1993 年伯克希尔完整年报

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BERKSHIRE HATHAWAY INC. 1993 ANNUAL REPORT

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Business Activities in a number of diverse business activities. The most important of these is the Berkshire Hathaway Inc. is a holding company owning subsidiaries engaged property and casualty insurance business conducted on both a direct and reinsurance basis through a number of subsidiaries collectively referred to in this report as the Berkshire Hathaway Insurance Group. ownership percentages of other publicly traded companies. Such investments at Investment portfolios of insurance subsidiaries include meaningful equity the end of 1993 included approximately 48% of the outstanding capital stock of GEICO Corporation, approximately 13% of the capital stock of Capital Cities/ABC, Inc., approximately 11% of the capital stock of The Gillette Company, approximately 7% of the capital stock of The Coca-Cola Company, approximately 15% of the capital stock of The Washington Post Company, approximately 12% common stock of General Dynamics Corporation and common and convertible of the common stock of Wells Fargo & Company, approximarely 14% of the of that company. Much information about these pulsict owned companies is preferred stock of Salomon Inc having approximately 13% of the total voting power themselves. available, including information released from time to time by the companies and Sunday newspaper in upstate New York. Other business activities conducted Additionally, Berkshire Hathaway Inc. publishes the Buffalo News, a daily and related educational and instructional material (World Book and Childcraft by non-insurance subsidiaries include publication and distribution of encyclopedias accessories (sold principally under the Kirby name), manufacture and sale of products), manufacture and marketing of home cleaning systems and related home furnishings (Nebraska Furniture Mart), manufacture and distribution of boxed chocolates and other confectionery products (See's Candies), retailing of of footwear (H.H. Brown Shoe Company, Lowell Shoe, Inc. and Dexter Shoe uniforms (Fechheimer Brothers Company, manufacture, import and distribution painting systems (Campbell Hausteld products). Berkshire also owns a number Company and manufacture and distribution of air compressors, air tools and of other businesses engaged in a variety of activities, as identified in this report. of the business units. Investment decisions and all other capital allocation decisions Operating decisions for the various Berkshire businesses are made by managers are made for Berkshire and its subsidiaries by Warren E. Buffett, in consultation with Charles T. Munger. Mr. Buffett is Chairman and Mr. Munger is Vice Chairman of Berkshire's Board of Directors.

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BERKSHIRE HATHAWAY INC. 1993 ANNUAL REPORT TABLE OF CONTENTS Business Activities. Inside Front Cover Owner-Related Business Principles •• ..2 Corporate Performance vs. the S&P 500 ..4 Chairman's Letter* ..5 Appendix: Acquisition Criteria. ..22 nectea rinanci st Five Yea Data For The .23 Independent Auditors' Report. ..24 Consolidated Financial Statements 25 Management's Discussion . ..41 Shareholder-Designated Contributions .50 Combined Financial Statements — Unaudited - for Berkshire Business Groups.............................52 CommonStockDat.. ...........60 Directors and Officers of the Company ........Inside Back Cover *Copyright © 1994 By Warren E. Buffett All Rights Reserved

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Certain OWNER-RELATED BUSINESS PRINCIPLES were included in the Chairman's letter* to Shareholders of Berkshire Hathaway Inc. in the 1983 Annual Report. Because the material remains topical, it is reproduced on this and the following page. that pertain to the manager-owner relationship: With so many new shareholders, it's appropriate to summarize the major business principles we follow larenolders as owner-partners, and of ourselves as managing partners. (Because of the size of our shareholdin, • Although our form is corporate, our attitude is partnership. Charlie Munger and I think of our e also, are, for better or worse, controlling partners.) We do not view the company itself as the ultima own the assets. owner ot our business assets but, instead, view the company as a conduit through which our shareholders In the case of at least four, over 50% of family net worth is represented by holdings of Berkshire. We • In line with this owner-orientation, our directors are major shareholders of Berkshire Hathaway. eat our own cooking. average annual rate of gain in intrinsic business value on a per-share basis. We do not measure the economic • Our long-term economic goal (subject to some qualifications mentioned later) is to maximize the significance or performance of Berkshire by its size; we measure by per-share progress. We are certain to that. But we will be disappointed if our rate does not exceed that of the average large American corporation. that the rate of per-share progress will diminish in the future — a greatly enlarged capital base will see that generate cash and consistently earn above-average returns on capital. Our second choice is to own • Our preference would be to reach this goal by directly owning a diversified group of businesses parts of similar businesses, attained primarily through purchases of marketable common stocks by our insurance subsidiaries. The price and availability of businesses and the need for insurance capital determine any given year's capital allocation. conventional accounting, consolidated reported earnings may reveal relatively little about our true economic • Because of this two-pronged approach to business ownership and because of the limitations of performance. Charlie and I, both as owners and managers, virtually ignore such consolidated numbers. of great importance. These figures, along with other information we will supply about the individual businesses, However, we will also report to you the earnings of each major business we control, numbers we consider should generally aid you in making judgments about them. costs are similar, • Accounting consequences do not influence our operating or capital-allocation decisions. When acquisition accounting principles than to purchase $1 of earnings that is reportable. This is precisely the choice that we much prefer to purchase $2 of earnings that is not reportable by us under standard the pro-rata price of small portions (whose earnings will be largely unreportable). In aggregate and over often faces us since entire businesses (whose earnings will be fully reportable) frequently sell for double time, we expect the unreported earnings to be fully reflected in our intrinsic business value through capital gains. basis. We will reject interesting opportunities rather than over-leverage our balance sheet. This conservatism • We rarely use much debt and, when we do, we attempt to structure it on a long-term fixed-rate first, you must first finish.") *Copyright C All Rights Reserved 1984 by Warren E. Buffett 2

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

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BERKSHIRE HATHAWAY INC. To the Shareholders of Berkshire Hathaway Inc.: 1. The first negative was produced by a change in Generally Accepted Accounting Principles (GAAP) having to do with the taxes we accrue against unrealized the tax rate used should be the one in effect when the appreciation took place. appreciation in the securities we carry at market value. The old rule said that of gains generated after 1986 and 28% on the $1.2 billion of gains generated Therefore, at the end of 1992, we were using a rate of 34% on the $6.4 billion before that. The new rule stipulates that the current tax rate should be applied effect, was 34%. Applying that rate to our pre-1987 gains reduced net worth to all gains. The rate in the first quarter of 1993, when this rule went into by $70 million. to make an additional charge of 1% against all of our unrealized gains, and that rate was raised in the third quarter of 1993 to 35%. This change required us charge penalized net worth by $75 million. Oddly, GAAP required both this report, even though the unrealized appreciation that gave rise to the charges charge and the one described above to be deducted from the earnings we was never included in earnings, but rather was credited directly to net worth. 3. securities that we own. In recent years, both the common stocks and certain Another 1993 change in GAAP affects the value at which we carry the common-equivalent securities held by our insurance companies have been the parent company were carried at their aggregate cost or market, whichever valued at market, whereas equities held by our non-insurance subsidiaries or by market, a rule we began following in the fourth quarter of 1993. This change was lower. Now GAAP says that all common stocks should be carried at produced a gain in Berkshire's reported net worth of about $172 million. Finally, we issued some stock last year. In a transaction described in last year's conversion of $46 million convertible debentures that we had called for Annual Report, we issued 3,944 shares in early January, 1993 upon the redemption. Additionally, we issued 25,203 shares when we acquired Dexter shares outstanding increased by 29,147 and our net worth by about $478 million. Shoe, a purchase discussed later in this report. The overall result was that our carried a price above their book value. Per-share book value also grew, because the shares issued in these transactions 5

