1972 年伯克希尔完整年报

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CLEVELAND PUBLIC LIBRARY. BUSINESS INF. BUR. CORPORATION FILE BERKSHIRE HATHAWAY INC. 1972 ANNUAL REPORT TO THE STOCKHOLDERS (52 WEEKS ENDED DECEMBER 30, 1972)

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

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Berkshire Hathaway Inc. To the Stockholders of Berkshire Hathaway Inc.: 19.8% of beginning shareholders' equity. Significant improvement was recorded in all of our major Operating earnings of Berkshire Hathaway during 1972 amounted to a highly satisfactory lines of business, but the most dramatic gains were in insurance underwriting profit. Due to an unusual convergence of favorable factors — diminishing auto accident frequency, moderating acci- level far above averages of the past or expectations of the future. dent severity, and an absence of major catastrophes — underwriting profit margins achieved a our diversification moves of recent years have established a significantly higher base of normal While we anticipate a modest decrease in operating earnings during 1973, it seems clear that earning power. Your present management assumed policy control of the company in May, 1965. than would have been produced had we continued to devote our resources entirely to the textile Eight years later, our 1972 operating earnings of $11,116,256 represent a return many-fold higher time, no additional equity capital has been introduced into the business, either through cash sale or business. At the end of the 1964 fiscal year, shareholders' equity totaled $22,138,753. Since that 14%. The increase in book value per share from $19.46 at fiscal year-end 1964 to $69.72 at 1972 through merger. On the contrary, some stock has been reacquired, reducing outstanding shares by year-end amounts to about 16½% compounded annually. both the financial and human standpoints. In all three cases, the founders were major sellers and Our three major acquisitions of recent years have all worked out exceptionally well - from Gene Abegg and Vic Raab, have continued to run the businesses with undiminished energy and received significant proceeds in cash — and, in all three cases, the same individuals, Jack Ringwalt, imagination which have resulted in further improvement of the fine records previously established. operations which will allow us to continue to employ our capital effectively. We will continue to search for logical extensions of our present operations, and also for new Textile Operations In recent years, Ken Chace and Ralph Rigby have developed an outstanding sales organization As predicted in last year's annual report, the textile industry experienced a pickup in 1972. enjoying a growing reputation for service and reliability. Manufacturing capabilities have been restructured to complement our sales strengths. ventories were controlled, minimizing close-out losses in addition to minimizing capital requirements; Helped by the industry recovery, we experienced some payoff from these efforts in 1972. In- product mix was greatly improved. While the general level of profitability of the industry will always be the primary factor in determining the level of our textile earnings, we believe that our relative position within the industry has noticeably improved. The outlook for 1973 is good. Insurance Underwriting Our exceptional underwriting profits during 1972 in the large traditional area of our insurance business at National Indemnity present a paradox. They served to swell substantially total corporate 1

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profits for 1972, but the factors which produced such profits induced exceptional amounts of new competition at what we believe to be a non-compensatory level of rates. Over-all, we probably would have retained better prospects for the next five years if profits had not risen so dramatically this year. in 1972 the decline in premium volume that we stated such competition implied. Our belief is that industry underwriting profit margins will narrow substantially in 1973 or 1974 and, in time, this may produce an environment in which our historical growth can be resumed. Unfortunately, there is a lag between deterioration of underwriting results and tempering of competition. During this period we expect to continue to have negative volume comparisons in our traditional operation. Our seasoned management, headed by Jack Ringwalt and Phil Liesche, will continue to underwrite to produce a profit, although not at the level of 1972, and base our rates on long-term expectations rather than short-term hopes. Although this approach has meant dips in volume from time to time in the past, it has produced excellent long-term results. competitive factors in 1972. A multitude of new organizations entered what has historically been a Also as predicted in last year's report, our reinsurance division experienced many of the same rather small field, and rates were often cut substantially, and we believe unsoundly, particularly in the catastrophe area. The past year turned out to be unusually free of catastrophes and our under- writing experience was good. George Young has built a substantial and profitable reinsurance operation in just a few years. In the longer term we plan to be a very major factor in the reinsurance field, but an immediate ex- pansion of volume is not sensible against a background of deteriorating rates. In our view, under- writing exposures are greater than ever. When the loss potential inherent in such exposures becomes an actuality, repricing will take place which should give us a chance to expand significantly. In the "home state" operation, our oldest and largest such company, Cornhusker Casualty the home state marketing appeal has been proven with the attainment of volume on the order of Company, operating in Nebraska only, achieved good underwriting results. In its second full year, one-third of that achieved by "old line" giants who have operated in the state for many decades. small volume. The home state managements understand that underwriting profitability is the yard- Our two smaller companies, in Minnesota and Texas, had unsatisfactory loss ratios on very doing the right job in the underwriting area. Expense ratios at the new companies are also high, but stick of success and that operations can only be expanded significantly when it is clear that we are that is to be expected when they are in the development stage. at least one additional state during 1973. While there is much work yet to be done, the home state John Ringwalt has done an excellent job of launching this operation, and plans to expand into operation appears to have major long-range potential. Chicago. We telt good about the acquisition at the time, and we teel even better now. Led by Vid ast year it was reported that we had acquired Home and Automobile Insurance Company of Raab, this company continued its excellent record in 1972. During 1973 we expect to enter the Florida (Dade County) and California (Los Angeles) markets with the same sort of specialized urban auto coverage which Home and Auto has practiced so successfully in Cook County. Vic has the managerial capacity to run a much larger operation. Our expectation is that Home and Auto will expand signifi- cantly within a few years. Insurance Investment Results coincidental with virtually record-high interest rates. Large amounts of investable funds were thus We were most fortunate to experience dramatic gains in premium volume from 1969 to 1971 received at a time when they could be put to highly advantageous use. Most of these funds were 2

