108.96 119.59 1,895.0 1,637.3 6.31% 1.63% 7.40% 8.24% 2,290.4 4.76% 7.39% Last year, our insurance operation again generated funds at a cost below that incurred by the U.S have been in the insurance business we have beaten the Government's rate, and often we have done so Government on its newly-issued long-term bonds. This means that in 21 years out of the 26 years we by a wide margin. (if, on average, we didn't beat the Government's rate, there would be no economic reason for us to be in the business.) led by Don Wurster, and our homestate operation, led by Rod Eldred, made excellent contributions to In 1992, as in previous years, National Indemnity's commercial auto and general liability business, generating float at a less-than-zero cost. The bulk of our float, meanwhile, comes from large transactions our low cost of float. Indeed, both of these operations recorded an underwriting profit last year, thereby developed by Ajit. His efforts are likely to produce a further growth in float during 1993. for decades to come. The industry is huge in certain sectors we can compete world-wide: and Berkshire Charlie and I continue to like the insurance business, which we expect to be our main source of earnings possesses an important competitive advantage. We will look for wavs to expand our particination in the business. either indirectly as we have done through CRICO or directly as we did by acquirino Central States Indemnity. 12

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Common Stock Investments these investments belongs to subsidiaries of which Berkshire owns less than 100%. Below we list our common stock holdings having a value of over $100 million. A small portion of Shares Company 12/31/92 Cost Market 3,000,000 Capital Cities/ABC, Inc... $ 517,500 (000s omitted) 93,400,000 The Coca-Cola Company. 1,023,920 $1,523,500 16,196,700 Federal Home Loan Mortgage Corp. ("Freddie Mac"") 414,257 3,911,125 34,250,000 GEICO Corp. . 45,713 2,226,250 783,515 24,000,000 4,350,000 The Gillette Company.. General Dynamics Corp. 600,000 312,438 1,365,000 450,769 38,335,000 Guinness PLC.... 1,727,765 The Washington Post Company 333,019 9,731 396,954 299,58l 6,358,418 Wells Fargo & Company.... 380,983 485,624 four cases: We added moderately to our holdings in Guinness and Wells Fargo, we more than doubled Leaving aside splits, the number of shares we held in these companies changed during 1992 in only our position in Freddie Mac, and we established a new holding in General Dynamics. We like to buy. who found himself stuck in tiny Podunk's only hotel. With no T.V. in his room, he faced an evening Selling, however, is a different story. There, our pace of activity resembles that forced upon a traveler Podunk." Opening it, he found just a single sentence: "You're doing it." of boredom. But his spirits soared when he spied a book on the night table entitled "Things to do in last summer, when it announced it would repurchase about 30% of its shares by way of a Dutch tender. We were lucky in our General Dynamics purchase. I had paid little attention to the company until for a small profit. We've made the same sort of commitment perhaps a half-dozen times in the last few Seeing an arbitrage opportunity, I began buying the stock for Berkshire, expecting to tender our holdings years, reaping decent rates of return for the short periods our money has been tied up. he'd been CEO. And what I saw made my eyes pop: Bill had a clearly articulated and rational strategy; But then I began studying the company and the accomplishments of Bill Anders in the brief time he had been focused and imbued with a sense of urgency in carrying it out; and the results were truly remarkable. investor with Bill. We were helped in gaining a large position by the fact that a tender greatly swells In short order, I dumped my arbitrage thoughts and decided that Berkshire should become a long-term the volume of trading in a stock. In a one-month period, we were able to purchase 14% of the General Dynamics shares that remained outstanding after the tender was completed.

in the 1977 annual report: "We select our marketable equity securities in much the way we would evaluate Our equity-investing strategy remains little changed from what it was fifteen years ago, when we said at a very attractive price." We have seen cause to make only one change in this creed: Because of both 22202 ut how, you will ask, does one decide what's "attractive! In answering this question, most analyst 13

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"growth." Indeed, many investment professionals see any mixing of the two terms as a form of intellectual cross-dressing. In our opinion, the two approaches are joined at the hip: Growth is always a component in the calculation We view that as fuzzy thinking (in which, it must be confessed, I myself engaged some years ago). of value, constituting a variable whose importance can range from negligible to enormous and whose impact can be negative as well as positive. the act of seeking value at least sufficient to justify the amount paid? Consciously paying more for a stock In addition, we think the very term "value investing" is redundant. What is "investing" if it is not speculation (which is neither illegal, immoral nor - in our view - financially fattening). than its calculated value - in the hope that it can soon be sold for a still-higher price - should be labeled truly operating on the principle of obtaining value in his investments. Correspondingly, opposite characteristics no way inconsistent with a "value" purchase. — a high ratio of price to book value, a high price-earnings ratio, and a low dividend yield - are in impact on value, sometimes one of spectacular proportions. But such an effect is far from certain. For Similarly, business growth, per se, tells us little about value. It's true that growth often has a positive (or worse) growth. For these investors, it would have been far better if Orville had failed to get off the example, investors have regularly poured money into the domestic airline business to finance profitless ground at Kitty Hawk: The more the industry has grown, the worse the disaster for owners. enticing - in other words, only when each dollar used to finance the growth creates over a dollar of Growth benefits investors only when the business in point can invest at incremental returns that are long-term market value. In the case of a low-return business requiring incremental funds, growth hurts the investor. equation for value, which we condense here: The value of any stock, bond or business today is In The Theory of Investment Value, written over 50 years ago, John Burr Williams set forth the be expected to occur during the remaining life of the asset. Note that the formula is the same for determined by the cash inflows and outflows - discounted at an appropriate interest rate - that can stocks as for bonds. Even so, there is an important, and difficult to deal with, difference between the two: A bond has a coupon and maturity date that define future cash flows; but in the case of equities, the investment analyst must himself estimate the future "coupons." Furthermore, the quality of management affects the bond coupon only rarely - chiefly when management is so inept or dishonest the equity "coupons." that payment of interest is suspended. In contrast, the ability of management can dramatically affect the investor should purchase — irrespective of whether the business grows or doesn't, displays volatility The investment shown by the discounted-flows-of-cash calculation to be the cheapest is the one that or smoothness in its earnings, or carries a high price or low in relation to its current earnings and book value. Moreover, though the value equation has usually shown equities to be cheaper than bonds, result is not inevitable: When bonds are calculated to be the more attractive investment, they should be bought. at very low rates of return. Unfortunately, the first type of business is very hard to find: Most high-return most of its earnings in dividends or makes significant stock repurchases. businesses need relatively little capital. Shareholders of such a business usually will benefit if it pays out one who is experienced and intelligent - can easily go wrong in estimating future "coupons." At Berkshire, Though the mathematical calculations required to evaluate equities are not difficult, an analyst — even 14

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we attempt to deal with this problem in two ways. First, we try to stick to businesses we believe we understand. That means they must be relatively simple and stable in character. If a business is complex doesn't bother us. What counts for most people in investing is not how much they know, but rather how or subject to constant change, we're not smart enough to predict future cash flows. Incidentally, that shortcoming he or she avoids big mistakes. realistically they define what they don't know. An investor needs to do very few things right as long as Second, and equally important, we insist on a margin of safety in our purchase price. If we calculate the value of a common stock to be only slightly higher than its price, we're not interested in buying. of investment success. We believe this margin-of-safety principle, so strongly emphasized by Ben Graham, to be the cornerstone Fixed-Income Securities Below we list our largest holdings of fixed-income securities: (000s omitted) Issuer Cost of Preferreds and ACF Industries Debentures Amortized Value of Bonds Market American Express 'Percs" .... $133,065" Champion International Conv. Pfd. 300,000 $163,327 Salomon Conv. Pfd.. First Empire State Conv. Pfd 300,000(l) 309,000(a) 309,000 (x2) ... 40,000 Washington Public Power Systems Bonds... USAir Conv. Pfd. .... 358,000) 700,000r) 756,000) 68,000 122) 58,7680) 268,5002) 81,002 (1) Carrying value in our financial statements (2) Fair value as determined by Charlie and me and sold our RJR Nabisco position. During 1992 we added to our holdings of ACE debentures, had some of our WPPSS bonds called, capital gains (including $80 million in 1992) and exceptional current income. Chrysler Financial, Texaco, Over the years, we've done well with fixed-income investments, having realized from them both large income losses have been negligible: We've had thrills but so far no spills. Time-Warner, WPPSS and RJR Nabisco were particularly good investments for us. Meanwhile, our fixed- in 1991, and despite our reasonable results with other negotiated purchases of preferreds, our overall performance Despite the success we experienced with our Gillette preferred, which converted to common stock with such purchases has been inferior to that we have achieved with purchases made in the secondary in common stocks will do better in the secondary market than he will do buying new issues. market. This is actually the result we expected. It corresponds with our belief that an intelligent investor is periodically ruled by mass folly, is constantly setting a "clearing" price. No matter how foolish that The reason has to do with the way prices are set in each instance. The secondary market, which there are always going to be a few at any moment. In many instances, shares worth x in business value price may be, it's what counts for the holder of a stock or bond who needs or wishes to sell, of whom have sold in the market for ½x or less. The new-issue market, on the other hand, is ruled by controlling stockholders and corporations, who can usually altogether. Understandably, these sellers are not going to offer any bargains, either by way of a public stock offerings, selling shareholders are often motivated to unload only when they feel the market is offering or in a negotiated transaction: It's rare vou'll find a for /x here. Indeed, in the case of common- 15

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that they simply resist selling when the market is underpaying for their goods.) overpaying. (These sellers, of course, would state that proposition somewhat differently, averring instead forth in our 1989 Annual Report: "Our preferred stock investments should produce returns modestly above To date, our negotiated purchases, as a group, have fulfilled but not exceeded the expectation we set but the money that went into our negotiated transactions into open-market purchases of the type we like. those achieved by most fixed-income portfolios." In truth, we would have done better if we could have But both our size and the general strength of the markets made that difficult to do. the economics of the investment banking business, the airline industry, or the paper industry." At the time There was one other memorable line in the 1989 Annual Report: "We have no ability to forecast some of you may have doubted this confession of ignorance. Now, however, even my mother acknowledges check. As I've previously mentioned, it was I who happily jumped into the pool; no one pushed me. In the case of our commitment to USAir, industry economics had soured before the ink dried on our Yes, I knew the industry would be ruggedly competitive, but I did not expect its leaders to engage in prolonged kamikaze behavior. In the last two years, airline companies have acted as if they are members of a competitive tontine, which they wish to bring to its conclusion as rapidly as possible. the airline. He was particularly courageous in accepting a strike last fall that, had it been lengthy, might Amidst this turmoil, Seth Schofield, CEO of USAir, has done a truly extraordinary job in repositioning well have bankrupted the company. Capitulating to the striking union, however, would have been equally than those encumbering its major competitors, and it was clear that over time any high-cost producer faced disastrous: The company was burdened with wage costs and work rules that were considerably more onerous extinction. Happily for everyone, the strike was settled in a few days. with fine economics. Unfortunately, though, the near-term reward for skill in the airline business is simply A competitively-beset business such as USAir requires far more managerial skill than does a business survival, not prosperity. In early 1993, USAir took a major step toward assuring survival - and eventual prosperity - In connection with this transaction, Charlie and I were asked to join the USAir board. We agreed, by accepting British Airways offer to make a substantial, but minority, investment in the company. though this makes five outside board memberships for me, which is more than I believe advisable for an active CEO. Even so, if an investee's management and directors believe it particularly important that Charlie and I join its board, we are glad to do so. We expect the managers of our investees to should do their bit as well. work hard to increase the value of the businesses they run, and there are times when large owners Two New Accounting Rules and a Plea for One More dichotomy in our books that I have described in previous annual reports and that relates to the accrued A new accounting rule having to do with deferred taxes becomes effective in 1993. It undoes a taxes carried against the unrealized appreciation in our investment portfolio. At yearend appreciation amounted to $7.6 billion. Against $6.4 billion of that, we carried taxes at the current 34% rate. Against the remainder of $1.2 billion, we carried an accrual of 28%, the tax rate in effect when that portion of the appreciation occurred. The new accounting rule says we must henceforth accrue all deferred tax at the current rate, which to us seems sensible. our unrealized appreciation, thereby increasing the tax liability and reducing net worth by $70 million. The new marching orders mean that in the first quarter of 1993 we will apply a 34% rate to all of The new rule also will cause us to make other minor changes in our calculation of deferred taxes. correspondingly, in net worth. The impact could well be substantial. Nevertheless, what is important in Future changes in tax rates will be reflected immediately in the liability for deferred taxes and, the end is the tax rate at the time we sell securities, when unrealized appreciation becomes realized. 16

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that businesses recognize their present-value liability for post-retirement health benefits. Though GAAP Another major accounting change, whose implementation is required by January 1, 1993, mandates that companies will then have to bear for health benefits. The new rule will force many companies to has previously required recognition of pensions to be paid in the future, it has illogically ignored the costs record a huge balance-sheet liability (and a consequent reduction in net worth) and also henceforth to recognize substantially higher costs when they are calculating annual profits. liabilities. As a result, Berkshire's present liability and future costs for post-retirement health benefits - In making acquisitions, Charlie and I have tended to avoid companies with significant post-retirement though we now have 22,000 employees — are inconsequential. I need to admit, though, that we had a near miss: In 1982 I made a huge mistake in committing to buy a company burdened by extraordinary Reporting on this episode in the 1982 annual report, I said: "If we were to introduce graphics to this post-retirement health obligations. Luckily, though, the transaction fell through for reasons beyond our control. deal would be the appropriate centerfold." Even so, I wasn't expecting things to get as bad as they did. report, illustrating favorable business developments of the past year, two blank pages depicting this blown found those bountiful health-care promises to be largely worthless. Another buyer appeared, the business soon went bankrupt and was shut down, and thousands of workers company become an insurer of uncapped post-retirement health benefits that other corporations chose to In recent decades, no CEO would have dreamed of going to his board with the proposition that his install. A CEO didn't need to be a medical expert to know that lengthening life expectancies and soaring health costs would guarantee an insurer a financial battering from such a business. Nevertheless, many promises - and thereby doomed his shareholders to suffer the inevitable consequences. In health-care, a manager blithely committed his own company to a self-insurance plan embodying precisely the same open-ended promises have created open-ended liabilities that in a few cases loom so large as to threaten require the booking of post-retirement health costs as they were incurred. Instead, the rules allowed cash- I believe part of the reason for this reckless behavior was that accounting rules did not, for so long, basis accounting, which vastly understated the liabilities that were building up. In effect, the attitude of some of these same managers would be quick to criticize Congress for employing "cash-basis" thinking both managements and their accountants toward these liabilities was "out-of-sight, out-of-mind." Ironically, in respect to Social Security promises or other programs creating future liabilities of size. "How many legs does a dog have if you call his tail a leg?" The answer: "Four, because calling a tail Managers thinking about accounting issues should never forget one of Abraham Lincoln's favorite riddles: a leg does not make it a leg." It behooves managers to remember that Abe's right even if an auditor is willing to certify that the tail is a leg.