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term that measures the capital, including retained earnings, that has been put into a business. Intrinsic Of course, it's per-share value, not book value, that counts. Book value is an accounting value is a present-value estimate of the cash that can be taken out of a business during its remaining life. though significantly below our intrinsic value, serves as a useful device for tracking that key figure. In At most companies, the two values are unrelated. Berkshire, however, is an exception: Our book value, 1993, each measure grew by roughly 14%, advances that I would call satisfactory but unexciting. Over time, of course, market price and intrinsic value will arrive at about the same destination. But in These gains, however, were outstripped by a much larger gain - 39% - in Berkshire's market price. not continuously overperform their businesses. and 37% respectively, but their market prices moved up only 11% and 6%. In other words, the companies From 1991 to 1993, Coke and Gillette increased their annual operating earnings per share by 38% •brand names. Whatever the reason, what will count over time is the earnings performance of these companies. overperformed their stocks, a result that no doubt partly reflects Wall Street's new apprehension about If they prosper, Berkshire will also prosper, though not in a lock-step manner. the market, coldly reevaluating Coke's future prospects, had battered the stock down by more than 50%, Let me add a lesson from history: Coke went public in 1919 at $40 per share. By the end of 1920 to $19.50. At yearend 1993, that single share, with dividends reinvested, was worth more than $2.1 million. test that requires only money, not intelligence or emotional stability - but in the long-run, the market As Ben Graham said: 'In the short-run, the market is a voting machine — reflecting a voter-registration is a weighing machine." was selling at a higher percentage of intrinsic value at the end of 1993 than was the case at the beginning So how should Berkshire's over-performance in the market last year be viewed? Clearly, Berkshire was not inappropriate if - and you should understand that this is a huge if - Charlie Munger, Berkshire's of the year. On the other hand, in a world of 6% or 7% long-term interest rates, Berkshire's market price Vice Chairman, and I can attain our long-standing goal of increasing Berkshire's per-share intrinsic value have for many years, that the growth in our capital base makes 15% an ever-more difficult target to hit. at an average annual rate of 15%. We have not retreated from this goal. But we again emphasize, as we economic characteristics ranging from good to terrific, run by managers whose performance ranges from What we have going for us is a growing collection of good-sized operating businesses that possess terrific to terrific. You need have no worries about this group. managers deliver to us, has a less certain outcome: It is not easy to find new businesses and managers The capital-allocation work that Charlie and I do at the parent company, using the funds that our comparable to those we have. Despite that difficulty, Charlie and I relish the search, and we are happy to report an important success in 1993. Dexter Shoe of work shoes, boots and other footwear. Brown has been a real winner: Though we had high hopes to What we did last year was build on our 1991 purchase of H. H. Brown, a superbly-run manufacturer begin with, these expectations have been considerably exceeded thanks to Frank Rooney, Jim Issler and Lowell Shoe, at the end of 1992. Lowell was a long-established manufacturer of women's and nurses' the talented managers who work with them. Because of our confidence in Frank's team, we next acquired shoes, but its business needed some fixing. Again, results have surpassed our expectations. So we promptly jumped at the chance last year to acquire Dexter Shoe of Dexter, Maine, which manufactures popular-priced companies Charlie and I have seen in our business lifetimes. men's and women's shoes. Dexter, I can assure you, needs no fixing: It is one of the best-managed 6

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in 1956 with $10,000 of capital. He was joined in 1958 by Peter Lunder, his nephew. The two of them Harold Alfond, who started working in a shoe factory at 25c an hour when he was 20, founded Dexter in Maine and the balance in Puerto Rico. As you probably know, the domestic shoe industry is generally have since built a business that now produces over 7.5 million pairs of shoes annually, most of them made thought to be unable to compete with imports from low-wage countries. But someone forgot to tell this to the ingenious managements of Dexter and H. H. Brown and to their skilled labor forces, which together make the U.S. plants of both companies highly competitive against all comers. Dexter's business includes 77 retail outlets, located primarily in the Northeast. The company is also Berkshire's shoe operations to have more than $550 million in sales, and we would not be surprised if Our 1993 results include Dexter only from our date of merger, November 7th. In 1994, we expect the combined pre-tax earnings of these businesses topped $85 million. Five years ago we had no thought of getting into shoes. Now we have 7,200 employees in that industry, and I sing Like Shoe Business" as I drive to work. So much for strategic plans. that we wish to own and the personal characteristics of managers with whom we wish to associate - and then to hope we get lucky in finding the two in combination. At Dexter, we did.

Harold and Peter (who were not interested in cash) made a sound decision in exchanging their Dexter And now we pause for a short commercial: Though they owned a business jewel, we believe that stock for shares of Berkshire. What they did, in effect, was trade a 100% interest in a single terrific business for a smaller interest in a large group of terrific businesses. They incurred no tax on this exchange and cash in amounts, and at times, of their own choosing. Should members of their families desire to, they now own a security that can be easily used for charitable or personal gifts, or that can be converted to can pursue varying financial paths without running into the complications that often arise when assets are concentrated in a private business. For tax and other reasons, private companies also often find it difficult to diversify outside their industries. Berkshire, in contrast, Dexter's shareholders solved a reinvestment problem. Moreover, though Harold and Peter now have non- can diversify with ease. So in shifting their ownership to Berkshire, controlling shares in Berkshire, rather than controlling shares in Dexter, they know they will be treated as partners and that we will follow owner-oriented practices. If they elect to retain their Berkshire shares, a huge percentage of my net worth committed for life to Berkshire shares - and since the company will their investment result from the merger date forward will exactly parallel my own result. Since I have issue me neither restricted shares nor stock options - my gain-loss equation will always match that of all other owners. Additionally, Harold and Peter know that at Berkshire we can keep our promises: There will be no changes of control or culture at Berkshire for many decades to come. Finally, and of paramount importance, exactly as they did before the merger. At Berkshire, we do not tell .400 hitters how to swing. Harold and Peter can be sure that they will get to run their business - an activity they dearly love - What made sense for Harold and Peter probably makes sense for a few other owners of large private businesses. So, if you have a business that might fit, let me hear from you. Our acquisition criteria are set forth in the appendix on page 22. 7

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Sources of Reported Earnings amortization of Goodwill and other major purchase-price accounting adjustments are not charged against The table below shows the major sources of Berkshire's reported earnings. In this presentation, the specific businesses to which they apply, but are instead aggregated and shown separately. This procedure lets you view the earnings of our businesses as they would have been reported had we not purchased investors and managers than one utilizing GAAP, which requires purchase-price adjustments to be made them. I've explained in past reports why this form of presentation seems to us to be more useful to on a business-by-business basis. The total net earnings we show in the table are, of course, identical to the GAAP total in our audited financial statements. (000s omitted) Berkshire's Share of Net Earnings Pre-Tax Earnings minority interests) after taxes and 1993 1992 1993 1992 Operating Earnings: Insurance Group: Underwriting $ 30,876 H. H. Brown, Lowell, and Dexter Net Investment Income 375,946 $ (108,961) $ 321,321 20,156 $ (71,141) 355,067 28,559 305,763 43,755* 27,883 17,340 Commercial & Consumer Finance Buffalo News 50,962 47,863 29,696 35,653 13,698 14,161 28,163 Fechheimer 22,695 13,442 19,836 25,056 6,931 12,664 7,267 Kirby Nebraska Furniture Mart 39,147 31,954 17,110 10,398 22,795 See's Candies... Scott Fetzer Manufacturing Group 21,540 8,072 38,196 42,357 23,809 19,883 World Book 41,150 Interest Expense** Purchase-Price Accounting & Goodwill Charges. (17,033) 19,915 (12,087) 29,044 13,537 24,367 25,501 (98,643) (13,996) 19,503 Other Shareholder-Designated Contributions (56,545) 67,540 (7,634) (35,614) (13,070) 28,698 (9,448) (5,994) (62,899) (4,913) Sales of Securities Operating Earnings 643,296 460,680 15,364 32,798 Tax Accruals Caused by New Accounting Rules 546,422 89,937 356,702 477,751 347,726 $1,189,718 $ (146,332) 59,559 Total Earnings - All Entities.... 550,617 $ 688,121 $ 407,285

• Includes Dexter's earnings only from the date it was acquired, November 7, 1993.