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placed in tax-exempt bonds and our investment income, which has increased from $2,025,201 in 1969 to $6,755,242 in 1972, is subject to a low effective tax rate. Our bond portfolio possesses unusually good call protection, and we will benefit for many growth, however, will moderate substantially the growth in investment income during the next years to come from the high average yield of the present portfolio. The lack of current premium several years. Banking Operations Our banking subsidiary, The Illinois National Bank and Trust Co. of Rockford, maintained in 1972 are the more remarkable when evaluated against such moderating factors as: (1) a mix of its position of industry leadership in profitability. After-tax earnings of 2.2% on average deposits rates permitted by law; (2) an unvaryingly strong liquid position and avoidance of money-market 60% time deposits heavily weighted toward consumer savings instruments, all paying the maximum borrowings; (3) a loan policy which has produced a net charge-off ratio in the last two years of about Abegg and Bob Kline who run a bank where the owners and the depositors can both eat well and 5% of that of the average commercial bank. This record is a direct tribute to the leadership of Gene sleep well. During 1972, interest paid to depositors was double the amount paid in 1969. We have ag of deposit although, during the past several years, they have generally been a less costly source of gressively sought consumer time deposits, but have not pushed for large "money market" certificates time funds. more than indicated by the enclosed balance sheet which includes $10.9 million in short-term com- During the past year, loans to our customers expanded approximately 38%. This is considerably mercial paper in the 1971 loan total, but which has no such paper included at the end of 1972. a decrease in investable funds due to new Federal Reserve collection procedures, and a probable Our position as "Rockford's Leading Bank" was enhanced during 1972. Present rate structures, increase in already substantial non-federal taxes make it unlikely that Illinois National will be able to increase its earnings during 1973. Financial On March 15, 1973, Berkshire Hathaway borrowed $20 million at 8% from twenty institutional lenders. This loan is due March 1, 1993, with principal repayments beginning March 1, 1979. From the proceeds, $9 million was used to repay our bank loan and the balance is being invested in in- expansion in our insurance business and we intend to have the financial resources available to surance subsidiaries. Periodically, we expect that there will be opportunities to achieve significant maximize such opportunities. Our subsidiaries in banking and insurance have major fiduciary responsibilities to their cus- tomers. In these operations we maintain capital strength far above industry norms, but still achieve a good level of profitability on such capital. We will continue to adhere to the former objective and make every effort to continue to maintain the latter. Chairman of the Board Warren E. Buffett March 16, 1973 3

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PEAT, MARWICK, MITCHELL & Co. CERTIFIED PUBLIC ACCOUNTANTS 40 WESTMINSTER STREET PROVIDENCE, RHODE ISLAND 02903 The Board of Directors and Stockholders Berkshire Hathaway Inc.: We have examined the consolidated balance sheets of Berkshire of assets and liabilities of the Berkshire Hathaway Inc. - Insurance Hathaway Inc. as of December 30, 1972 and January 1, 1972, the statements Group and the consolidated statements of condition of The Illinois Na- tional Bank & Trust Co. of Rockford and subsidiary as of December 31, 1972 and 1971, and the related consolidated statements of earnings and retained earnings and changes in financial position of Berkshire Hathaway Inc. for the 52 weeks ended December 30, 1972 and January 1, 1972; the signed surplus and changes in financial position of the Berkshire Hath- statements of income and realized investment gains, paid-in and unas- away Inc. - Insurance Group for the years ended December 31, 1972 and 1971; and the consolidated accounts and changes in financial position of The Illinois National Bank i hanged in finetal statements of income, changes in capital and Trust Co. of Rockford and subsidiary for the years ended Decem- ber 31, 1972 and 1971. Our examination was made in accordance with gen- of the accounting records and such other auditing procedures as we con- erally accepted auditing standards, and accordingly included such tests sidered necessary in the circumstances. In our opinion, such financial statements present fairly the financial position of Berkshire Hathaway Inc., the Berkshire Hathaway Inc. - Insurance Group and The Illinois National Bank & Trust Co. of and January 1, 1972 in the case of Berkshire Hathaway Inc.) and the re- Rockford and subsidiary at December 31, 1972 and 1971 (December 30, 1972 sults of their operations and changes in their financial position for the years ended December 31, 1972 and 1971 (the 52 weeks ended Decem- ber 30, 1972 and January 1, 1972 in the case of Berkshire Hathaway Inc.) in accordance with generally accepted accounting principles which, except for the change (of which we approve) in the method of accounting for in- vestments in stocks by the Berkshire Hathaway Inc. - Insurance Group, as a consistent basis. described in Note 2 of their financial statements, have been applied on Pest, Marvicto, Mitaked a Co. March 8, 1973 (except for Note 10 to the consolidated financial statements, as to which the date is March 15, 1973) 4

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Berkshire Hathaway Inc. CONSOLIDATED BALANCE SHEETS December 30, 1972 and January 1, 1972 ASSETS Dec. 30, 1972 Jan. 1, 1972 Current assets: Cash (Jan. 1, 1972 includes short-term investments at cost, which approxi- mates market value) Accounts receivable (less allowance for doubtful accounts: Dec. 30 - $ 1,953,858 $ 962,010 $226,530; Jan. 1 — $197,708) 4,054,676 5,099,853 Inventories (notes 1 and 3) .. 6,827,043 6,030,647 Prepaid and deferred charges 92,250 110,290 Total current assets. 12,927,827 12,202,800 Property, plant and equipment (notes 1 and 4): Property comprising land, buildings, machinery and equipment 14,959,876 14,941,903 Less accumulated depreciation and amortization 12,993,741 12,732,699 Net property, plant and equipment . 1,966,135 2,209,204 Investment in unconsolidated subsidiaries (notes 1 and 2): Insurance subsidiaries 44,981,758 33,501,882 Bank subsidiary 20,472,590 20,116,846 Other subsidiaries 1,258,832 1,258,832 Total investment in unconsolidated subsidiaries 66,713,180 54,877,560 $81,607,142 $69,289,564 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses $ 3,235,859 $ 3,305,390 Accrued Federal, State and local taxes (note 1) Total current liabilities 434,960 174,009 3,670,819 3,479,399 Long-term debt: Notes payable to banks (notes 6 and 10) . 9,000,000 9,000,000 7½ % subordinated debentures (note 7) 641,300 641,300 Total long-term debt . 9,641,300 9,641,300 Stockholders' equity: Common stock, $5 par value. Authorized 1,722,983 shares; issued 1,017,547 shares 5,087,735 5,087,735 Retained earnings 64,024,663 51,898,505 69,112,398 56,986,240 Less 37,978 shares of common stock in treasury, at cost 817,375 817,375 Total stockholders' equity . 68,295,023 56,168,865 $81,607,142 $69,289,564 Other information (notes 1, 8 and 9) See accompanying notes to consolidated financial statements. 5