in the world of stock options. In Berkshire's 1985 annual report, I laid out my opinions about the use in the profits of the corporations that issue them. waged war against accounting rulemakers, trying to keep the costs of stock options from being reflected Typically, executives have argued that options are hard to value and that therefore their costs should businesses. Sometimes they have even solemnly declared that "out-of-the-money" options (those with an be ignored. At other times managers have said that assigning a cost to options would injure small start-up exercise price equal to or above the current market price) have no value when they are issued. that options should not be viewed as a cost because they "aren't dollars out of a company's cofters." i Oddly, the Council of Institutional Investors has chimed in with a variation on that theme, opining see this line of reasoning as offering exciting possibilities to American corporations for instantly improving 17

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So if vou're a CEO and subscribe to this "no cash-no cost" theory of accounting, I'll make you an offer their reported profits. For example, they could eliminate the cost of insurance by paying for it with options. you can't refuse: Give us a call at Berkshire and we will happily sell you insurance in exchange for a bundle of long-term options on your company's stock. long a 747 is going to last, which means he also does not know what the yearly depreciation charge for precision. Right now, accounting abounds with imprecision. After all, no manager or auditor knows how the plane should be. No one knows with any certainty what a bank's annual loan loss charge ought to be. And the estimates of losses that property-casualty companies make are notoriously inaccurate. Does this mean that these important items of cost should be ignored simply because they can't be experienced people and then recorded. When you get right down to it, what other item of major but hard-to- quantified with absolute accuracy? Of course not. Rather, these costs should be estimated by honest and be ignored in the calculation of earnings? precisely-calculate cost - other, that is, than stock options - does the accounting profession say should fact that the options given to executives are restricted in various ways. These restrictions affect value. Moreover, options are just not that difficult to value. Admittedly, the difficulty is increased by the They do not, however, eliminate it. In fact, since I'm in the mood for offers, I'll make one to any executive who is granted a restricted option, even though it may be out of the money: On the day of issue, Berkshire So if you find a CEO who says his newly-issued options have little or no value, tell him to try us out. will pay him or her a substantial sum for the right to any future gain he or she realizes on the option. In truth, we have far more confidence in our ability to determine an appropriate price to pay for an option than we have in our ability to determine the proper depreciation rate for our corporate jet. a form of compensation, what are they? If compensation isn't an expense, what is it? And, if expenses It seems to me that the realities of stock options can be summarized quite simply: If options aren't shouldn't go into the calculation of earnings, where in the world should they go? be muscled by business executives on the option-accounting issue. Additionally, the lobbying that executives The accounting profession and the SEC should be shamed by the fact that they have long let themselves on issues of significance to society - about which it may have much of value to say - when it advocates engage in may have an unfortunate by-product: In my opinion, the business elite risks losing its credibility the incredible on issues of significance to itself. Miscellaneous twenty-five years, will give up the latter post after the 1993 annual meeting, though she will certainly We have two pieces of regrettable news this year. First, Gladys Kaiser, my friend and assistant for it is still a jolt. remain my friend forever. Gladys and I have been a team, and though I knew her retirement was coming, 30-year association with me that began when he was the outside auditor of Buffett Partnership, Ltd. Verne Secondly, in September, Verne Mckenzie relinquished his role as Chief Financial Officer after a is staying on as a consultant, and though that job description is often a euphemism, in this case it has pace. Mare Hamburg, Verne's understudy for five years, has succeeded him as Chief Financial Officer. real meaning. I expect Verne to continue to fill an important role at Berkshire but to do so at his own 'The older I get," she said, "the more he'll be interested in me." She would have liked my tastes: I 1 recall that one woman, upon being asked to describe the perfect spouse, specified an archeologist: treasure those extraordinary Berkshire managers who are working well past normal retirement age and who concomitantly are achieving results much superior to those of their vounger competitors. While I 18

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understand and empathize with the decision of Verne and Gladys to retire when the calendar says it's time, theirs is not a step I wish to encourage. It's hard to teach a new dog old tricks.

B. At 99, she continues to work seven days a week. And about her, I have some particularly good news. I am a moderate in my views about retirement compared to Rose Blumkin, better known as Mrs. in 1983, Mrs. B continued to be Chairman and run the carpet operation. In 1989, however, she left because You will remember that after her family sold 80% of Nebraska Furniture Mart (NFM) to Berkshire of a managerial disagreement and opened up her own operation next door in a large building that she had owned for several years. In her new business, she ran the carpet section but leased out other home- furnishings departments. At the end of last year, Mrs. B decided to sell her building and land to NFM. She'll continue, however, stride). NFM will set up shop alongside her, in that same building, thereby making a major addition to to run her carpet business at its current location (no sense slowing down just when you're hitting full its furniture business. have always been a fan of hers, whether she was a partner or a competitor. But believe me, partner is better. I am delighted that Mrs. B has again linked up with us. Her business story has no parallel and I incautious on this point when she was 89, snapped at the deal. Mrs. B belongs in the Guinness Book This time around, Mrs. B graciously offered to sign a non-compete agreement - and I, having been of World Records on many counts. Signing a non-compete at 99 merely adds one more.

last year when that company earned a record $IO million pre-tax. What's even more impressive is that Ralph Schey, CEO of Scott Fetzer and a manager who I hope is with us at 99 also, hit a grand slam Scott Fetzer achieved such earnings while employing only $1l6 million of equity capital. This extraordinary for the debt it employs - appropriately - in its finance subsidiary. result is not the product of leverage: The company uses only minor amounts of borrowed money (except than it had when we bought it in 1986. This means the company has been able to distribute more than Scott Fetzer now operates with a significantly smaller investment in both inventory and fixed assets earnings stream - which was excellent to begin with - by a lot. Ralph just keeps on outdoing himself, 100% of its earnings to Berkshire during our seven years of ownership while concurrently increasing its and Berkshire shareholders owe him a great deal.

in 1991 to $4.2 million in 1992. Perhaps you will think that I have sold our corporate jet, The Indefensible. Those readers with particularly sharp eyes will note that our corporate expense fell from $5.6 million Forget it! I find the thought of retiring the plane even more revolting than the thought of retiring the Chairman. (In this matter I've demonstrated uncharacteristic flexibility: For years I argued passionately against corporate jets. But finally my dogma was run over by my karma.) in 1991, when we incurred a one-time environmental charge relating to alleged pre-1970 actions of our Our reduction in corporate overhead actually came about because those expenses were especially high textile operation. Now that things are back to normal, our after-tax overhead costs are under 1% of our reported operating earnings and less than 1/2 of 1% of our look-through earnings. We have no legal, personnel, public relations, investor relations, or strategic planning departments. In turn this means we don't need support personnel such as guards, drivers, messengers, etc. Finally, except for Verne, we 19

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employ no consultants. Protessor Parkinson would like our operation - though Charlie, 1 must say, still finds it outrageously tat. At some companies, corporate expense runs 10% or more of operating earnings. The tithing that operations thus makes to headquarters not only hurts earnings, but more importantly slashes capital values. If the achieved by the business that incurs costs of only 1%, shareholders of the first enterprise suffer a 9% business that spends 10% on headquarters' costs achieves earnings at its operating levels identical to those loss in the value of their holdings simply because of corporate overhead. Charlie and I have observed low-cost operation as more likely to operate effectively than its bureaucratic brethren. We're admirers of no correlation between high corporate costs and good corporate performance. In fact, we see the simpler, the Wal-Mart, Nucor, Dover, GEICO, Golden West Financial and Price Co. models.

Late last year Berkshire's stock price crossed $10,000. Several shareholders have mentioned to me that by the tax rule that draws a distinction between annual gifts of $10,000 or under to a single individual the high price causes them problems: They like to give shares away each year and find themselves impeded and those above $10,000. That is, those gifts no greater than $10,000 are completely tax-free; those above $10,000 require the donor to use up a portion of his or her lifetime exemption from gift and estate taxes, or, if that exemption has been exhausted, to pay gift taxes. who can give up to $20,000 annually to a single recipient, as long as the donor files a gift tax return I can suggest three ways to address this problem. The first would be useful to a married shareholder, containing his or her spouse's written consent to gifts made during the year. is selling for $12,000 and that one wishes to make only a $10,000 gift. In that case, sell the stock to Secondly, a shareholder, married or not, can make a bargain sale. Imagine, for example, that Berkshire your giftee exceeds your tax basis.) the giftee for $2,000. (Caution: You will be taxed on the amount, if any, by which the sales price to shares, and simply give percentage interests in the partnership away each year. These interests can be for Finally, you can establish a partnership with people to whom you are making gifts, fund it with Berkshire any value that you select. If the value is $10,000 or less, the gift will be tax-free. the more esoteric methods of gift-making. We issue the customary warning: Consult with your own tax advisor before taking action on any of our owner-related policies — including the no-split policy - have helped us assemble a body of shareholders We hold to the view about stock splits that we set forth in the 1983 Annual Report. Overall, we believe that is the best associated with any widely-held American corporation. Our shareholders think and behave consistently trades in a price range that is sensibly related to intrinsic value. like rational long-term owners and view the business much as Charlie and I do. Consequently, our stock other widely-held company. The frictional costs of trading — which act as a major "tax" on the Additionally, we believe that our shares turn over far less actively than do the shares of any owners of many companies - are virtually non-existent at Berkshire. (The market-making skills of Jim Maguire, our New York Stock Exchange specialist, definitely help to keep these costs low.) shareholder group would be upgraded by the new shareholders enticed by a split. Instead we believe Obviously a split would not change this situation dramatically. Nonetheless, there is no way that our that modest degradation would occur.

on January 4, 1993. These obligations bore interest at 5½ %, a low cost for funds when they were issued AsI mentioned carlier, on December 16th we called our zero-coupon. convertible debentures for payment in 1989, but an unattractive rate for us at the time of call. 20

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money available for no longer than that is not now of interest to us. Furthermore, Berkshire shareholders The debentures could have been redeemed at the option of the holder in Sentember 1994. and 5169 are disadvantaged by having a conversion option outstanding. At the time we issued the debentures, this disadvantage was offset by the attractive interest rate they carried; by late 1992, it was not. villing to incur modest amounts of debt when it is both properly structured and of significant beneti in general, we continue to have an aversion to debt, particularly the short-term kind. But we are to shareholders.

About 97% of all eligible shares participated in Berkshire's 1992 shareholder-designated contributions I'm considering increasing these contributions in the future at a rate greater than the increase in Berkshire's program. Contributions made through the program were $7.6 million, and 2,810 charities were recipients. book value, and I would be glad to hear from you as to your thinking about this idea. We suggest that new shareholders read the description of our shareholder-designated contributions program are registered in the name of the actual owner, not in the nominee name of a broker, bank or depository. that appears on pages 48-49. To participate in future programs, you must make sure your shares Shares not so registered on August 31, 1993 will be ineligible for the 1993 program. perating businesses make contributions, at aditine to make colder-ions, inc cingrilurehandise, arkagine distures, manian a oraly. These contributions support local charities, such as The United Way, and produce roughly commensurate benefits for our businesses. make contributions to broad national programs or charitable activities of special personal interest to them, However, neither our operating managers nor officers of the parent company use Berkshire funds to to their alma maters or other institutions to which they feel a personal attachment, we believe they should except to the extent they do so as shareholders. If your employees, including your CEO, wish to give use their own money, not yours.