*Excludes interest expense of Commercial and Consumer Finance businesse 1 1992 includes $22.5 million of premiums paid on the early redemption of deb ind our segment earnings reported on a GAAP basis. In addition, on pages 52-59, we have rearrange large amount of information about these businesses is given on pages 38-49, where you will als the way Charlie and I think about the company. Our intent is to supply you with the financial information Berkshire's financial data into four segments on a non-GAAP basis, a presentation that corresponds to that we would wish you to give us if our positions were reversed. 8

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"Look-Through" Earnings of Berkshire than does our GAAP result. We've previously discussed look-through earnings, which we believe more accurately portray the earnings operating earnings reported in the previous section, plus; (2) the retained operating earnings of major As we calculate them, look-through earnings consist of: (1) the investees that, under GAAP accounting, are not reflected in our profits, less; (3) an allowance for the to us. The "operating earnings" of which we speak here exclude capital gains, special accounting items tax that would be paid by Berkshire if these retained earnings of investees had instead been distributed and major restructuring charges. needed has risen to about $1.85 billion. managerial practice of shooting the arrow of performance and then painting the target, centering it on That is a tough goal, but one that we expect you to hold us to. In the past, we've criticized the shooting later. whatever point the arrow happened to hit. We will instead risk embarrassment by painting first and securities on sensible terms. Right now, markets are difficult, but they can — and will - change in If we are to hit the bull's-eye, we will need markets that allow the purchase of businesses and something marginal simply because we are long on cash. There's no use running if you're on the wrong unexpected ways and at unexpected times. In the meantime, we'll try to resist the temptation to do are necessarily very rough. (The dividends paid to us by these investees have been included in the The following table shows how we calculate look-through earnings, though I warn you that the figures operating earnings itemized on page 8, mostly under "Insurance Group: Net Investment Income.") Berkshire's Major Investees Berkshire's Approximate Ownership at Yearend Berkshire's Share of Undistributed Operating Earnings (in millions) 1993 1992 The Coca-Cola Company Capital Cities/ABC, Inc... 13.0% 7.2% 18.2% 48.4% 6.8% (" 7.1% Federal Home Loan Mortgage Corp. 8.2% ( GEICO Corp. ... The Gillette Company.. General Dynamics Corp 13.9% 48.1% 10.9% 14.1% 1.9% 10.9% The Washington Post Company.... Guinness PLC........ 2.0% 14.8% 12.2% 14.6% 8 Wells Fargo & Company......... 11.5% Berkshire's share of undistributed earnings of major investees. $439 Hypothetical tax on these undistributed investee earnings*) Reported operating earnings of Berkshire (61) 478 Total look-through earnings of Berkshire $8856 (1) Does not include shares allocable to the minority interest at Wesco (3) Excludes realized capital gains, (2) Calculated on average ownership for the year which have been both recurring and significant (4) The tax rate used is 14%, which is the rate Berkshire pays on the dividends it receives 9

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produce at least equivalent gains in Berkshire's intrinsic value. To date, we have far exceeded that We have told you that we expect the undistributed, hypothetically-taxed earnings of our investees to share and late last year sold one-third of that holding for $630 per share. After paying 35% capital gains expectation. For example, in 1986 we bought three million shares of Capital Cities/ABC for $172.50 per taxes, we realized a $297 million profit from the sale. In contrast, during the eight years we held these in accordance with our look-through method - were only $152 million. In other words, we paid a much shares, the retained earnings of Cap Cities attributable to them - hypothetically taxed at a lower 14% that far exceeded the undistributed earnings allocable to these shares. larger tax bill than our look-through presentations to you have assumed and nonetheless realized a gain earnings to be a conservative representation of Berkshire's true economic earnings. We expect such pleasant outcomes to recur often in the future and therefore believe our look-through Taxes aggregate, we will pay 1993 federal income taxes of $390 million, about $200 million of that attributable As our Cap Cities sale emphasizes, Berkshire is a substantial payer of federal income taxes. In to operating earnings and $190 million to realized capital gains. Furthermore, our share of the 1993 federal and foreign income taxes paid by our investees is well over $400 million, a figure you don't see on our financial statements but that is nonetheless real. Directly and indirectly, Berkshire's 1993 federal income tax payments will be about ½ of 1% of the total paid last year by all American corporations. we work in a market-based economy that rewards our efforts far more bountifully than it does the efforts Speaking for our own shares, Charlie and I have absolutely no complaint about these taxes. We know of others whose output is of equal or greater benefit to society. Taxation should, and does, partially redress this inequity. But we still remain extraordinarily well-treated. as a partnership or "S" corporation, two structures often used for business activities. For a variety of Berkshire and its shareholders, in combination, would pay a much smaller tax if Berkshire operated reasons, that's not feasible for Berkshire to do. However, the penalty our corporate form imposes is I would follow a buy-and-hold policy even if we ran a tax-exempt institution. We think it the soundest mitigated - though far from eliminated - by our strategy of investing for the long term. Charlie and however, is the fact that taxes are due only when gains are realized. way to invest, and it also goes down the grain of our personalities. A third reason to favor this policy, delay taes, tho far missed the tes on a Aberme. 0 a chance durers try superio Lil A benited happily, but moronically, through life in Dogpatch. At one point he became infatuated with a New York dollar and she was interested solely in millionaires. Dejected, Abner took his problem to Old Man Mose, temptress, Appassionatta Van Climax, but despaired of marrying her because he had only a single silver will be yours (1, 2, 4, 8....1,048,576). the font of all knowledge in Dogpatch. Said the sage: Double your money 20 times and Appassionatta instructions, he also forgot about taxes. Had Abner been subject, say, to the 35% federal tax rate that Mose clearly was overrated as a guru: Besides failing to anticipate Abner's slavish obedience to $22,370. Indeed, had he kept on both getting his annual doubles and paying a 35% tax on each, he would Berkshire pays, and had he managed one double annually, he would after 20 years only have accumulated have needed 7½ years more to reach the $1 million required to win Appassionatta. 10

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same 21½ times? In that case, he would have realized about $200 million pre-tax or, after paying a $70 But what if Abner had instead put his dollar in a single investment and held it until it doubled the to Dogpatch. Of course, with 27½ years having passed, how Appassionatta would have looked to a fellow million tax in the final year, about $130 million after-tax. For that, Appassionatta would have crawled sitting on $130 million is another question. single investment that compounds internally at a given rate than from a succession of investments What this little tale tells us is that tax-paying investors will realize a far, far greater sum from a compounding at the same rate. But I suspect many Berkshire shareholders figured that out long ago. Insurance Operations ratio" of the insurance industry for the preceding decade. This ratio compares total insurance costs (losses At this point in the report we've customarily provided you with a table showing the annual "combined indicating an underwriting loss. That is, the industry has taken in less money each year from its incurred plus expenses) to revenue from premiums. For many years, the ratio has been above 100, a level policyholders than it has had to pay for operating expenses and for loss events that occurred during for a time betore paying it out. This happens because most policies require that premiums be prepaid Offsetting this grim equation is a happier fact: Insurers get to hold on to their policyholders' money lines of insurance, such as product liability or professional malpractice, many years may elapse between and, more importantly, because it often takes time to resolve loss claims. Indeed, in the case of certain the loss event and payment. earnings derived from investing this float. that we have provided in the past are no longer useful for year-to-year comparisons of industry profitability. As interest rates have fallen, however, the value of float has substantially declined. Therefore, the data A company writing at the same combined ratio now as in the 1980's today has a far less attractive business Only by making an analysis that incorporates both underwriting results and the current risk-free earnings obtainable from float can one evaluate the true economics of the business that a property- of both float and stockholders' funds is also of major importance and should be carefully examined casualty insurer writes. Of course, the actual investment results that an insurer achieves from the use one we are discussing here. The value of float funds - in effect, their transfer price as they move when an investor is assessing managerial performance. But that should be a separate analysis from the from the insurance operation to the investment operation - should be determined simply by the risk- free, long-term rate of interest. We calculate our float — which we generate in exceptional amounts relative to our premium volume — On the next page we show the numbers that count in an evaluation of Berkshire's insurance business. by adding loss reserves, loss adjustment reserves and unearned premium reserves and then subtracting cost of float is determined by our underwriting loss or profit. In those years when we have had an agent's balances, prepaid acquisition costs and deferred charges applicable to assumed reinsurance. Our underwriting profit, which includes 1993, our cost of float has been negative, and we have determined our insurance earnings by adding underwriting profit to float income. 11

