1979 年伯克希尔完整年报

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Prem Jain 30 BERKSHIRE HATHAWAY INC. 1979 ANNUAL REPORT TO THE STOCKHOLDERS

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Berkshire Hathaway Inc. 1979 Annual Report to the Stockholders Contents of this Report PAGES 2-11 Chairman's Letter 12-26 Financial Statements — Berkshire Hathaway Inc. and Consolidated Subsidiaries 27 Accountants Certificate regarding financial statements of Berkshire Hathaway Inc. and Consolidated Subsidiaries 28-29 Business activities of the Company and its subsidiaries 30 Condensed financial statements of the Parent Company and of the Insurance Group 31 Condensed financial statements of The Iilinois National Bank and of Wesco Financial Corporation 32 Summary of Operations 33-36 Management of the Summary of Operations 37-42 Reproduction of 1979 Annual Report Lettr: from Blue Chips Chairman and President 43 Reproduction of 1979 Annual Report Letter from Wesco's Chairman Inside Back Directors and Officers Cover Common Steck Prices

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Berkshire Hathaway Inc. To the Sharehoiders of Berkshire Hathaway Inc.: accounting profession has decided that equity securities owned by insurance companies must be carried Again, we must lead off with a few words about accounting. Since ou • last annual report, the aggregate cost or aggregate market value. Because we have largo unrealized gains in our insurance on the balance sheet at market value. We previously have curried such equity securities at the lower of equity holdings, the result of this new policy is to increase substantially both the 1978 and 1979 yearend payable should equities be sold at such market valuations. net worth, even after the appropriate liability is established for taxes on capital gains that would be Hathaway's financial statements. However, Blue Chip still is required to carry its equity investments As you know. Blue Chip Stamps, our 60% owned subsidiary, is fully consolidated in Berkshire sidiaries did prior to this year. Should the same equities be purchased at an identical price by an at the Inwer of agsregate cost or aggregate market value. just as Berkshire Hathaway's insurance sub- insurance subsidiary of Berkshire Hathaway and by Blue Chip Stamps, present accounting principles often would require that they end up carried on our consolidated balance sheet at two different values. (That should keep you on your toes.) Market values of Blue Chip Stamps' equity holdings are giver in footnote 3 on page 18. 1979 Operating Results holders' equity with all securities valued at cost is the mosi appropriate way to measure any single We cortinue to feel that the ratio of operating earnings (before securities gains or losses) to share- year's operating performance. with securities valued at cost. that of 1978 — with operating earning amounting to 13.6% of beginning net worth. Earnings per On this basis, we had a reasonably good opercting performance in 1979 - but not quite as good as to focus. We had substantially more capital to work with in 1979 than in 1978, and our performance in share, of course, increased somewhat (about 20%) but we regard this as an improper figure upon which utilizing that capital fell short of the earlier year, even though per-share earnings rose. "Earnings per of return simply because "earnings" (the stated interust rate) are continucusiy plowed back and added share" will rise constantly on a dormant savings account or on a U.S. Savings Bond bearing a fixed rate to the capital base. Thus, even a "stopped clock" can look like a growth stock if the dividend payout equity capital emnloyed (without undue leverage, accounting gimmickry, etc.) and not the achievement The primary test of managerial economic performance is the achievement of a high earnings rate on of consistent gains in earnings per share. In our view, many businesses would be better understood by the primary emphasis they place upon earnings per share, and upon yearly changes in that figure. their shareholder uwners, as well as the generai public. if managements and financial analysts modified Long Term Results it is appropriate to recognize fully any realized capital gains or losses as well as extraordinary items. In measuring long tern economic performance - in contrast to yearly performance - we believe and also to utilize financial statements presenting equity securities at inarket value. Such capital gains or losses, either realized or unrealized, are fully as importan! to sharcholders over a period of years as 2

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extremely capricious in the short run, a characteristic that makes them inappropriate as an indicator of earnings realized in a more routine manner through operations; it is just that their impact is often single year inanageria! performance. to the time that your present management assumed responsibility) : was $19.46 per share. At yearend The book value per share of Berkshire Hathaway on September 30. 1964 (the fiscal yearend prior value comes to 20.5% compounded annually. This figure, of course, is far higher than any average of our 1979, book value with equity holdirgs carried at market value was $335.85 per share. The gain in book yearly operating earnings calculations. and reflects the importance of capital appreciation of insurance equity investments in deiermining the overall results for our shareholders. It probably also is fair to say that the quoted bock vaiue in 1964 somewhat overstated th. intrinsic value of the enterprise, since the assets owned at that time on either a going concern basis or a liquidating value basis were not worth 100° on the dollar. (The liabilities were solid, however.) measured by debt to equity, and operating leverage measured by premium volume to capital funds of We have achieved this result while utilizing a low amouat of leverage (both financial leverage our insurance business), and also without significant issuance or repurchase of shares. Basically, we have worked with the capital with which we started. From nur textile base we, or our Blue Chip and time of sale and subsequentiy.) be made. A few years ago, a business whose per-share net worth compounded at 20% annually would But before we drown in a sea of self-congratulation, a further - and crucial - observation must have guaranteed its owners a highly successful real investment return. Now s*-h an oatcome seems as to whether our internal operating performance produces successful investment results — ie., a less tartain. For the inflation rate, coupled with individual tax rates, will be the ultimate determinant reasonable gain in purchasing power from funds committed - for you as shareholders. have, in turn, been transformed by inflation into financial instruments that chew up, rather than Just as the original 3% savings bord, a 5% passbook savings account or an 8% U.S. 'Treasury Note enhance, purchasing power over their investment lives, a business earning 20% on capital can produce a negative real return for its owners under inflationary conditions not much more severe than pres- means — and this gain is transiated into a corresponding increase in the market value of Berkshire If we should continue to achieve i. 20% compounded gain — not an easy or certain result by any to be very clos: " zero at a 14% inflation rate. Most of the remaining six percentage points will go for Hathaway stock az it has been over the last fifteen years, your after-tax purchasing power gain is likely income tax any time you wish to convert your twenty percentage points of nominal annual gain into cash. to transfer into his own pocket the annual earnings achieved by the business (i.e., ordinary income tax That combination - the inflation rate pius the percentage uf capital that must be paid by the owner on dividends and capital gains tax on retained earnings) — can be thought of as an "investor's misery index". When this index exceeds the rate of return earned on equity by the business, the investor's solution to this problem; high inflation rates will not help us earn higher rates of return on equity. purchasing power (real capital) shrinks even though he consumes nothing at all. We ha. a no corporate end of 1964 would have bought about one-half ounce of gold and, fifteen years later, after we have One friendly but sharp-eyed commentator on Berkshire has pointed out that our book value at he plowed back all earnings along with much blocil, sweat and tears, the book value produced will buy about the same half ounce. A similar comparison could be drawn with Middle Eastern oil. The rub has been that government has been exceptionally able in printing money and creating promises. but is unable to print gold or create cil.

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the most important factor in determining whether there are any real rewards from your investment in you should understand that external conditions affecting the stability of currency may very well be We intend to continue to do as well as we con in managing the internal affairs of the business. But Ber' shire Hathaway. Sources of Earnings Berkshire owns abouf 60% of Blue Chip Stamps which, in turn, owns 80% of Wesco Financial Corpora- We again present a table showing the sources of Berkshire's earnings. As explained last year, tion. The table shows both aggregate earnings of the various business entities, as well as Berkshire's share. All of the significant capital gains or losses attributable to any of the business entities are aggregated in the realized securities gain figure at the bottom of the table, and are not included in operating earnings. Earings Before Income Taxes Net Earnings After Tax Total Berkshire Share Berkshire Share (in thousands of dollars) 1979 1978 1979 1978 1979 1978 Total - all entities 368,632 S66,180 356.127 $54.250 12.8 $39.242 Earnings from Operations: Insurance Group: Net Investment Income . Under.vriting • $ 3,742 24,224 $ 3.001 Associated Retail Stores, Inc. Berkshire-Vaumbec textiles 1.723 19,705 S 3.741 24,216 $ 3,000 2.775 1,723 19.691 $ 2.214 2,916 20.106 $ 1,560 12,785 2,775 2.916 16,400 See's Candies.. 2.757 (2.744) 7,598 7.013 2,757 1,280 848 1,176 1.342 Blue Chip Stamps - Parent Buffalo Evening News. (4.617) 12,482 2,397 (2.913) 1,425 (1,637) (1.333) 3.448 3.049 Illinois National Bank and 2,133 1,198 1,624 1,382 (738) Wesco Financia! Corporation Trust Company. 5,747 4.822 5.614 4,710 5,027 4.262 Mutual Savings and Loan Parent 2.413 1,771 1.098 777 937 665 Precision Steel Association 10.447 (8.248) 3,254 10,556 1,480 4,751 4,638 3,261 723 3.042 Interest on Debt Other ... 1.342 (5.566) 720 (5.860) 996 (4.546) 438 (2.900) 753 12,349) 261 Total Earnings from Realized Securities Gain Operations $57.984 10.648 $52.384 S46,813 $40.955 $35.988 13.796 _ 9.614 13.395 6.729 $30,052 9.190 Total Earnings S68.632 $66.180 $56.427 $54.350 S42,817 S39.242 of this report, we have reproduced the narrative reports of the principal executives of both companies, Blue Chip and Wesc› are public companies with reporting requirements of their own. On pages 37-43 in which they descrite 1979 operations. Sonie of the numbers they mention in their reports are not mamo Indians employ only three numbers: one, two, and more than two. Maybe their time will come.) precisely identical to those in the above table because of accounting and tax complexities. (The Yano- However. the commentary in those reports should be helpful io you in understanding the underlying economic characteristics and future prospects of the important businesses that they manage. upon request to Mr. Robert H. Bird for Blue Chip Stamps, 5801 Scuth Eastern Avenue. Los Angeles, A copy of the full annual report of either company will be mailed to any shareholder of Berkshire California 90040, or to Mrs. Bette Deckard for Wesco Finencial Corporation. 315 East Colorado Boule- vard, Pasadena, California 91109. 4

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Textiles and Retailing ance business has grown dramatically in size and earnings. Ben Rosner, at Associated Retail Stores. The reiative significance of these two areas has diminished somewhat over the years as our insur- large earnings relative to capital employed - realized in cash and not in increased receivables and continues to pull rabbits out of the hat — big rabbits from a small hat. Year after year, he produces very inventories as in many other retail businesses - in a segment of the markei with little growth and Illinois National and Louis Vincenti, 74. at Wesco, regularly achieves more each year. unexciting demographics. Ben is now 76 and. like our other "up-and-comers". Gene Abegg. 32. at employed. This is not a reflection on the managers, but rather on the industry in which they operate. Our textile business also continues to produce some cash, but at a low rate compared to capital In some businesses — a network TV station. for example - it is virtually impossible to avoid earning at equally extraordinary prices. one thousand cents or more on the dollar, a valuation reflecting the extraordinary returns on tangible capital employed in the business. And assets in such businesses sell splendid. almost unavoidable, economic results obtainable. Despite a fancy price tag. the "easy" busi- ness may be the better route to go. few years ago to purchase Waumbec Mills in Manchester, New Hampshire. thereby expanding our We can speak from experience. having tried the other route. Your Chairman made the decision a well below the working capital of the business and. in effect. got very substantial amounts of machinery problems arose as fast as old problems were tamed. turn, and that the same energies and talent are much better employed in a good business purchased at Both our operating and investment experience cause us to conclude that "turn-arounds" seldom acquisition has not been a disaster. a fair price than in a poor business purchased al a bargain price. Although a mistake, the Waumbec additions to our decorator line (our strongest franchise) at New Bedford. and it's possible that we may Certain portions of the operation are proving to be valuable be able to run profitably on a considerably reduced scale at Manchester. However, our original rationale did not prove out. Insurance Underwriting insurance industry would "move up at least a few points, perhaps enough to throw the industry as a We predicted last year that the combined underwriting ratio (see definition on page 36) for the whole into an underwriting loss position". That is just about the way it worked out. The industry urder- thought our underwriting performance relative to the industry would improve somewhat in 1979 and. writing ratio rose in 1979 over three points. from roughly 97.4% to 100.7%. We also said that we again. things worked out as expected. Our own underwriting ratio actually decreased from 98.2% io will worsen by a! least another few points. However, this year we have no reason to think that our 97 1%. Our fcrecast for 1980 is similar in one respect; again we feel that the industry's performance perforance relative to the industry will further improve. (Don't worry - we won't hold back to try to validate that forecast.) ance operation run by Phii Liesche. Aided by Roland Miller in Underwriting and Bill Lyons in Claims. Really extraordinary results were turned in by the portion of National Indemnity Company's insur- this section of the business produced an underwriting profit of $8.4 million on about $82 millicn of premiums. Only a very few companies in the entire industry produced a result comparable We hear a great many insurance managers talk about being willing to reduce volume in order to under- You will notice that earned premiums in this segment were down somewhat from those of 1978. write profitably: but we find that very few actually do so. Phil Liesche is an exception: if business makes sense, he writes it: if it doesn't, he rejects it. It is our policy not to lay off people because of the large fluctuations in work load produced by such voluntary volume changes. We would rather have some

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slack in the organization from time to time than keep everyone terribiy busy writing business on which underwriting discipline at the inception of the company, and Phil Liesche never has wavered in main- we are going to lose money. Jack Ringwalt, the founder of National Indemnity Company, instilled this taining it. We believe such strong-mindedness is as rare as it is sound - and absolutely essential to the running of a first-class casualty insurance operation. large part by significantly expanding the marketing scope of that company in general liability lines. John Seward continues to make solid progress at Home and Automobile insurance Company, in Springman. we have two cautious liability managers extending cur capabilities. results after allowing for investment income, but underwriting performance remains unsatisfactory. Our reinsurance division, led by George Young, continues to give us reasonably satisfactory overall the influx of capital into the business and the resulting softer price levels for continually increasing We think the reinsurance business is a very tough business that is likely to get much tougher. In fact. unaware until they are in over their heads; much reinsurance business involves an exceptionally "long exposures may well produce disastrous results for many entrants (cf which they may be blissfully years). It will be hard for us to be a whole lot smarter than the crowd and thus our reinsurance activity tail". a characteristic that allows catastrophic current loss experience to fester undetected for many may decline substantially during the projected prolonged period of extraordinary competition. Geerge Billings at Texas United Insurance Company, winner of the annual award for the low loss ratio The Homestate operation was disappointing in 1979. Excellent results again were turned in by among Homestate companies, and Floyd Taylor at Kansas Fire and Casualty Company. But several of the other operations, particularly Cornhusker Casualty Company, our first and largest Homestate opera- tion and historically a winner, bad poor underwriting results which were accentuated by data process- ing, administrative and personnel problems. We have made some major mistakes in reorganizing our John Ringwalt has thrown himself into the task of getting things straightened out and we have conti- data processing activities, and those mistakes will not be cured immediately or without cost. However, dence that he, aided by several strong people who recently have been brought aboard, will succeed. the beginning of 1979. We had a very favorable climate in California for the achievement of good results Our performance in Worker's Compensation was far, far better than we had any right to expect at but, beyond this, Milt Thornton at Cypress Insurance Company and Frank DeNardo at National Indem- nity's California Worker's Compensation operation both performed in a simply outstanding manner. We have admitted - and with good reason

• some mistakes on the acquisition front, but the Cypress

purchase has turned out to be an absolute gem. Milt Thornton, like Phil Liesche, foilows the policy of volume. As a result, he has an outstanding book of business and an exceptionally well functioning sticking with business that he understands and wants, without giving consideration to the impact on group of employees. Frank DeNardo has straightened out the mess he inherited in Los Angeles in a manner far beyond our expectations, producing savings measured in seven figures. He now can begin to build on a sound base. Noble. At least initially, this operation will be relatively small since our policy will be to seek client companies who appreciate the need for a long term "partnership" relationship with their reinsurers. best primary writers as our financial strength and stability become better known in the surety field. We are pleased by the quality of the insurers we have attracted, and hope to add several more of the rates will start to firm in a year or so, leading to a turn in the cycle some time in 1981. We disagree with The conventional wisdom is that insurance underwriting overall will be poor in 1980, but that regarded as totally unacceptable. Managers decry the folly of underwriting at a loss to obtain invest- this view. Presen! interest rates encourage the obtaining of business at underwriting loss levels formerly meni income, but we believe that many will. Thus we expect t'. 'competition will create a new threshold of tolerance fer underwriting losses, and that combi lios will average higher in the future than in the past.