9:30 a.m. on Monday, April 26, 1993. A record 1,700 people turned up for the meeting last year, but This year the Annual Meeting will be held at the Orpheum Theater in downtown Omaha at that number still leaves plenty of room at the Orpheum. We recommend that you get your hotel reservations early at one of these hotels: (1) The Radisson-Redick Lion Hotel, located about a five-minute walk from the Orpheum; or (3) the Marriott, located in West Tower, a small (89 rooms) but nice hotel across the street from the Orpheum; (2) the much larger Red buses at the Marriott that will leave at 8:30 and 8:45 for the meeting and return after it ends. Omaha about 100 yards from Borsheim's, which is a twenty-minute drive from downtown. We will have Charlie and I always enjoy the meeting, and we hope you can make it. The quality of our shareholders that features such a consistently high level of intelligent, owner-related questions. is reflected in the quality of the questions we get: We have never attended an annual meeting anywhere to the meeting. With the admission card, we will enclose information about parking facilities located near An attachment to our proxy material explains how you can obtain the card you will need for admission the Orpheum. If you are driving, come a little early. Nearby lots fill up quickly and you may have to walk a few blocks. 21

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and to take you from there to downtown hotels or the airport later. I hope that you will allow plenty As usual, we will have buses to take you to Nebraska Furniture Mart and Borsheim's after the meeting of time to fully explore the attractions of both stores. Those of you arriving early can visit the Furniture 5:30 p.m. on Sundays. While there, stop at the See's Candy Cart and find out for yourself why Charlie Mart any day of the week; it is open from 10 a.m. to 5:30 p.m. on Saturdays and from noon to and I are a good bit wider than we were back in 1972 when we bought See's. Borsheim's normally is closed on Sunday but will be open for shareholders and their guests from noon to 6 p.m. on Sunday, April 25. Charlie and I will be in attendance, sporting our jeweler's loupes, of Cherry Cokes, and ready to give advice about gems to anyone foolish enough to listen. Also available will be plenty See's candies, and other lesser goodies. I hope you will join us. March 1, 1993 varren E. Buffet hairman of the Br 22

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BERKSHIRE HATHAWAY INC. Acquisition Criteria We are eager to hear about businesses that meet all of the following criteria: ) Large purchases (at least $10 million of after-tax earnings, "turnaround" situations), Demonstrated consistent earning power (future proiections are of no interest to us, nor al (3) (4) Businesses earning good returns on equity while employing little or no debt, (5) 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, Simple businesses (if there's lots of technology, we won't understand it), about a transaction when price is unknown). the $2-3 billion range. The larger the company, the greater will be our interest: We would like to make an acquisition in answer — customarily within five minutes — as to whether we're interested. We prefer to buy for cash, We will not engage in unfriendly takeovers. We can promise complete confidentiality and a very fast but will consider issuing stock when we receive as much in intrinsic business value as we give. Mart, Fechheimer's, Borsheim's and Central States Indemnity. In cases like these, the company's owner- Our favorite form of purchase is one fitting the pattern through which we acquired Nebraska Furniture managers wish to generate significant amounts of cash, sometimes for themselves, but often for their families to run their companies just as they have in the past. We think we offer a particularly good fit for owners or inactive shareholders. At the same time, these managers wish to remain significant owners who continue with such objectives and we invite potential sellers to check us out by contacting people with whom we have done business in the past. We've found that if you advertise an interest in buying collies, a lot of people will call hoping to sell Charlie and I frequently get approached about acquisitions that don't come close to meeting our tests: you their cocker spaniels. A line from a country song expresses our feeling about new ventures, turnarounds, or auction-like sales: "When the phone don't ring, you'll know it's me." Besides being interested in the purchase of businesses as described above, we are also interested in the negotiated purchase of large, but not controlling, betis of Expressme able nothered dom a al receiving suggestions about purchases we might make in the general stock market. Cities, Salomon, Gillette, USAir, Champion, 23

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Deloitte & Touche A 2000 First National Center Omaha, Nebraska 68102-1578 Telephone: (402) 346-7788 Facsimile: (402) 346-0711 (402) 344-0372 INDEPENDENI AUDITORS' REPORT Te tsh Beard haway ectors and Shareholders Hathaway Inc. and We have audited the accompanying consolidated balance sheets of Berkshire related statements of earnings and cash flows for each of the three subsidiaries as of December 31, 1992 and 1991, and responsibility of the Company's the period ended December 31, 1992. These financial statements an opinion on these financial statements based on our audits. management. Our responsibility is to express We conducted our audits in standards. Those standards require that we plan and perform the audit to accordance with generally accepted auditing material misstatement. • reasonable assurance about whether the financial statements are free of supporting the amounts and disclosures in the financial statements. An audit includes examining, on a test basis, evidence estimates made by management, also includes assessing the accounting principles used and significant statement presentation. We believe that our audits provide a reasonable basis as well as evaluating the overall financial for our opinion. all material respects, the financial position In our opinion, such consolidated financial statements present fairly, in subsidiaries 'of December 31, 1992 and 1991, and of Berkshire Hathaway Inc. and operations and their cash flows for each of the three years in the period ended the results of their December 31, 1992, in conformity with generally accepted accounting principles. March 8, 1993 Deloitte Touche Tohmatsu International 24

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BERKSHIRE HATHAWAY INC. CONSOLIDATED BALANCE SHEETS and Subsidiaries (dollars in thousands except per share amounts) December 31, 1992 1991 Cash and cash equivalents ASSETS Investments: $ 1,192,363 $ 762,000 Marketable equity securities Obligations with fixed maturities... 2,102,614 2,337,954 Loans and accounts receivable 11,652,654 690,628 9,182,524 904,471 Inventories... 282,141 256,473 Properties and equipment 224,510 222,139 Other assets....... 799,868 796,341 $16,944,778 $14,461,902 Losses and loss adjustment expenses... LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,978,481 $ 2,849,089 Unearned premiums 227,808 2,517,186 895,639 779,081 152,490 Income taxes. Accounts payable, accruals and other liabilities .. 1,299,810 1,929,074 Term debt and other borrowings 1,255,068 7,918,924 6,964,802 Minority shareholders' interests 129,523 117,182 Shareholders' equity: Common stock of $5 par value. Authorized 1,500,000 shares; Issued 1,377,364 shares, in 1992; 1,375,202 shares, in 1991 6,887 Unrealized appreciation of marketable equity securities, net. Capital in excess of par value 5,047,219 182,264 157,377 6,876 Retained earnings 3,702,254 3,962,989 3,294,969 8,938,624 7,422,211 Less common stock in treasury, at cost (228,761 shares)..... 42,293 42,293 Total shareholders equity.................................. 8.896,331 7,379.918 $16.944.778 $14,461,902 See accompanying Notes to Consolidated Financial Statements 25

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BERKSHIRE HATHAWAY INC. CONSOLIDATED STATEMENTS OF EARNINGS and Subsidiaries (dollars in thousands except per share amounts) 1992 Year Ended December 31, 1991 1990 Revenues: Sales and service revenues... $1,774,436 664,293 $1,651,134 481,793 776,413 $1,580,074 495,409 591,540 89,937 192,478 450,295 Sundry income. 5,265 4,178 33,989 3,574 3,029,340 3,105,996 2,659,472 Cost and expenses: Insurance losses and loss adjustment expenses Cost of products and services sold. 1,049,721 Insurance underwriting expenses 687,625 827,169 939,011 871,073 Interest expense Selling, general and administrative expenses... 531,253 85,628 556,146 68,837 534,261 83,926 124,496 121,847 541,054 112,692 2,478,723 2,513,010 2,143,006 Earnings before income taxes 550,617 592,986 516,466 Income taxes 138,089 142,058 112,047 412,528 450,928 404,419 Minority interest 5,243 11,020 10,326 Net earnings $ 407,285 439,908 $ 394,093 Average shares outstanding 1,146,492 1,146,441 1,146,441 Net earnings per share $355 $384 $344 accompanying Notes to Consolidated Financial Statements 26

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BERKSHIRE HATHAWAY INC. CONSOLIDATED STATEMENTS OF CASH FLOWS and Subsidiaries (dollars in thousands) Year Ended December 31,. 1992 1991 1990 Cash flows from operating activities: Adjustments to reconcile net income to cash flows $ 407,285 $ 439,908 $ 394,093 Depreciation and amortization. Realized investment gain.. ............. 41,074 37,175 34,083 Investment purchase price discount (89,937) (192,478) (33,989) accretion less premium amortization... Accretion of issue discount on zero coupon notes ....•• 25,329 (3,629) (26,931) 23,881 (58,648) 22,618 Changes in assets Minority interests.. business acquisitions: and liabilities before effects from 5,243 11,020 10,326 Losses and loss adjustment expenses Deferred charges re reinsurance assumed 102,789 (178,328) 798,784 (350,787) 613,994 Unearned premiums 46,931 Accounts receivable 239,428 75,274 (177,043) 26,109 (133,809) (17,250) Income taxes. Accounts payable, accruals and other liabilities 150,615 (6,067) 32,271 (32,221) 29,004 (41,039) 11,479 (1,813) Other (5,818) Net cash flows from operating activities 997,185 709,173 522,568 Cash flows from investing activities: Purchases of marketable equity securities Purchases of fixed maturity investments (258,617) (913,037) (377,332) (809,633) (729,352) (287,700) Proceeds from sales of fixed maturity investments Proceeds from redemptions and maturities of fixed 284,301 292,010 61,035 Proceeds from sales of marketable equity securities maturity investments.. 100,270 371,514 399,120 (161,043) 522,701 261,923 21,457 Acquisition of businesses .. (119,948) Principal collection on loans.. Loans originated in finance businesses (160,261) 127,913 (163,803) (5,294) (11,266) 124,760 (132,313) 110,415 Other 11,762 Net cash flows from investing activities (573,159) _(184,486) (682,773) Cash flows from financing activities: Proceeds from borrowings 1,000,427 (955,464) (464,913) 455,972 (576,634) 785,818 Other. Repayments of borrowings (38,626) (770) (7,082) Net cash flows from financing activities.. 6,337 (9,711) 202,102 Cash and cash equivalents at beginning of year.. Increase in cash and cash equivalents.. 762,000 430,363 247.024 514,976 205,127 41,897 Cash and cash equivalents at end of year $1,192,363 $ 762,000 $ 247,024 See accompanying Notes to Consolidated Financial Statements 27

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BERKSHIRE HATHAWAY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS and Subsidiaries December 31, 1992 (1) Significant accounting policies and practices The accompanying Consolidated Financial Statements include the accounts of Berkshire Hathaway Inc. (the "Company" or "Berkshire") consolidated with accounts of all its subsidiaries. Intercompany accounts and (b) Cash equivalents consist of funds invested in money market accounts and in investments with a maturity of three months or less when purchased. (c) Investments Investments in obligations with fixed maturities are carried at cost. Marketable equity securities held by members of the Berkshire Hathaway Insurance Group are carried at market value, marketable of aggregate cost or market. equity securities held by the Company and by non-insurance subsidiaries are carried at the lower (a) Cost of investments sold Cost of investments sold is usually determined on a first-in, first-out basis. Occasionally, when specific identification results in lower applicable income taxes, identified cost is used. (e) Goodwill and negative goodwill of acquired businesses The difference amortized on a straight line basis over forty years. The net unamortized balance is carried in other assets. between purchase cost and the fair value of the net assets acquired businesses is Insurance premium acquisition costs For financial reporting to ultimate recoverability, and charged to income as the premiums are earned. With respect to premiums certain costs of acquiring insurance premiums are deferred, subject received under major quota-share reinsurance contracts, the computation of ultimate recoverability of the directly related acquisition cost takes into account investment income anticipated to be earned on funds without regard to investment income. held subject to the contracts. Otherwise, ultimate recoverability of premium acquisition costs is determined (g) Deferred charges re reinsurance assumed The excess of estimated liabilities for claims and claim costs ultimately payable by the Insurance Group for indemnification of insurance risk, other than structured settlements, is established as a deferred charge over consideration received with respect to retroactive property/casualty reinsurance contracts that provide at inception of such contracts. The deferred charges are subsequently amortized using the interest method December 31, 1992 and 1991, deferred charges re reinsurance assumed in the amounts of $482,184,000 over the periods that the liabilities for the claims and claim costs are expected to be outstanding. At and $529,115,000 respectively are included in other assets. Liability for losses and loss adjustment expenses represents the aggregate of such obligations of members of the Insurance Group with respect to: (a) prospective property/casualty insurance and reinsurance contracts, (b) retroactive property/casualty reinsurance contracts that provide for indemnification of insurance to settled claims ("structured settlements"). Except for structured settlement liabilities which are stated risk, other than structured settlements, and (c) contracts providing for periodic payments with respect estimated ultimate payment amounts less amounts recoverable on account of reinsurance. at discounted present values, the liability for losses and loss adjustment expenses is at the aggregate of Ultimate payment amounts with respect to prospective contracts are determined from (i) individual case estimates, (i) estimates of incurred but not reported losses, based on past experience, and (ii) reports of losses from ceding insurers. 28

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(1) Significant accounting policies and practices (Continued) (h) Losses and loss adjustment expenses (continued) indemnification of insurance risk, other than structured settlements, are established for financial reporting retroactive reinsurance contracts that provide for purposes at maximum limits of indemnification under the contracts. This liability at December 31, 1992 and $529,115,000 were established for financial reporting purposes as deferred charges re reinsurance was $1,232,162,000 and at December 31, 1991 was $1,296,875,000 of which, respectively $482,184,000 assumed. See also 1(g) above. For statutory reporting purposes, liabilities under these contracts are established, not at worst-case maximum loss limits, but at best estimates of claims and claim costs December 31, 1991 liabilities of $939,568,000 and $911,829,000. Underwriting losses reported with respect ultimately payable thereunder. These "best estimates" yielded respectively as of December 31, 1992 and to these contracts in the accompanying financial statements were $44 million for 1992, $26 million $89 million, $184 million and $68 million. and zero for 1990, whereas for statutory reporting purposes the corresponding figures were Liabilities under structured settlement contracts are established on a contract-by-contract basis when the contracts are entered into, at the then present value of the actuarially determined ultimate payment amount incurred. The aggregate of these liabilities for financial reporting purposes at December 31, 1992 was discounted at the market interest rate. mandated by Insurance Regulatory authorities (5% for contracts incepting after 1986 and 7% with respect $265,887,000. For statutory reporting purposes, where the liabilities are determined using discount rates to contracts dated prior to 1987), the aggregate of structured settlement liabilities was $345,517,000. Insurance premiums for prospective insurance and non-property catastrophe reinsurance policies are recognized Insurance premiums as revenues ratably over their terms with unearned premiums computed on a monthly or daily pro rata basis. Premiums for catastrophe excess of loss reinsurance contracts are deferred until the earlier of a reinsurance contracts, including structured settlements, is accounted for as premiums earned at the inception loss occurrence or policy expiration. Consideration received for indemnification of risk under retroactive of the contracts. Both earned and unearned premiums are stated net of amounts ceded to reinsurers. (k) Income taxes Certain items of income and deductions are recognized in the financial statements in time periods that differ from those in which they are recognized in the Company's consolidated Federal income tax returns, giving rise to recognition in the financial statements to deferred and prepaid income taxes. The liability for income taxes in the Consolidated Balance Sheets includes deferred taxes deemed applicable to unrealized appreciation included in carrying value of marketable equity securities. Such taxes were accrued at a rate of 34% relative to increases in unrealized appreciation that arose subsequent to 1986 and at the rate of 28% relative to appreciation that arose in years prior to 1987. (m) Impact of new accounting rules effective in 1993 In December, 1990, the Financial Accounting Standards Board ("FASB") issued Statement No. 106 "Employers" accounting principles with respect to employers' costs of providing retiree healthcare and other postretirement for Postretirement Benefits Other Than Pensions". This statement alters generally accepted benefits other than pensions. The provisions of this statement will not have a material effect on Berkshire's financial position. In February, 1992 the FASB issued Statement No. 109 "Accounting for Income Taxes". The statement requires the "liability method" of accounting for income taxes. The Company has not yet implemented the statement's provisions. See Note 4. In December, 1992 the FASB issued Statement No. 113 "Accounting and Reporting for Reinsurance of Short- reinsurer to be accounted for as reinsurance and prescribes new accounting and reporting standards for Duration and Long-Duration Contracts". statement establishes conditions for a contract with a those contracts. The Company believes that the provisions of this statement will not have a material effect on its financial position. 29