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Underwriting (1) (2) Yearend Yield Cost of Funds Approximate on Long-Term Loss Average Float Govt. Bonds (In $ Millions) (Ratio of 1 to 2) 1968. 1967. profit $17.3 less than zero less than zero 5.90% 5.50% 1970. 1969 profit 19.9 profit 1971. $ 0.37 23.4 less than zero 1.14% 6.25% 6.79% 1972 profit 32.4 1974 1973. profit profit 69.5 52.5 less than zero less than zero 5.81% 5.82% 1975 7.36 73.3 1977. 1976.. 11.35 87.6 79.1 less than zero 12.96% 9.30% 8.13% 7.27% profit 102.6 less than zero 7.30% 8.03% 1978 profit profit 139.0 1979. profit profit 227.3 190.4 less than zero less than zero 7.97% less than zero 10.08% 8.93% 1980 1981 237.0 21.56 profit 228.4 less than zero less than zero 11.94% 14.64% 9.77% 10.64% 13.61% 1983 1982 33.87 220.6 1984 44.23 48.06 231.3 253.2 18.98% 11.58% 11.84% 1985 1987 1986. 55.43 55.84 390.2 11.34% 7.00% 7.60% 9.34% 797.5 1989. 1988 11.08 1,266.7 4.38% 1.58% 0.74% 9.00% 8.95% 24.40 1,497.7 1991 1990 26.65 1,541.3 1.63% 8.24% 7.97% 119.59 1,637.3 1992 1993 108.96 1,895.0 2,290.4 6.31% 2,624.7 less than zero 4.76% 7.40% profit 6.35% 7.39% fact we As you can see, in our insurance operation last year we had the use of $2.6 billion at no cost; in is good - but is far from as good as it sounds. were paid $31 million, our underwriting profit, to hold these funds. This sounds good - and reinsurance companies buy to recover part of the losses they suffer from mega-catastrophes) and because We temper our enthusiasm because we write a large volume of "super-cat" policies (which other insurance last year we had no losses of consequence from this activity. As that suggests, the truly catastrophic Midwestern from private insurers. roods of 1993 did not trigger super-cat losses, the reason being that very few flood policies are purchased is a wonderful one, or even a satisfactory one. A simple example will illustrate the fallacy: Suppose there It would be fallacious, however, to conclude from this single-year result that the super-cat business that year, you will have many more winning years than losers. Indeed, you may go a straight six, seven Is an event that occurs 25 times in every century. If you annually give 5-for-1 odds against its occurrence or more years without loss. You also will eventually go broke. odds. But there is no way for us — or anyone else At Berkshire, we naturally believe we are obtaining adequate premiums and giving more like 3½-for-l In fact, it will take decades for us to find out whether our underwriting judgment has been sound.

• to calculate the true odds on super-cat coverages.

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it in 1993. When Hurricane Andrew blew in 1992, we paid out about $125 million. Because we've since Berkshire will suffer losses from the super-cat business equal to three or four times what we earned from What we do know is that when a loss comes, it's likely to be a lulu. There may well be years when expanded our super-cat business, a similar storm today could cost us $600 million. the Los Angeles earthquake will be nominal. But if the quake had been a 7.5 instead of a 6.8, it would So far, we have been lucky in 1994. As I write this letter, we are estimating that our losses from have been a different story. in this business. Additionally, companies writing these policies need enormous capital, and our net worth Berkshire is ideally positioned to write super-cat policies. In Ajit Jain, we have by far the best manager is ten to twenty times larger than that of our main competitors. In most lines of insurance, huge resources reduce concentration in its portfolio. That isn't possible in the super-cat business. So these competitors aren't that important: An insurer can diversify the risks it writes and, if necessary, can lay off risks to the risk that a mega-catastrophe - or a confluence of smaller catastrophes - would wipe them out. are forced into offering far smaller limits than those we can provide. Were they bolder, they would run in the world buys very significant reinsurance coverage from Berkshire. Better than anyone else, these One indication of our premier strength and reputation is that each of the four largest reinsurance companies circumstances, not its readiness to accept premiums when things look rosy. giants understand that the test of a reinsurer is its ability and willingness to pay losses under trying of equity capital has been raised by reinsurers, almost all of them newly-formed entities. Naturally these One caution: There has recently been a substantial increase in reinsurance capacity. Close to $5 billion capital. This new competition won't affect our 1994 operations; we're filled up there, primarily with business new entrants are hungry to write business so that they can justify the projections they utilized in attracting written in 1993. But we are now seeing signs of price deterioration. If this trend continues, we will resign who requires a super-cat insurer with large capacity and a sure ability to pay losses. ourselves to much-reduced volume, keeping ourselves available, though, for the large, sophisticated buyer compensation business, headed by Brad Kinstler; our credit-card operation, managed by the Kizer family; In other areas of our insurance business, our homestate operation, led by Rod Eldred; our workers' and National Indemnity's traditional auto and general liability business, led by Don Wurster, all achieved substantial float. excellent results. In combination, these four units produced a significant underwriting profit and operation possesses an intrinsic value that exceeds its book value by a large amount - larger, in All in all, we have a first-class insurance business. Though its results will be highly volatile, this than is the case at any other Berkshire business. fact, Common Stock Investments these investments belongs to subsidiaries of which Berkshire owns less than 100%. Below we list our common stockholdings having a value of over $250 million. A small portion of Shares Company Cost 12/31/93 Market 93,400,000 The Coca-Cola Company 2,000,000 Capital Cities/ABC, Inc. $ 345,000 (000s omitted) $1,239,000 13,654,600 Federal Home Loan Mortgage Corp. (Freddie Mac") 1,023,920 4,167,975 34,250,000 GEICO Corp. ........... 307,505 681,023 4,350,000 General Dynamics Corp. 94,938 45,713 1,759,594 24,000,000 The Gillette Company ..... 600,000 401,287 38,335,000 Guinness PLC.. 333,019 1,431,000 1,727,765 The Washington Post Company 9,731 270,822 6,791,218 Wells Fargo & Company .. 423,680 878,614 440,148 13

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comatose. But we continue to think that it is usually foolish to part with an interest in a business that is Considering the similarity of this year's list and the last, you may decide your management is hopelessly both understandable and durably wonderful. Business interests of that kind are simply too hard to replace. a business they operate: A parent company that owns a subsidiary with superb long-term economics is Interestingly, corporate managers have no trouble understanding that point when they are focusing on not likely to sell that entity regardless of price. "Why," the CEO would ask, "should I part with my

• and even impetuously — move from business to business when presented with no more than superficial