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by higher gas prices. In our opinion, if the habits hadn't changed, auto insurance rates would have besn frequency of auto accidents — probably brought on in major part by changes in driving habits induced To some extent, the day of reckoning has been postponed because of marked reduction in the very little higher and underwriting results would have been much worse. This dosage of serendipity won't last indefinitely. years. While we havc a high degree of confidence that certain of our operations will do considerably Our forecast is for an average combined ratio for the industry in the 105 area over the nexi five better than average, it will be a challenge to us to operate below the industry figure. You can get a lot of surprises in insurance. unusual degrue, human managerial talent — or the lack of it. We have a number of managers whose Nevertheless, we believe that insurance can be a very good business. It tends to magnify, to an truly outstanding management groups through our investments in SAFECO and GEICO.) Thus we taient is both proven and growing. (And, in addition, we have a very large indirect interest in two expect to do well in insurance over a perior, of years. However, the business has the potential for really terrible results in a single specific year. If accident frequency should turn around quickly in the auto field, we, along with others, are likely to experience such a year. Insurance investments in 1979 they continued to perform well, largely because the underiying companies in which we have In recent years we have written ai length in this section abort our insurance equity investments. invested, in practically all cases, turned in outstanding performances. Retained earnings applicable annually and, in aggregate, now come to a very substantial number. We have faith that the manage- to our insurance equity investments, not reported in our financial statements, continue to mount retained by them into a dollar or more of subsequeni market value for us. In part, our unrealized gains ments of these companies will utilize those retained earnings effectively and will translate a dollar reflect this process. Below we show the equity invectments which had a yearend market value of over $5 million: No. of Sh. Company Cost Market $ (000s omitted) 283,700 112.545 Affiliated Publications. Inc... 2.821 2.861 $ 8,800 5.730.114 246.450 Amerada Hess 6.082 5,487 American Broadcasting Cornpanies, Inc. 28,288 68.045 9,673 1.007,500 328.700 GEICO Corp. (Common Stock) General Foods, Inc. ... 21.825 11,437 38.537 11.953 1,211.834 711.180 Interpublic Group of Companies, Inc. Handy & Harman... 4,531 23.736 Media General, Inc. . Kaiser Aluminum & Chemical Corp. 20.629 4,545 23,328 282,500 7,345 953.750 391.400 Ogilvy & Mather International 3,709 7,828 The Washington Post Company SAFECO Corporation . 23,867 10.628 39.241 35.527 1.868.000 771,900 F. W. Woolworth Company . 15.515 19.394 Total. $156,738 $207,994 All Other Holdings 28,675 38.686 Total Equities S185.413 S336.680 in an underperformance by our portfolio for the first time in recent years. We very much like the com- We currently believe that equity markets in 1980 are likely to evolve in a manner that will result panies in which we have major investments, and plan no changes to try to attune ourselves to the markets of a specific year.

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more extended discussion of bond investments may be appropriate for this one, particularly in light of Since we have covered our philosophy regarding equities extensively in recent annual reports, a what hes happened since yearend. An extraordinary amount of money has been lost by the insurance panies to carry their bond investmenis at amortized cost, regardless of impaired market value. Actually, indusiry in the bond area — notwithstanding the accounting convention that allows insurance com- that very accounting convention may have contributed in a major way to the losses: had managerent been forced to recognize market values, its altention might have been focused much. earlier on the dangers of a very long-term bond contract. during a time of inflation, and six-month policies have been brought in as replacements. "How." say Ironically, many insurance companies have decided that a one-year auto policy is inappropriate such imponderables as hospital costs, auto parts prices, etc.?" Bui, having decided that one year is too many of the insurance managers. "can we be expected to look forward twelve months and estimate long a period for which to set a fixed price for insurance in an inflationary world, they then have turned around, taken the proceeds from the sale of that six-month policy, and sold the money at a fixed price for thirty or forty years. still regularly initiated in an inflation-ridden world. The buyer of money to be used between 1980 and The very long-term bond contract has been the last major fixed price contract of extended duration medical services, newsprint, office space -- or just about any other product or service - would be 2020 has been able to obtain a firm price now for each year of its use while the buyer of auto insurance, greeted with laughter if he were to request a firm price now to apply through 1985. For in virtu-lly all ocher areas of commerce. parties to long-term contracis now either index prices in some manner, or insist on the right to review the situation every year or so. writers) of money hardly could be expected to raise the question of whether it all made sense, and the A cultural lag has prevailed in the bond area. The buyers (borrowers) and middiemen (under- sellers (lenders) slept through an economic and contractual revolution. in the straight bond area on shorter issues with sinking funds and on issues that seemed relatively Even prior to this period, we never would buy thirty or forty-year bonds; instead we tried to concentrate However, the mild degree of cautien that we exercised was an improper response to the world sleeping. It was a mistake to buy fifteen-year bonds, and yet we did; we made an even more serious unfolding about us. You do not adequately protect yourself by being half awake while others are (Naturally, those views are much ciearer and definite in retrospect; it would be fair for you to ask why mistake in not selling them (at losses, if necessary) when our present views began to crystallize. we weren't writing about this subject last year.) limited to the purchase of convertible bonds. We believe that the contersion options obtained, in effect, tion with yur insurance operations. In the last several years our net fixed dollar commitments have been give that portion of the bond portfolio a far shorter average life than implied by the maturity terms of the issues (i.e., at an appropriate time of our choosing, we can terminate the bond contract by conver- sion into stock). great majority of property and casualty insurance companies. We also have been helped by our strong This bond policy has given us significantly lower unrealized losses than those experienced by the preference for equities in recent years that has kept our overall bond segment relatively low. Neverthe- less charitably than the mistakes of those who went about their business unmindful of the devel- are taking our lumps in bonds and feel that, in a sense, our mistakes should be viewed oping problems.

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clever (via sinking funds and other special type issues) in an area where the tide was running heavily Harking back to our textile experience, we should have realized the futility of trying to be very against us. remains an appropriate business contract in a world where the value of dollars seems almost certain to We have severe doubts as to whether a very long-term fixed-interest bond, denominated in dollars, shrink by the day. Those dollars. as well as paper creations of other governments, simply may have too many structural weaknesses lo appropriately serve as a unit of long term commercial reference. If so, reilects that mistake. ings retention factor (applicable to the stock into which they may be converted) that prevails in our Some of our convertible bonds appear exceptionally attractive to us, and have the some sort oí earn- conventional equity portfolio. We expect to make money in these bonds (we already have, in a few cases) and have hopes that our profits in this area may offset losses in straight bonds. for very low rates of inflation are noi nil. inflation is man-made; perhaps it can be man-mastered. The And, of course, there is the possibility that our present analysis is much too negative. The chances threat which alarms us may also alarm legisiators and other powerful groups, prompting some year or two ago. Such rates may prove adequate or more than adequate to protect bond buyers. We even Furthermore, present interest rates incorporate much higher infiation projections than those of a now for a pound of See's candy or a yard of Berkshire cloth to be delivered in 2010 or 2020 makes us may miss large profits from a major rebound in bond prices. However, our unwillingness to fix a price equally unwilling to buy bonds which set a price on money now for use in those years. Overall, we opt for Polonius (slightly restated): "Neither a short-term borrower nor a long-term lender be." Banking a subsidiary of Berkshire Hathaway. Therefore, it is particulariy pleasant to report that, under Gene This will be the last year that we can report on the Illinois National Bank and Trust Company as Abegg's and Pete Jeffrey's management, the bank broke all previous records and earned approximately and more than double that of banks regarded as outstanding. The record is simply extraordinary, and 2.3% on average assets last year, a level again over three times that achieved by the average major bank, this year and every year since our purchase in 1969. ber 31, 1980. For some years we have expected to comply by effecting a spin-off during 1980. However. As you know, the Bank Holding Company Act of 1969 requires that we divest the bank by Decer- the Federal Reserve Board has taken the firm position that if the bank is spun off, no officer or director in a case such as ours in which one individual would own over 40% of both companies. of Berkshire Hathaway can be an officer or director of the spun-off bank or bank holding company, even stock of the bank. We will be most choosy about any purchaser, and our selection will not be based Under these conditions, we are investigating the possible sale of between 80% and 100% of the sell, we want to be sure that they are treated equally as well. A spin-off still is a possibility if a fair price solely on price. The bank and its management have treated us exceptionally well and, if we have to along with a proper purchaser cannot be obtained by early fall. replace the earning power represented by the bank from the proceeds of the sale of the bank. You simply However, vou should be aware that we do not expect to be able to fully. or even in very large part. can't buy high quality businesses at the sort of pricelearnings multiple likely to prevail on our bank sale.

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Firancial Reporting the stock now is quoted on the Over-the-Counter page of the Wall Street Journal under "Additional During 1979, NASDAQ trading was initiated in the stock of Berkshire Hathaway. This means that report our earnings, even though such earnings were one hundred or more times the levei of some OTC Quotes". Prior to such listing, the Wali Street Journal and the Dow-Jones news ticker would not companies whose ruports they regularly picked up. them and, in addition, both the ticker and the Wall Street Journal report our annual earnings. This Now, however, the Dow-Jones news ticker reports our quarterly earnings promptly after we release solves a dissemination problem that had botuered us. ing to you. For example, at the end of each year about 98% of the shares outstanding are held by people hi some ways, our shareholder group is a rather unusual one, and this affects our manner of import- who also were shareholders at the beginning of the year. Therefore, in our annual report we build upon what we have told you in previous years instead of restating a lot of material. You get more useful information this way, and we don't get bored. security holding, very often far and away the iargest. Many of these owners are willing to spend a Furthermore, perhaps 90% of eur shares are owned by investors for whom Berkshire is their iargest significant amount of time with the annual report, and we attempt to provide them with the same information we would find useful if the roles were reversed. have very long time-horizons in regard to this business, and it is difficult to say anything new or mean- In contrast, we include no narrative with our quarterly reports. Our owners and managers both ingful each quarter about events of long-term significance. run the business. Your Chairman has a firm belief that owners are entitled to hear directly from the But when you do receive a communication from us, it will come from the fellow you are paying to demand that in a private company; you should expect no less in a public company. A once-a-year report CEO as to what is going on and how he evaluates the business, currently and prospectively. You would of stewardship should not be turned over to a staff specialist or public relations consultant who is unlikely to be in a position to talk frankly on a manager-to-owner basis. is owed to us at Berkshire Hathaway by managers of our business units. Obviously, the degree of detail We feel that you, as owners, are entitled to the same sort of reporting by your manager as we feel must be different, particularly where information would ba useful to a business competitor or the like. document when our operating managers tell us what is going on, and we don't feel you should receive But the general scope, balance, and level of candor should be similar. We don't expect a public relations such a document. focus their thinking and communications on short-term results or short-term stock market consequences In large part, companies obtain the shareholder constituency that they seek and deserve. If they their treatment of investors, eventually that cynicism is highly likely to be returned by the invest- they will, in large part, attract shareholders who focus on the same factors. And if they are cynical in ing shareholders to those of a restaurant attracting potential customers. A restaurant could seek a given Phil Fisher, a respected investor and author, once likened the policies of the corporation in attract- clientele — patrons of fast foods, elegant dining, Oriental food, etc. — and eventually obtain an appro- priate group of devotees. If the job were expertly done, that clientele, pleased with the service, menu, constantly and end up with a happy and stable clientele. If the business vacillated between French and price level offered, would return consistently. But the restaurant could not change its character cuisine and take-out chicken, the result would be a revolving door of confused and dissatis- fied customers. men, simultaneously seeking different owners whose primary interests run from high current yield to So it is with corporations and the shareholder constituency they seek. You can't be all things to all long-termn capital growth to stock market pyrotechnics, etc. 10

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The reasoning of managements that seek large trading activity in their si. res puzzles us. In effect, desert them in favor of new ones - because you can't add lots of new owners (with new expectations) such managements are saying ihat they want a good many of the existing clientele continually to without losing lots of former owners. hard to find a better group to sit in the Berkshire Hathaway shareholder "seats" than those already We much prefer owners who like our service and menu and who return year after year. Ii would be constituency that understands our operation, approves of our policies, and shares our expectations. And occupying them. So we hope to continue to have a very low turnover arnong our owners, reflecting a we hope to deliver on those expectations. Prospects decrease. This iurned out to be correct. Our forecast for 1980 is the same. If we are wrong, it will be on Last year we said that we expected operating earnings in dollars to improve but return on equity to the downside. In other words, we are virtually certain that our operating earnings expressed as a per- centage of the new equity base of approximately $236 million, valuing securities at cost, will decline from the 18.6% attained in 1979. There is also a fair chance that operating earnings in aggregate partly upon the degree of slippage in insurance underwriting profitability, and partly upon the severity of earnings problems in the savings and loan industry. expect to develop very large and growing amounts of underlying earning power attributable to our We continue to feel very good about our insurance equity investments. Over a period of years, we fractional ownership of these companies. In most cases they are splendid businesses, splendidly managed, purchased at highly attractive prices. top, it might be added), and rather extreme delegation of operating authority to a number of key Your company is run on the principle of centralization of financial decisions at the top (the very managers at the individual company or business unit level. We could just field a basketball team with our corporate headquarters group (which utilizus only about 1500 square feet of space). through cioser operating controls. But it also eliminates large layers of costs and dramatically speeds This approach produces an occasional major mistake that might have been eliminated or minimized of all, it enables us to attract and retain some extraordinarily talented individuals — people who simply decision-making. Because everyone has a great deal to do, a very great deal gets done. Most important can't be hired in the normai course of events — who find working for Berkshire to be almost identical to running their own show. We have placed much trust in them - and their achievements have far exceeded that trust. Warren E. Buffett, Chairman viarch 3, 1980 11