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Berkshire Hathaway Inc. CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS 52 weeks ended December 30, 1972 and January 1, 1972 52 weeks ended Operating income: Dec. 30, 1972 Jan. 1, 1972 Net sales of textile products. Equity in pretax earnings (excluding investment gains) of unconsolidated $27,741,969 $26,011,267 subsidiaries: Insurance subsidiaries Bank subsidiary 10,811,674 6,433,482 Interest income 2,618,224 30,027 2,273,391 81,273 41,201,894 34,799,413 Operating costs: Cost of textile products sold Administrative and selling expenses 23,655,273 2,606,126 23,445,423 Interest expense 2,467,177 583,724 594,885 Operating earnings before applicable income taxes 26,845,123 26,507,485 14,356,771 8,291,928 Applicable income tax expense (notes 1 and 5) Earnings before investment gains . 3,240,515 1,351,019 11,116,256 6,940,909 Investment gains net of applicable income taxes (note 5) Net earnings 1,009,902 744,623 12,126,158 7,685,532 Retained earnings at beginning of year 51,898,505 44,212,973 Retained earnings at end of year $64,024,663 $51,898,505 Net earnings per share of outstanding common stock, based on the unchanged shares outstanding: Earnings before investment gains. Investment gains . . $11.35 $ 7.09 Net earnings 1.03 .76 $12.38 $ 7.85 See accompanying notes to consolidated financial statements.

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Berkshire Hathaway Inc. CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION 52 weeks ended December 30, 1972 and January 1, 1972 Funds provided: Dec. 30, 1972 Jan. 1, 1972 Net earnings . Nonfund items: $12,126,158 $ 7,685,532 Add depreciation and amortization Deduct equity in undistributed earnings of unconsolidated 427,062 459,746 subsidiaries Total nonfund items (9,335,521) (6,179,824) Funds derived from operations (8,908,459) (5,720,078) Long-term debt financing. 3,217,699 1,965,454 Other 9,000,000 2,167 3,217,699 10,967,621 Funds used: Investment in unconsolidated subsidiaries 2,500,100 Additions to property and equipment, net 8,496,332 Repayment of long-term debt. 183,992 175,175 3,750,000 Increase (decrease) in working capital 2,684,092 12,421,507 S 533,607 ($1,453,886) Changes in working capital: Increase (decrease) in current assets: Cash and short-term investments $ Receivables . . . 991,848 ($ 389,557) Inventories (1,045,177) 1,183,521 Prepayments, etc. 796,396 (2,441,151) (18,040) (90,051) Decrease (increase) in current liabilities: Current installments of long-term debt Accounts payable and accrued expenses 69,531 1,500,000 Accrued Federal, State and local taxes (1,290,547) Increase (decrease) in working capital . (260,951) 73,899 $ 533,607 ($1,453,886) See accompanying notes to consolidated financial statements. 7

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Berkshire Hathaway Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 30, 1972 and January 1, 1972 (1) Summary of Significant Accounting Policies out" method in that it assigns a balance sheet valuation Inc. and its wholly-owned consolidated subsidiary, Accounting Period: Accounts of Berkshire Hathaway at near current replacement cost. "Market" has been considered as estimated selling market, thus making Bourne Mills of Canada, Ltd., are maintained on the allowance for goods as to which cost cannot be re- basis of a 52-53 week year ending the Saturday covered. consolidated subsidiaries is determined on the basis nearest December 31. Equity in earnings of non- and plant (including significant betterments and re- Property, Plant and Equipment: Items of property le corresponding December 3. f their calendar year accounting periods ending on newals) are carried at cost depreciated over their double-declining balance method is used to calculate useful lives estimated at the date of acquisition. The solidated: The accounts of Berkshire Hathaway Inc., Principles of Consolidation and Subsidiaries Not Con- depreciation of new items acquired after 1965; the the parent company, are consolidated only with the straight-line method is applied for new items acquired accounts of Bourne Mills of Canada, Ltd., a wholly- and renewals of a minor nature are generally charged prior to 1966 and for used items. Maintenance, repairs, owned Canadian textile sales subsidiary. and investments therein are carried at cost. Three immaterial subsidiaries to income as incurred. Income Taxes: The liability for income taxes reflected The investment of Berkshire Hathaway Inc. in its in the consolidated balance sheet is that part of the Insurance Group, representing substantially all of the be apportioned to the parent company, less payments consolidated Federal income tax liability expected to net assets of the Group, is accounted for on the equity method. This Group was comprised, at December 30, (net of payments by subsidiaries) on estimated tax, in turn owned 100% of the outstanding stock of Na- 1972, of a wholly-owned intermediary subsidiary which plus the foreign tax liability of the consolidated sub- sidiary and plus state or provincial income taxes of stantially 100% of the outstanding stock of National tional Fire and Marine Insurance Company and sub- the parent company and consolidated subsidiary. consolidated subsidiary plus a proportion (based on Income tax expense reflects that of the parent and writers. National Indemnity Company has several Indemnity Company, both casualty insurance under- solidated subsidiaries whose income is reflected on the ownership) of the income tax expense of those uncon- in the casualty insurance business. Composition of wholly-owned subsidiaries, all of which are engaged equity method. the Group at January 1, 1972 was similar to the above Income taxes other than Federal income tax (i.e., except that the intermediary subsidiary did not exist. foreign and state income taxes) are less than 5% of Berkshire Hathaway Inc. owns approximately 98% the total income tax expense. of the outstanding stock of The Illinois National Bank and Trust Co. of Rockford. The Company applies the Reclassification and Format: The format of the con- equity method of accounting for this investment. solidated statement of earnings for the year ended January 1, 1972 has been changed and minor reclassifi- in excess of net assets of companies acquired is not Cost in Excess of Net Assets of Companies Acquired: Cost cations of the figures have been made for comparability December 30, 1972. with the corresponding statement for the year ended parent company level subsequent to November 1, 1970. being amortized. No such excess has arisen at the (2) Equity in Book Values of Subsidiaries Not Inventories: Inventories are stated at the lower of Consolidated cost or market. "Cost" is annually for individual items on the basis of material, standard cost developed The carrying values of $66,713,180 at December 30, labor, and overhead costs in effect for normal activity 1972 and $54,877,560 at January 1, 1972 for all uncon- levels at the time the costs are developed. The effect solidated subsidiaries were approximately $2,000,000 of this method approximates that of the "first-in, first- and $900,000 respectively, in excess of the Company's equity in book values reflected in the financial state- 8