crown jewel?" Yet that same CEO, when it comes to running his personal investment portfolio, will offhandedly arguments by his broker for doing so. The worst of these is perhaps, "You can't go broke taking a profit." Can you imagine a CEO using this line to urge his board to sell a star subsidiary? In our view, what an outstanding business with the same tenacity that an owner would exhibit if he owned all of that business. makes sense in business also makes sense in stocks: An investor should ordinarily hold a small piece of Earlier I mentioned the financial results that could have been achieved by investing $40 in The Coca- was firmly established as an American icon, Fortune did an excellent story on the company. In the second Cola Co. in 1919. In 1938, more than 50 years after the introduction of Coke, and long after the drink paragraph the writer reported: "Several times every year a weighty and serious investor looks long and with profound respect at Coca-Cola's record, but comes regretfully to the conclusion that he is looking too late. The specters of saturation and competition rise before him." Cola Co. sold 207 million cases of soft drinks (if its gallonage then is converted into the 192-ounce cases Yes, competition there was in 1938 and in 1993 as well. But it's worth noting that in 1938 The Coca- used for measurement today) and in 1993 it sold about 10.7 billion cases, a 50-fold increase in physical volume from a company that in 1938 was already dominant in its very major industry. Nor was the party turned into $3,277 by the end of 1938, a fresh $40 then invested in Coca-Cola stock would have grown over in 1938 for an investor: Though the $40 invested in 1919 in one share had (with dividends reinvested) to $25,000 by yearend 1993. comparable in size to Coca-Cola and selling, as Coca-Cola does, an unchanged product that can point I can't resist one more quote from that 1938 Fortune story: "It would be hard to name any company to a ten-year record anything like Coca-Cola's." In the 55 years that have since passed, Cokes product of smart decisions. That judgment became ever more compelling as Berkshire's capital mushroomed and Charlie and I decided long ago that in an investment lifetime it's just too hard to make hundreds the universe of investments that could significantly affect our results shrank dramatically. Therefore, we adopted a strategy that required our being smart - and not too smart at that - only a very few times. Indeed, we'll now settle for one good idea a year. (Charlie says it's my turn.) would therefore say the strategy must be riskier than that employed by more conventional investors. We The strategy we've adopted precludes our following standard diversification dogma. Many pundits disagree. We believe that a policy of portfolio concentration may well decrease risk if it raises, as it should, both the intensity with which an investor thinks about a business and the comfort-level he must feel with terms, as "the possibility of loss or injury." its economic characteristics before buying into it. In stating this opinion, we define risk, using dictionary of a stock or portfolio of stocks - that is, their volatility as compared to that of a large universe of stocks. Academics, however, like to define investment "risk" differently, averring that it is the relative volatility Employing data bases and statistical skills, these academics compute with precision the "beta" of a stock - its relative volatility in the past - and then build arcane investment and capital-allocation theories around principle: It is better to be approximately right than precisely wrong. this calculation. In their hunger for a single statistic to measure risk, however, they forget a fundamental For owners of a business — and that's the way we think of shareholders - the academics' definition a stock that has dropped very sharply compared to the market - as had Washington Post when we bought of risk is far off the mark, so much so that it produces absurdities. For example, under beta-based theory, 14

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it in 1973 - becomes "riskier" at the lower price than it was at the higher price. Would that description have then made any sense to someone who was offered the entire company at a vastly-reduced price? Intelligent Investor. There he introduced "Mr. Market," an obliging fellow who shows up every day to In fact, the true investor welcomes volatility. Ben Graham explained why in Chapter 8 of The either buy from you or sell to you, whichever you wish. The more manic-depressive this chap is, the that irrationally low prices will periodically be attached to solid businesses. It is impossible to see how greater the opportunities available to the investor. That's true because a wildly fluctuating market means the availability of such prices can be thought of as increasing the hazards for an investor who is totally free to either ignore the market or exploit its folly. are doing, or how much borrowed money the business employs. He may even prefer not to know the In assessing risk, a beta purist will disdain examining what a company produces, what its competitors company's name. What he treasures is the price history of its stock. In contrast, we'll happily forgo the company's business. After we buy a stock, consequently, we would not be disturbed if markets closed for wei enge ly don. our well-being. Why, then, should we need a quote on our 7% interest in Coke? for a year or two. We don't need a daily quote on our 100% position in See's or H. H. Brown to validate from an investment (including those he receives on sale) will, over his prospective holding period, give In our opinion, the real risk that an investor must assess is whether his aggregate after-tax receipts initial stake. Though this risk cannot be calculated with engineering precision, it can in some cases be him at least as much purchasing power as he had to begin with, plus a modest rate of interest on that judged with a degree of accuracy that is useful. The primary factors bearing upon this evaluation are: 1) The certainty with which the long-term economic characteristics of the business can be evaluated; The certainty with which management can be evaluated, both as to its ability to realize the full potential of the business and to wisely employ its cash flows; 3) The certainty with which management can be counted on to channel the rewards from the business to the shareholders rather than to itself;

4. The purchase price of the business;
5. The levels of taxation and inflation that will be experienced and that will determine the degree

by which an investor's purchasing-power return is reduced from his gross return. from a data base of any kind. But the difficulty of precisely quantifying these matters does not negate These factors will probably strike many analysts as unbearably fuzzy, since they cannot be extracted their importance nor is it insuperable. Just as Justice Stewart found it impossible to formulate a test for obscenity but nevertheless asserted, useful way - "see" the risks inherent in certain investments without reference to complex equations or "I know it when I see it," so also can investors - in an inexact but price histories. the long term than, say, any computer company or retailer? Worldwide, Coke sells about 44% of all soft Is it really so difficult to conclude that Coca-Cola and Gillette possess far less business risk over gum, in which Wrigley is dominant, I know of no other significant businesses in which the leading drinks, and Gillette has more than a 60% share (in value) of the blade market. Leaving aside chewing company has long enjoyed such global power. Moreover, both Coke and Gillette have actually increased their worldwide shares of market in recent distribution systems give them an enormous competitive advantage, setting up a protective moat around The might of their brand names, the attributes of their products, and the strength of their their economic castles. The average company, in contrast, does battle daily without any such means of a warning label: "Competition may prove hazardous to human wealth." protection. As Peter Lynch says, stocks of companies selling commodity-like products should come with 15

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Yet the beta of their stocks is similar to that of a great many run-of-the-mill companies who possess little The competitive strengths of a Coke or Gillette are obvious to even the casual observer of business. or no competitive advantage. Should we conclude from this similarity that the competitive strength of Coke and Gillette gains them nothing when business risk is being measured? Or should we conclude that the in its business operations? We believe neither conclusion makes sense and that equating beta with risk in owning a piece of a company - its stock - is somehow divorced from the long-term risk inherent investment risk also makes no sense. is Monopoly or Barbie. But it's quite possible for ordinary investors to make such distinctions if they product toy company selling pet rocks or hula hoops from that of another toy company whose sole product have a reasonable understanding of consumer behavior and the factors that create long-term competitive few, easy-to-understand cases, a reasonably intelligent, informed and diligent person can judge investment strength or weakness. Obviously, every investor will make mistakes. But by confining himself to a relatively risks with a useful degree of accuracy. or a "Barbie." We couldn't solve this problem, moreover, even if we were to spend years intensely studying In many industries, of course, Charlie and I can't determine whether we are dealing with a "pet rock" those industries. Sometimes our own intellectual shortcomings would stand in the way of understanding, deal with fast-moving technology is not going to lend itself to reliable evaluations of its long-term economics. and in other cases the nature of the industry would be the roadblock. For example, a business that must Did we foresee thirty years ago what would transpire in the television-manufacturing or computer industries? industries.) Why, then, should Charlie and I now think we can predict the future of other rapidly-evolving Of course not. (Nor did most of the investors and corporate managers who enthusiastically entered those businesses? We'll stick instead with the easy cases. Why search for a needle buried in a haystack when one is sitting in plain sight? wide diversification. If significant risk exists in a single transaction, overall risk should be reduced by Of course, some investment strategies — for instance, our efforts in arbitrage over the years - require a risky investment — one that indeed has a significant possibility of causing loss or injury - if you believe making that purchase one of many mutually-independent commitments. Thus, you may consciously purchase you can commit to a number of similar, but unrelated opportunities. Most venture capitalists employ that your gain, weighted for probabilities, considerably exceeds your loss, comparably weighted, and if this strategy. Should you choose to pursue this course, you should adopt the outlook of the casino that will refuse to accept a single, huge bet. owns a roulette wheel, which will want to see lots of action because it is favored by probabilities, but economics of specific businesses nevertheless believes it in his interest to be a long-term owner of American Another situation requiring wide diversification occurs when an investor who does not understand the industry. That investor should both own a large number of equities and space out his purchases. By periodically investing in an index fund, for example, the know-nothing investor can actually out-perform most investment professionals. Paradoxically, when "dumb" money acknowledges its limitations, it ceases to be dumb. to find five to ten sensibly-priced companies that possess important long-term competitive advantages, On the other hand, if you are a know-something investor, able to understand business economics and conventional diversification makes no sense for you. It is apt simply to hurt your results and increase your risk. I cannot understand why an investor of that sort elects to put money into a business that is his 20th favorite rather than simply adding that money to his top choices - the businesses he understands est and that present the least risk, along with the greatest profit potential. In the words of the prophet Mae West: "Too much of a good thing can be wonderful." 16