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Berkshire Hathaway Inc. CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED SUBSIDIARIES ASSETS (doliars in thousands) Dec. 29, 1979 Dec. 30, 1978* investments, other than investments in affiliates: Cash ... $ 14,924 $ 13,001 Marketable equity securities (note 3) ..... Bonds, at amortized cost (market, 1979 — S171.466; 1978 - $155,541) •• 411,358 185.564 283.185 157.651 Invested cash, U.S. Treasury bills and other short-term investments, at cost which approximates market... 18.172 Total investments, other than affiliates 615,094 501,892 61.056 Investments in affiliates: The lilinois National Bank & Trust Co. of B...kford (note 4) 28,785 Wesco Financial Corporation (note 5) 56,750 27,146 Other unconsolidated subsidiaries 1,377 49,370 1,477 A. Junts receivable from customers, agents and others (note 6) Total investments in affiliates 86,912 52,231 77,993 Inventories (note 7..................... Real estate, equipment, furniture and leasehold improvements, at cost less 25,704 45,283 23,029 Deferred insurance premium acquisition costs allowarce for depreciation and amortization (note 8) 49,793 13,652 13,846 47,877 Other assets $892.265 33.955 $757,612 34,691 LIABILITIES AND STOCKHOLDERS' EQUITY Losses and loss adjustment expenses $197,697 $180,870 Unearned premiums .. 73,604 69,368 Accounts payable, accruals and other liabilities Liability for unredeemed trading stamps.. 38,792 67,524 66,832 33,983 Current income taxes ... 52,079 10,411 10,768 Long term debt (note 9) ....... Deferred income taxes 52,097 55,099 57,071 36,034 Mincrity shareholders' interest . 48,520 547.303 503.446 Stockholders' equity: Common stock of 35 par value. Authorized 1,250.000 shares; issued Capital in excess of par value .... 1,214,283 shares including 187,138 shares in treasury 6,071 Unrealized appreciation of marketable equity securities, net of provision 3.517 6,071 3,517 Retained earnings (note 9) ....... for applicable income taxes ... _238,332 108,913 195.515 60,934 356,333 Less common stock in treasury, at cost ... 11.871 266,037 11,871 Total stockholders' equity ...... 344,962 254.166 Commitment and contigent liability (notes 4. 11 and 13) $892.265 $757.612 *1978 restated - see note 1(b). See accompanying notes to consolidated financial statements. 12

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10 Berkshire Hathaway Inc. CONSOLIDATED STATEMENTS OF EARNINGS AND CONSOLIDATED SUBSIDIARIES (dollars in thousands except for per share amounts) Year ended Dec. 29, 1979 Dec. 30, 1978 Income items: Insurance premiums earned Net sales and operating revenues of manufacturing. merchandising $181,949 $186.073 Interest and dividend income and service operations... 247,952 30,440 235,576 24,293 Equity in operating earnings of unconsolidated subsidiaries. _ 13.744 11.659 474.085 457.601 Cost and expense items: Insurance losses and loss adjustment expenses 120,337 Insurance underwriting expenses..... Cost of products and services sold ..... 158,710 132,263 57,870 151,521 Interest and financing costs... Selling. general and acministrative expenses 79,839 71,172 50,810 5,729 5,058 422,485 410,824 Earnings from consolidated operations including minority interests, income taxes applicable to above (note 10) ... before applicable income taxes and realized investment gain 51,600 9.796 46,777 10,735 Earnings from consolidated operations including minority interests. Minority interest in above ............. before realized investment gain 41,804 36,042 5,883 29,984 6.058 Earnings before realized investment gain. 35.921 Realized investment gain .... 10,148 (2,732) 13,987 Applicabie minority interest ..... Appiicable income taxes ....... (520) (4,416) (313) Realized investment gain, net of income taxes Net unrealized appreciation in market value of marketable and minority interest..... 6,896 9,258 equity securities amounting to $75,951 in 1979 and tion of net earnings. $14,665 in 1978 has not been included in the determina- Average shares of common stock outstanding.. Net earnings ... $ 42,817 39,242 1.027.145 1.028,684 Earnings per share: Earnings before realized investment gain... $ 34.97 $ 29.15 Realized investment gain .............. $ 41.68 6.71 $ 38.15 9.00 Net earnings..... See accompanying notes to consolidated financial statements. CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (dollars in thousands) Year ended Dec. 29, 1979 Dec. 30, 1978 Retained earnings at beginning of year. $195,515 $156,273 Net earnings for the year.... 42.817 39.242 Retained earnings at end of year $238.332 $195.515 See accompanying notes to consolidated financial stotements. 13

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Berkshire Hathaway Inc. CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION AND CONSOLIDATED SUBSIDIARIES (collars in thousands) Year ended Der.. 29. Funds provided: 1979 Dec. 30, 1978 From operations: Net earnings ... $ 42,817 Minority interest in earnings .. 6.403 $ 39,242 45.613 6.371 Charges (credits) to earnings not requiring (providing) funds: Earnings including minority interest... 49,220 Equity in undistributed earnings of unconsolidated subsidiaries, ne! Increase in unpaid insurance losses and loss adjustment expenses of dividends received 16,827 (9.019) 41,409 (6,712, Increase in unearned insurance premiums 4,236 12,240 Depreciation and amortization of property, plant and equipment, Decrease (increase) in deferred insurance premium acquisitiors costs including leaseholds 4.651 16048) 19% (2,994) 4,602 Increase in accounts receivable .. (2,675) (7,274) Increase jecrease) in liability for income taxes applicable to earnings. Decrease (increase) in inventories (518) 747 1,809 692 6,368 Increase (decrease) in accounts payable Increase in liability for unredeemed trading stamps 623 (574) (1,339) (1.001) Other 11,675 40.669 Proceeds from issuance of debt Funds provided from operations 60,895 92,282 4,791 Decrease in cash 995 $ 60,805 $ 98.0€8 Funds used: Additions to property, plant and equipment, net of disposais 6.567 1,972 5,450 Repayment of deb! 520 1.924 Purchase of shares of Blue Chip Stamps from minority Dividends paid to minority stockholders 564 Purchase of treasury stock (3532 shares) ....• (1979 102, 400 shares: 1978 252,100 shares) 2,233 Cost of net purchases (sales) of investments: Bonds. U.S. Treasury bills and short-term obligations (42,884; 26,735 Marketable equity securities... 63,9.9 Linconsolidated subsidiaries 47,680 .(10G) Increase in cash Net purchase of investments. 1,923 S 61.895 S 98.068 See accompanying notes to consolidated financial statements. 14

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12 Berkshire Hathaway Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AND CONSOLIDATED SUBSIDIARIES December 29. 1979 and Deceml.er 30, 1978 (dollars in thousards) (1) Summary of Significant Accounting Policies and Practices (a) Basis of Presentation The Consolidated Financial Statements include the accounts of Berkshire Hathaway Inc. (the Company) and the accounts of all significant majority-owned subsidiaries except the Illinois National Bank & Trust Co. of Rockford ("Illinois National Bank") control of which is to be divested by January 1, 1981. Sub- sidiaries which are consolidated include: (1) wholly-owned companies engaged in the businesses of property/casualty insurance (the Insurance (2) Blue Chip Stamps ("Blue Chip"), a California corporation engaged directly in the promotional Group), textile products manufacturing, and retailing. services business, approximately 60% owned by the Company and its wholly-owned sub- (3) Blue Chip's wholly owned subsidiaries, one of which is engaged in the newspaper business and others of which are engaged in the candy business. The Company's investmen' in the Illinois National Bank is accounted for by the equity method of account- ing. Blue Chip owns approximately 80% of the outstanding capital stock of Wesco Financial Corporation steel products service business. The Company's beneficial ownership of Wesco represents slightly less ("Wesco"). a hoiding company with subsidiaries engaged in the savings and loan business and in the than 50% ~ that company: accordingly, the investment in Wesco is accounted for in the accompanying Consolidated Financial Statements pursuant to the equity method of accounting. Accounts oi subsidiaries engaged in the property and casualty insurance business are maintained on the basis of a calendar year. Accounts of the Company and other principal subsidiaries are maintained on the basis of a 52-53 week fisco. year ending with respect to December 31. (b) Change in Method of Determining Carrying Value of Investments in Marketable Equity Securities Priot to 1979, investments i/ marketable equity securities were carried in the Consolidated Balance Sheet of the Company at the lower of their aggregate cost or market. This practice was changed in 1979 to a and such investments by other members of the consclidated group are carried at the iower of their dual method whereby such investments by members of the Insurance Group are carried at market value aggregate cost or market. This dual method was adopted in 1979 to conform to a revise AICPA Audit Consolidated Balance Sheet has been restated to reflect this changed practice. Changes in the 1978 Guide applicable to propertyicasualty insurance companies: 'he accompanying December 30, 1978 (2) increace the liability for deferred income laxes S2€,149. (3) decrease minority shareholders' interest Consolidated Balance Sheet were (1) increase the carrying value of marketable equity securities $87,024. $59, and (4) increase stuckholders' equity $60.934. The change had no effect on net income. (c) Investment in Securities, Other Than Affiliates Investments in bonds are stated at amortized cost. Investments it. marketable equity securities held by members of the Insurance Group are carried at market value. Investments in marketable equity securities held by subsidiaries of the Company which are not members of the Insurance Group are carried at the lower of aggregate cost or market. (Sce note 1(b) above.) 15

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13 Berkshire Hathaway Inc. AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) December 29, 1979 and December 30, 1978 (dollars in thousario/ Blue Chip, at both December 29. 1979 and Deceriber 30. 1978. held ar. investment in non-voting stock of no trading market for this stock. PHC: principal assets are equity securities of Pinkerton's. Inc. (PI). Pinkerton Holding Corporation (PHC) which is reflected in other assits at its cost of $4,163. There is equity securities. Blue Chip's interest in Pl. both direct and indirect (through PHC), represents a beneficial Blue Chip also holds non-voting secuvities of PI, the cost of which ($19.201) is included in marketable ownership in the equity of Pl of ripproximately 34% at December 29. 1979. but because this interest is represented by non-voting stock. Blue Chip does not account for this interest pursuant to the equity method of accounting. The Company & wonomic interest in the equity of Pi is reduced to 20%. taking into account the minority interest of Blue Chip which is outstanding. {d) Insurance Premiums Insurance premiums are recognized as revenues ratably over the terms of the policies. Unearned premiums are computed on a monthly or daily pro rata basis and are stated aiter deduction for reinsurance placed with reinsurers in the amount of $1.530 at December 31. 1979 and $1.311 at December 31, 1978. Premium pursuant to sta: ory insurance accounting rules, charged against income wi.en incurred. However. for acquisition certs such as commissions, premium taxes and certain other underwriting expenses are. financial statement purposes, a portion of such costs are deferred and chars,ed against income as the related premiums are earned. Dividends to policyholders, primarily relating to workers' compensation coverages, are reflected in the accompanying statements of earnings as a deduction from written and earned premiums; this reduction amounted to $3.221 for 1979 and $1.344 for 1978. (e) Losses and Loss Adjustment Expenses The Insurance Group provides for losses and loss adjustment experses based on (1) aggregale case basis estimates for losses reported, relating io direct premiums written, (2) estimates of incurred but no! reported losses, and (3) estimates received from primary insurers with respect to assumed reinsurance. to $5.632 at December 31, 1979 and S7,137 at December 31, 1978. Incurred losses and loss adjustment The resulting liability provision is reduced ior amounts recoverable on acccunt of reinsurance amounting ance with statutory requirements; additional amcunts recoverable as salvage or on account of subroga- expenses are net of recoveries of salvage and subrogation collected or in process of collection in accord- tion, relating principally to automobile physical damage coverages, are not recognized as they are considered immaterial in the aggregate. (f) Stamp Service Accounting Blue Chip recognizes stamp service revenues and related redemptio: estimates of the tuture cost of redemption merchandise and service; the estimates are perindically slamps. A liability account for unredeemed trading stamps is main. among others, that 97% of the stamps issued before March, 1974 and 93% of those issued thereafter evaluated, and revised when considered warranted. The estimates are currently based on a presumption. will ultimately be redeemed. (g) Real Estate, Equipment, Furniture and Leasehold Improvements These items of property (including significan betterments and renewa's) are carricd at cost depreciated over their useful lives estimated at the date of acquisition. The double-declining balance method is used to calculate depreciation of naw items of textile properties acquired after 1965. and selected new items and renewals of a minor nature are generally charged to operations as incurred. acquired by other businesses: the straight-line method is applied for other items. Maintenance, repairs 16

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3 Berkshire Hathaway Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Centinued) AND CONSOLIDATED SUBSIDIARIES December 29. 1979 and December 30. 1978 (dollars in thousands) (h} Inventories Inventories are stated at cost. determined for the Company and for Clue Chip's newspaper subsidiary under the last-in. first-out ("LIFO) method. Inventories of other members consolidated are stated at the lower of cost or market, with cort determined under the first-in, first-out or average cost methods. Replacement cost of inventories determined by the LIFO method exceeded their carrying value by $1.871 at December 29. 1979 and $1.884 at December 30, 1978. Income Taxes The Company and its eligible (over 80% owned domestic) subsidiaries file a consolidated Federal income tax retirn. Blue Chip and its subsidiaries also file a consoli-lated Federal income tax return. Amounts include the direct or apportioned Federal taxes of the companies whose accounts are consolidated. included in the consolidated balance sheets for current Federal ircome taxes payable or recoverable Provision has been made for deferred taxes with respect to equity of the Company and its wholly-owned subsidiaries in undistributed earnings of Blue Chip, on the assumption that such earnings wil! eventually be distributed, taxable as dividend income. The cumulative amount so provided was $2.773 at December 29, 1979 and $2.193 at December 30, 1978. Deferred or with respect to certain items of income and deductions which are recognized in the financial statements prepaid income taxes are recognized in the accompanying consolidated financial statements in time periods that differ from those in which they are included in the income tax returns filed for the companies. The principal such "timing difference", for which deferred income taxes of $6,280 at Decem- ber 29, 1979 and $6.646 at December 30. 1978 are recognized, is deferred insurance premium acquisition costs (see note 1(d) above). Other assets include prepaid income taxes of Blue Chip ammounting to $12.358 at December 29. 1979 and $11.834 at December 30, 1978 primarily in recognition of tining differences with respect to stamp redemption expenses. The liability for deferred income taxes reflected in the consolidated balance sheets also includes $42.355 at rates on the excess of market value over cost of marketable equity securities held by members of the December 29. 1979 and $26,149 at December 30. 1978, representing amounts computed at capital gain Insurance Group. (2) Merger of Diversified Retailing Company, Inc. At December 30, 1978 Diversified Retailing Company, Inc. ("Diversified") was merged into the Company in a transaction accounted for as a combination of companies under common control. The accompanying financial statements as of December 30. 1978 and for the yar then ended give effect te the combination of the accounts of Diversified and the Corapany. 17