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Berkshire Hathaway Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued ments of the subsidiaries as of those dates. The figure Total 1971 for excess cost changed principally because of the Applicable to oper- Current Deferred change by the insurance subsidiaries in 1972 to the cost method from the market value method of valuing Parent and consoli- ating earnings: Financial statements of the Berkshire Hathaway Inc. Insurance Group dated subsidiary. $ 33,188 Bank subsidiary 1,211,620 $ 33,188 $ $1,351,019 106,211 625,342 118,211 586,278 Insurance Group and the Illinois National Bank & S776,741 $ 574,278 (12,000) Trust Co. of Rockford and Subsidiary (the bank subsidiary) are presented elsewhere herein. Applicable to securities gains $ 317,055 $317,055 $ i even ories A summary of inventories follows: The income taxes applicable to operating earnings are less than the statutory 48% rate because of the Dec. 30, 1972 Jan. 1, 1972 nontaxable nature of certain investment income of the Stock in process Raw materials and supplies. 690,219 Griege and finished cloth 1,676,141 $ 510,394 insurance and bank subsidiaries. $6,827,043 4,460,683 1,331,472 4,188,781 $6,030,647 (6) Notes Payable to Banks The Company was liable, as of December 30, 1972 (4) Property, Plant and Equipment of a term loan agreement with certain banks. These and January 1, 1972, for $9,000,000 under the terms is shown below: The composition of property, plant and equipment borrowings were refinanced in March 1973. See Dec. 30, 1972 Jan. 1, 1972 Land Machinery and equipment Buildings $ 11,869,465 2,344,684 84,860 2,345,977 87,116 (7) 7½% Subordinated Debentures Furniture and fixtures and 11,873,592 February 1 and August 1 and will be due on August 1, Debentures bear interest at the rate of 7½ % payable leasehold improvements. 14,959,876 660,867 635.218 Less accumulated depreciation 14,941,903 are not convertible; they are subordinated to senior 1987. The debentures are not secured by any lien and and amortization 12,993,741 $ 1,966,135 12,732,699 indebtedness which includes indebtedness of the Com- $ 2,209,204 the Company's option, be redeemed at 105% through pany for money borrowed. The debentures may, at and $459,746 in 1971. Depreciation expense recorded in 1972 was $427,062 July 31, 1973 and thereafter at 100%. The indenture under which the debentures are issued requires the (5) Income Taxes at principal amount plus accrued interest, through a Company to provide for the retirement by redemption Composition of income tax expense is as follows: sinking fund, on August 1 in each of the years 1973 to Total Current 1972 and including 1986, of one-fifteenth of the total amount Applicable to oper- Deferred of debentures issued. ating earnings: Parent and consoli- (8] "One-Bank Holding Company" Status Insurance Group dated subsidiary. 480,844 $ 480,844 $ - The Company is a bank holding company under Bank subsidiary 2,760,017 (346) 2,815,520 $3,240.515 $3,297,665 1,301 (55,503) the Federal Reserve Board an irrevocable election to Federal legislation enacted in 1970. It has filed with Applicable to $(57,150) divest of its holdings in The Illinois National Bank & securities gains $ 502,479 502,479 $ - Trust Co. of Rockford prior to January 1, 1981. No determination has been made as to how it will affect 9

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Berkshire Hathaway Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued such divesture, and so long as the Company controls it by the Federal Bank Holding Company Act. the bank, it is subject to the restrictions imposed upon required prepayments in each of the years 1979 to Company may also prepay the notes at any time, in 1992; this right is not cumulative. Additionally, the (9) Economic Stabilization Program full or in part, at a premium of 8% in the twelve months commencing March 1, 1973; the premium de- under the Economic Stabilization Program. Based on The Company is subject to price control regulations will not effect any optional prepayment prior to March 1, clines ratably to par in 1992. The Company agreed it interpretations of the price control regulations which volving the incurring of any indebtedness at an effective 1983 from proceeds of any refunding operation in- it is the opinion of management that the Company is in management and legal counsel believe are reasonable, annual interest rate of less than 8%. tions. At present, however, there are significant un- substantial compliance with the price control regula- In the note instruments the Company agreed, among other things, as to both the Company and restricted certainties regarding the interpretation of the regula- outstanding funded debt and subordinated funded subsidiaries, as defined, to limitations as to permissible tions, and it is not possible to determine whether the Price Commission. Since it is not possible to reasonably Company's interpretations will be accepted by the borrowed); and to a limitation on mortgage debt except debt; to a limitation on current debt (generally, money estimate the effect of any remedies that may be imposed as to after-acquired property. Further, the Company interpretations, no provision if the Price Commission takes issue with the Company's covenanted that it would not make "restricted pay- for remedies has been ments", which term includes dividends or other equity made in the accompanying financial statements. distributions plus investment in unrestricted sub- ment), in excess of stated formula amounts. Retained sidiaries (those not bound by the terms of the Agree- (10) Subsequent Event-Refinancing earnings of approximately $13,000,000 as of December $20,000,000, 8% Senior Notes due March 1, 1993. On March 15, 1973, the Company issued at par remainder is restricted. 30, 1972, are unrestricted by this provision; the Part of the proceeds will be used to repay the $9,000,000 of outstanding term notes from certain banks; the The Agreement also contains limiting terms relating remainder of the proceeds will be used by the Company to sales of its assets, mergers or consolidations, and for additional capital contributions to subsidiaries which allows the noteholders to demand prepayment, at par, are part of the Company's Insurance Group. within 60 days of notice that, during the lifetime of The new notes call for mandatory annual prepay- by Warren E. Buffett and the members of his immediate Warren E. Buffett, stock ownership in the Company from 1979 to 1992, inclusive. Optional prepayments are ments of $1,143,000 on March 1 in each of the years family, including certain trusts and charitable or- permitted without premium up to the amount of the ganizations, has decreased to less than 15% of the outstanding capital stock of the Company. 10