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Notes to Consolidated Financial Statements (Continued) (2) Investments in obligations with fixed maturities with fixed maturities are as follows: The amortized cost and estimated market values as of December 31, 1992 and 1991 of investments in obligations December 31, 1992 Amortized Unrealized Gross Gross Cost Gains Unrealized Estimated Losses Market Bonds: Value U.S. Treasury securities and obligations of and agencies... U.S. government corporations Obligations of states, municipalities $ 39,084,000 $ 887,000 $ (30,000) $ 39,941,000 Corporate bonds. and political subdivisions. 453,277,000 56,432,000 Redeemable preferred stocks. 133,566,000 65,357,000 30,317,000 (350,000) 509,359,000 Mortgage-backed securities 1,368,648,000 2,820,000 (89,701,000) 163,883,000 108,039,000 (80,000) 1,344,304,000 110,779,000 $2,102,614,000 $155,813,000 $ (90,161,000) $2,168,266,000 December 31, 1991 Bonds: U.S. Treasury securities and obligations of and agencies... U.S. government corporations Obligations of states, municipalities $ 2,429,000 $ 66,000 $ - $ 2,495,000 Corporate bonds. and political subdivisions 531,418,000 Redeemable preferred stocks 316,070,000 90,664,000 88,301,000 (412,000) 621,670,000 Mortgage-backed securities 1,358,527,000 129,510,000 14,273,000 2,669,000 (125,300,000) 1,247,500,000 404,371,000 132,179,000 $2,337,954,000 $195,973,000 $(125,712,000) $2,408,215,000 by contractual maturity dates. Actual maturities will differ from contractual maturities because issuers of certain of Shown below are the amortized cost and estimated market values of the above obligations at December 31, 1992, the obligations retain early call or prepayment rights. Amortized Estimated Due in one year or less. Cost Market Due after one year through five years. $ Value 1,064,718,000 850,048,000 26,235,000 $ 952,188,000 26,597,000 Due after ten years. Due after five years through ten years 53,574,000 1,019,892,000 58,810,000 Mortgage-backed securities.. 1,994,575,000 2,057,487,000 108,039,000 110,779,000 $2,102,614,000 $2, 168,266,000 Gross gains and gross losses realized on sales and redemptions of obligations with fixed maturities were as follows: Gross realized gains 1992 Gross realized losses $80,076,000 1991 $139,700,000 $3,098,000 1990 (563,000) - (1,468,000) 30

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(3) Investments in marketable equity securities ee Note 1(c) as to methods applied to determine carrying value of these securities Aggregate data with respect to the consolidated investment in marketable equity securities are shown below December 31, 1992 Common stock of: Cost Unrealized Gain Market Carrying Value Capital Cities/ABC, Inc. (a) ..... $ 517,500,000 1,023,919,000 $1,005,750,000 $ 1,523,250,000 600,000,000 45,713,000 2,887,206,000 2,180,537,000 2,226,250,000 3,911,125,000 $ 1,506,487,000 3,903,918,000 2,226,250,000 1,893,163,000 1,040,409,000 (e) 2,933,572,000 765,000,000 1,365,000,000 2,650,999,000 1,365,000,000 $4,080,295,000 $7,878,902,000 $11.959,197,000 $11,652,654.000 December 31, 1991 Common stock of: Capital Cities/ABC, Inc. (a) GEICO Corporation (o) The Coca-Cola Company .. 1,023,919,000 517,500,000 600,000,000 45,713,000 2,723,756,000 $ 1,300,500,000 1,317,437,000 3,747,675,000 $ 1,287,450,000 1,067,842,000 634,317,000 (a) 747,000,000 1,347,000,000 1,363, 150,000 1,363,150,000 3,740,888,000 All other marketable equity securities The Gillette Company... 1,702,159,000 1,444,036,000 1,347,000,000 $3,254,974,000 $6,205,510,000 $ 9,460,484,000 $ 9,182,524.000 (a) Common shares of Capital Cities/ABC, Inc. (Capital Cities") owned by Berkshire subsidiaries possessed approximately 18% of the voting rights of all Capital Cities shares outstanding at December 31, 1992. The to purchase the shares and otherwise govern until January 3, 1997 the manner by which the shares may shares are held subject to an Agreement, the terms of which grant to Capital Cities a right of first refusal be sold or transferred. Also, Berkshire and its subsidiaries have delivered to Capital Cities irrevocable proxies be the chief executive officer of Capital Cities, to vote the shares at any and all meetings of shareholders with respect to these shares in favor of Thomas S. Murphy or Daniel B. Burke, so long as either shall of Capital Cities. The proxies expire on January 2, 1997 or at the earlier date when neither of such persons is chief executive officer of Capital Cities. (b) Subsidiaries of Berkshire owned shares of common stock of GEICO Corporation that possessed approximately independent proxy arrangement for voting of the shares as required by Order of GEICO's domiciliary insurance 48% of the voting rights of all GEICO shares outstanding at December 31, 1992. Berkshire maintains an supervisory authority. The Order, dating from Berkshire subsidiaries' major purchase of the shares in 1976, prohibits Berkshire from seeking or causing to change the independent proxy. Also, under the Order, no officer or director of Berkshire or of any affiliate or subsidiary of Berkshire is permitted to serve as a does not use the equity method of accounting for its investment in GEICO. director of GEICO. Because the Order divests Berkshire of its voting rights with respect to the shares, Berkshire (c) Represents gross unrealized gains $1,101,038,000, less gross unrealized losses $60,629,000. (d) Represents gross unrealized gains $673,177,000, less gross unrealized losses $38,860,000. 31

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Notes to Consolidated Financial Statements (Continued) (4) The a lity for income taxes as reflected in the accompanying Consolidated Balance Sheets represent estimates of liabilities as follows: дес. 31. 1992 Dec. 31, 1991 Payable currently.. relating to unrealized appreciatior $ 92,534,000 $ 18,499,000 2,503,547,000 1,944,311,000 (78,895,000) (33,736,000) $2,517,186.000 $1.929.074,000 The Consolidated Statements of Earnings reflect charges for income taxes as shown below: State.. Federal. S110.276.000 $120,121,000 $ 94,713,000 1990 Foreign 24,430,000 3,383,000 20,281,000 1,656,000 16,779,000 555,000 $138,089,000 $142,058,000 $112,047.000 Increase in prepaid taxes Current provision... $183,248,000 (45,159,000) $152,563,000 (10,505,000) $126,626,000 (14,579,000) $138,089,000 $142,058,000 $112,047,000 The increase in prepaid taxes represents the tax effects of timing differences as follows: Applicable to: 1992 Deferred insurance premium acquisition costs .. $ 1991 1990 Losses and loss adjustment expenses, net... (61,522,000) 7,371,000 $ (4,940,000) 3,392,000 $ (5,719,000) (549,000) Other, net.. Unearned premiums 10,301,000 (1,309,000) (5,414,000) (3,543,000) (4,632,000) (3,679,000) $(45,159,000) $(10,505,000) $(14,579,000) Federal statutory rate: Charges for income taxes are reconciled, in the table which follows, to hypothetical amounts computed at the 1992 199/ 1990 Net earnings before income taxes $550,617,000 $592,986,000 $516,466,000 Hypothetical amounts applicable to above Decreases, resulting from: computed at the Federal statutory rate.... $187,210,000 $201,615,000 $175,598,000 Tax-exempt interest income. Dividends received deduction.. (14,727,000) (62,085,000) (18,637,000) (54,923,000) (53,901,000) (19,744,000) Net other differences.. State income taxes, less Federal income tax benefit 11,563,000 16,128,000 13,385,000 11,073,000 618,000 (979,000) Total income taxes. $138,089,000 $142,058,000 $112,047.000 Statement No. 109 requires a change In 1993, the Company will adopt the provisions of FASB Statement No. 109 "Accounting for Income Taxes". method" with a balance sheet focus. from the "deferred method" with an earnings statement focus to the "liability recognized for the future tax consequences attributable to differences between the financial statement carrying amounts Under the liability method of Statement No. 109, deferred income taxes are of a change in tax rates is recognized in income in the period that includes the enactment date. of existing assets and liabilities and their respective tax basis. Under Statement No. 109, the effect on deterred taxes may be applied retroactively by restating any number of consecutive prior years The provisions may be applied without restating prior years financial statements or plans to apply the provisions of Statement No. 109 without restating prior years' financial statements. It is estimated financial statements. The Company that adoption of Statement No. 109 will result in an increase of the net deferred tax liability by approximately $70 million and that this amount will be charged to first quarter 1993 earnings and reported as the cumulative effect of a change in the method of accounting. 32

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(5) Term debt and other borrowings Liabilities reflected for this balance sheet caption are as follows: Dec. 31, Dec. 31, ; Term debt.. $ 1992 1991 Borrowings under investment agreements.......... 650,465,000 649,345,000 $ 861,153,000 393,915,000 $1,299,810,000 $1,255,068,000 Payments of amounts outstanding at December 31, 1992 are expected to be required no earlier than as follows: Borrowings under Term debt agreements investment Total 1993 1994 $459,856,000 $ 91,352,000 $551,208,000 1995 17,985,000 15,408,000 33,393,000 1996 120, 107,000 822,000 23,620,000 16,672,000 136,779,000 24,442,000 1997 After 1997 50,898,000 797,000 483,049,000 19,244,000 533,947,000 20,041,000 Borrowings under investment agreements for interest payable, normally semiannually, at fixed rates ranging from 2 1/2% to 9% per annum, are senior unsecured These borrowings, made pursuant to contracts with terms ranging from three months to forty years and calling debt obligations of the Company. Term debt Dec. 31, Company issued in 1988. The issue was redeemed at the $ 1992 Dec. 31, 1991 Zero Coupon Convertible Subordinated Notes.... 451,945,000 $ 10% Debentures, 452,182,000 9 3/4% Debentures, of which $100,000,000 was company's option in 1992.. issued in 1988. 100,000,000 $22,000,000 of the issue was repurchased in 1991 and in 1992, Other notes an additional $68,000,000 was optionally redeemed 10,000,000 778,000 78,000,000 5,554,000 462,723,000 635,736,000 Subsidiaries 8.125% Notes, payable in 1996. 120,000,000 120,000,000 10% Notes, redeemed in 1992.. 18,500,000 9 1/2% Notes, redeemed in 1992 17,500,000 8 7/8% Notes, payable in 1999 30,000,000 30,000,000 Federal Home Loan Bank advance, due August 1994, bearing interest at 8.73% 16,900,000 16,900,000 Other notes maturing through 2014 20,842,000 22,517,000 Total term debt .. $ 650,465.000 $ 861,153,000 on January 4, 1993 at 52.9126% of their face value. Each $10,000 face amount note was convertible at any time The Zero Coupon Convertible Subordinated Notes, originally issued on September 28, 1989, were redeemed their right to convert their notes into shares of Berkshire common stock. The Company issued 2,162 shares to holders prior to redemption into 0.4515 shares of common stock. Prior to the redemption, certain note holders exercised 31, 1992. On January 4, 1993 holders not electing to convert received $404,750,000 in redemption proceeds for all electing to convert during 1992 and an additional 3,944 shares to holders electing conversion subsequent to December remaining outstanding notes. No materially restrictive covenants are included in any of the various debt agreements. 33

[PAGE 36]

Notes to Consolidated Financial Statements (Continued) 6) Shareholders' equity account 'hanges in Shareholders Equity accounts during the most recent three years were as follows of $5 Par Value of par value Common Stock Capital in excess Net Unrealized Appreciation Retained Earnings $ 6,876,000 $ 157,377,000 $2,342,198,000 $2,460,968,000 (45,636,000) ncrease in minority shareholders' interes 15,441,000 ter caratis apreciatio (1,570,000) 394,093,000 Balance December 31, 1990 Increase during 1991 in unrealized 6,876,000 157,377,000 2,310,433,000 2,855,061,000 appreciation included in carrying value Change during 1991 in deemed applicable of marketable equity securities .. 2,526,248,000 Increase in minority shareholders' income taxes. interest (858,969,000) Net earnings 1991.. in unrealized appreciation (14,723,000) 439,908,000 Increase during 1992 in unrealized Balance December 31, 1991 6,876,000 157,377,000 3,962,989,000 3,294,969,000 appreciation included in carrying value Change during 1992 in deemed applicable of marketable equity securities ... 1,644,810,000 Increase in minority shareholders' interest income taxes (559,235,000) Common stock (2,162 shares) issued in unrealized appreciation. upon (1,345,000) conversion of Zero Coupon Convertible Net earnings 1992 Subordinated Notes 11,000 24,887,000 407,285,000 Balance December 31, 1992 6,887,000$182,264,000$5,047,219.000$3.702.254,000 (7) Interest and dividend income Interest and dividend income for each of the past three years were comprised of the following: 1992 1991 1990 Interest earned with respect to: Investment securities.. $136,529,000 $164,894,000 $132,694,000 Dividends with resed receivables. 56,464,000 56,398,000 53,985,000 Fixed maturity preferred stocks Marketable equity securities 167,310,000 135, 106,000 121,601,000 138,900,000 176,742,000 86,874,000 $495,409.000 $481,793,000 $450,295,000 34