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Berkshire Hathaway Inc. AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) December 29, 1979 and December 30, 1978 (dollars in thousands) (3) Investments in Marketable Equity Securities A summary of the aggregate cost and aggregate approximate market value of investments in marketable equity secuzities is as follows: December 29, 1979 Held by Cost Market Carrying Value Insurance Group .. Blue Chip Stamps and its wholly-owned subsidia $185,413 74.678 $336,680 86.386 $336,680 74.670 $260.093 S423.046 $411,358 December 30. 1978 $133,786 Cost Market Carrying Valuc Insurance Group. Blue Chip Stamps and its wholly-owned subsid 62.395 $220,929 62,25G $220,929- 62,256 S196,161 $283,185 S283.1.35 consolidated subsidiaries represented unrealized gains less unrealized losses as follows: The total excess of aggregate market value over aggregate cost of marketable equity securities held by all Dec. 29, 1979 Dec. 30, 1978 Unrealized losses Unrealized gains $:64,460 $ 91,315 1,485 4.291 Net unrealized gain. $162,975 $ 87.024 Net change in year.... $ 75.951 $ 14,665 with respect to inarketable equity securities held at December 29, 1979 the net unrealized gain, less net realized (Unaudited) The difference continucusly changes between cost and market value of the securities portiolios: gain, computed as of a date (March 17, 1980) subsequent to year-fud but prior to the date of issuance of these financial statements, decreased $56,767. (4) Investment in The Illinois National Bank & Trust Co. of Rockford bank's outstanding stock. The equity method is used in accounting for this investment. Carrying value of tie The investment of the Company in Illinois National Bank represents approximately 98% of that commercial investment at December 29, 1979 exceeds underlying book value by approximately $1,836. The difference is not being amortized since it originated prior to 1970 and is considered by management to have continuing value. Federal legislation enacted in 1970. The Company has filed with the Federal Reserve Board an irrevocable election As a result of its ownership of the Illinois National Bank, the Company is a bank holding company under ing alternative means of accomplishing s • ivestiture. Prior to 1979, a spin-off of bank shares owned by the to divest of control of the Illinois National ink prior to January 1, 1981. Management of the Company is consider- a major portion of the shares of the bank ayrt is to be another likely alternative. Company to the Company's shareholders w, considered the most likely means; currently, however, a sale of all or Summarized financial statements of Illin‹ is National Bank appear on page 31 of this report. 18

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Berkshire Hathaway Inc. AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) December 29. 1979 and December 30, 1978 (dollas in thousands) (5) Investment in Wesco Financial Corporation and December 30. 1978. The investment in Wesco is stated at Blue Chip's cost plus Blue Chip's equity in Wesco's Wesco is a savings and loan holding company, approximately 80% owned by Blue Chip at December 29, 1979 undistributed earnings since date of acquisition. The unamortized excess of Blue Chip's equity in net assets of Wesco over its carrying value at Dec mber 29, 1979 and December 30, 1978 was, respectively, $20,477 and $21.101. "equity in net earnings of unconsolidated subsidiaries" in the Statements of Earnings ior 1979 and 1978. This excess is being amurtized by Blue Chip over 40 years; annual amortization (S624) is reflected ander the caption Summarized consolidated financial information of Wesco and its subsidiaries for the past two years appears on page 31 of this report. (8) Receivables Accounts receivable from customers, agents and others was made up of the following: Dec. 29, 1979 Dec. 30, 1978 Insurance Group: Investment income due and accrued Agents' balances and premiums in course of collection $ 20,546 4,244 $ 18,896 Reinsurance recoverable on loss payments. 5.965 4,425 Amounts due from sales of securities ..... 2.765 5,413 $ 33.520 $ 28.734 Trade accounts receivable of other businesses: Retailing business Textile business 10,291 555 10,109 Candy business. 1,064 1.119 541 Promotional services business Newspaper business 5,015 2,069 4,149 Other.. 19,471 477 899 379 760 17,196 Less allowance for doubtful accounts 647 $ 52,231 18.711 $ 45,283 16,549 Total receivables. (7) Inventories A summary of inventories follows: Dec. 29, 1979 Dec. 30, 1978 Retailing business Textile business $ 11,761 5,177 $ 9,773 Newspaper business Candy business... 5,153 4,880 695 4,098 Promotional services business 2,485 S17 Other .. $ 25,704 433 3,245 $ 23,029 416 19

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Berkshire Hathaway Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) AND CONSOLIDATED SUBSIDIARIES Decer ber 29, 1979 and December 30, 1978 (dollars in thousands) (6) Real Estate, Equipment, Furniture and Leasehold Improvements The composition of property, plant and equipment is shown belov: Dec. 29. 1979 Dec. 30, 1978 Land 3.806 Machinery and equipment Buildings. 18.576 S 3.778 56,085 16,907 Furniture, fixtures and leasehold improvements 88,336 9,869 55,032 7.073 Less accumulated depreciation and amortization 38,543 34.913 82,790 $ 49,793 $ 47.877 (9) Long-Terin Debt At December 29, 1979 and December 30, 1978 the Company's consolidated long-term debt was as follows: Dec. 29, 1979 Dec. 30, 1978 Term loan payable to bank by Blue Chip, with interest payable monthly at rates based $ 13,500 $ 13,500 8% Senior Notes of the Company, due 1993, with mandatory annual prepayment: 94% Senior Notes of the Company, due 1993, with mandatory annual prepayments currently required 18,857 20,000 Other notes and debentures, due in installments of varying amounts through 2005. required commencing in 1985.. 7,000 7,000 with interest at rates varying from 63 10 9%%. $ 55,099 15.742 $ 57,071 16.571 Blue Chip's bank term loan is collateralized by all of the shares of its candy and newspaper subsidiaries. assets, mergers and consolidations, and allow the notcholders to demand prepayment at par within 60 days of The Senior Note Agreements include debt limitation provisions, as well as limiting terms relating to sales of notice that, during the lifetime of Warren E. Buffett, his ownership of stock of the Company, together with that of certain family affliates, has decreased to less than 15% of the Company's outstanding capital stock. includes investments by the Comp iny in subsidiaries not bound by the terms of the Agreements, dividends and The Senior Note Agreements mpose a limitation upon "restricted payments" by the Company. That term terms of the Agreements. Retained earnings of approximately $179,955 as of December 29, 1979 are restricted by other equity distributions. The Company's investment in Blue Chip Stamps is a "restricted payment" under the this provision. Principal payments on debt outstanding at Decomber 29. 1979 are required as follows: Term loan Other payable to bank Senior notes and Notes debentures maturities Total debt 1930 $ 1981. 3,500 $ 1.143 1982 5,000 1,143 828 1983 5,000 1,143 519 $ 1,971 1.143 1.032 5.162 Thereafter. 1984 1,143 336 392 7,175 6,535 $13.500 -20,142 12,635 32.777 1,479 $25.857 $15.742 $55,099 20

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Berkshire Hathaway Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) AND CONSOLIDATED SUBSIDIARIES December 29. 1979 and Decernber 3n, 1978 (dollars in thousands) (10) Income Taxes Income taxes applicable to operating earnings are reconciled i. the table which follows to hypothetical amounts computed at the Federal statutory rates of 46% for 1979 and 48% for 1978. 1979 1978 Earnings from consolidated operations including minority interests, before applicable income taxes and realized investment gain ...... $51,600 Decreases, resulting from: Hypothetical amounts applicable to above computed at Federal statutory rates $23,736 S46.777 $22,453 Tax-exempt interest income ... (2,747) 100% exclusion relating to equily in net earnings of: 85% dividends received credit . (6,012) (4,829) (2,652) Illinois National Bank (2,282) Wesco (4,392) (3,560) (2,036) State income taxes, less Federal income tax benefit, plus Canadian income taxes 951 911 operating income of Blue Chip Stamps not (38) 580 522 (74) Total income taxes applicabie to operating earnings $ 9,796 $ 10,735 The above income tax expense represents amounts assessed currently, adjusted for changes in amounts previously considered prepaid er deferred as follows: 1979 1978 Current $ 9.339 Change in deferred liability arising from operations Change in prepaid 431 8,702 26 2,252 (219) $ 9,796 $10,735 redemption expenses. The change in the deferred liability arising from opcrations relates to the following: The change in prepaid income taxes relates to timing differences primarily in reporting Blue Chip's stomp 1979 1978 Undistributed income of Blue Chip Stamps .. 580 $ 522 Deferred insurance premium acquisition costs. (366) 1,437 Policyholder dividends and unbilled revenues ..... Accretion of discount on bonds .. {506) 318 266 27 26. S.2.252 statutory rate of 28% (1979) and 30% (1978) applicable to long-tern. capital gains. Income taxes applicable to realized investment gains are essentially equal to amounts computed at the Federai 21

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Berkshire inuthaway Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) AND CONSOLIDATED SUBSIDIARIES December 29, 1979 and December 30, 1978 (dollars in thousands) (1:1) Lease Commitments significant lease commitments outstanding al December 30, 1978. the minimum rental under which were as The Company's retailing subsidiary (Associated Retail Stores, Inc.) and Blue Chip and its subsidiaries had follows at December 29, 1979: Year Associated Blue Chip Total 1980 $ 1,406 1931 1,341 2,762 1952 1,034 2,193 4,168 1983 851 1,902 3.534 1984 588 1.638 2,936 Thereafter.. 2,221 :.378 2,489 4,780 1,966 7.001 operating leagos; there were no capital lease commitments pertaining to real property; any such commitments Leases of the Company and its consolidated subsidiaries in effect at December 29, 1979 are classified as with respect to equipment leases entered into are considered immaterial. Total rental expense charged to consoli- dated net eernings was $9.026 for 1979 and $7,486 for 1978, including contingent real estate rentals in excess of stated mininium amounting to $2,699 for 1979 and $2,157 for 1978. (12) Pension Plans Employees of the Company and its consolidated subsidiaries who meet certain eligibility requirements are covered under either employer-sponsored or union-sponsored pension, profi. sharing or savings plans. Total pension expense charged to consolidated earnings was S2,454 for 1979 and $2.587 for 1978, which includes, as to certain of the plans, amortization of prior service costs over a 30-year period. The Company and its subsidiaries generally fund pension costs accrued. Based on the most recent actuarial valuation, he market value of the assets under those plans: however, the aggregate market value of the assets of all employer-spen sored plans, plus amounts of certain employer-sponsored pension plans was $2,760 less than the actuarially conipi ted value of vested benefits accrued for contributions thereto, exceeded the aggregate of vested benelits at the valuati on dates by approximately $4.610. Unamortized past service costs with respect to certain of the plans approximati i $5,750. (13) Litigation Buffalo Evening News, Inc., filed an action against such subsidiary in the United States District Court under Federal On October 26. 1977 the Buffalo Courier-Express. Inc.. 2 principal competito of Blue Chip's subsidiary, initiatior. of a Sunday edition in place of its Saturday weekend edition and publication of Saturday and holiday entitrust laws seeking to enjoin certain practices allegedly engaged in by the News in connection with the proposed an injunction, the complaint seeks treble damages in an unspecified amount, attorneys' fees and costs. The editions, thus providing competition for the existing Sunday edition of the Courier-Express. In addition to seeking in an unspecified amount, injunction, attorneys' fees and costs against plaintiff on the ground, among others, that defendant has filed an answer and counterclaim denying all liability end seeking affirmative relief of treble damages plaintiff seeks to monopolize the Sunday newspaper business in the Buffalo metropolitan area in violation of the the News probably will be forced to cease operations and liquidate: however, with discovery incomplete. the Federal antitrust laws. If the plaintiff is successful in obtaining the kinds of permanent injunctions it is seeking. outcome of the action and defendant's potential exposure, if any, are uncertain. not have a materially adverse effect on the consolidated fnancial position of the Company, notwithstanding its It is "w. opinion of management of Berkshire Hathaway Inc. that the ultimate outcome of this liquidation will potentially severe impact upon the News. 22

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Berkshire Hathaway Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) AND CONSOLIDATED SUBSIDIARIES (dollurs in thousands except for per share amounts) December 29, 1979 and Dacember 30, 1978 (14) Quarterly Results (Unaudited) A summary of earnings by quarter for each of the past two years is presented in the following table. This information is unaudited. 1st Quarter. Quarter 4th 1979 Quarter Income items $104.269 $103.450 $143.743 Income taxes... Costs and expenses, except income taxes 93.806 1C0.750 763 127,274 1,559 261 3.156 3.199 Minority interest 309 96,174 .101.774 133.629 Earnings before realized investment gain 8.095 1.117 6,676 10,114 Realized investnient pain. 1,306 841 3,632 Net earnings 9,401 $ 7.793 $ 13,746 Per share: Earnings before realized investrent gain $ 7.88 Realized investment gain. 1.27 $ $ 6.50 9.85 .62 $ 1.09 3.53 Net earnings • 9.15 7.59 13.38 1978 Income items $111,255 $107.624 $105.101 $130 621 Income taxes .. Costs and expenses, except income taxes 100,789 2.376 98.461 93.017 1,169 i13,557 Minority interest 104.515 1,350 1.476 5,714 1.173 342 3.193 101,110 99.528 122,464 Realized investment gain Earnings before realized investment gain .. 3,278 6,740 6,514 917 5,573 1,240 11,157 3.823 Net earnings • S 10.018 $ 7.431 $ 6,813 $ 14,980 Per share: Earnings before realized investment gain 6.54 6.32 $ 7.21 .89 $ 1.21 5.42 $ 10.86 Realized investment gain 3.18 6.63 $ 3.72 Net earnings 9.72 14.53 23