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Berkshire Hathaway Inc. INSURANCE GROUP Financial Statements 1972 and 1971 11

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Berkshire Hathaway Inc. INSURANCE GROUP STATEMENTS OF ASSETS AND LIABILITIES December 31, 1972 and 1971 ASSETS 1972 1971 Bonds, at amortized cost (note 1) . $ 88,148,480 $ 84,079,023 Stocks, 1972 at cost, 1971 at market (notes 1, 2 and 3): Preferred stocks Other common stocks Common stock of Blue Chip Stamps 11,287,396 2,942,252 998,631 17,411,780 11,676,048 4,128,225 31,641,428 16,802,904 Real estate, equipment and furniture, at cost less allowance for depreciation Cash and bank deposits 1972, S546,682; 1971, S442,442 . 1,674,114 3,044,367 1,312,772 Reinsurance recoverable on loss payments Agents' balances and premiums in course of collection 6,892,288 4,563,077 Investment income due and accrued 277,741 7,131,037 Amounts due from sale of securities. 1,629,176 1,500,148 440,396 Prepaid acquisition costs Other 5,624,000 552,855 206,513 6,771,656 506,406 $139,484,449 $123,313,932 LIABILITIES, CAPITAL STOCK AND SURPLUS Losses and loss adjustment expenses (note 1) . S 60,275,018 23,839,397 $ : 52,990,625 Unearned premiums (note 1) Funds held under reinsurance treaties 369,152 957,845 25,516,268 1,025,737 Contingent commissions 268,151 Other expenses 210,833 Agents' and policyholders' deposits Taxes, licenses and fees 567,914 347,788 Federal income taxes: 540,742 908,500 787,429 Deferred Current 3,141,149 3,214,084 1,002,500 Amounts due for purchase of securities . 674,123 3,742,611 Mortgage and contract payable on rental property 58,995 1,331,182 Other liabilities . 53,906 140,160 9,845 93,903,158 88,070,796 Capital stock and surplus (note 4): Common stock of $10 par value per share. Common stock of $100 par value per share. Authorized 500,000 shares; issued 400,000 shares 4,000,000 4,000,000 Authorized 50,000 shares 1972, 20,000 shares 1971; issued 25,000 Paid-in surplus shares 1972, 20,000 shares 1971. 9,851,250 2,500,000 2,000,000 Unassigned surplus 29,230,041 21,391,886 7,851,250 45,581,291 35,243,136 $139,484,449 $123,313,932 See accompanying notes to financial statements of Berkshire Hathaway Inc. - Insurance Group. 12

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Berkshire Hathaway Inc. INSURANCE GROUP STATEMENTS OF INCOME AND REALIZED INVESTMENT GAINS Years ended December 31, 1972 and 1971 1972 1971 Underwriting income: Net premiums written $57,950,178 $66,455,532 Decrease (increase) in unearned premiums 1,676,872 (5,588,326) Premiums earned 59,627,050 Losses and loss expenses incurred 60,867,206 36,987,030 40,783,230 22,640,020 20,083,976 Underwriting expenses: Commissions and brokerage. 12,305,064 15,331,620 Salaries and other compensation 2,125,645 1,667,167 Taxes, licenses and fees 1,136,177 1,325,562 Other underwriting expenses 1,641,330 1,667,362 Decrease (increase) in prepaid acquisition costs 1,147,656 (1,316,962) 18,355,872 18,674,749 Net underwriting gain 4,284,148 1,409,227 Investment income: Interest on bonds 5,899,570 Dividends on stock 4,429,701 829,930 595,041 Real estate income 310,951 221,085 7,040,451 5,245,827 Investment expenses 285.209 272,199 6,755,242 4,973,628 Profit from underwriting and investments 11,039,390 6,382,855 Other income (expense) (222,283) 53,910 Income before Federal income taxes and realized gains on invest- ments 10,817,107 6,436,765 Federal income taxes (credit) (note 1): Current. 2,816,437 625,647 Deferred (55,090) 586,565 2,761,347 1,212,212 Income before realized gains on investments 8,055,760 5,224,553 Realized gains on investments Less Federal income taxes 1,358,930 1,027,764 430,344 308,405 928,586 719,359 Net income $ 8.984,346 $ 5,943,912 See accompanying notes to financial statements of Berkshire Hathaway Inc. - Insurance Group. 13