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Corporate Governance At our annual meetings, someone usually asks "What happens to this place if you get hit by a truck?" I'm glad they are still asking the question in this form. It won't be too long before the query becomes: "What happens to this place if you don't get hit by a truck?" the past year. In general, I believe that directors have stiffened their spines recently and that shareholders Such questions, in any event, raise a reason for me to discuss corporate governance, a hot topic during are now being treated somewhat more like true owners than was the case not long ago. Commentators on corporate governance, however, seldom make any distinction among three fundamentally different is identical throughout, their ability to effect change differs in each of the cases. Attention usually falls manager/owner situations that exist in publicly-held companies. Though the legal responsibility of directors however, and will someday fall into the third, we will discuss all three variations. on the first case, because it prevails on the corporate scene. Since Berkshire falls into the second category, shareholders and case, ele it shareholder. In that case, I believe directors should behave as if there is a single absentee owner, whose The first, and by far most common, board situation is one in which a corporation has no controlling a lot of wiggle room. If they lack either integrity or the ability to think independently, directors can do long-term interest they should try to further in all proper ways. Unfortunately, "long-term" gives directors the board is functioning well and must deal with a management that is mediocre or worse. Directors then great violence to shareholders while still claiming to be acting in their long-term interest. But assume present. And if able but greedy managers over-reach and try to dip too deeply into the shareholders' pockets, have the responsibility for changing that management, just as an intelligent owner would do if he were directors must slap their hands. In this plain-vanilla case, a director who sees something he doesn't like should attempt to persuade change. Suppose, though, that the unhappy director can't get other directors to agree with him. He should the other directors of his views. If he is successful, the board will have the muscle to make the appropriate temperament of many directors would in fact be incompatible with critical behavior of that sort. But I then feel free to make his views known to the absentee owners. Directors seldom do that, of course. The 222225 can expect a vigorous rebuttal from the unpersuaded directors, a prospect that should discourage the see nothing improper in such actions, assuming the issues are serious. Naturally, the complaining director ten or less - and ought to come mostly from the outside. The outside board members should establish For the boards just discussed, I believe the directors ought to be relatively few in number - say, standards for the CEO's performance and should also periodically meet, without his being present, to evaluate his performance against those standards. The requisites for board membership should be business savvy, interest in the job, and owner- orientation. Too often, directors are selected simply because they are prominent or add diversity to the board. That practice is a mistake. Furthermore, mistakes in selecting directors are particularly serious job security. because appointments are so hard to undo: The pleasant but vacuous director need never worry about some companies, this arrangement is facilitated by the existence of two classes of stock endowed with The second case is that existing at Berkshire, where the controlling owner is also the manager. At between owners and management and that the directors cannot effect change except through persuasion. disproportionate voting power. In these situations, it's obvious that the board does not act as an agent can do about it except object. If the directors having no connections to the owner/manager make a unified Therefore, if the owner/manager is mediocre or worse — or is over-reaching - there is little a director argument, it may well have some effect. More likely it will not. Their resignation will signal their doubts about management, and it will emphasize that no outsider is If change does not come, and the matter is sufficiently serious, the outside directors should resign. in a position to correct the owner/manager's shortcomings. 17

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management. This case, examples of which are Hershey Foods and Dow Jones, puts the outside directors The third governance case occurs when there is a controlling owner who is not involved in in a potentially useful position. If they become unhappy with either the competence or integrity of the This situation is ideal for an outside director, since he need make his case only to a single, presumably manager, they can go directly to the owner (who may also be on the board) and report their dissatisfaction. interested owner, who can forthwith effect change if the argument is persuasive. Even so, the dissatisfied director has only that single course of action. If he remains unsatisfied about a critical matter, he has no choice but to resign. case the owner is not going to fire himself, and in the first case, directors often find it very difficult Logically, the third case should be the most effective in insuring first-class management. In the second to deal with mediocrity or mild over-reaching. Unless the unhappy directors can win over a majority of the board - an awkward social and logistical task, particularly if management's behavior is merely odious, usually convince themselves that by staying around they can do at least some good. Meanwhile, not egregious - their hands are effectively tied. In practice, directors trapped in situations of this kind management proceeds unfettered. a majority. He can also insure that outside directors are selected who will bring useful qualities to the In the third case, the owner is neither judging himself nor burdened with the problem of garnering he will make decisions in respect to management that are meritocratic and pro-shareholder. Moreover - and this is critically important - he can readily correct any mistake he makes. health, let me add, is excellent. For better or worse, you are likely to have me as an owner/manager At Berkshire we operate in the second mode now and will for as long as I remain functional. My for some time. if she dies before I do. In neither case will taxes and bequests require the sale of consequential amounts After my death, all of my stock will go to my wife, Susie, should she survive me, or to a foundation of stock. governance mode, going forward with a When my stock is transferred to either my wife or the foundation, Berkshire will enter the third management that must perform for that owner. In preparation for that time, Susie was elected to the board vitally interested, but non-management, owner and with a a few years ago, and in 1993 our son, Howard, joined the board. These family members will not be managers of the company in the future, happen to me. Most of our other directors are also significant owners of Berkshire stock, and each has a strong owner-orientation. All in all, we're prepared for "the truck." Shareholder-Designated Contributions program. Contributions made through the program were $9.4 million and 3,110 charities were recipients. About 97% of all eligible shares participated in Berkshire's 1993 shareholder-designated contributions contributions that are clearly related to the company's business activities - differs significantly from that Berkshire's practice in respect to discretionary philanthropy — as contrasted to its policies regarding of the CEO (who often will be responding to social pressures), employees (through matching gifts), or of other publicly-held corporations. There, most corporate contributions are made pursuant to the wishes directors (through matching gifts or requests they make of the CEO). closely-held corporation, partnership, or sole proprietorship. Therefore, if funds are to be given to causes At Berkshire, we believe that the company's money is the owners' money, just as it would be in a them. We've yet to find a CEO who believes he should personally fund the charities favored by his unrelated to Berkshire's business activities, it is the charities favored by our owners that should receive shareholders. Why, then, should they foot the bill for his picks? 18

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person from National Indemnity to help us implement the instructions that came from our 7,500 registered add that our program is easy to administer. Last fall, for two months, we borrowed one shareholders. l'd guess that the average corporate program in which employee gifts are matched incurs far greater administrative costs. Indeed, our entire corporate overhead is less than half the size of our charitable contributions. (Charlie, however, insists that I tell you that $1. 4 million of our 849 million overhead is atribuable to our corporate jet, The Indefensible.) Below is a list showing the largest categories to which our shareholders have steered their contributions. (a) 347 churches and synagogues received 569 gifts 283 colleges and universities 244 K-12 schools (about two-thirds secular, one-third religious) received 525 gifts received 670 gifts (e) (d) 288 institutions dedicated to art, culture or the humanities received 447 gifts received 411 gifts 180 religious social-service organizations (split about equally between Christian and Jewish) (g) (f) 153 hospitals received 261 gifts 445 secular social-service organizations (about 40% youth-related) received 759 gifts (h) 186 health-related organizations (American Heart Association, American Cancer Society, etc.) received 320 gifts people choose to give money to when they are acting of their own accord, free of pressure from solicitors Three things about this list seem particularly interesting to me. First, to some degree it indicates what or emotional appeals from charities. Second, the contributions programs of publicly-held companies almost never allow gifts to churches and synagogues, yet clearly these institutions are what many shareholders were directed to organizations that believe in making abortions readily available for women and 30 gifts would like to support. Third, the gifts made by our shareholders display conflicting philosophies: 130 gifts were directed to organizations (other than churches) that discourage or are opposed to abortion. under our designated-contributions program and asked for your comments. We received a few well-written Last year I told you that I was thinking of raising the amount that Berkshire shareholders can give to force shareholders into making charitable gifts. Most of the shareholders responding, however, noted letters opposing the entire idea, on the grounds that it was our job to run the business and not our job have given stock to their children or grandchildren told me that they consider the program a particularly the tax efficiency of the plan and urged us to increase the designated amount. Several shareholders who good way to get youngsters thinking at an early age about the subject of giving. These people, in other we did raise the amount in 1993, from $8 per share to $10. words, perceive the program to be an educational, as well as philanthropic, tool. The bottom line is that businesses make contributions, including merchandise, In addition to the shareholder-designated contributions that Berkshire distributes, our operating contributions support local charities, such as The United Way, and produce roughly commensurate benefits averaging about $2.5 million annually. These program that appears on pages 50-51. To participate in future programs, you must make sure your We suggest that new shareholders read the description of our shareholder-designated contributions depository. Shares not so registered on August 31, 1994 will be ineligible for the 1994 program. shares are registered in the name of the actual owner, not in the nominee name of a broker, bank or A Few Personal Items than the cake.) That was a day on which the store was scheduled to be open in the evening. Mrs. B, Mrs. B - Rose Blumkin — had her 100th birthday on December 3, 1993. (The candles cost more quite obvious: She simply postponed her party until an evening when the store was closed. who works seven days a week, for however many hours the store operates, found the proper decision unable to speak English and devoid of formal schooling. In 1937, she founded the Nebraska Furniture Mart Mrs. B's story is well-known but worth telling again. She came to the United States 77 years ago, 19