[PAGE 37]

(8) Interest expense Interest expense for 1992 and 1991 includes premiums paid and related costs to permit redemption prior to 1991 Savings accounts of Mutual Debt of Mutual.. ther debt and borrowing ebt of Scott Fetzer Financial Grou ... $ 11,986,000 1,475,000 $ 18,311,000 ... 98,643,000 12,392,000 12,811,000 1,475,000 $ 21,975,000 1,475,000 89,250,000 76,374,000 12,868,000 $124,496,000 $121,847,000 $112,692,000 (9) Dividend restrictions - Insurance subsidiaries prior regulatory approval in 1993, Berkshire can receive up to approximately $109 million as dividends from insurance Payments of dividends by Insurance Group members are restricted by insurance statutes and regulations. Without subsidiaries. Surplus as Regards Policyholders) was approximately $10.4 billion at December 31, 1992. This amount exceeded by Combined shareholders' equity of insurance subsidiaries determined pursuant to statutory accounting rules (Statutory approximately $I.9 billion the corresponding amount determined on the basis of generally accepted accounting principles; the difference is principally represented by deferred income taxes recognized for financial reporting purposes but not for statutory reporting purposes. (10) Fair values of financial instruments as of December 31, 1992. Fair value disclosures are required for most investment securities as well as other contractual FASB Statement No. 107, "Disclosures about Fair Value of Financial Instruments," requires fair value disclosures assets and liabilities. Certain financial instruments, including insurance contracts, were excluded from Statement No. value was not made with respect to the Company's liabilities for unpaid losses and loss expenses. 107 disclosure requirements due to perceived difficulties in measuring fair value. Accordingly, an estimation of fair market prices were not available, the Company used independent pricing services or appraisals by the Company's In determining fair value, the Company used quoted market prices when available. For instruments where quoted management. Those services and appraisals reflected the estimated present values utilizing current risk adjusted market rates of similar instruments. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize Considerable judgement is necessarily required in interpreting market data to develop the estimates of fair value. a material effect on the estimated fair value. in a current market exchange. The use of different market assumptions and/or estimation methodologies may have bilities are deemed to be reasonable estimates of their fair values. The estimated fair values of the Company ne carrying values of cash and cash equivalents, accounts receivable and accounts payable, accruals and oth other financial instruments as of December 3l, 1992 are as follows: Carrying Value Estimated Fair Value Investments in marketable equity securities Investments in obligations with fixed maturities $ 2, 102,614,000 11,652,654,000 2,168,266,00 Term debt and other borrowings Loans receivable. ...... 1,299,810,000 286,479,000 11,959, 197,00 1,330,317,000 306,652,000 35

[PAGE 38]

Notes to Consolidated Financial Statements (Continued) 1) Supplemental cash flow informatio • summary ot supplemental cash flow information is presented in the following table Non-cash investing and financing activities: 1992 1990 Liabilities assumed in connection with acquisition of businesses... Common shares issued upon conversions of Zero Coupon $ 45,735,000 $ 11,390,000 - Cash paid during the year for: Convertible Subordinated Notes 24,898,000 - Income taxes... 121,027,000 95,730,000 183,097,000 93,951,000 113,860,000 79,857,000 (12) Quarterly data table. This information is unaudited. Dollars are in thousands, except per share amounts. A summary of revenues and earnings by quarter for each of the last two years is presented in the following IST QUARTER 1992 1991 2ND QUARTER 1992 1991 3RD QUARTER 1992 1991 1992 4TH QUARTER 1991 Revenues $640,778 $694,419 $655,876 $673,781 $827,734 $662,006 $904,952 $1,075,790 Earnings excluding realized investment gain (loss) $ 66,682 $ 85,668 $ 98,619 $ 71,609

• per share

58.17 $ 26,247 $ 75,182 74.72 86.02 62.46 22.90 $156,178 $ 83,294 65.58 Realized 136.20 72.65 investment gain (loss) $ 747 $ 59,336 $ (575) $ 46,015

• per share

0.65 $ 12,086 $ 18,062 51.76 (0.50) 40.14 $ 47,301 $ 742 10.54 Net earnings 15.75 41.25 0.65 $ 67,429$145,004

• per share

58.82 $ 98,044 $117,624 126.48 $ 38,333 $ 93,244 85.52 102.60 $203,479 $ 33.44 84,036 81.33 177.45 73.30 revenues for that business are normally recorded. A non-seasonal factor that may influence Berkshire's interim consolidated See's Candy sales peak at Easter and more notably so in the fourth quarter when more than one-half of annual insurance subsidiaries, can be relatively more significant to results of interim periods than to results for a full year. financial statements is that estimation error, inherent to the process of determining liabilities for unpaid losses of Variations in amount and timing of realized securities gains or losses cause significant variations in periodic net earnings. (13) Business segment data following pages. 36 -

[PAGE 39]

BERKSHIRE HATHAWAY INC. Business Segment Data tandards Board Statement No. 14. These include the property and casualty insurance and reinsurance business (Th Berkshire identified eight business segments for purposes of 1992 reporting pursuant to Financial Accountin Insurance Segment) plus seven separately conducted non-insurance businesses as follows: identity and headquarters Business See's Candies Product South San Francisco, CA Candy Activity Manufacture and distribution at retai and by catalog solicitatior Buffalo News Buffalo, NY Newspaper Publication of a daily and Sunday newspaper. Nebraska Furniture Mart Omaha, NE Home furnishings Retailing World Book Chicago, IL Encyclopedias and other reference materials Publication and marketing, principally by the direct sales method. Kirby, Douglas and Cleveland Wood Divisions leveland, OH of The Scott Fetzer Compan Home cleaning systems Manufacture and sale principally to distributors *Chelmet on Co. Uniforms Manufacture and distribution at wholesale and retail . H. Brown Shoe C reenwich, C Shoes Manufacture, importing and wholesale distribution. sher usess semens then cod abe we rea, insible in trate 7% of Berkshires consolidared revenues Business identity BHR Adalet Blue Chip Stamps Campbell Hausfeld Borsheim's France Carefree Halex Meriam K&W Products New America Electric Mutual Savings Northland owerwine Quikur recisio • ScotCare Scot Labs Scott Feizer Financial Group Stahl Nesco Financial Western Plastics Western Enterprises Compressed gas fittings and regulators Molded plastic component: 37 -

[PAGE 40]

Business Segment Data (continued) tables which follow on this and the following page. Amounts are in thousands. A disaggregation of Berkshire's consolidated data for each of the three most recent years is presented in the 1992 Revenues 1991 1990 Operating profit before taxes Identified Segments: 1992 1991 1990 Insurance. Non-insurance businesses $1,078,419 $1,230,608 $ 943,277 1,284,523 1,204,755 1,120,755 $ 298,715 $ 323,006 $316,207 2,362,942 2,435,363 2,064,032 209,871 508,586 176,134 499,140 170,640 Other than identified segments. 486,847 Interest expense*.... 666,398 670,633 595,440 140,674 183,096 105,993 Aggregate consolidated total (98,643) (89,250) (76,374) $3,029,340 $3,105,996 $2,659,472 $ 550.617 $ 592,986 $516,466

• Amounts of interest expense represent those for term debt and other borrowings exclusive of that of Scott Fetzer

Financial Group and of Mutual Savings. See Note 8 to Consolidated Financial Statements. Insurance Segment Revenues 1991 1990 Operating profit before taxes Premiums earned: 1992 1992 199/ 1990 Reinsurance assumed Primary or direct $ 152,772 $ 141,014$ 154,015 Underwriting (loss) 511,521 635,399 437,525 Realized investment gain Investment income 361,517 52,609 343,442 110,753 335,930 $(108,961) $(119,593) $ (26,647) 15,807 355,067 52,609 331,846 327,047 $1,078,419 $1,230,608 $ 110,753 15,807 943,277 $ 298,715 $ 323,006 $316,207 Non-Insurance Business Segments 1992 Revenues 1991 1990 Operating profit before taxes 1992 1991 1990 Candy Newspaper ... 197,186 $ 195,978 $ Encyclopedias, other reference material... Home furnishings.. 186,096 139,764 130,259 196,119 171,002 135,211 41,382 $ 41,416 $ 38,605 Home cleaning systems... 246,107 311,509 163,709 36,527 Uniforms 190,072 192,001 342,870 16,665 13,939 43,382 Shoes .. 110,292 99,961 188,292 28,228 22,232 31,645 16,802 215,006 104,045 94,554 37,744 12,975 37,332 28,479 25,586 12,224 12,464 11,727 $1,284,523 $1,204,755 $1,120,755 $ 209,871 $ 176,134 $170,640 Other Than Identified Segments Other businesses 1992 Revenues Not identified with specific businesses: $ 567,719 1991 1990 Operating profit before taxes 524,395 $ 535,941 1992 1991 1990 Interest and dividend income.... $ 54,321 $ 49,355 $ 56,404 All other except interest expense Realized investment gain..... 37,328 61,011 63,686 40,907 340 81,725 827 18,182 61,011 63,686 40,907 410 37,328 81,725 18,182 666,398 $ (11,986) (11,670) (2,500) 670,633 $ 595,440 $ 140,674 $ 183,096 $105,993 38

[PAGE 41]

Business Segment Data (continued) 1992 Capital expenditures * Deprec. & amort. 1991 1990 1992 of tangible assets 1991 Candy Insurance 1990 $ 1,071 $ 1,437 $ 601 Home furnishings Newspaper. 3,370 4,167 4,687 6,970 Home cleaning systems Encyclopedias, other reference material 8,528 817 2,552 2,229 184 3,107 1,397 2,949 7,705 Uniforms 769 1,104 3,859 1,379 1,449 1:122 Other.. Shoes.. 2,171 2,660 1,482 1,050 1,330 8,881 13,648 9,832 14,692 14,094 13,236 $31,801 $29.884 $33.923 $35.357 $33.062 $30.542

• Expenditures which were part of business acquisitions are excluded.

Identifiable assets 1992 at year-end 1991 1990 Candy • Insurance S14.61,010 $12.408,654 5 8. 89.393 Newspaper 68,300 69,833 Encyclopedias, other reference material Home furnishings ..... 88,331 43,751 76,396 44,06l 48,286 75,714 Uniforms Home cleaning systems 50,692 83,778 51,929 94,927 107,913 66,388 Shoes 85,392 74,190 71,572 Other 1,717,719 208,218 1,487,543 157,902 1,346,324 - $16,944.778 $14,461.902 $10.670.423 39

[PAGE 42]

BERKSHIRE HATHAWAY INC. Financial Condition and Results of Operations Management's Discussion and Analysis of Results of Operations are after deducting minority interests and taxes. Net earnings for each of the past three years are disaggregated in the table that follows. Amounts 1992 _(dollars in millions)_ Insurance Segment: 1991 1990 Underwriting. Realized investment gain Investment income $(71.1) 305.8 Non-Insurance business segments.. Total - Insurance Segment 270.8 36.1 Other businesses ... 123.4 Realized investment gain not included above. 30.7 Interest expense ... All other except interest expense. 21.9 23.4 Net earnings. (62.9) $407.3 $394.1 In the above table, interest expense incurred by Consumer Finance companies and by Mutual Savings and Loan Association is not reflected as "Interest expense" but instead is reflected in amounts shown for "Other businesses". this discussion. The business segment data on the preceding pages of this report should be read in conjunction with Insurance Underwriting The after-tax figures shown above for Insurance underwriting derive from the following: 1992 (dollars in millions)_ Underwriting gain (loss): 1991 1990 Primary or Direct Insurance Reinsurance Assumed $ 8.0 Applicable income tax credit Underwriting loss - pre-tax (117.0) $ (2.5) (109.0) (117.D) $ 0.5 (27.2) Applicable minority interest... 37.7 (119.6) After-tax underwriting loss..... 0.2 42.2 (26.7) 0.2 11.6 0.2 $(71.1) $(77.2) $(14.9) The Berkshire Hathaway Insurance Group engages property/casualty risks. In its insurance activities, as distinguished from its reinsurance activities, its members in both insurance and reinsurance of the members assume defined portions of similar or dissimilar risks to which other insurers and reinsurers assume risks of loss from persons primarily and directly subject to the risks. In its reinsurance activities, have subjected themselves in their own insuring above average capital strength. Statutory surplus as regards policyholders of the Berkshire Hathaway Insurance A significant marketing strategy followed by all Insurance Group members is the maintenance of Group increased opportunities for Berkshire Group members to negotiate and enter into contracts of insurance specially to approximately $10.4 billion at year-end 1992. This unique capital strength creates designed to meet unique needs of sophisticated insurance and reinsurance buyers. 40

[PAGE 43]

Insurance Underwriting (continued) Reinsurance Assumed ith respect to the reinsurance assumed business for the past three years are summarized in the following tabl Inderwriting results, stated on the basis of generally accepted accounting principles ("GAAP") Amount 1992 (dollars in mins. $ 607.2 % Amount Amount 1990 Premiums written..... Premiums earned....... $ 667.0 $ 511.5 100.0 $ 435.2 Losses and loss expenses. 589.7 115.3 $ 437.5 100.0 Underwriting expenses.... 122.9 7.6 NI 432.2 118.4 32.5 98.8 Total losses and expenses 628.5 464.7 7.4 Underwriting loss - pre-tax 106.2 $(117.0) $(117.1) $ (27.2) Disaggregated data follows for these activities. Premiums Earned Underwriting Loss (dollars in millions). Year-End Reserves* 19911990 structured seemede an Other reinsurance... settlement: $145.5 $363.2 $423.7 $511.5 $635.4 $437.5 366.0 272.2 13.8 $(66.0) (51.0) $(49.0) $(21.7) -(68.1) (5.5) $1,498.0 917.2 $1,573.9 $1,002.2 708.3 $(117.0) $(117.1) $(27.2) $2,415.2 $2,282.2 461.5 $1.463.7 *Unpaid losses and loss adjustment expenses Premiums Earned activities were much less than either of the previous two years. Premiums earned from retroactive reinsurance As shown above, premiums earned in 1992 from retroactive reinsurance and structured settlements million in 1990. These contracts were few in number but produced sizable premiums. Increasing competition