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Berkshire Hathaway Inc. INSURANCE GROUP STATEMENTS OF CHANGES IN FINANCIAL POSITION Years ended December 31, 1972 and 1971 Funds provided: 1972 1971 From operations: Net income $ Charges (credits) to income not requiring funds: 8,984,346 $ 5,943,912 Increase in loss and loss expense reserves • (Decrease) increase in unearned premium reserves 7,284,393 23,231,886 (Decrease) increase in funds held under reinsurance treaties (1,676,871) 8,033,311 (Decrease) increase in deferred taxes (67,892) 509,017 Increase in current income taxes (55,090) 874,346 (Decrease) increase in accrued taxes and expenses 2,138,649 1,260,979 Decrease (increase) in agents' balances and uncollected premiums, (376,540) 276,049 net Decrease (increase) in prepaid insurance acquisition costs 238,749 (4,094,642) Depreciation 1,147,656 (1,781,510) Increase in accrued investment income 109,296 78,407 Amortization of discount on bonds (13,794) (538,715) (717,159) Decrease (increase) in reinsurance recoverable loss payments . Decrease in agents' and policyholders' deposits 162,655 (440,396) Other, net (246,687) (153,550) Funds provided from operations (132,703) 30,311 Proceeds fom sale of capital stock 16,957,452 33,050,961 Contribution from parent 1,000,000 8,500,000 From investments sold or matured: 1,500,000 Bonds Common stocks 53,779,887 73,402,063 Preferred stocks 7,111,015 2,362,779 163,190 Decrease in cash 60,890,902 75,928,032 1,518,710 Funds used: Total funds provided $ 81,867,064 $117,478,993 Cost of investments purchased: Bonds . Common stocks $ 58,700,930 $106,166,036 Preferred stocks 20,785,640 6,829,009 1,959,005 160,499 Payments on mortgage note payable 81,445,575 113,155,544 1,969 Increase in cash Purchase of equipment, net of disposals 419,520 9,169 199,944 Excess of purchase cost over market value of assets of acquired sub- 3,750,603 sidiary 363,733 $ 81,867,064 $117,478,993 See accompanying notes to financial statements of Berkshire Hathaway Inc. - Insurance Group. 14

[PAGE 17]

Berkshire Hathaway Inc. INSURANCE GROUP STATEMENTS OF PAID-IN AND UNASSIGNED SURPLUS Years ended December 31, 1972 and 1971 PAID-IN SURPLUS 1972 1971 Contribution from parent Beginning of year $ 7,851,250 Excess of proceeds over par value of capital stock issued 1,500,000 1,851,250 End of year 500,000 6,000,000 Beginning of year UNASSIGNED SURPLUS $ 9,851,250 7,851,250 Net income $21,391,886 Increase in net unrealized appreciation of investments 8,984,346 $14,482,568 5,943,912 Excess of market value over cost on stocks (note 2) Increase in deferred income taxes on unrealized appreciation of investments 1,306,083 End of year . (1,146,191) (340,677) $29,230,041 $21,391,886 See accompanying notes to financial statements of Berkshire Hathaway Inc. — Insurance Group. Berkshire Hathaway Inc. INSURANCE GROUP NOTES TO FINANCIAL STATEMENTS December 31, 1972 and 1971 (1) Summary of Significant Accounting Policies and Practices Securities: Investments in bonds are stated at cost. adjusted where appropriate for amortization of pre- Berkshire Hathaway Inc. — Insurance Group include Basis of Presentation: The financial mium or accretion of discount. Bonds with amortized cost of $16,582,277 and $19,920,841 at December 31, owned subsidiaries, plus those of National Fire & those of National Indemnity Company and its wholly- with various regulatory authorities or in accordance 1972 and 1971, respectively, were deposited in trust Marine Insurance Company. National Indemnity Com- with the terms of various reinsurance treaties. pany has four wholly-owned subsidiaries: Cornhusker Investments in stock at December 31, 1972 are stated Casualty Company, formed in 1970; Lakeland Fire and at cost. At December 31, 1971, investments in stocks mobile Insurance Company, purchased in 1971; Texas Casualty Company, formed in 1971; Home and Auto- losses, net of applicable deferred income taxes, being are stated at market value with unrealized gains and United Insurance Company, formed in 1972. The this accounting change are presented in note 2. reflected in stockholders' equity. Details concerning eliminated. Reserve for Losses: The insurance companies provide a reserve for losses and loss adjustment expenses based Insurance Premiums: Insurance premiums are recog- upon (1) aggregate case basis estimates for losses re- nized as revenues ratably over the terms of the policies. ported, in respect to direct premiums written, (2) rata basis and are stated after deduction for reinsurance Unearned premiums are computed on the monthly pro estimates of unreported losses based upon past ex- perience, (3) estimates received relating to assumed placed with other insurers in the amount of $3,691,310 reinsurance, and (4) deduction of amounts for rein- and 55,738,332 at December 31, 1972 and 1971, re- surance placed with reinsurers in the amount of spectively. Policy acquisition costs such as commissions, $3,324,369 and $3,166,379 at December 31, 1972 and premium taxes and certain other underwriting and 1971, respectively. agency expenses are deferred and charged against in- come ratably over the terms of the policies. Catastrophe Reserves: The insurance companies do not provide a reserve for catastrophe losses. The Com- 15