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Berkshire Hathaway Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) AND CONSOLIDATED SUBSIDIARIES December 29, 1979 and December 30, 1978 (dollars in thousands) (15) Consolidated Segment Data Blue Chip Stamps are reflected on a consolidated basis commencing with 1977; prior to 1977, when the Company The tables below reflect data for the past five years broken down as to business segments. The accounts of owned less than 50% of Blue Chip, the equity method of accounting was applied to the Coropany's investment in that company. Segnients below captioned "Candy", "Promotional Services", and "Newspaper" are segments of Blue Chip; that company purchased the newspaper business in 1977. I. Ravenues of Consolidated Companies 1975 Insurance* $ 70,028 1976 1977 1978 $206,356 1979 Textiles 32,833 $ 95,846 $156,149 $206,017 Retailing 35,303 44,544 45,498 52.674 39,113 42,106 40,762 42.709 49,362 Candy .. Newspaper Promotionai services = 63,115 73.954 22,225 24,841 88.189 - 31,833 44,791 23,628 426 - 2.807 2.709 2.903 46,414 Other 3.183 Total companies. revenues of consolidated ... $138.590 $182,410 S363.635 $445.942 S460.341 *Revenues of the Insurance segment includes investment income of the insurance Group. See Table VI below. II. Operating Profit Bufore Taxes Including Minority Laterest (Parentheses Denotes Loss) identified with segments, none of the foliowing items has been added or deducted: equity in income from uncon- Operating profit is total revenue less total expense identified with eacli segment. In computing operating profit solidated subsidiaries, realized investment gain or loss, general corporate expenses and interest expense. 1975 1976 1977 1978 1979 Identified with segments: Insurance* $ (2.627) •.. 1,289 $11,039 $18.606 $22.706 2,007 1,148 (620) 2.916 $27,966 Retailing Textiles .. 2,219 12.352 2,775 12,482 2,757 2.775 1,723 12,785 Promotional services Candy.. 1,147 751 (2,913) 2,151 (4,617) 2.397 Newspaper Other 426 528 1,150 1,203 1,095 15,252 35.539 41,249 44,232 Not identified with segments: Equity in eamings of: Illinois National Bank 3,450 3,750 3,550 5.715 4,242 7,417 4,960 Wesco....... 8.784 Realized investment gain (loss) Blue Chip ....... ... • 3,194 General corporate expenses ...• ...• (2,881) 5,107 (422) 10,061 Interest expense......... (2,560) (3.056) (439) 13.309 (4,789) (534) (1,072) 13,98/ • •0 (5.059) _(5,729) (64,) Operating profit before taxes (includ- ing minority interest $ 1.876 $30,675 $52.790 $60,764 $61,748 *See Table VII beiow. 24

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Berkshire Hathaway Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) AND CONSOLIDATED SUBSIDIARIES December 29, 1979 and December 30, 1978 (dolins in thousands) (15) Consolidated Segment Data (continued) III. Identifisble Assets at Year End 1975 1976 1977 1978 1979 Identified with segments: Insurance $164.443* Retailing Textiles.. 17,821 $261,752° 10.195 20,621 $377,954 22,191 $470,023* 9,955 14,272 22,60€ $585,103 44,177 14.235 23,15= 11,520 Candy ... Newspaper Promotional services = 77,233 39,183 Other 1.973 39,793 84,783 47,923 571,829 4.198 38,542 93,64S 676,513 2.147 35.563 8ú4,240 2.246 192,459 294,311 Not identified with segments: Investment in Wesco Investment in Illinois National Bank 23,424 24,732 25,839 43.992 27,146 49,370 28.785 56,750 Investment in Blue Chip 32.042 42,684 Corporate cash and short-ferm invest- Investment in unconsolidated subsidi- ments 6,266 1,518 491 3,106 1,113 aries 1,120 880 1.627 1.473 1.377 Combined at year end and consoiidated assets $255,311* $363,125* $646.678 $757.612 $892.255 Restated to reflect marketable equity securities of insurance segment at murket IV. Capital Expenditures 1975 1976 1977 1978 1979 Insurance. 98 Textiles. 248 $ 273 $ 533 539 89: 5114 294 450 $ 1,133 Retailing 125 1.006 247 1.1:6 118 2 2.777 3.250 279 Candy ... - 32.437 1.131 130 355 Promotional services 669 8 842 Other Newspaper Total capital expenditures 1471 $ 2.068 $ 35.928 $ 5,640 -- 18 $ 6.793 V. Depreciation and Amortization of Property, Plant and Equipment, Including Leaseholds 1978 1979 Insurance $ 213 305 Textiles.. 482 455 459 Candy Retailing 124 126 135 48€ Newspaper Promotional services ... •.. - - 822 1,007 151 109 96 1,199 1.507 2,554 2,159 146 Other :: - - 53 49 51 Total depreciation and amortization 658 742 $ 3.308 $ 4.602 $ 4.651 25

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Berkshire Hathaway Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) AND CONSOLIDATED SUBSIDIARIFS December 29, 1979 and December 30, 1978 (dullars in thousands) (15) Consolidated Segment Data (continued) VI. Revenue of the Insurance Segment 1975 1976 1972 1979 1979 Premiurns earned: Specialized auto and general liability .. $ 38.513 $ 50,778 5,815 $ 80,690 $ 96.126 $ 90.646 Workers' Compensation* 3,632 18.916 29.893 19.350 Reinsurance .. 12.407 17,220 24,100 30,160 30,864 Home State muitiple lines 6.670 11.059 19.382 29.894 41.089 Total premiums earned 51.222 $4,871 143,038 186,073 181.949 Investment income .... 5.806 10.975 13.061 19.944 24.407 Insurance segment revenues .. $ 70.028 $ 95.346 $156.149 $205.017 $206.356 disoggrogated from their total earned premiums. Earned premiums set forth above for Workers' Compensation reflect those for "Workers' Compensation coverage written by the Home State Companies, as par! of their multiple lins" business, is not yeor presented, premiums earned by Cypress Insurance Company are naditionally included fcr 1973 and 1979. Southern Casualty Insurance Company ond for National Indemnity Company's Workers' Compensation departmerts for each VII. Insurance Segment Operating Proft 1975 1976 1977 1978 1979 (Inderwriting gain (loss): Specialized auto and general liability ... Reinsurance ... Workers' Compensation .. $ (7,450) (342) $ 4,768 $ 7.845 Home State multiple lines ... (2.651) (1.093) 5.130 (907) (2,879) (4,339) (548) 896 (1.895) Net investment income ...... Total underwriting gain (loss) ....• (11,350) 248 8.723 _ 10.841

• 13902

24.224 3.742 Insurance segment operating profit (loss) before tares .. ..... S (2.627) _$11.089 _$18,606 $22,706 $27,966 26

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Certified Public Accountants Thirty-Sixth and Farnam Streets Kiewit Plaza Building I Peat, Marwick, Mitchell& Co. Omaha, Nebraska 68131 The board of Directors and Stockholders Berkshire Hathaway Inc.: We have examined the consolidated balance sheets of Berkshire Hathaway Inc. and the related consolidated statements of earnings, retalied earnings, and and consolidated subsidiaries as of December 29, 1979 and December 30, 1978 changes in finarcial position for the years then ended. Our examinations were made in accordance with generally accepted auditing standards, and accordingly included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. We did not examine the financial statements of Blue Chip Stamps, 1979 and 1978, and Wesco Financia! Corporation, 1979 only, the assets relating to such as reflected the accumpanying consolidated financial statements constitute 26 percent in and 25 percent and total revenues constituting 35 percent and 32 percent of the consolidated totals for 1979 and 1978, respectively. These statements were examined by other auditors whose report thereon has been furnished to us and our opinion expressed harein, insofar as it relates to the amounts included for Blue Chip Stamps and Wesco Financial Corporation (1979 only), is based solely upon the report of the other auditors. In our opinion, based upon our examinations and the report of other auditors, aforementioned consolidated financial statements present fairly the position of Berkshire Hathaway Inc. and consolidated subsidiaries at December 29, 1979 and December 30, 1.978 and the results of their opera- the changes in their financiai position for the years then ended, in conformity with generally accepted accounting principles applied on a consistent basis, after restatement for the change, with which we as explained in note l to tne consolidated financial statements. February 28, 1980 27

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Berkshire Hathaway bic. BUSINESS ACTIVITIES OF THE COMPANY AND ITS SUBSIDIARIES Businesses of the Company and its subsidiaries include: wholly-owned subsidiaries, referred to throughout this report as the "Insurance Group". (a) underwriting of property and casualty insurance — conducted through wholly-owned or substantially standing stock of National Fire & Marine Insurance Company and National Indemnity Company, compa....... The Company entered the insurance business in 1967 when it purchased ali or substantially all of the out- carriers sharing a home office in Omaha. Nebraska, and specializing in non-standard automobile and general Omaha based reinsurance underwriting operation. and a Los Angeles based worke • ompenstaion operation. and The insurance business has been internally expanded by adding to National indemnity an "Home-State" multiple line subsidiaries of National Inder. •which write standard and preferred classes of fusiness in their respective domiciliary states of Colorado, Iowa, Kansas. Minnesota. Nebraska and Texas. The insurance business has been externaily expanded by purchase in 1970 of Home and Automobile coverages, and by purchase in late 197; of Cypress Insurance Company, a Pasadena. California based workers' Insurance Company, a Chicago based company which specialized in non-standard private passenger autorobile compensation insurance provider. tion: Southern Casualty Insurance Company. a subsidimy purchased by Columbia in 1974, writes a relatively loss Columbia Insurance Company has since 1971 participated with National Indemnity in its reinsurance opera- of Diversified Retailing Company. inc. mitted to the operation and policyholders' funds derived from unearned premiums and loss reserves. The insurance business generates significant amounts of investment income. boil from capital funds com- Massachusetts. and maintains sales offices in New York City and Los Angeles: additionally, a wholly-owned (b) manufacturing and selling of woven textile products. The Company owns a weaving mil! in New Bedfor.l. subsidiary of ihe Company operates a weaving mill and possesses textile finishing capabilities in Manchester. New Hampshire: a Canadian subsidiary maintains a textile products sales uffice and warehouse in Toronto, Canada. Sales are through employees to home fabric jobbers and converters, menswear converters, industrial fabrics and apparel fabrics converters, custom and ready-macie curtain manufacturers. bedspread manufacturers, retail chain and department stores and mail order houses. Stores, Inc.. a wholly-owned subsidiary. Associated's headquarters and central warehouse are in Long Island City. (c) retalling of populerly priced women's and children's apparel - conducted through Associated Retail feet of selling and non-selling floor area, located in eight midwestern and northeastern states. New York: it had 27 retail outlets at December 29, 1979. ranging in size from 2.000 square feet to 60.000 square (d) through an approximately 60%, ownership, at December 29. 1979. of Blue Chip Stamps, a California corporation: chocolate.. and other confictionary products of high quality in two large kitchen facilities in California. See's (i) See's Candy Shops. Incorporated, a wholly-owned subsidiary of Blue Chip, which produced boxed is beleived to be one of Use largest candy manufacturers distributing through its own chain of retail shops: it now has 188 in twelve wistern and midwestern states including Hawaii. sales is generated duri ig the Christmas and Baster seasons. when high shop volume is augmented to an A fairly significant ‹ egree of seasonality exists in this business: a substantial portion of each year's candy increasing degree by qu antity sales to organizations at reduced prices. 28

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Berkshire Hathaway Inc. BUSINESS ACTIVITIES OF THE COMPANY AND ITS SUBSIDIARIES (Continued) whose assets, subject to certain liabilities, were purchased by Blue Chip in 1977. This company publishes a (il) the newspaper business through Bufalo Svening News, Inc., a wholly-owned subsidiary of Bine Chip daily newspaper in upstate New York. Late in 1977 the News began publishing a Sunday edition. The principal competing newspaper responded by filing an antitrust suit which is discussed in note 13 to the accompanying Corsolidated Financial Statements. (2) those ured by businesses or other entities for internal purposes (motivation programs). subsidiory of the Company. The Company must divest of contro! of this entity by Jenuary 1, 1981. The investment The Illinois National Bank and Trust Co. of Kockford, a commercial bank, is an approximately 98% owned Prior to 1979, management of the Company had expected to accomplish the required divestiture by a spin-off: was purchased in 1969, and the equity method of accounting has been applied to this investment since acquisition. present views of the Federal Reserve Board may make this manner of dive titure less attractive than it was previously considered, however, and all or a major portion of this investment may be sold in 1950. Equity in the earning power from eny proceeds the Company might realize from a sale is considered improbable. bank's earnings have been relatively significant to the Company for the past ten years: full replacement of this above. the Company at December 29, 1979 owned approximately 60% of Blue Chip, so that the Company's economic Wesco Financial Corporation is an approximately 80% owned subsidiary of Blue Chip Stamps. (As stated interest in Wesco is approximately 48%.) In the Company's consolidated financial statements included in this report, the equity method of accounting is reflected for Blue Chip's investment in Wesco. Wesco owns all of the outstanding stock of Mutual Savings and Loan Association, which operates at sixteen locations in Southern 1979 Wesco purchased the net assets of Precision Steel Warehouse. Inc., a company primarily engaged in the California and is believed to rank 35th in assets among savings end loan associations in that state. In February. steel service center business. It buys specially steel and other metals and cuts the metals, to the orders, of a wide variety of customers, at its facilities in Illinois and North Carolina. Shimstock and other smal! metal specialty items are also products of this business. 29

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Berkshire Hathaway Inc. — Parent Company Only CONDENSED FINANCIAL STATEMENTS (dollars in thousands) Balance Sheets Dec. 29. 1979- Dec. 30. 1978 Statements of Earnings 1979 1978- Assets: Investment in subsidiaries (includes Income: marketable equity securities heid unrealized appreciation of Dividends and interest from subsidiaries... $ 8.393 $ 9,387 Cash and U.S. Treasury bills by insurance subsidiaries) 5367.143 $279.501 2.913 Equity in undistributed earnings of subsidiaries .......• 36.267 31,804 Accounts receivable and inventories of parent company's textile Gross profit from textile Other assets business... 14.853 13.672 product sales 4,838 3.083 _2.620 Other income 107 4.141 31 5386.796 S238.706 49.607 45.363 Liabilities and stockholders' equity: Accounts payable and accrued Costs and expenses: Senior Notes expenses .. 4,557 Current and deferred income taxes Other notes and debentures.. 10,556 25,857 $ 5,118 27,000 Administrative and selling 41,833 863 11,279 expense. 3.591 1.063 Interesi expense • 3.:72 3.628 Stockholders equity (See Consoli- 44.460 Income taxes (credit) 27 2.740 (247) 6.790 6.121 dated Balance Sheet. page 12) $336,796 344.963 S298.700 25-4.246 Net earnings $ 42.817 $ 38.242 CONDENSED COMBINED FINANCIAL STATEMENTS Berkshire Hathaway Inc. Insurance Group (dollars in thousands) December 31 Balance Sheets 1379 1973 Underwriting: Statements of Income 1979 1978 Assets: Investments other than in affiliates: $181.950 $186,073 Bonds. at amortized cost. 178.207 183.072 Marketable equity securities. $185.564 $157.651 Premiums earned Losses and expenses incurre Short term debt obligations. at market 336.680 220,929 Investment, Blue Chip Stamps at cost 9.054 Accounts receivable from agents. Cash 35,355 13.068 Underwriting gain 3.743 3.001 3.128 31.442 2,570 Investment income • 24.221 19.705 Property and equipment, ner reinsurers and others... 33.520 Deferred premium acquisition costs 13.352 3.383 26.733 27.967 22.706 2,75% Other assets 623.121 3.082 :3.84g Applicable i rome laxes. 5.405 4,681 -504.423 3.432 Earnings before items below 22,562 18.025 Liabilities, capital stock and surplus: Equity in net earnings of Blue Losses and loss adjustment expense 197,698 Current income laxes. Unearned premiums.. 73.504 180,870 Deferred income taxes 5,006 69,358 Chip Stamps. 3.960 3.230 Other liabilities 13.570 50,696 34,962 4,591 Earnings before realized gain on on investments 26,522 21.255 Net unrealized appreciation of 340.574 300,263 10,472 Realized gain on investments, net of Capital stock end surplus marketable aquity securities 108.913 61,014 income taxes 6.241 8,873 S623.421 $504.428 173.934 143.151 Net income . $ 32.763 S. 30.128 are wholly-owned or substantiolly wholly-owned subsidiaries of Berkshire Hathaway Inc. Members of the Insurgnce Group, engaged in property casualty insurance underwriting. 30