• coverages of past loss events — amounted to $144 million in 1992, $362 million in 1991 and $370

in the retroactive reinsurance markets, together with the anticipation by ceding companies of new accounting standards to be effective in 1993, resulted in fewer opportunities to write such business during 1992. Further premium decline may occur in 1993. Premium amounts shown above as "other reinsurance" include amounts earned from "finite risk" type policies - principally excess of loss coverages of sizable but limited amounts - and catastrophe and $197 million in 1991. Premiums earned from catastrophe excess of loss contracts totalled about $130 excess of loss policies. Premiums earned from finite risk coverages totalled about $183 million in 1992 million in 1992 and $48 million in 1991. Other reinsurance premiums earned also include amounts earned from quota share reinsurance contracts. Underwriting Loss $26 million for 1991 and none for 1990 reflecting amortization of deferred charges re reinsurance assumed. The underwriting loss from retroactive reinsurance coverages amounted to $44 million for 1992, See Note I(h) to the Consolidated Financial Statements for information with respect to these charges. Underwriting losses from structured settlement activities were about $22 million for each of the past three years. These losses reflect accounting procedures which employ time-value-of-money concepts - amortization BEERS The amortization and accretion are accounted for as losses incurred, and thus, because there is no related of deferred charges re reinsurance assumed and accretion of discounted structured settlement liabilities. premium income, as underwriting losses, over the expected claim settlement periods. Amortization and 41

[PAGE 44]

Management's Discussion (continued) Insurance Underwriting (continued) Reinsurance Assumed (continued) respectively from finite risk type coverage. In pricing most reinsurance products, the concept of the time- Underwriting losses in 1992 and 1991 in other reinsurance included $55 million and $98 million, value-of-money is an important consideration due to the anticipated extended claim payment period - or are based in significant part on time discounting of expected losses. Losses and loss expenses are established to future loss events, no deferred charges were established. This business is accepted, nonetheless, because for these contracts on an undiscounted basis. However, because these coverages, when written, related of the large amounts of investable policyholder funds (or "float") that it produces. The catastrophe excess of loss reinsurance business produced a net underwriting loss for 1992 to loss from a single event now approach $300 million and a given year may have losses from several events. In each of the past two years, the vast majority of losses incurred under catastrophe reinsurance treaties resulted from a single loss event. Losses incurred in 1992 related to Hurricane Andrew totalled about $125 million and losses incurred in 1991 due to Typhoon Mireille were about $38 million. pre-1990 major quota share reinsurance contracts. No development with respect to those contracts was recorded Favorable development of about $30 million was recorded in 1991 with respect to liabilities under in either 1992 or 1990. The estimated liability for unpaid losses and loss expenses from reinsurance assumed businesses, as shown in the preceding table, totalled about $2.4 billion at the end of 1992, an increase of about $1.6 billion since the end of 1989. Subsequent loss development with respect to a liability of this magnitude dre able rate bose bien may cause substantial volatility in future periodic earnings. In addition, the potential for such earnings volatility is greatly enhanced by the Group's increasing presence in the catastrophe reinsurance business. for long term profitability are favorable. Berkshire's management, however, is willing to accept such short term volatility provided that the prospects Primary or Direct Insurance Underwriting Hathaway Insurance Group's primary or direct insurance operations. A summary follows of the combined underwriting results, stated on a GAAP basis, of the Berkshire 1992 (dollars are in millions) Amount Amount 1991 1990 Premiums written % Amount % $ 132.4 $ 135.5 $ 139.1 Premiums earned. $ 152.8 46.8 98.0 100.0 $ 141.0 100.0 $ 154.0 100.0 Losses and loss expenses Underwriting expenses. 30.7 64.1 95.2 48.3 67.5 34.3 102.0 66.2 51.5 33.4 Total losses and expenses.. 144.8 94.8 143.5 101.8 153.5 99.6 Underwriting gain (loss) - pre-tax. $ 8.0 $ (2.5) 0.5 respectively, 23.8%, 16.9%, and 11.9% of premiums earned in 1992, 1991 and 1990. Without such credits, Favorable loss development, discussed on page 44, of beginning-of-the-year loss reserves represented and 1990 - 111.5%. total losses and expenses as a percentage of premiums earned were: 1992 - 118.6%, 1991 - 118.7%, The comparative improvement in the 1992 underwriting expense ratio over 1991 and 1990 for the primary or direct insurance business was due to a higher percentage of premiums earned in 1992 from specialty risk operations. Such business incurs considerably lower underwriting expenses than either the traditional motor vehicle/general liability or Homestate companies/Cypress Insurance Company 42

[PAGE 45]

Insurance Underwriting (continued) Primary or Direct Insurance Underwriting (continued) Group's direct business are reflected in the following table: The premiums earned for the past five years by each of the underwriting units that produce the Underwriting Unit _(dollars in millions). Commercial casualty/professional liability/specialty risk operations Traditional motor vehicle/general liability operations 1992 1991 1990 $ 85 1989 1988 $ 89 Homestate companies/Cypress Insurance Co. 27 14 $ 94 18 $113 20 $168 Total premiums earned 41 38 42 56 70 54 $153 $141 $154 $189 $292 Indemnity Company's Omaha offices, represents principally casualty coverages for commercial accounts. The "traditional" business, written through general agents located nationwide directed from National casualty/professional liability/specialty risk operations located in Stamford, Connecticut, enter into "tailored" The operations are termed internally as those of the "National Indemnity Primary Group." The commercial insurance contracts for insureds presenting risks unusual in nature and/or especially large in amount. The predominantly in their "homestates" - Nebraska, Kansas and Colorado. In 1992, the Homestate units Homestate companies underwrite multiple lines of principally casualty coverages for standard risks located Insurance Company underwrites primarily workers' compensation risks in a highly competitive market began to expand their operations by underwriting similar risks located outside their homestates. Cypress environment in California. As reflected in the table above, premiums earned by each of these units has, almost without exception, declined steadily over the past several years. Each of the units employ disciplined underwriting approaches. of this strategy, during periods of adequate or excessive industry insuring capacity, as have prevailed since Members are encouraged to reject underpriced risks without regard to volume considerations. As a result those of the Group. Historically, these lower prices have led competitors to exit the markets as a result 1986, competitors write increasing amounts of primary or direct insurance by charging lower prices than of the group to be significant evidence that the upside of this cycle has already begun. not believe that the increase in 1992 premiums earned over 1991 for two of the three direct operations future time, leading to increases of primary or direct insurance offerings to the Group. Management does of incurring unacceptable losses. Management believes this part of the cycle will occur again, at an unpredictable Summarized below is loss and loss expense data from primary or direct insurance underwriting: 1992 -(dollars in millions)_ 1991 1990 Unpaid losses and loss expenses at beginning of year... •• $566.9 $586.6 $639.2 Incurred losses recorded: All prior years' occurrences Current year occurrences (36.4) 134.4 119.0 120.3 98.0 (23.8) 95.2 (18.3) 102.0 Payments with respect to: Current year occurrences... All prior years' occurrences 86.1 42.1 23.3 21.7 21.6 132.9 128.2 114.9 154.6 Unpaid losses and loss expenses at end of year $536.7* $566.9 $586.6

• Excludes unpaid losses and loss expenses of Central States Indemniry Co. of Omaha - acquired by Berkshire

at the end of 1992 43

[PAGE 46]

Management's Discussion (continued) Insurance Underwriting (continued) Primary or Direct Insurance Underwriting (continued) occurrences." They are corrections of estimation error that are credited or charged to earnings in the year Credits against incurred losses were recorded in each of the last three years for "all prior year the respective year, the "savings" were: 1992 — 6.4%, 1991 - 4.1%, and 1990 - 2.9%. 1992 was the made. Relating these credits for each year to the related estimated unpaid amounts at the beginning of sixth consecutive year of favorable development, which might be viewed as somewhat comforting. But provision for late reported cases is, of course, included in the $536.7 million 1992 year-end accrual for additional cases of an unknown number and magnitude for pre-1992 losses are certain to be reported. A unpaids. But, that total amount is subject to the favorable or unfavorable development that will be recorded in future years. The favorable development recorded in each of the most recent three years related principally to the traditional commercial automobile business of the National Indemnity Primary Group. ("CSI"). Accordingly, none of CST's underwriting results of 1992 were included in the accompanying At the end of 1992, Berkshire acquired for cash, 82% of Central States Indemnity Co. of Omaha gain of about $8 million. CSI primarily underwrites credit insurance for individuals distributed through financial statements. During 1992 CSI produced premiums earned of about $82 million and an underwriting credit card issuers nationwide. Insurance Segment Investment Income Following is a summary of Insurance Group net investment income for the past three years. Investment _(dollars in millions). Income Applicable Applicable Income After Investment Before Taxes Income Taxes Minority Interest Taxes and 1992.. $355.1 $ 46.5 $ 2.8 Minority Int. 1991 331.8 43.8 2.9 $305.8 1990. 327.0 41.2 3.2 285.1 282.6 approximately $200 million additional capital to the Group, and reinvested earnings of the Group for that Invested assets increased in each of the past three years. In the three year period, Berkshire contributed about $1 billion increase during the past three year period in the amount of "float" from policyholder period amounted to approximately $540 million. Contributing to a further increase in invested assets was funds. That term denotes the sum of unpaid losses, unpaid loss adjustment expenses and unearned premiums, less the aggregate of agents' balances receivable, amounts recoverable as reinsurance on paid losses, deferred policy acquisition costs and deferred charges approximately $1.54 billion at the end of 1989, $1.63 billion at the end of 1990, $2.07 billion at the re reinsurance assumed. The net amount of float end of 1991, and $2.51 billion at the end of 1992. derives from the reduced amounts of dividends earned from the Group's investment in The Gillette Company. An offsetting factor which influences the comparative amounts of investment income shown above From July 1989 until April 1991, the Gillette investment was in the form of convertible preferred stock. On April 1, 1991, the preferred stock was converted into Gillette Company common stock, which carried a much lower dividend yield. Dividends earned million, and $52.5 million in 1992, 1991 and 1990, respectively. from the Gillette investment totalled $16.7 million, $24.3 44

[PAGE 47]

Non-Insurance Business Segments three years. A summary follows of results to Berkshire from these identified business segments for the past 1992 -(dollars in millions) Revenues .. Amount 1991 Cost and expenses $1,284.5 % Operating profit. 1,074.6 100.0 Amount % 1990 Minority Interest Income taxes.. 209.9 83.7 $1,204.8 83.2 16.3 1,028.7 100.0 Amount % 85.4 $1,120.8 950.2 100.0 3.3 0.2 6.5 176.1 14.6 0.2 5.7 170.6 84.8 69.0 67.3 15.2 Contribution to net earnings.. 2.9 3.2 6.0 0.3 $ 123.4 9.6 $ 104.2 8.7 100.1 8.9 six in 1990. The results of these businesses during this period are dealt with in the following sections. The business segments that produced the above results numbered seven in 1992 and 1991 versus 1992 compared to 1991 non-insurance business segments follows. A comparison of revenues and operating profits between 1992 and 1991 for each of the identifiable (dollars in millions). Operating Profit Segment - Primary Business Revenues as a % 1992 1991 Operating Profits of Revenues 1992 1991 1992 1991 Candy - See's Candies Home Cleaning Systems - Kirby. Encyclopedias, Other Reference Materials - World Book... $ 246.1 197.2 $ 196.0 $ 41.4 $ 41.4 190.1 311.5 192.0 28.2 22.2 21.0 11.5 21.1 139.7 186.1 171.0 16.7 37.7 13.9 37.3 19.8 7.1 Newspaper - Buffalo News.. Home Furnishings — Nebraska Furniture Mart 9.0 19.4 215.0 104.0 130.3 25.6 47.3 12.5 36.6 33.8 28.0 8.2 Shoes - H. H. Brown. Uniforms - Fechheimer's 110.3 100.0 13.0 12.2 11.8 11.9 12.2 12.0 $1,284.5 $1,204.8 $209.9 $176.1 Revenues from the seven identifiable non-insurance business segments of $1.284.5 million increased $79.7 million (7%) from the prior year. The overall operating profit from these business segments of $209.9 million increased $33.8 million (19%) over the comparable prior year results. The most significant revenue increase occurred within the shoe segment and arose from the fact that Berkshire acquired H. H. Brown ("Brown") on July 1, 1991 and thus full year results for 1992 are being compared to six month results for 1991. About $I3 million of the operating profit increase is a result of the Brown acquisition. Brown's operating profits as a percentage of sales were relatively unchanged a significant addition was made to this business segment as a result of Berkshire's acquisition of Lowell when comparing the full years 1992 results with the last six months of 1991. On December 30, 1992, Shoe Company ("Lowell"). Lowell manufactures and markets women's casual, service and nurses footwear. a result of this acquisition. Senior management of Brown has overall responsibility for managing this business. It is expected that revenues from this segment will be increased by about $90 million during 1993 as in carpeting. The carpeting comparison was favorably affected by an acquisition during the third quarter of 1991 of a business that sells commercial carpeting. On December 31, 1992, the Nebraska Furniture Store and warehouse. Along with providing additional warehousing facilities, a portion of the building will Mart acquired a 360,000 square foot building and ten acres of land located adjacent to its existing retail modest increase in 1993 revenues and operating profits is anticipated as a result of this new business scheduled be used to operate a factory outlet store for manufacturers" closeouts and discontinued product lines. A to begin in Spring of 1993. 45