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Berkshire Hathaway Inc. INSURANCE GROUP NOTES TO FINANCIAL STATEMENTS, Continued mittee on Insurance Accounting and Auditing of the American Institute of Certified Public Accountants in The change from the market to cost method required cooperation with industry representatives is working a charge of $1,146,191 to unassigned surplus in 1972, toward the development of a definitive statement as to representing total unrealized appreciation at December 31, 1971 less applicable deferred income taxes of the appropriate accounting for catastrophe losses and resolution may lead to changes in the accounting $473,437. practices being followed. Real Estate, Equipment and Furniture: Real estate, equip- (3) Common Stock of Blue Chip Stamps ment and furniture are stated at net depreciated cost. During 1972 the Berkshire Hathaway Insurance Provision for depreciation is based upon their esti- Group increased its holdings of Blue Chip Stamps from mated useful lives and is computed under the straight- approximately 6% of that company's outstanding capital expense and betterments are capitalized. Gains and line method. Maintenance and repairs are charged to stock at December 31, 1971 to approximately 17% at December 31, 1972. The holdings were purchased in losses on routine dispositions are charged against the open market. Blue Chip Stamps is engaged in the income. trading stamp business in California, and through a Income Taxes: The insurance companies account for subsidiary, See's Candy Shops, Incorporated, in the certain income and expense items differently for financial manufacture and sale of candy. visions for deferred taxes are being made in recognition reporting purposes than for income tax purposes. Pro- A major stockholder of Berkshire Hathaway Inc., the parent company of the Insurance Group, owns directly of these timing differences. Investment tax credits or indirectly a substantial additional stock interest in realized at the time of property acquisitions Blue Chip Stamps. Blue Chip Stamps is considered an credited to income. "investee" of the Insurance Group under the provision way Inc. in filing a consolidated Federal income tax The insurance companies join with Berkshire Hatha- of Accounting Principles Board Opinion No. 18. Divi- dends of $111,168 and $63,486 received by the Insurance ment income of the Insurance Group respectively in Group from Blue Chip Stamps are included in invest- (2) Change in Method of Accounting for Investment in 1972 and 1971. No additional income from the invest- Stocks ment in Blue Chip Stamps is recognized, since the Stocks are carried at cost at December 31, 1972. This equity in undistributed earnings was not significant in date stocks were reflected at market values with un- represents a change from December 31, 1971, at which either 1972 or 1971 after considering amortization of excess of purchase cost over net assets acquired. Such realized gains and losses, net of applicable deferred in- excess cost amounted to approximately $3,600,000 and come taxes being reflected in stockholders' equity. The $1,115,000 at December 31, 1972 and 1971, respectively. change does not affect the statements of income and realized investment gains. The change was made be- cause management believes the presentation at cost (4) Stockholders' Equity to be of greater continuing significance than presenta- The following additional common stock was sold tion at market value and to conform the accounting during the two years ended December 31, 1972: practices of the Insurance Group with the method in accounting for investment in its subsidiary com- used by the parent company, Berkshire Hathaway Inc. National Indemnity Company, $10 par value common May 1971 stock:

• 100,000 shares for $4,500,000

panies. Market values will continue to be disclosed in January 1972 — 50,000 shares for $2,000,000 footnotes or otherwise. The comparison of amounts is as follows: National Fire & Marine Insurance Company, $100 par value December 31, 1972: Cost Market April 1971 common stock: Preferred stocks Common stock of Blue Chip $ 2,942,252 $ 2,872,980 January 1972 — 5,000 shares for $1,000,000 July 1972 5,000 shares for $1,000,000 5,000 shares for $1,000,000 Other common stocks. Stamps 11,287,396 17,411,780 18,698,164 13,130,968 The January 12, 1972 additions were retroactively December 31, 1971: reflected as of December 31, 1971 in the accompanying Preferred stocks Common stock of Blue Chip 983,247 998,631 financial statements. Surplus is restricted for dividend purposes by the Other common stocks. Stamps $10,746,439 3,545,650 $11,676,049 4,128,225 the companies do business. various insurance departments of the states in which 16

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Berkshire Hathaway Inc. BANK SUBSIDIARY The Illinois National Bank & Trust Co. of Rockford Financial Statements 1972 and 1971 17

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Berkshire Hathaway Inc. BANK SUBSIDIARY The Illinois National Bank & Trust Co. of Rockford AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CONDITION December 31, 1972 and 1971 ASSETS Cash and due from banks 1972 1971 Investment securities (note 2): $ 22,111,475 $ 17,832,686 United States Government obligations 10,614,548 Obligations of states and political subdivisions 12,633,150 Other securities 50,162,736 42,884,431 Loans (note 3) 7,778,900 5,864,759 59,618,025 54,031,811 Bank premises and equipment, at cost less accumulated depreciation (note 4) . Accrued interest receivable and other assets 1,360,892 1,522,546 1,750,315 1,252,113 $153,396,891 $136,021,496 LIABILITIES AND CAPITAL FUNDS Demand deposits $ 55,129,900 $ Time deposits 51,208,396 77,558,396 Total deposits 64,639,857 Accrued taxes and other liabilities 132,688,296 115,848,253 Total liabilities 886,645 813,769 133,574,941 Reserve for loan losses (note 5) 116,662,022 1,024,601 854,671 Capital funds: Common stock, $20 par value. Authorized and issued 250,000 shares (note 6) Surplus . 5,000,000 5,000,000 Undivided profits . 5,000,000 5,000,000 Reserve for contingencies 7,796,349 1,001,000 7,503,803 Total capital funds 18,797,349 1,001,000 18,504,803 $153,396,891 $136,021,496 See accompanying notes to consolidated financial statements of Bank Subsidiary. 18

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Berkshire Hathaway Inc. BANK SUBSIDIARY The Illinois National Bank & Trust Co. of Rockford AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME Years Ended December 31, 1972 and 1971 Operating income: 1972 1971 Interest and fees on loans Income on Federal funds sold $4,134,013 $4,006,094 Interest and dividends on: 109,905 109,271 United States Government obligations Obligations of states and political subdivisions 598,308 708,058 2,677,138 2,093,649 Trust department 524,229 227,684 Service charges on deposit accounts 385,389 336,362 Other 127,258 137,345 Total operating income 411,413 306,616 8,967,653 7,925,079 Operating expenses: Salaries Interest on deposits Pensions, profit sharing, and other employee benefits 1,366,702 238,618 1,291,568 3,418,746 207,709 Interest on Federal funds purchased 2,732,651 Net occupancy expense of bank premises (note 4) . 3,137 1,632 Equipment rentals, depreciation, and maintenance (note 4) 314,221 358,709 Provision for loan losses (note 5) 264,366 288,761 36,900 35,900 Total operating expenses 644,882 681,238 Income before income taxes and securities gains 6,287,572 5,598,168 2,680,081 2,326,911 Applicable income taxes: Current .. • Deferred 1,331 121,000 Total applicable income taxes . (1,685) (12,288) Income before securities gains 2,680,435 (354) 108,712 Securities gains, net of related taxes of $72,351 in 1972 and $9,000 in 1971 2,218,199 Net income . 83,715 26,201 $2,764,150 $2,244,400 Income per share (based on 250,000 shares) (note 6): Income before securities gains Net income • $10.72 $ 8.87 11.06 8.98 See accompanying notes to consolidated financial statements of Bank Subsidiary. 19