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THE ILLINOIS NATIONAL BANK & TRUST CO. OF ROCKFORD AND SUBSIDIARY Berkshire Hathaway Inc. Bank Subsidiary CONDENSED CONSOLIDATED FINANCIAL STATEMENTS December 31 (dollars in thousands) Balance Sheets 1979. 1978 Statements of Earnings $ 18,196 1979 $ 14.582 1978 Assets: $ 27,802 $ 20.232 Interest income .. Cash Interest expense. 9,605 7.425 Investment securities 104.103 112,209 Federal funds sold 3,000 8,591 Loans. net of unearned discount and Net interest income 108 7,157 Bank premises and equipment a!!owance for possible loan losses .. 84.377 1,820 76.122 Provision for loan losses 60 Other assets $220,999 3.097 1,108 $215.815 3.146 Net interest income after provision for ican losses.. 8,483 Other income .. (3.944) 1,208 7,097 (3.436) 1,161 Other expense Liabilities and stockholders equity: Earnings before income taxes and Liability for torrowed funds Deposits.. $187,223 3,357 $185.134 2.357 Income laxes.. securities losses. 5,747 Accrued taxis and other liabilities... 193.411 2.821 189.904 2.413 5.146 601 459 Securities losses Earnings before securities losses Stockholders' equity $220.999 27,588 25.91! 68 20 $215.815 Net earnings . 5 5.073 Berkshire Hathaway Inc. owns approximately 98% of the outstanding stock of The Illinois National Bank & Trust Co. of Rockford. The Company is required to divest r, control of the bank by January 1. 1981. Wastu Financial Corporation CONDENSED CONSOLIDATED FINANCIAL STATEMENTS December 31 (dollars in thousands) Balance Sheets 1979 1978 Statements of income 1979 1978 Assets: Financial revenues: Financial: Cash and temporary cash Interest on loans. loan fees and Investments, at cost investments $ 50,387 Loans receivable ..... 100,623 $ 53,562 Other financia! assets 506,224 89,539 service charges $ 45,190 $ 36.254 579.772 22,538 477.597 Interest and dividends from 646.292 25.596 Cther investments 14.056 2.911 13,140 1.625 Steel service: 62.157 _51.019 Cash and temporary cash Accounts receivable and investments 1.413 - Financial expenses: Property, plant and equipment. net inventories. 10.741 Other steel service assets 4,410 Interest on savings deposits. 37.028 31,038 329 interest on notes payable .. 7,106 6.136 2.722 S696.665 16.893 Income taxes General and administrative 5.592 S646.294 2.15% 3.186 Liahilities and stockholders' equity• 52.724 42,538 Financial liabilities: Sevings deposits Other liabilities, including Notes payable. $508.912 79.010 5488,328 59,297 Net income from financial operations. 9.433 8.181 income taxes 598.348 10.426 548.825 11,200 Steel service: Steel service liabilities: Revenues ... 37,883 - Other liabilities, including Note payable 307 Costs and expenses, including $1.547 incorne texes... 36.176 ... income taxes 2.106 Net income from stee! Total liabilities 2.913 service operations. Stockholders' equity 600,761 558,825 1,707 S696.665 95,904 $646.294 87.469 Net income. $ 11.149 3.481 31

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Berkshire Hathaway Inc. SUMMARY OF OPERATIONS and the notes thereto for the most recent two years, appearing elsewhere in this report. Figures in this The following Summary should be read in conjunction with the consolidated financial statements 29, 1979; figures for 1975 and 1976, when the Company owned less than 50% of Blue Chip, reflect the Summary reflect consolidation of the accounts of Blue Chip Stamps for the three years erded December equity method of accounting for the Company's investment in Bine Chip. Net earnings are unaffected ual items in the Summary for the first two years presented are not strictiy comparable to those for the by this difference between methods of presentation; because of this difference, however, other individ- 1975 1976 1977 1978 1979 Equity in earnings of companies not con- Revenues of consolidated companies' ... • • $ 138,590 ... {dollars in thousands, except per share amounts) ... $ 182,410 $ 363,635 $ 445,912 $ 460,341 solidated 6.644 income taxes {expense) credit .... Costs and expenses, except income taxes : (140,477) 8,857 9,265 11,659 3,381 (170,653) (333,420) (410,824) 13.744 (2,478) (9,695) (10,735) (422,485) Minority interest in above items. (5.313) (6.058) (9,796) (5.883) Earnings before realized investment Realized investment gain (loss). net is gair. or loss.. 3.138 18,135 23,472 29,984 35.921 applicable minority interest and income taxes . 12.017) 5.830 6.921 Net earnings 6.121 24.966 30.393 $ 9.258 6.896 39.242 42.817 Average shares cutstanding 1.150.521 .069.89 1.037.705 1.028.684 1.027.145 Per share: Earnings before realized investment gain Net earnings or jos: ... 7.07 5.32 $ 16.95 22.62 23.33 29.29 $ 38.15 29.15 $ 11.50 34.97 41.68 'See Table I in note 15 to consolidated financial statements. Companies not consolidated, and the equity in earnings of each are as follows: 1975 1976 1977 1978 $4,960 1979 Wesco Financial Corporation.. lilinois National Bank .. $3.450 $3.75() $3,550 5.715 $4.242 7,417 8.784 Blue Chip Stamps (See heednote) 3.194 5,107 32

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Berkshire Hathaway Inc. MANAGEMENT DISCUSSION OF THE SUMMARY OF OPERATIONS Revenues of Consolidated Companies segment in Table I of note 15 to the consolidated financial statements (page 24), were as follows: revenues as reflected in the Summary of Operations, further broken lawn by business 1979 .. .$460,341,000 1978 $445,942,000 Increase 1979 over 1978 ..$14,399,000 1977 ...$3S3,635,000 Increase 1978 over 1977 ...$82,307.000 1979 vs. 1978 attributed to increased candy business segment revenues of $14,235,000. Approximately 60% of this Substantially all of the net increase in revenues of consolidated companies for 1979 can be increase reflects increased selling prices of candy required to cover higher costs incurred, about 40% of the increase reflects additional volume of business. overcome for the Insurance Group by an increase of about $4.E million in earned investment income, 1979 Insurance premiums earned declined approximately $4.1 million fror 1978; this decline was resulting principally from a higher level of invested funds in 1979 than in 1978. 1978 vs. 1977 is attributabio to several factors in a numbei of the Company's business segments. Insurance Group The significant increase of $82.3 million in revenues of consolidated companies in 1978 over 1977 includes about $13 million in workers' compensation premiums earned by Cypress Insurance Company, insurance premiums earned in 1978 increased approximately $43 million over 1977. This increase new to the Group in 1978. (The Company purchased Cypress in late December, 1977.) Specialized auto and general liability premiums earned in 1978 increased over 1977 in excess of $15 million. This was specialty business is conducted in our Group primarily by National indemnity Company and National in line with the cyclical nature we have noted in this subsegment of the Insurance Group - this increased in 1978 cver 1977 approximately $10.5 million, as their market penetration continued to Fire and Marine Insurance Company. Premiums earned by the Home State multiple lines companies resuited in a higher level of invested funds, which, together with a somewhat higher yield earned on increase in each of their domiciliary states. The increased premium volume of the Insurance Group investments, caused investment income of the Group to increase approximately $7 million in 1978 as compared to 1977. Candy business revenues increased approximately $11 million in 1978 over 1977 as a combined result of increased volume and increased prices. n 1978 over 1977 principally because such revenues for 1977 represent those for only that part of thi lewspaper revenues of the Buffalo Evening News, owned by Blue Chip Stamps, reflect an increas yeer subsequent to the April, 1977 purchase by Blue Chip. 33

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Berkshire Hathaway Inc. MANAGEMENT DISCUSSION OF THE SUMMARY OF OPERATIONS (Continuea) Equity in Earnings of Comparies Not Consolidated Equity in earnings of: National illinois Finencial Wesco Combined Bank (dollars in thousands! Corporation Amount 1979. 4,960 3,784 13.744 1978 4,242 7.417 11,659 1977 3,550 5,715 9,265 higher rates earned on somewhat higher invested assets, in addition to effective cust controls by man- Net earnings of the Illinois National Bank have increased in each of the past two years, reflecting agement of the bank. As stated elsewhere in this report, the Company is required to divest of control of the Illinois National Bank by january 1, 1981. the table below. Wesco is approximately 80% owned by Blue Chip Stamps. "Financial operations" in A summary of earnings of Wesco Financial Corporation for the past three years is presented in "Steel service" operations reflect those of Precision Steel Warehouse, Inc., acquired by Viesco in 1979. the table reflect operations of the parent company and of Mutual Savings and Loan Association. 197? (dollars in thousands) 1978 1979.. Financial operating revenues • $ 44,423 $ 51,019 $ 60,773 Financial expenses, principally interest expense (35.543) (39,352) (50,270) Applicable income taxes ... (2.431) (3.186) (2.023)) Net operations income - financial operations 6,449 8,181 1,707 8,480 Net income - steel service operations Total operating incerne.. $ 5.119 S 8.481 $ 10,187' Blue Chip's equity in above $ 5,166 $ 6,793 $ 8,160 Amortization recorded by Blue Chip? 548 624 624 Blue Chip's equity in operating earnings of Wesco? $ 5.715 $ 7.417 S8,784 ' 1979 excludes S1,384,000 investment gain (primarily from sale by Wesco of an investment in commor stock of equity in the net gain is included in realized investment gain in the Summary of Operations.) Detroit International Bridge Company) and $431,000 income tuxes applicable to such gain. (The Company's 2 Blue Chip's cost of its investment in Wesco is less than its equity in underiying book value of net assets: annual amortization of this excess book value is included in consolidated income. ' The Company's economic interest in Wesco's earnings is less than Blue Chip's equity in such earnings benuse of the outstanding minority interest in Blue Chip; see the discussion below under the captions of "Earnings Befor Realized Investmen! Gain" and "Realized Investment Gain". interest "spread" (yield on loans less cost of funds) on Mutual's loans, from 1.51% for 1977 to 1.66% in The substantial increase in Wesco's net earnings in 1978 over 1977 was due to an increase in the 1978, and to an increased return in 1978 on other earning assets of Mutual and Wesco. the contribution to Wesco's earnings of the steel service center business acquired by Wesco in The 1979 increase over 1978 is reflective cf a somewhat lower effective rate of income taxes, plus February, 1979. 34

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Berkshire Hathaway Inc. MANAGEMENT DISCUSSION OF THE SUMMARY OF OPERATIONS (Continued) Earnings Before Realized Investrent Gain or Less reflected in note 15 to the consolidated financial statements on page 24 of this report. Earnings before Operating profit before taxes by business segment for the five years ended December 29, 1979 is realized investment gain takes into account the additional items of income taxes and minority interest. Chip Stamps, and because the impact of income taxes upon the pre-tax income of the various segments Because the minority interest is significant but essentially relates only to segments operated by Blue is not proportional to such pre-tax income, a breakdown of this more inclusive total is presented below for the past three years. Contribution to the Company's Earnings Before Realized (Dollars in thousands) Investment Gain 1977 1978 1979 Business segment: Insurance Group . $14,377 Candy business* 2.974 $17,960 Textiles Retailing of apparel 1.429 3.049 $22,320 (322) 1,176 3,448 Promotional services* 892 1,382 1,342 1.280 348 Newspaper business* 19.885 535 _(738) (1.333) 1,624 Total of above segments 24,171 28,187 Not assigned to segments: Equity in earnings of companies not consolidated lilinois National Bank ......... Wesco Financial Corporation... :: 2,683 3.550 4,242 3,775 4,960 Interst expense and net other items.. (2,646) _(2.204) (2.019) 4,793 Total earnings before realized investment gain $23.472 $29.984 $35.921 *These are segments of Blue Chip Stamps. The Company's ownership of Blue Chip averaged approximately 51% interest for these segments for each successive year is reflected in the above table. in 1977, 55.5% in 1978 and 59% in 1979: accordingly, a decreased annual charge reflecting decreased minority so assigned may differ from tax amounts assigned to the various legal entities in accordance with tax Income taxes have been assigned in the above tabulation on the basis of economic effects; amounts sharing agreements effective as between members of the consolidated groups. Insurance Group Earnings of the Insurance Group as reflected above consists of underwriting gain plus net invest- ment income, each after income tax effect, as follows: After Tax Effect Underwriting Net Gain Investmerit Income Total 1978 1979. $2,020 (dollars in thousands) 1,560 $20,300 1977 3,017 16,400 $22,320 11,360 14,377 17.960 35

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Berkshire Hathaway Inc. MANAGEMENT DISCUSSION OF THE SUMMARY OF OPERATIONS (Continued) the "combined ratio", which is the sum of the ratio of losses and loss adjustment expenses to premiums Underwriting results for property/casualty insurance companies are most commonly measured by earned plus the ratio of statutory underwriting expenses to premiums written. A combined ratio below 100 indicates an underwriting profit; above 100 indicates an underwriting loss. The combined ratio of our Insurance Group was 95.4 for 1977, 98.2 for 1978 and 97.1 for 1979. Candy Business correspondingly increased. Net earnings remain al consistently high levels relative to capital employed Although sales of candy have increased signiñcantly in each of the past two years, costs have Retailing Business This business continues to reflect highly satisfactory profit, particularly relative to the capital employed in the operation. olume and profitability; the profit return was, however, considered inadequate in relation to the capita ur textile operations in 1978 reflected significant improvement over those of 1977, both in terms o employed in the business. Efforts to further improve the operation in 1979 did not succeed; both sales and profit declined. A reduction in the scope of the textile operations at Manchester is planned. he past two vears reflects, in addition to a lesser minority interest, an increase in after tax investmen n increase in the company's equity, after taxes, in this segment of Blue Chip's business in each o income yield each year. Also, some decrease in the relative costs of stamp issuance by Blue Chip in 1978 was noted, as compared to 1977. Realized Investment Gain Blue Chip and Wesco (each of the latter after deducting applicable minority interest) as follows: Realized securities gair. reflects after-tax net gain on disposition of securities by the Insurance Group, 1977 1978 1979 (Dollars in thousands) Insurance Group: Gain on sale of bonds .. $1,124 $1,274 Gain on sale of stocks 3.70% 1.599 5.489 $ 752 Insurance Group Net realized investment gain --- 4.917 Wesco ... Biue Chip ... 2,004 8,873 385 6,241 246 409 Net realized investment gain... $6.921 $9,258 S6,896 under changing economic conditions. Amounts are thus variable and unpredictable. Realization of investment gains (or losses) is determined by prevailing investment strategy applied 36