[PAGE 48]

Management's Discussion (continued) Non-Insurance Business Segments (continued) 1992 compared to 1991 (continued) 10 retail locations were added and this segment now includes 53 retail locations. In addition, a manufacturer The uniform segment's revenues increased $10.3 million (10%) in 1992. During 1992, an additional all of the 1992 revenue increases, as wholesale distribution sales and retail same store sales were relatively of specialty uniforms was acquired during the second half of 1992. These additions accounted for substantiallv unchanged between years. prior year. After experiencing declines during the first three quarters of 1991, advertising revenues stabilized The newspaper segment's 1992 revenues of $139.7 million increased $9.4 million (7%) over the during 199/'s fourth quarter and increased throughout 1992. In addition to the impact of increased advertising revenues, operating profits were enhanced by a continued slide in the cost of newsprint. The average cost of 1993 newsprint costs have increased 21%. Further increases are likely later in 1993. Somewhat offsetting of newsprint declined 20% in 1992 as compared to 1991. This decline has reversed and since the beginning job guarantees. A similar, but lesser, charge of $1.4 million was incurred during 1991. While these the favorable factors was a special charge during 1992 of $2.9 million to buy out employees with lifetime long term benefits from the reduced size of the work force. buy outs have had a negative impact on operating results for the past two years, the News should derive in volume as pounds of candy sold decreased 4% from the prior year. However, a 5% price increase Sales of the candy segment were relatively unchanged between years. See's experienced a decline effective January 1, 1992 offset the impact of reduced volume. On December 1, 1992, the state of California abolished the 8.5% sales tax it had imposed, effective July 15, 1991, on "candy and snack foods". Because shops increased during December 1992 as compared to the comparable 1991 period. of See's heavy presence in California, this tax had applied to 80% of its sales. Sales volume from equivalent was primarily the result of reduced Kirby cleaner unit sales in foreign markets. Foreign market unit sales, Revenues from the home cleaning system segment declined 1% from the prior year. The decrease which account for about 20% of this segment's business, declined 27% versus 1991 levels. The introduction into foreign markets of the Generation 3 model, with its additional features and higher price, helped to negate the impact on revenues of reduced foreign unit sales. The same model was successfully introduced domestically during 1990. million (21%). About one half of the decline resulted from the discontinuance during December 1991 of During 1992, revenues from the "encyclopedia, other reference material" segment declined $65.4 products. The remainder of the decline in revenues resulted from a further reduction, which began during the syndication business. This business consisted of direct mail marketing of primarily non-educational 1991, in World Book and Childcraft unit sales. During 1991 a major restructuring of the encyclopedia sales force began. This restructuring continued during 1992 and necessitated major management changes including increasing the size of the sales force. some terminations. A replacement hiring program has begun but it has not yet achieved its objectives of to 1991 increased rather significantly. Overall operating profits of $28.2 million represent an increase of In spite of the reduced encyclopedia sales at World Book, 1992 operating profits as compared of $3.4 million during 1991 accounts for slightly over 50% of the improvement in 1992 operating profits. $6.0 million over 1991. The discontinuance of the syndication business which incurred an operating loss Also accounting for the improvement in 1992 was a reduction of reserves which had been previously established further enhance profits during 1993 and beyond, it will be necessary for this segment's management to against salespersons advances and draws. Both of these factors are of a one time nature and in order to strengthen its sales force by successfully implementing the sales force restructuring program. 46

[PAGE 49]

Non-Insurance Business Segments (continued) 1991 compared to 1990 to 1990. The Brown acquisition on July 1, 1991 more than accounted for the increase as revenues from Revenues from the non-insurance business segments increased $84 million (7.5%) in 1991 as compared this business were $104 million during the second half of 1991. Offsetting this increase was a reduction decline in unit sales of encyclopedias. This decline resulted from recessionary pressures as well as the in World Book revenues of $32 million (9%), World Book's reduced revenues resulted from a significant segments were $789.3 million during 1991 compared to $777.9 million during 1990. None of the five segments aforementioned sales force restructuring which began during 1991. Revenues from Berkshire's other five had increases in excess of 6% and only the Buffalo News with a decline of 4% had lower revenues during than in 1990. The inclusion of Brown's results during the last six months of 1991 more than accounted 1991 as compared to 1990. Operating profits of $176.1 million during 1991 were $5.5 million (3%) greater for the increase. Business Other Than Identified Segments 1992 _(dollars in millions). 1991 1990 Revenues..... $567.7 $524.4 $535.9 Operating profit.. Income taxes $ 54.3 Minority interest.. 21.8 $ 49.3 1.8 19.3 $ 56.4 2.4 21.6 2.9 Contribution to net earnings $ 30.7 $ 27.6 $ 31.9 believes that narrative discussion of the results of the constituent businesses would not yield significant The above represent aggregate data for businesses that numbered 24 in 1992. Berkshire management benefit to investors or others, particularly in view of the relative consistency of the year-to-year aggregate data. Interest expense in both 1992 and 1991 includes premiums paid to redeem certain term debt Interest Expense charged to interest expense related to such redemptions were $16.2 million during 1992 and $5.7 million (redemptions were $204 million in 1992 and $72 million in 1991) prior to scheduled maturity. Premiums of deferred financing costs related to Berkshire's Zero Coupon Convertible Subordinated Notes which were during 1991. Interest expense for 1992 also includes a charge of $6.3 million representing the writeoff on January 4, 1993. On that date all outstanding notes which had not previously been converted into shares due to mature in 2004. On December 16, 1992 Berkshire announced that it would call this issue for redemption of Berkshire common stock were redeemed for cash (See Note 5 to the Consolidated Financial Statements). Realized investment gain has been a recurring element in Berkshire's net earnings for many years. Realized Investment Gain to period, with a meaningful effect upon Berkshire's consolidated net earnings. But, the amount of realized The amount - recorded when appreciated securities are sold - tends to fluctuate significantly from period investment gain for any given period has no predictive value, and variations in amount from period to period have no practical analytical value, particularly in view of the unrealized price appreciation now Liquidity and Capital Resources Berkshire's Consolidated Balance Sheet as of December 31, 1992, reflects continuing capital strength. In the past three years, Berkshire shareholders equity has increased from approximately $4.9 billion at and unrealized securities gains increased equity capital by approximately $3 billion, and reinvested earnings, December 31, 1989 to approximately $8.9 billion at December 31, 1992. In that three-year period, realized other than realized securities gains, were about $l billion. 47

[PAGE 50]

BERKSHIRE HATHAWAY INC. SHAREHOLDER-DESIGNATED CONTRIBUTIONS On October 14, 1981, the Chairman sent to the shareholders a letter* explaining the program. Portions The Company has conducted this program of corporate giving during each of the past twelve years. of that letter follow: that, in most years, should produce a significant benefit for charities of your choice. "On September 30, 1981 Berkshire received a tax ruling from the U.S. Treasury Department "Each Berkshire shareholder — on a basis proportional to the number of shares of Berkshire that he owns - will be able to designate recipients of charitable contributions by our company. You'll name the charity; Berkshire will write the check. The ruling states that there will be no personal tax consequences to our shareholders from making such designations. exercised by the owners in closely-held businesses, is almost exclusively exercised by the managers "Thus, our approximately 1500 owners now can exercise a perquisite that, although routinely in more widely-held businesses. no input at all from shareholders, in two main categories: "In a widely-held corporation the executives ordinarily arrange all charitable donations, with (1) Donations considered to benefit the corporation directly in an amount (2) Donations considered to benefit the corporation indirectly through roughly commensurate with the cost of the donation; and hard-to-measure, long-delayed feedback effects of various kinds. "I and other Berkshire executives have arranged in the past, as we will arrange in the future, all charitable donations in the first category. However, the aggregate level of giving in such category to produce roughly commensurate direct benefits to Berkshire. has been quite low, and very likely will remain quite low, because not many gifts can be shown not comfortable with ordinary corporate practice and had no better practice to substitute. What "In the second category, Berkshire's charitable gifts have been virtually nil, because I am bothers me about ordinary corporate practice is the way gifts tend to be made based more on the donee's activities. Conventionality often overpowers rationality. who does the asking and how corporate peers are responding than on an objective evaluation of 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 Frequently there is an added incongruity; many corporate managers deplore governmental allocation of the taxpayer's dollar but embrace enthusiastically their own allocation of the shareholder's dollar. your personal judgments by writing checks on my bank account for charities of your choice, I "For Berkshire, a different model seems appropriate. Just as I wouldn't want you to implement feel it inappropriate to write checks on your corporate "bank account" for charities of my choice. foster charitable interests in a tax-deductible manner reside largely at the corporate level rather Your charitable preferences are as good as mine and, for both you and me, funds available 1o than in our own hands. "Under such circumstances, I believe Berkshire should imitate more closely-held companies, making would be simple. Charities very directly related to the operations of the business would not larger public companies. If you and I each own 50% of a corporation, our charitable decision related" contributions would be divided among various charitable interests of the two of us, on have first claim on our available charitable funds. Any balance available after the "operations- a basis roughly proportional to our ownership interest. If the manager of our company had some suggestions, we would listen carefully - but the 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. *Copyright © 1981 By Warren E. Buffett All Rights Reserved 48

[PAGE 51]

"Wherever feasible, I believe in maintaining such a partnership frame of mind, even though we operate through a large, fairly widely-held corporation. Our Treasury ruling will allow such partnership- like behavior in this area that a large and growing number of major corporations have charitable policies pursuant to which "I am pleased that Berkshire donations can become owner-directed. It is ironic, but understandable, they will match gifts made by their employees (and - brace yourself for this one - many even by owners. I say "understandable" because much of the stock of many large corporations is owned match gifts made by directors) but none, to my knowledge, has a plan matching charitable gifts lack a long-term owner's perspective ... on a "revolving door" basis by institutions that have short-term investment horizons, and that the end of each year more than 98% of our shares are owned by people who were shareholders "Our own shareholders are a different breed. As I mentioned in the 1979 annual report, at which, as your manager, I intend to acknowledge in all feasible ways. The designated contributions at the beginning of the year. This long-term commitment to the business reflects an owner mentality policy is an example of that intent."

The history of contributions made pursuant to this program since its inception follows: Specified Amount Eligible* Shares Percent of Year per share Participating Contributed Amount Chariries No. of 1982 1981 $2 95.6% 1984 1983 $1 $3 96.4% 95.8% $1,783,655 $3,066,501 $ 890,948 704 675 1986 1985 $3 $4 97.2% $3,179,049 1,353 96.8% $3,996,820 $4,006,260 1,519 1988 1987 $4 $5 97.2% 97.1% 1,724 $4,937,574 1,934 1989 $5 97.4% $6 96.9% $4,965,665 2,050 $7 $6 97.3% $5,867,254 2,319 1991 1990 $8 97.0% 97.7% $5,823,672 2,550 $7,634,784 $6,772,024 2,600 1992 2,810 2,630

• Shares registered in street name are not eligible to participate.

have made certain contributions pursuant to local level decisions of operating managers of the businesses. In addition to the shareholder-designated contributions summarized above, Berkshire and its subsidiaries

• * *

substandard or no tax deductions. In other years Berkshire expects to inform shareholders of the amount The program may not be conducted in the occasional year, if any, when the contributions would produce per share that may be designated, and a reply form will accompany the notice allowing shareholders to respond with their designations. about September 15 to shareholders of record reflected in our Registrar's records as of the close of If the program is conducted in 1993, the notice will be mailed on or business August 31, 1993, and shareholders will be given until November 15 to respond. the program. To qualify, shares must be registered on August 31 in the owner's individual name(s) or Shareholders should note the fact that shares held in street name are not eligible to participate in the name of an owning trust, corporation, parnership or estate, as applicable. 49

[PAGE 52]

50

[PAGE 53]

BERKSHIRE HATHAWAY INC. COMBINED FINANCIAL STATEMENTS BUSINESS GROUPS Berkshire's consolidated data is rearranged in the presentations on the following seven pages into four categories, corresponding to the way Mr. Buffett and Mr. Munger think about Berkshire's businesses. The presentations may be helpful to readers in making estimates of Berkshire's intrinsic value. The presentations in this section do not conform in all respects to generally accepted accounting principles. Principal departures from GAAP relate to accounting treatment for assets acquired in business acquisitions, although students and practitioners of accounting will recognize others. Opinions of Berkshire's independent auditors were not solicited for this data. The four-category presentations in no way fell within their purview. 51

[PAGE 54]

BERKSHIRE HATHAWAY INC. INSURANCE GROUP Berkshire's insurance business is conducted by 13 separate subsidiaries. rimarily commercial accounts, providing, for example, liability coverages fo he members underwrite multiple lines of principally casualty coverages to truck and bus operators, and casualty coverages for especially large or unusual risks. The Commercial Casualty Division and the Professional Liability and companies domiciled in the states of Colorado, Kansas and Nebraska provide Special Risk Division, solicit and underwrite the special large risks. Member standard multiple-line property/casualty insurance to "homestate" residents. A California domiciled member provides principally workers compensation insurance to employers in that state. insurers and reinsurers. This division is currently one of the leading providers A Reinsurance Division provides treaty reinsurance to other property/casualty in the world of property/catastrophe retrocessional protection (i.e., reinsurance for reinsurers). result of the acquisition by Berkshire of 82% of Central States Indemnity ("CSI"). In late December, 1992 a new subsidiary was added to the Group as a The primary product line of CSI is credit insurance distributed through credit card issuers nationwide. The Insurance Group financial statements which follow, include CSI's 1992 year-end balance sheet but exclude the 1992 earnings of CSI. During 1992 CST's written premiums were about $90 million and its earnings from operations before income taxes were approximately $14 million. The Berkshire Hathaway Insurance Group maintains capital strength at unparalleled high levels, significantly higher than normal in the industry. This the Group's net premiums written in 1992 were approximately 8.1% of the Group's strength differentiates Group members from their competitors. For example, year-end statutory surplus. That compares to an industry average premiums-to- surplus ratio of about 141% (for 1991). The obvious margins of safety thus individually negotiated insurance and reinsurance contracts. provided to insureds of the Group are particularly persuasive in marketing of Group - unaudited and not fully adjusted to conform to Generally Accepted Combined financial statements of the Berkshire Hathaway Inc. Insurance Accounting Principles - are presented on the following two pages. 52