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Berkshire Hathaway Inc. BANK SUBSIDIARY The Illinois National Bank & Trust Co. of Rockford AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN CAPITAL ACCOUNTS Years Ended December 31, 1972 and 1971 Common stock Surplus Undivided profits contingencies Reserve for for asset re- Reserve evaluation Balance, January 1, 1971 . $2,000,000 $5,000,000 $10,137,393 $1,001,000 $75,000 Excess of loan loss provision 2,244,400 poses, net of tax of $17,232 over allowable for tax pur- 28,342 18,668 Transfer to common Cash dividends (2,000,000) ranster to surplus lated to stock dividend (note 6) 3,000,000 3,000,000 'ransfer to undivided proft: 3,000,000 (3,000,000) 75,000 (75,000) Balance, December 31, 1971 . Add: 5,000,000 5,000,000 7,503,803 1,001,000 Less: Net income . 2,764,150 Transfer to reserve for possible Cash dividends (2,400,000) loan losses, tion charged against income, exclusive of por- net of tax of $66,095 (note 5). (71,604) Balance, December 31, 1972 . . $5,000,000 $5,000,000 $ 7,796,349 $1,001,000 CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION Years Ended December 31, 1972 and 1971 1972 1971 Funds provided for investment: Increase in: Capital funds: Cash dividends declared Net income $ 2,764,150 Other, net (2,400,000) $ 2,244,400 (71,604) (2,000,000) 47,010 Deposits Net changes in capital funds • 292,546 Other, net. 16,840,043 291,410 493,308 14,274,944 580,866 Total $17,625,897 $15,147,220 Funds used: Invested in earning assets: Loans Direct lease equipment Investment securities $ 5,503,742 7,173,845 $ 2,844,218 195,009 9,416,606 89,430 Increase in cash and due from banks Additions to bank premises and equipment 12,872,596 49,186 12,350,254 Other, net 4,278,789 120,865 425,326 2,676,101 Total $17,625,897 $15,147,220 See accompanying notes to consolidated financial statements of Bank Subsidiary. 20

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Berkshire Hathaway Inc. BANK SUBSIDIARY The Illinois National Bank & Trust Co. of Rockford AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1972 and 1971 (1) Significant Accounting Policies (4) Bank Premises and Equipment & Trust Co. of Rockford (a subsidiary of Berkshire The accounting policies of The Illinois National Bank less accumulated depreciation of $1,676,936 Bank premises and equipment are recorded at cost Hathaway Inc.) and its wholly-owned subsidiary, Brown $1,480,008 at December 31, 1972 and 1971, respectively. Building Corporation, conform to generally accepted $222,540 for 1971. Depreciation expense totaled $210,840 for 1972 and of the more significant of those policies: (5) Reserve for Loan Losses Consolidation: The consolidated financial statements included those of the Bank and its wholly-owned The Bank follows the policy of providing additions subsidiary. All significant intercompany transactions to the reserve for possible loan losses in accordance have been eliminated in consolidation. At January 1, Federal tax laws. For financial reporting purposes, the with maximum amounts allowed under the applicable wholly-owned subsidiary of the Bank) was dissolved 1972, the Illinois National Safe Deposit Company (a is based upon the Bank's loan loss experience over the minimum provision to be charged to operating expenses in a tax-free liquidation, and its assets, liabilities and capital (which are not significant in amount) were last five years. merged into the Bank. The Illinois National Safe Transactions in the reserve for loan losses for the Deposit Company had been reported on a consolidated years ended December 31, 1972 and 1971 were as basis with the Bank in prior years and, accordingly, financial statements. the liquidation has no effect on the current consolidated Balance at beginning of year 854,671 $860,445 at cost, adjusted for amortization of premium. Investment Securities: Investment securities are stated Provisions charged to: Operating expenses Undivided profits 36,900 Accrued income taxes . 66,095 71,604 35,900 Bank Premises and Equipment: Bank premises and equipment are stated at cost less accumulated deprecia- Less loans charged off, net of re- 1,029,270 896,345 tion based on the estimated useful life of each asset. Depreciation is computed on the straight-line method and $29,232 in 1971 coveries of $29.259 in 1972 for building and automobiles, and on an accelerated 4,669 5,774 method for improvements, equipment, and drive-in Transfer to: and parking facilities. Undivided profits (1) Balance at end of year Accrued income taxes . 18,668 $1,024,601 $854,871 17,232 Federal Income Taxes: Taxable income is determined method of accounting is used in preparation of financial using the cash basis of accounting whereas the accrual statements. Deferred taxes are provided in recognition of the timing differences. to undivided profits, net of tax. The Bank and its subsidiary join in the filing of a consolidated Federal income tax return with Berkshire The portion of the reserve which was available for Hathaway Inc., the parent company of the Bank. loan losses was $706,422 at December 31, 1972 and $674,191 at December 31, 1971. (2) Investment Securities rities at December 31, 1972 and 1971 was $72,990,000 The appropriate market value of investment secu- (6) Capital Funds On April 12, 1971, capital stock was increased and $64,042,000, respectively. $3,000,000 by a transfer from surplus representing the Investment securities with a book value of par value of 150,000 shares issued in connection with a $10,038,639 and $9,136,472 at December 31, 1972 and 2½ for 1 stock split effected in the form of a stock 1971, respectively, were pledged to secure public dividend approved by the shareholders on January deposits and for other purposes. 12, 1971. (3) Loans (7) Reclassifications Loans have been reduced by unearned discount of Certain items of expense in the 1971 consolidated $2,226,579 and $1,934,534 on December 31, 1972 and statement of income have been reclassified to conform 1971, respectively. to classifications of similar items in 1972. 21

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BERKSHIRE HATHAWAY INC. DIRECTORS WARREN E. BUFFETT, Chairman KENNETH V. CHACE MALCOLM G. CHACE, JR. J. VERNE McKENZIE

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