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To Our Stockholders and ioan subsidiary) for the calendar year 1979 increased slightly, to $14,303.000 ($2.76 per share) from Consolidated normal operating income (i.e., before gains from sale of securities held cuiside our savings $13.553,000 ($2.62 per share) in the previous fiscal year. subsidiary) also increased slightiy. to $15,526.000 ($3.00 per share) from $14,280,000 ($2.76 per share) in Consolidated net income (i.e., after gains from saie of securities held outside our savings and loan the previous year. Precision Steel Warehouse, Inc.. and aiso by increased earnings of Mutual Savings, our 80%-owned savings and Earnings last year were assisted by our acquisition on February 28. 1979. of a new 80%-owned subsidiary. loan subsidiary. Both of these subsidiaries are wholly owned by our 80%-owned Wesco Financial Corporation subsidiary. Gains from these sources were partially offset by increased losses at our 100%-owned Buffalo Evening News subsidiary. consolidate everything except the savings and loan subsidiary. Mutual Savings. which we continue to include on The Precision Steel acquisition last year has required changes in the way we present financial data. We now an equity basis. Formerly, all the consolidated accounts of Wesco Financial Corporation, including those dealing have been restated slightly to conform to the new presentation, with no effeci on net income or retained with assets and earnings outside Mutual Savings, were included on an equity basis. In this report, 1978 figures (80%-owned), Precision Steel (80%-owned), and Buffalo Evening News. Inc. (100%-owned). If we used equity We have four major subsidiaries. See's Candy Shops, Incorporated (100%-owned). Mutual Savings accounting instead of consolidated accounting for See's. Precision Steel's operating business, and the Buffalo Evening News as well as Mutual Savings, our consolidated income for our two reporting years just ended would break down as follows (in 000s except for per-share amounts): Blue Chip's equity in net income (loss) of Year ended aboul December 31, 1979 Per Blue Crip share 1.16 1.31 .26 (.46) 3.423 .75 14,280 3.00 December 31. 1978 5,802 6.482 (1,427) Per Blue Chip share 1.12 1.25 (.27) . 66 2.76 *After increasing income by amortization: of the discount from Mutual book value at which the interest was acquired "After reducing income by amertization of intangibles arising from purchase of See's at a large premium over its cook value

• After raducing income by arnortization of relatively minor intangibles arising at acquisition of the newspaper in 1977.

**After deduction of interest and other corporate expenses in each year there was an operating loss from promotional services activities before residual consolidated net income was credited with (l) dividends and interest resulting from investment of the funds availabie dividends in computing federal income taxes. pius (i) Blue Chip's share of dividends, interest and rent from securities and real through "float" caused by trading stamps issued but not yet redeemed. plus (il) income tax benefit caused by 35% exclusion of estate heid by the Wesco Financial Corporation group outside its savings and loan and steel service actaties. plus (iv) securties *›The 1979 amounts include $1.223 or $ 24 per Blue Chip share from securtes gains. net of laxes and minority interest. in :978 such gains. net of minority interesi The foregoing breakdown differs somewhat frem that required by the accounting conventions which govern secunties gains were $727 or $. 14 per Blue Chip share presentation of financial results in our audited financial statements contained elsewhere in this report. We really happening than does our consolidated income staterent in conventional form. Generally, we are trying to have taken the pains to prepare it, and to furnish it in this letter, because we believe it better explains what is disclose the things we like to be told. in the form we preier, when roles are reversed and we are passive investors. SEE'S CANDY SHOPS, INCORPORATED year. However, a lower income tax rate allowed a nominal percentage gain in after-tax earnings (about 3%). This The pre-tax earnings of our 100% owned subsidiary. See's Candy Shops. Incorporated. declined slightly last result was disappointing in view of the substantiai percentage gain in sales (about 19%). Comparative figures for See's for the last two years are set forth below: 37

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Number of Number ci Profes pounds of stores open Year ended about Sales alte: taxes" candy sold at yearend December 31. 1979 $87,314.000 $6,473,000 23,985,000 188 December 31. 1978 73,653.000 6.289,000 22,407,000 182 *These earnings figures are a little higher than Blue Chip Stamps share o! See's earnings shown in the tabie above because Biue Chip's share reflects (i) deduction of the approximately 1% share o! See's earings owned by minority stockholders of See's prior to June 6. faxes on See's dividends received by Blue Chip 1978. (i) amortization o! intangibles arising from purchase o! See's stock at a large premium over book value. and (til) state income candy-store business remains subject to extraordinary cost pressure. It is very difficuit for See's to cope as Boxed chocolate consumption per capita in the United States continues to be essentially static, and the successfully as it does with the production and distribution problems of a business with a seasonal sales peak that becomes more extreme each year, and the flat earnings trend of the last two years has not diminished our candy-store business continues to be terrible to mediocre for ail other companies. yet it remains quite profitable confidence in See's management, including ts outstanding leader. Charles Huggins. So far as we know the and texture of its candy, as weli as the extremely high levei of retailing service which characterizes its at See's for the simple reason that both new and old customers have a pronounced tendency to prefer the taste ingredients plus expensive manufacturing and distrbuting methods that insure rigorous quality control and distribution. This customer enthusiasm is caused by a virtually fanatic insistence on exper.sive natural candy frequitly two to three times those of competitors, and by a preference by gift recipients for See's chocolates. cheerful retali service. These qualities are rewarded by extraordinary sales per square foot in the stores. even when measured against much more expensive brands. interest in See's were valued at the same price per share, such interest ?: that time would have had a totai value In 1978 we paid $55 per See's share to acquire a tiny minority interest.:. See's. If our previously owned 99% approximately $25 million more than its aggregate amortized cost in our consolidated financial statements. covering most candy ingredients at fixed prices which are now below market. Our best guess is that See's earnings will increase at least modestly in 1500. because of forward contracis Cur equity in net income of our 80%-owned subsidiary. Mutual Savings, increased to $6,795,000, a new record. MUTUAL SAVINGS AND LOAN ASSOCIATION compared with $6,482,000 in the previous year. higher interest rates to hold savings accounts while assets consist primarily of low-turnover portfolios of long-terin However, prospects for 1980 appear poor. The entire savings and loan industry is now required to pay much mortgages at fixed or siowly changing rates below current market. Thus our besi guess is thai Mutual Savings' earnings will declin: harply from the record level of 1979 many year..... both before and after we acquired it - not always aiong the standard course chosen by others in louis Vincenti,. chief executive well past normal retirement age, has guided Mutual Savings very skillfully for liabilities, while net worth has grown greatly during his tenure. Under Mir. Vincenti's mix of caution and innovation his industry. Deviations have been toward low costs, low credit losses and high ratios of capital compared to we expect Mutual Savings to continue to cope well with ail challenges. including the difficulties we expect in 1980 with Brentwood Savings and Loan Association, a subsidiary of Jim Walter Corporation, providing for saie of all On March 25, 1980. Just as this report and letter were going to press. Mutual Savings executed a contract Mutual's offices except its headquarters office and a satellite thereto to be opened across the street. Closing of the contract is subjeci to regulatory approval. Under the terms of the contract Mutual Savings will transfer net also sell physical facilities. A pre-tax gain of about $5,000,000 wiil be realized on the sale of physical facilities. but branch office deposits (about $300.000,000), together with offsetting mortgage loans in equal amounts, and will the closing: (a) a higher percentage of Mutual's total assets will consist of cash and equivalents. (b) average yield mortgage loans transferred will bear a higher interest rate than mortgage loans retained. It is anticipated that. after on Mutual's mortgage loans will decine significantly, and (c) Mutual's overall financial leverage will be lowered part or all of any taxable profit from sale of branches; however, we do not have present plans for any such Before or after the closing, adjustments in Mutual Savings' investments may be made, causing losses which offset transactions. Whether, because of this sale. future earnings will be higher or iower than they otherwise would have 38

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and regulations affecting savings institutions. The proposed sale reflects a desire to restructure operations of been will depend on factors impossible now to predict, including future interest rates and future changes in laws Mutual Savings, which will continue in the savings and loan business. acquired for approximately $15 million on February 28. 1979. It owns a long-established steel service center Our 80%-(wned Precision Steei subsidiary, located in the outskirts of Chicago at Franklin Park, lilincis, was brand names. Precision Steel's operating businesses contributed $i,367.000 to our consolidated net income in business and a subsidiary engaged in distribution of too room supplies and other products sold under its own 1979, on combined sales of $37.510,000, in the 10 months of our ownership. Precision Steel is led by David Hilistrom, a chief execut ve who has served the company for aimost 30 years company, even one already joined to a savings and loan business. However, Precision Steel shares an A steel service center business may strike some oi our sharehoiders as a pecultar addition to a candy extremeiy important quality with See's a company-wide culture of constant concern for customer interesis and fair dealing. We believe such quality, if maintained, in a business with at least reasonably attractive economic characteristics, will almost always produce good long-term business results and, accordingly, are optimistic about the future of our new subsidiary. Financial Corporation. a public company with shares traded on the American Stock Exchange. For more Both Mutual Savings and Precision Steel are owned by Bie Chip Stamps through 80% control of Wesco complete information, we encourage Blue Chip shareholders to obtain a copy of Wesco's 1979 annual report. Simply make your requesi to We r, Financial Corporation 315 Eas. Colorado Boulevard Attention: Mrs. Bette Deckard, Secretary & Treasurer Pasadena, California 91109 BUFFALO EVENING NEWS, INC. Our 100%-owned subsidiary, Buffalo Evening News. Inc., was acquired in April 1977 for approximately $34 depreciation and extraordinary expenses of "buy-outs" from labor contract provisions made in order to allow the million. Its reported financial results continue to be adversely affected by litigation expenses, increased News to benefit from equipment modernization. So affected, the alter-lax operating loss was $2,410,000 in 1979. compared with a lower after-tax operating loss of $1.427.000 in the previous year. daily newspaper competitor was supported by a unanimous and strongly worded decision of the Federal Court However, some developments were quite favorable (1) The position of the News in pending litigation with a of Appeals in New York, reversing interlocutory injunctions wich had interfered greatly with normal competitive operation of the News: (?) Circulation of the Sunday edition of the News has been rising steadily: (3) The "buy-outs" of labor contract provisions made in 1979 are expected to cause substantial cost reductions in the pending iligation, sold their newspaper to the Minneapolis Star and Tribune Company, which shortly following years: and (4) The owners of the competing Buffalo newspaper, who were responsible for commencing amounts far below inflation rates. We now believe that the worst may be behind us in Buffalo, but we retell and extend the history so that sharehoiders can make their own judgments. published without opposition on Sundays. As we expiained in detail in our 1977 and 1978 annual reports, the The News had no Sunday edition when acquired The principal competitor, the Buffalo Courier-Express. long-term survival of the News clearly required that it inaugurate a Sunday edition. (Of that there was simply no question. Real trouble has been the invariable eventual outcome for every other daily newspaper in the United seven-day competitor enjoyed a Sunday monopoly. In fact. only three other "no-Sunday" papers, competing States which relied overiong, in an important city, exciusively on weekday publication while a significant against such "with-Sunday" papers in important cities. survived as iate as 1977, even though many such "no-Sunday" papers once had long hisiories of profitabity derived from dramatic advantages in weekday circulation and advertising over their "with-Sunday" competitors. And since then one of the three survivors. the 39

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absorbing it into a joint operation with approval of the U.S. Attorney General as required by the Federal Cincinnati Post, has been preserved, after incurring huge losses. only through the grace of its competitor's surviving "no-Sunday" papers, the Cleveland Press and the New York Post, now appear aimost surely doomed Newspaper Preservation Act of 1970. Unless similar government-blessed joint operations occur, the other two by apparently irreversible operating losses.) Under such circumstances. the News commenced publishing lawsuit was filed by the competing paper which for the first time faced the prospect of competition on Sundays Sundays late in 1977, as it plainly had to do if it cared at all about its long-term future. In response, an antitrust which, among other things, Created severe disruptions in normal circulation procedures under midwinter as well as weekdays. The lawsuit, in turn, resulted in some interlocutory (i.e., temporary and not final) injunctions conditions and restricted certain business promotion practices of the News, commonplace within the newspaper forth, these interlocutory injunctions were reversed or appeal in 1979 industry. while similar but more aggressive practices of the competing paper were not prohibited. As above set generally pro-competitive artitrust laws should not be used in an anti-competitive fashion by enjoining normal lants unanimus dogision for reversal of the injunctions. the Federal Court of Appeals reasoned that the promotional practices, such as hose used by the News, in the course of normal competition such as inauguration of a Sunday edition. advertising lineage of the News' Sunday edition. Success in the market has to be won siowiy, if it can be won at Of course. elimination of the harmful interlocutory injunctions does not automatically improve circut tion and by the fact that it was beyond the power of the appeilate court to reverse certain material damages to the News all, through creating a desirabie value for customers Moreover, achieving success has been made more difficult caused by the interlocutory injunctions and accompanying publicity. But some success is occurring despite merit and is being rewarded by a steady circulation growth, tending to close the lead enjoyed by the Sunday the damaged beginning. The News' Sunday edition is now being recognized by subscribers for editoria! Courier-Express. Great credit must be given to Murray Light, Editor of the News, for consistent delivery of a product which deserves and has received increased acceptance by the Greater Buffalo community. The approximately 156.000 copies in February, 1979, with strength accelerating throughout the period. On weekdays circulation of the News' Sunday edition reached approximately 173,000 copies in February, 1980, up from circulation has also increased, and the weekday News continues to be greatly preferred to the weekday Courier-Express by both: readers and advertisers. proceedings in the ligitation with the Courier-Express have continued under supervision of the trial court through Meanwhile. notwithsta ring the decision in favor of the News by the Federal Court of Appeals, pre-trial 1979, Including discovery proceedings related to both a counterclaim by cur subsidiary and a number of detenses agains the competing paper's com. aint, causing heavy direct litigation expenses and other indirec! remained unsatisfactory in 1979. costs and detriments. Influenced by these futors, operating results at our Buffaio newspaper quite naturally the ultimate security of the Buffalo Evening News remains in doubt, as it will for a very extended period. And even though signs are quite encouraging. causing us to anticipate better operating results in the future. with a tradition of editorial objectivity and integrity and good citizenship, the result of editorial control of The evidence seems clear that the Buffalo Evening News is by far the most respected newspaper in Buffalo. autonomous. community-minded local editors. We have maintained and will continue 'o maintain this tradition of locally created excellence. as well as an equally important tradition of fair dealing with all newsp)er empioyees and unions, who have performed loyally and well to help protect our common enterprise under difficult litigation continues and if the competing paper succeeds in somehow changing the law as enunciated by the conditions. But even with such policies and position a iong and prosperous future is not guaranteed. If the down the Buffalo Evening News, it will probably be forced to cease operations and liquidate. at an after-tax cost Federal Court of Appeals and in obtaining the kinds of injunctions it is seeking. or if any extended strike shuts which could exceed $10 million We don't think either of the possible causes for permanent closedown is likeiy to occur but believe our shareholders should be made aware of the hazard. And as the hazard recedes, it should be emphasized that the News remains a valuable asset. with journalistic habits which should serve it weil in the continuing competition. 40