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with $500. Last year the store had sales of $200 million, a larger amount by far than that recorded by Mrs. B sold control of the business to Berkshire Hathaway, a deal we completed without obtaining audited any other home furnishings store in the United States. Our part in all of this began ten years ago when financial statements, checking real estate records, or getting any warranties. In short, her word was good enough for us. my 100th. Naturally, I was delighted to attend Mrs. B's birthday party. After all, she's promised

relinquished the CEO title three years ago. In 1973, we purchased our stock in her company for about Katharine Graham retired last year as the chairman of The Washington Post Company, having At the time of our purchase, we knew that the economic prospects of the company were good. But million a year in dividends and is worth over $400 million. equally important, Charlie and I concluded that Kay would prove to be an outstanding manager and would Washington Post Company has two classes of stock, a structure that we've seen some managers abuse. treat all shareholders honorably. That latter consideration was particularly important because The were underscored this past year when she was elected by Fortune's Board of Editors to the Business Hall All of our judgments about this investment have been validated by events. Kay's skills as a manager of Fame. On behalf of our shareholders, Charlie and I had long ago put her in Berkshire's Hall of Fame.

lasted "about 14 hours." Don is one of the most extraordinary human beings I've ever known - a man Another of last year's retirees was Don Keough of Coca-Cola, although, as he puts it, his retirement lucky enough to associate with him. Coca-Cola wants its product to be present at the happy times of of enormous business talent, but, even more important, a man who brings out the absolute best in everyone a person's life. Don Keough, as an individual, invariably increases the happiness of those around him. It's impossible to think about Don without feeling good. Charlie has lived in California for 45 years, his home as a boy was about 200 feet away from the house I will edge up to how I met Don by slipping in a plug for my neighborhood in Omaha: Though in the zip code. As for Don, in 1958 he bought the house directly across the street from mine. He was where I now live; my wife, Susie, grew up 1½ blocks away; and we have about 125 Berkshire shareholders then a coffee salesman with a big family and a small income. make a record $1 billion investment in Coca-Cola in 1988-89. Roberto Goizueta had become CEO of Coke The impressions I formed in those days about Don were a factor in my decision to have Berkshire

35% above the 1992 high - he also was key to our merger with Dexter. Frank Rooney did double duty last year. In addition to leading H. H. Brown to record profits - H. H. Brown, told me what a wonderful operation they managed. He encouraged us to get together and Frank has known Harold Alfond and Peter Lunder for decades, and shortly after our purchase of in due course we made a deal. Frank told Harold and Peter that Berkshire would provide an idea corporate "home" for Dexter, and that assurance undoubtedly contributed to their decision to join with us 20

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23 year tenure as CEO. Now, at 72, he's setting an even faster pace at Berkshire. Frank has a low-key, I've told you in the past of Frank's extraordinary record in building Melville Corp. during his relaxed style, but don't let that fool you. When he swings, the ball disappears far over the tence. The Annual Meeting on Monday, April 25, 1994. A record 2,200 people turned up for the meeting last year, but the theater This year the Annual Meeting will be held at the Orpheum Theater in downtown Omaha at 9:30 a.m. rather than Mrs. See's, on the package. Redick Tower, a small (88 rooms) but nice hotel across the street from the Orpheum; (2) the much larger We recommend that you promptly get hotel reservations at one of these hotels: (1) The Radisson- Red Lion Hotel, located about a five-minute walk from the Orpheum; or (3) the Marriott, located in West buses at the Marriott that will leave at 8:30 and 8:45 for the meeting and return after it ends. Omaha about 100 yards from Borsheim's, which is a twenty-minute drive from downtown. We will have to the meeting. With the admission card, we will enclose information about parking facilities located near An attachment to our proxy material explains how you can obtain the card you will need for admission the Orpheum. If you are driving, come a little early. Nearby lots fill up quickly and you may have to walk a few blocks. and to take you from there to downtown hotels or the airport later. Those of you arriving early can visit As usual, we will have buses to take you to Nebraska Furniture Mart and Borsheim's after the meeting noon to 5:30 p.m. on Sundays. Borsheim's normally is closed on Sunday but will be open for shareholders the Furniture Mart any day of the week; it is open from 10 a.m. to 5:30 p.m. on Saturdays and from and their guests from noon to 6 p.m. on Sunday, April 24. store when she was 23. Susan will be joined at Borsheim's on Sunday by many of the managers of our other businesses, and Charlie and I will be there as well. On the previous evening, Saturday, April 23, there will be a baseball game at Rosenblatt Stadium As you may know, a few years ago I bought 25% of the Royals (a capital-allocation decision for which between the Omaha Royals and the Nashville Sounds (which could turn out to be Michael Jordan's team). I will not become famous) and this year the league has cooperatively scheduled a home stand at Annual Meeting time. I will throw the first pitch on the 23rd, and it's a certainty that I will improve on last year's about obtaining tickets to the game. I regret to report that you won't have to buy them from scalpers. March 1, 1994 Warren E. Buffett Chairman of the Board 21

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APPENDIX ACQUISITION CRITERIA We are eager to hear about businesses that meet all of the following criteria: (1) Large purchases (at least $10 million of after-tax earnings), Demonstrated consistent earning power (future projections are of no interest to us, nor are "turnaround" situations), (3) Businesses earning good returns on equity while employing little or no debt, Simple businesses (if there's lots of technology, we won't understand it, Management in place (we can't supply it), (6) An offering price (we don't want to waste our time or that of the seller by talking, even preliminarily, about a transaction when price is unknown). the $2-3 billion range. The larger the company, the greater will be our interest: We would like to make an acquisition in answer - customarily within five minutes - as to whether we're interested. We prefer to buy for cash, We will not engage in unfriendly takeovers. We can promise complete confidentiality and a very fast but will consider issuing stock when we receive as much in intrinsic business value as we give. Mart, Fechheimer's, Borsheim's and Central States Indemnity. In cases like these, the company's owner- Our favorite form of purchase is one fitting the pattern through which we acquired Nebraska Furniture or inactive shareholders. At the same time, these managers wish to remain significant owners who continue managers wish to generate significant amounts of cash, sometimes for themselves, but often for their families with such objectives and we invite potential sellers to check us out by contacting people with whom we to run their companies just as they have in the past. We think we offer a particularly good fit for owners have done business in the past. Charlie and I frequently get approached about acquisitions that don't come close to meeting our tests: you their cocker spaniels. A line from a country song expresses our feeling about new ventures, turnarounds, We've found that if you advertise an interest in buying collies, a lot of people will call hoping to sell or auction-like sales: "When the phone don't ring, you'll know it's me." the negotiated purchase of large, but not controlling, blocks of stock comparable to those we hold in Capital Besides being interested in the purchase of businesses as described above, we are also interested in Cities, Salomon, Gillette, USAir, Champion, and American Express. We are not interested, however, in receiving suggestions about purchases we might make in the general stock market. 22