[PAGE 55]

BERKSHIRE HATHAWAY INC. INSURANCE GROUP (dollars in millions) Balance Sheets 1992 December 31, 1991 Assets Investments: Fixed maturities at amortized cost: RJR Nabisco Wash. Pub. Power Supply System $ 58.8 $ 158.6 eferred stock ther.. 479.2 367.0 98.9 Champion International.. USAir. Salomon Inc 650.0 279.0 279.0 Equity Securities at market: Other 348.0 650.0 10.6 348.0 0.5 Common stocks: Capital Cities/ABC, Inc FHLMC Coca-Cola Company. 3,901.1 1.497.9 3,738.0 1,278.8 GEICO 435.2 Gillette. General Dynamics 2,226.2 1,363.2 13.1 450.8 Guinness PLC 1,365.0 299.5 1,347.0 396.9 296.8 Washington Post 471.5 336.0 Other.. Wells Fargo & Company 86.9 279.3 91.9 Preferred stocks: First Empire State Corp... American Express Company. 290.5 53.2 68.0 247.5 50.0 Other. 31.1 13,368.3 10.974.7 Cash and cash equivalents 471.2 529.2 188.1 458.5 Deferred costs Receivables... 414.1 8.0 552.5 Other 2.8 $14.564.8 $12.402.6 Liabilities Losses and loss adjustment expenses.. $ 2,978.5 227.8 $ 2,849.1 Unearned premiums. 2.476.3 379.9 222.1 152.5 1,908.2 $ 6.062.5 $ 5.131.9 Equity Minority shareholders 8,431.9 70.4 7.214.2 56.5 Berkshire shareholders' 8.502.3 7,270.7 $14.564.8 $12.402.6 These statements do not conform to GAAP in all respects These statements are unaudited 53

[PAGE 56]

[PAGE 57]

BERKSHIRE HATHAWAY INC. MANUFACTURING, PUBLISHING AND RETAILING BUSINESSES Operation Product/Service/Activity Adalet Conduit fittings, explosion proof junction boxes, couplings and terminators Blue Chip Stamps Marketing motivational services Borsheim's Retailing fine jewelry Buffalo News Daily and Sunday newspaper Campbell Hausfeld Air compressors, air tools and painting systems Carefree Sun and shade control products and accessories for RVs Cleveland Wood Products Vacuum cleaner brushes Douglas Products Hand-held electric and cordless vacuum cleaners Fechheimer Bros. Co. Uniforms and accessories France Appliance controls, ignition and sign transformers H. H. Brown Shoe Co. Work shoes, boots and casual footwear Halex Zine and aluminum die cast electrical fittings K&W Products Automotive compounds Kirby Home cleaning systems Meriam Pressure and flow measurement devices Nebraska Furniture Mart Retailing home furnishings New America Electric Electrical equipment Northland Fractional horsepower motors Powerwinch Boat winches, windlasses Precision Steel service center Quikut Cutlery ScouCare Cardiopulmonary rehabilitation and monitoring equipment Scot Labs Cleaning and maintenance chemicals See's Candies Boxed chocolates and other confectionery products Stal Custom steel service bodies and tool boxes for trucks Wayne Furnace burners; sump, utility and sewage pumps Western Enterprises Compressed gas fittings and regulators Western Plastics Molded plastic components World Book Encyclopedias and other reference materials 55

[PAGE 58]

BERKSHIRE HATHAWAY INC. MANUFACTURING, PUBLISHING AND RETAILING BUSINESSES (dollars in millions) Balance Sheets 1992 December 31, Assets 1991 Cash and cash equivalents Inventories.. Accounts receivable..... $ 62.7 230.9 $ 67.3 Other Properties and equipment 163.9 253.7 227.0 211.3 29.9 154.7 $ 741.1 18.7 $ 679.0 Liabilities Income taxes Accounts payable, accruals and other.. $ 223.3 Term debt and other borrowings.... 40.6 $ 211.2 28.1 37.0 292.0 40.9 289.1 Equity Minority shareholders Berkshire shareholders' 33.2 415.9 358.8 31.1 449.1 389.9 $ 741.1 $ 679.0 Statements of Earnings (dollars in millions) Revenues: 1992 1991 1990 Sales and service revenues Interest income.. $1,774.4 7.5 $1,651.1 ... . . 3.0 8.5 $1,580.1 Sundry income 6.7 2.1 1.4 1,784.9 1,661.7 1.588.2 Costs and expenses: Costs of products and services sold Interest on debt Selling, general and administrative. 1,043.6 486.3 933.7 865.6 ...•... 4.6 508.6 499.3 4.9 6.5 Income tax expense Earnings from operations before income taxes... 1,534.5 1,447.2 1,3714 250.4 214.5 216.8 96.8 82.3 83.9 Minority interest 153.6 132.2 - 132.9 Net earnings 4.2 4.6 5.4 $ 149.4 $ 127.6 $ 127.5 These statements do not conform to GAAP in all respects These statements are unaudited 56

[PAGE 59]

BERKSHIRE HATHAWAY INC. FINANCE-TYPE BUSINESSES type operations. Mutual Savings and Loan Association and Scolt Fetzer Financial Group, Inc. make up Berkshire's finance- (dollars in millions) Balance Sheets December 31, Assets 1992 1991 Cash and cash equivalents Investments at cost: $ 64.4 $ 32.7 FHLMČ common stock. Mortgage-backed securities 68.9 - 129.5 14.2 Collateralized loans receivable. 101.9 71.7 177.7 100.9 71.7 Installment and other receivables Other .. Prepaid income taxes.. 181.1 26.3 4.9 28.9 7.3 $ 519.2 $ 562.2 Liabilities Accounts payable, accruals and other Savings accounts. $ 250.9 27.8 : 289.0 Income taxes 145.1 0.7 26.2 Term debt and other borrowings 154.6 1.5 424.5 471.3 Equity Minority shareholders' Berkshire shareholders' 12.5 82.2 79.8 11.8 $ 519.2 94.7 $ 562.9 91.6 Statements of Earnings (dollars in millions) 1992 1991 1990 Revenues: Interest and dividends on investment securities ... Interest and fees on loans and financed receivables.. $ 16.4 51.5 $ 53.2 18.3 $ 18.3 51.9 Sundry income 0.4 13 70.5 0.3 68.3 72.8 Expenses: Interest on savings accounts 12.0 18.3 20.7 14.3 14.3 22.0 General and administrative Interest on debt.. 20.8 13.9 20.7 46.7 53.3 57.0 Income tax expense.... Earnings from operations before income taxes 21.6 19.5 13.5 14.6 7.0 14.9 4.6 11.8 1.7 Minority interest.. 0.7 14.0 0.9 0.8 tele nest in mantic divest of pret, sock Earnings before realized investment 13.9 11.0 - 4.5 - Net earnings.. 13.9 $ 18.5 $ 11.0 These statements do not conform to GAAP in all respects These statements are unaudited 57

[PAGE 60]

BERKSHIRE HATHAWAY INC. NON-OPERATING ACTIVITIES revenues and expenses that were not assigned to any Berkshire operating group in the unaudited, and not fully GAAP. These statements reflect the consolidated financial statement values for assets, liabilities, shareholders' equity, adjusted group financial statements heretofore presented (pages 5l to 57). Statements of Net Assets (dollars in millions) December 31, 1992 1991 Assets Cash and cash equivalents. $ 595.3 $ 205.6 Investments: Fixed maturities: Bonds: RJR Nabisco ACF Industries.. 127.1 123.3 87.9 Equity securities.. Preferred stocks 38.1 81.0 81.0 Property account adjustments 206.9 70.8 38.1 179.0 78.2 Unamortized goodwill * Prepaid income taxes.. 22.5 6.0 40.9 7.0 Other. $1,147.7 $ 841.0 Liabilities Income taxes Accounts payable, accruals and other $ 16.5 10.5 34.5 Term debt and other borrowings. 1,141.0 1,065.0 (3.3) Equity 1,168.0 1,096.2 Berkshire shareholders' Minority shareholders' (33.7) 13.4 (272.9) 17.7 (20.3) (255.2) $1,147.7 $ 841.0 Statements of Earnings (dollars in millions) Revenues: 1992 1991 1990 Interest and dividend income $ 58.9 $ 60.1 $ Sundry income Realized investment gain.. 37.3 69.5 3.3 4.4 2.0 Expenses: 99.5 134.0 Corporate administration 4.2 5.6 4.1 Amortization of Shareholder designated contributions. 4.6 7.6 6.8 3.5 5.8 Interest on debt... Property account adjustments goodwill * 4.0 94.5 7.4 84.5 6.0 6.0 Other costs and expenses 1.3 0.9 0.6 119.6 107.8 Income tax credit (expense) Earnings (loss) before income taxes (20.1) 26.2 (8.9) (12.2) 7.6 Minority interest (29.0) 13.5 (2.3) 1.5 1.1 Net earnings (loss) $ (26.7) $ 12.0

• "Property account adjustments"

goodwill arose in accounting for business acquisitions. These statements do These statements are unaudited not conform to GAAP in all respects 58

[PAGE 61]

BERKSHIRE HATHAWAY INC. COMMON STOCK Stock Transfer Agent The Bank of Boston Shareholder Services Division, P.O. Box 644, Boston, MA 02102 serves as Transfer to Customer Sistic Seton, Main sp Ce, Ce, Coates for resue or transfer shauy be directed to the Transfer Processing Section, Mail Stop 45-01-05. Certificates should not be mailed to the Company. Shareholders owners included nominees holding at least 175,000 shares on behalf of beneficial-but-not-of-record owners. The Company had approximately 7,100 record holders of its common stock at March 9, 1993. Record Management believes that the Company has more than 16,000 beneficial owners. Price Range of Common Stock BRK. The following table sets forth the high and low sales prices per share, as reported on the New The Company's Common Stock is listed for trading on the New York Stock Exchange, trading symbol: York Stock Exchange Composite List during the periods indicated: 1992 High Low 1991 High Low First Quarter $9,000 $8,575 First Quarter... $8,275 $6,550 Third Quarter. Second Quarter 9,950 9,300 8,850 Second Quarter 8,750 7,760 9,050 Third Quarter. 9,000 8,325 Fourth Quarter 11,750 9,150 Fourth Quarter 9,125 8,150 Dividends Berkshire has not declared a cash dividend since 1967. 59

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BERKSHIRE HATHAWAY INC. Selected Financial Data for the Past Five Years (dollars in thousands, except per share data) 1992 1991 1990 1989 1988 Revenues: Insurance premiums earned Sales and service revenues.. $ 1,774,436 $ 1,651,134 481,793 776,413 $ 1,580,074 664,293 450,295 591,540 $1,526,459 394,279 $1,407,642 223,810 331,452 584,235 Interest and dividend income Sundry .... Realized investment gain 495,409 314,251 89,937 192,478 33,989 5,265 4,178 3,574 7,892 131,671 27,094 Total revenues $ 3,029,340 $ 3,105,996 $ 2,659,472 $2,483,892 $2,464,893 Earnings: Before realized investment gain. 347,726 59,559 315,753 $ 124,155 370,745 $ 299,902 $ 313,441 Realized investment gain .... 23,348 147,575 85,829 Net earnings $ 407,285 $ 439,908 $ 394,093 $ 447,477 $ 399,270 Earnings per share: Realized investment gain .... Before realized investment gain. $ 303.29 $ 51.95 275.42 $ 323.39 20.36 $ 262.46 $ 273.37 108.30 127.55 74.86 Net earnings. $ 355.24 383.72 $ 343.75 390.01 348.23 Year-end data: Term debt and other borrowings Total assets .. $16,944,778 8,896,331 1,299,810 $14,461,902 $10,670,423 $9,459,594 $6,816,848 7,379,918 1,255,068 5,287,454 1,239,358 1,007,516 480,009 Shareholders' equity .... 4,925, 126 3,410,108 Common shares outstanding, Shareholders' equity per in thousands. 1,149 1,146 1,146 1,146 1,146 outstanding share...... $ 7,745 $ 6,437 $ 4,612 $ 4,296 $ 2,975 60

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BERKSHIRE HATHAWAY INC. DIRECTORS WARREN E. BUFFETT, Chairman Chief Executive Officer of Berkshire CHARLES T. MUNGER, Vice Chairman of Berkshire SUSAN T. BUFFETT MALCOLM G. CHACE, III WALTER SCOTT, JR. Chairman and Chief Executive Officer of Peter Kiewit Sons', Inc., engaged worldwide in construction, mining, packaging and timberlands. OFFICERS WARREN E. BUFFETT, Chairman and CEO CHARLES T. MUNGER, Vice Chairman ROBERT H. BIRD, Vice President MICHAEL A. GOLDBERG, Vice President MARC D. HAMBURG, Vice President, Treasurer STANFORD LIPSEY, Vice President DANIEL J. JAKSICH, Compeller ROBERT M. FITZSIMMONS, Director of Internal Auditing JERRY W. HUFTON, Director of Taxes J. WILLIAM SCOTT, Director of Financial Assets Two compilations of letters from earlier Annual Reports are available upon request. 1990. Single copies are furnished without charge in response to requests received by One is from reports for 1977 through 1986, the other, from reports for 1987 through the Company at 3555 Farnam St., Suite 1440, Omaha, NE 68131.

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BERKSHIRE HATHAWAY INC. Executive Offices - 1440 Kiewit Plaza, Omaha, Nébraska 68131 Printed on recycled paper