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developed many desirable practices, large and small, which contribute to our optimism. For instance, it became Under its long-time editor. Alfred H. Kirchhoter, who still comes to the News every day at age 87, the paper well known among journalists for the intensity with which it insisted that names, including middle initials. always be exactly correci in News stories. "If you don't gei the reader's own name right," asked Kirchhofer, "why shuld he believe you are correct in whatever eise you report?" It is said that an institution is often the lengthened shadow of a single man. That seems to be true at the News where we regard Murray Light as a fit successor to Kirchhofer. preserving his basic value system while continuing to improve the paper. of the right sor! of people. We think we did so in Buffalo and that better financial results will probably be obtained At Blue Chip Stamps we are in part engaged in the business of trying to invest in the lengthened shadows in due course as we earn such results through nurture of a type of accurate, reader-oriented journalism unlikely to go out of siyle competing paper by its former owners and because our distaste for operating intens is so obvious to all We do find quite irritating one aspect of the situation in Buffaio. Possibly because of the recent sale of the observers. we are plagued by occasional rurnors that we intend to sell the Fuffaio Evening News. We do not intend to sell and will not sell. Our policy is to improve and hold PROMOTIONAL SERVICES BUSINESS AND OTHER INCOME promotienal services (mainiy trading stamp and motivation) business, after deduction of interest and other The final components of our consolidated net income last year were provided by (1) earnings from our general corporate expense, from securities and real estate held by Wesco outside the savings and loan and general parent company expense, plus (2) our share of earnings, after deduction of interest and other Wesco steel service activities of its subsidiaries. and other general expense and taxes, last year, down from $2.488.000 to $2.392,000. after (properly) giving it The promotional services business operated at a slightly decreased profit, after parent company interest securities gains) from investment of the funds available through "float" caused by trading stamps issued but not credit for the entire income (dividends and interest. plus income tax benefits caused by dividends, plus yet redeemed!. The decrease in profit was attributable to increased interest expense. $16,531.000 in the previous year. Motivation business revenues decreased substantially from $3.791,000 to Trading stamp service revenues decreased by a minor amount to $15,967.000 last year compared with $2,310,000. was many times greater inan the current levei - is large in relation to current issuances. (Trading stamp in our trading stamp business our "floal" - resulting from past issuance of trading stamps when volume revenues peaked at $124,180,000 in fiscal 1970, and our 1979 revenues of $15,967,000 therefore represented a decline of 87% from peak volume ) Eventualiy, unless stamp issuances improve, earnings from investing "float" estimated future redemption liability actually increased by a tiny amount in 1979, as it also did in the previous will decline greatly. The decline in recent years. however, has proceeded at an extremely siow rate, and our year. and was $67,524,000 at yearend 1979. shareholders to review, accounting for trading stamp redemption liability (which involves estimating the number As discussed extensively in previous annual reports (particularly for fiscal 1976), which we urge of stamps that will ultimately be redemed and the cost per stamp) is a difficult process under any circumstances, but particularly so in an inflationary economy and when stamp issuances decline by a large percentage. We periodically revise our estimated future redemption liabilly as conditions warrant. service, operate unusuully successiul supermarkets and other businesses, and we belier e that, given the We intenci to remain in the trading stamp business. Many of our present customers, aided by our stamp opportunity, we can also provide very useful service to new customers. after deduction of interest and other Wesco general corporate expense, from securities and real estate held by One final item augments our consolidated net income. Our share of earnings, including securities gains but Wesco outside the savings and loan and steel service activities of its subsidiaries. amounted to $1.385.000 in 1979, compared with $935,000 in the previous year. 41

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PINKERTON'S, INC. national security and investigation service company. Our total investment at cost was $23,364,000. Only the At yearend 1979 we owned non-voting stock representing 34% of the equity in Pinkerton's. Inc., the leading dividends we receive from Pinkerton's are included in our reported income. CONSOLIDATED BALANCE SHEET AND OTHER DATA large outstanding promises to others. As explained in Note 4 to the accompanying financial statements, the Our concolidated balance sheet retains a strength befitting a company whose consolidated net worth supports aggregate market value of our marketable securities was higher than their aggregate cost at December 29, 1979 and approximately equal to such cost at March 17, 1930. 10 % notes sold in a public issur by our 80%-owned Wesco Financial Corporation subsidiary to pay for the We did add $25,000,000 ::, ang-term debt to our consolidated balance sheet last year, representing 12-year Precision Steel ir quisition and in anticipation of other needs. However, even after this issue of long-term notes, we remain in a conservative position when total debt is compared to total net worth and total liquid assets. presented beginning on page 7, followed by notes and management's discussion and analysis of the summary. A section entitled "Principal Business Activities" and a "Summary of Operations" for a five-year period are We invite your careful attention to those items and to our audited financial statements. A LOOK BACK AND A LOOK AHEAD We began the last decade with a single business, trading stamps, which was destined to decline by 87%, and a portfolio of securities, offsetting stamp redemption liabilities, which had been selected by previous owners and would have created a perfect disaster if held through to the present time. (The portfolio, for instance, contained a substantial amount of very-long-term, low-coupon municipal bonds of issuers with declining credit ratings.) of abou: 15% per annum on its stockholders' equity over the years. The 15% return, while not outstanding, is Starting with this shaky foundation, the Company has managed to earn an average, although fluctuating, return respectable when achieved with a balance sheet position as conservative as ours and from such a poor starting So far, the 1980s appear likely to present at least as many challenges as the 1970s, but we expect to use our balance sheet strength aver the next 10 years, as we did in the last 10 years, to acquire additional course of earning 15% on equity in the decade just past. There is plenty of room for improved decision-making, investment. One cause of our hope for a higher return is our recognition of how many mistakes we made in the and we intend to improve if we can. for our shareholders may weil be disappointing, even if we rank well among American corporations in terms of However, if the present inflation continues at double-digit rates through the 1980s, real investment returns obviously won't do much in real terms for shareholders if the inflation rate is 16%, or even 11% when we also annual earnings expressed as a percentage of shareholders' equity. A 16% return on equity, for instance, allow for income taxes imposed on owners who must report taxable "profits" while only maintaining their position we are not deluded by historically satisfactory numbers into believing all is well for them. It seems likely to us that on the purchasing-power treadmill. We remind shareholders of this truism because we want them to know that a habit of always thinking about shareholders' interests in real terms may ultimately create some sort of plus factor in our stewardship. Cordially yours, Charles T Moger Dould a Kayyal Charles T. Munger Donaid A. Koeppel March 25, 1980 Chairman of the Board President 42

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TO THE STOCKHOLDERS OF WESCO FINANCIAL CORPORATION oration and its subsidiaries for 1979 amounted to Consolidated net income of Wesco Financial Corp- reason of this shift in cost of money without: any significant from Mutual Savings will be substantially less in 1980 by ($1.19 per share) in 1978, an increase of 31%. Net income $11,140,000 ($1.56 per share) compared to $8,481,000 corresponding increase in the yield on Mutual's loan port- folio. Mutual's 1980 profit will be assisted as a result of the came from the following sources: sale, in January 1980, of its remaining stock of Federal 7979 1978 National Mortgage Association at a profit of 5948,000 net Mutual Savings .. $ 7,703,000 § 7,313,000 of taxes. Wesco and subsidiaries other than Mutual Savings. 3,437,000 1,168,000 stocks in 1979, Wesco's consolidated investments in such As a result of net purchases of common and preferred Tetal $ 11,140,000 $ 8,481,000 (market value $104,644,000) compared. with a total at De- stocks reached a total at December 31, 1979 of $93,953,000 a profit of $269,000 net of taxes on sale of stock of Fed- Included in the 1979 earnings of Mutual Savings was cember 31, 1978 of $82,869,000 (market value $86,943,000). eral National Mortgage Association (FNMA) and a profit Dividends from these investments are subject to an 85% on the sale of real estate owned of $721,r00. 1978 earnings exclusion in determining Federal income tax. of Mutual Savings included profit on sale of real estate owned of $896,000. in 1979 compared to an increase of $28,420,000 in 1978. Total savings in Mutual Savings increased $20,584,000 profit of Wesco and its subsidiaries, other than Mutual The substantial increase from 1978 to 1979 in the net of total savings) compared with $47,645,000 (9.8% of total At year end, out-of-state savings were $42,234,000 (8.3% Savings, is due to the sale by Wesco, on March 12, 1979, savings) in 1978. of its stock in Detroit International Bridge Company, which had been purchased during 1977, for a profit of including purchase of loan participations of $50,002,000. During 1979 real estate loans made were $108,191,000, of (1) the sum of $8,400,700 received as a dividend from $984,000 net of taxes, and the advantageous use by Wesco In 1979 net sales were made of GNMA certificates in the Mutual Savings in January 1979, and (2) the proceeds of a amount of $31,669,000. In 1978, real estate loans made successfu! offering of a long-term Note obligation com- were $146,440,000 incluuing the purchase of GNMA cer- pieted by Wesco in June 1079 in the amount of $25,000,000 tificates in the amount of $51,532,000. $15,000,000 of these funds were used to repay a bank loan with interest at the rate of 10% per annum due in 1991. 1979 are carried at a cost basis of $934,000 and consist Properties acquired by foreclosure at December 31, incurred to purchase the assets of Precision Steel 'Ware- capital. The balance was used to purchase additional house, Inc. and $1,000,000 io provide it with increased principally of 22 acres of vacant land on the ocean front near the Biltmore Hotel in Santa Barbara. A planned common stock, pending occurrence of a suitable other cessed and will require favorable action by the County develepment of single family residences is being pro- opportunity for use of resources. of Santa Barbara and the California Coastal Commission. The time required for such processing is indeterminate. the loan portfolio only increased from 8.49% to 8.98%. 1978 to 8.12% at December 31, 1979, while the yield on Cost o' savings increased from 6.88% at December 31, We believe, that subject to successful processing, a sub- stantial profit will be realized at the time of disposition. Cost of savings continues to increase substantially with This profit will not be subject to Federal or State income little change of the yield on the loan portfolio. Net profits taxes. 43

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press, Mutual Savings executed a contract with Brentwood On March 25, 1980, just as th's report was going to The sateliite branch office will be opened in the fall of 1980 at a shopping center across the street from the main Savings and Loan Association, a subsidiary of Jim Walter office in Pasadena. Corp., providing for sale of all Mutual's offices excep: its On January 15, 1980, Wesco increased its regular across the street. Closing of the contract is subject to headquarters office and a satellite thereto to be opened quarterly cash dividend from $.09½ per share to $.10½ per share payable March 13, 1980 to shareholders of regulatory approval. Under the terms of the contract, record at the close of business on February 20, 1980. (approximately $300,000,000), together wit offsetting Mutual Savings will transfer net branch oifice deposits A "Summary of Operations" for a five-year period is physical facilities. A pre-tax gain of about $5,500,000 will mortgage loans in equal amounts, and wil! also sell presented on page 7 followed by"Management's Discus- sion and Analysis" of that Summary. The Summary and be realized on the sale of physical facilities, but mortgage Discussion provides more detailed information as to the loans transferred will bear a higher interest rate than results of operations of Wesco and its subsidiaries. Of mortgage loans retained. It is anticipated that, after ine particular interest are the figures provided on page 8 to will consist of cash-and-equivalents, (b) average yield on closing: (a) a higher percentage of Mutual's total assets show tax equivalent yields on investments, and the spreads using that basis. between combined yields on loans and in- (c) Mutual's overail financial leverage will be lowered. Mutual's mortgage loans will decline significantly, and vestments and combined costs of savings and borrowings. These figures give recognition to the advantage obtained Before or after the closing, adjustments in Mutual Savings' by investments in stocks, common and preferred, and in part or all of any taxable profit from sale of branches; investments may be made, causing losses which offset municipai bonds, by reason of the fact that only 15% of the income from stock is subject to Federal ncome actions. Whether, because of this sale, future earnings will however, we do not have present plans for any such trans- iax, and all of the income from municipal bonds is exempt therefrom. be higher or lower than they otherwise would have been ing future interest rates and future changes in laws and will depend on factors impossible now to predict, includ- regulations affecting savings institutions. The proposed sale refects a desire to restructure operations of Mutual Savings, which will continue in the savings and loan LOUIS R. VINCENTI business. Chairman of the Board and President 44

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of in lar Berkshire Hathaway Inc. DIRECTORS AND EXECUTIVE OFFICERS WARREN E. BUFFETT, Director and Chairman of the Board Chief Executive Officer of the Company KENNETH V. CHACE, Director President of the Company and Chief Operating Officer of the Textile Operations of the Compan? ViALCOLM G. CHACE, JR., Director Retired, Former Chairman of the Board of Directors of the Company J. VERNE MCKENZIE, Director Vice President, Secretary and Treasurer of the Company CHARLES T. MUNGER, Director Vice Chairman of the Board of the Company Chairman of the Board of Blue Chip Stamps COMMON STOCK PRICES qualified to be regularly quoted in the NASDAQ System under the symbol BKHT. The high and iow bid and asked The common stock of Berkshire Hathaway Inc. if traded in the over counter markct. In July, 1979, the Con-pany prices for the stock in each quarter of 1978 and 1979 is set forth in the following table. The quotations represent prices between dealers and do not include retail markup, markdown or commission. They do not represent actual transactions. High LOW Bid Asked Bid Asked 1978 Ist Quarter 130 142 148 180 195 134 187 142 139 3rd Quarter 2nd Quarter 185 189 194 165 148 215 195 152 174 1979 1st Quarter 4th Quarter 350 220 154 162 335 355 370 185 162 3rd Quarter 2nd Quarter 215 195 240 240 4th Quarter 260 The Company did not pay a dividend in 1978 or 1979.

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• s6s BERKSHIRE HATHAWAY INC. Executive Offices - 97 Cove Street, New Bedford, Massachusetts 02744 1979

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