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BERKSHIRE HATHAWAY INC. Selected Financial Data for the Past Five Years (dollars in thousands, except per share data) 1993 1992 1991 1990 1989 Revenues: Sales and service revenues Insures and dividend income $1,962,862 656,341 $1,774,436 664,293 $1,651,134 776,413 $1,580,074 $1,526,459 591,540 Realized investment gain 479,806 495,409 481,793 450,295 394,279 331,452 Sundry 546,422 39,93 8,052 5,265 192,478 33,989 223,810 Total revenues 4,178 3,574 7,892 $3,653,483 $3.029,340 $3,105,996 $2,659.472 $2,483,892 Earnings: Before realized investment gain and Realized investment gain. cumulative effect of accounting change 356,702 402,403(1 $ 347,726 59,559 315,753 124,155 $ 370,745 23,348 $ 299,902 Cumulative effect of change in for income taxes accounting 147,575 (70,984) Net carnings 688,121 407,285 439,908 394,093 $ 447,477 Earnings per share: Before realized investment gain and Realized investment gain cumulative effect of accounting change $348.03 308.50 $303.29 51.95 $275.42 108.30 $323.39 20.36 $262.46 Cumulative effect of change in accounting 127.55 for income taxes (61.39) Net earnings $595.14 $355.24 $383.72 $343.75 $390.01 Year-end data: Borrowings under investment agreements Total assets $19,520,469 $17,131,998 $14,461,902 $10,670,423 $9,459,594 Shareholders' equity and other debt R)... 109723890 1,154,697 8,896,331 7,379,918 1,100,464 1,082,265 5,287,454 4,925,126 847,923 1,178 1,149 1,146 1,146 1,146 outstanding share... $ 8,854 $ 7,745$ 6.437 $ 4,612$ 4,296 '' aptudania chute if 575,pes representing the ect of the change in sederal income lax rates on defered taxes 12) Excludes borrowings of commercial and consumer finance businesses. 23

[PAGE 26]

Deloitte & Touche Omaha, Nebraska 68102-1578 2000 First National Center Telephone: (402) 346-7788 Facsimile: (402) 346-0711 (402) 344-0372 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholders Berkshire Hathaway Inc. We have audited the accompanying consolidated balance sheets of Berkshire Hathaway Inc. and cash flows for each of the three years in the period ended December 31, 1993. These financial statements subsidiaries as of December 31, 1993 and 1992, and the related consolidated statements of carnings, and are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. require that we plan and perform the audit to obtain reasonable assurance about whether the financial We conducted our audits in accordance with generally accepted auditing standards. Those standards statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. accounting principles used and significant estimates made by management, as well as evaluating the overall In our opinion, such consolidated financial statements present fairly, in all material respects, the financial their operations and their cash flows for each of the three years in the period ended December 31, 1993 in position of Berkshire Hathaway Inc. and subsidiaries as of December 31, 1993 and 1992, and the results of conformity with generally accepted accounting principles. As discussed in Note 1 to the consolidated financial statements, in 1993 the Company changed its method Accounting Standards Board. of accounting for income taxes and investments to conform with recent pronouncements of the Financial Deloitte 1 Joucke March 7, 1994 Deloitte Touche Tohmatsu International 24

[PAGE 27]

BERKSHIRE HATHAWAY INC. CONSOLIDATED BALANCE SHEETS and Subsidiaries (dollars in thousands except per share amounts) December 31, 1993 1992 Cash and cash equivalents ASSETS Investments: $ 1,838,103 $ 1,127,996 Marketable equity securities Obligations with fixed maturities 2,108,602 Inventories.. Receivables.... 12,540,197 11,652,654 2,033,681 525,285 Properties and equipment .................. ... . . 378,386 608,352 Assets of commercial and consumer finance businesses •......... 259,736 224,510 282,141 Other assets 1,029,416 840,744 759,993 442,671 $19,520,469 $17,131,998 Losses and loss adjustment expenses LIABILITIES AND SHAREHOLDERS EQUITY $ 3,128,809 $ Unearned premiums. 315,750 3,151,607 Income taxes.. Accounts payable, accruals and other liabilities 3,030,189 738,897 627,296 231,813 Liabilities of commercial and Borrowings under investment agreements and other debt 723,782 972,389 2,517,186 consumer finance businesses 1,154,697 423,545 8,909,816 8,106,144 Minority shareholders' interests 182,279 129,523 Shareholders' equity: Common stock of $5 par value. Authorized 1,500,000 shares; Issued 1,381,308 shares in 1993; 1,377,364 shares in 1992 6,907 Unrealized appreciation of marketable equity securities, net Capital in excess of par value. 5,412,652 656,074 182,264 6,887 Retained earnings 4,390,375 3.702,254 5,047,219 10,466,008 8,938,624 Less common stock in treasury, at cost (203,558 shares in 1993; 228,761 shares in 1992) ............. 37,634 42,293 Total shareholders... 10,428,374 8,896,331 $19,520,469 $17,131,998 See accompanying Notes to Consolidated Financial Statements 25

[PAGE 28]

BERKSHIRE HATHAWAY INC. CONSOLIDATED STATEMENTS OF EARNINGS and Subsidiaries (dollars in thousands except per share amounts) 1993 Year Ended December 31, 1992 1991 Revenues: Insurance premiums earned Sales and service revenues $1,962,862 Interest and dividend income .... ........ 656,341 $1,774,436 495,409 664,293 $1,651,134 Sundry income...... Realized investment gain ............... 479,806 776,413 ........ 546,422 89,937 481,793 ... 8,052 5,265 192,478 4,178 Cost and expenses: 3,653,483 3,029,340 3,105,996 Cost of products and services sold Insurance underwriting expenses Insurance losses and loss adjustment expenses. .... 1,180,642 456,098 1,049,721 687,625 939,011 Interest expense Selling, general and administrative expenses .. ...•• •.... .... 576,909 169,367 85,628 827,169 80,749 124,496 531,253 556,146 68,837 121,847 2,463,765 2,478,723 2,513,010 Earnings before income taxes, minority interest and Income taxes - cumulative effect of accounting change.......... 1,189,718 550,617 592,986 Other than effect of change in income tax rate appreciation... on deferred taxes applicable to unrealized Effect of change in income tax rate on deferred •••• 345,302 138,089 142,058 Minority interest ........ taxes applicable to unrealized appreciation ... 75,348 9,963 5,243 11,020 Barnimber cure are effect of accounting for come Curelative 759,105 407,285 439,908 (70,984) Net earnings.. .... $ 688,121 $ 407,285 $ 439,908 Average shares outstanding •••• 1,156,243 1,146,492 1,146,441 Earnings per share: $656 $355 $384 Net earnings $595 (61) $355 $384 See accompanying Notes to Consolidated Financial Statements 26

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BERKSHIRE HATHAWAY INC. CONSOLIDATED STATEMENTS OF CASH FLOWS and Subsidiaries (dollars in thousands) 1993 Year Ended December 31, Cash flows from operating activities: 1992 1991 $ 688,121 $ 407,285 $ 439,908 iffect of change in income tax rate on deferred taxe umulative effect of accounting change....• 70,984 - - 75,348 (546,422) 50,180 41,074 37,175 Changes in assets and liabilities before effects from 9,963 (89,937) 5,243 (192,478) 11,020 Losses and loss adjustment expenses business acquisitions: Deferred charges re reinsurance (22,798) 83,937 16,171 102,789 75,274 46,931 (178,328) 798,784 Receivables Income taxes Accounts payable, accruals and other liabilities 134,077 150,615 239,428 (177,043) 26,109 107,931 34,996 (10,521) 29,004 (41,039) (6,067) Other Net cash flows from operating activities 23,681 (8,868) Purchases of fixed maturity investments. flows from investing activities: 726,169 997,185 709,173 Proceeds from sales of fixed maturity investments Purchases of marketable equity securities (858,879) (272,249) (913,037) (258,617) (809,633) (377,332) Proceeds from redemptions and maturities of fixed 284,301 292,010 Proceeds from sales of marketable equity securities maturity investments 1,188,510 318,881 371,514 (119,948) 100,270 522,701 399,120 Acquisition of businesses Principal collection on loans and investments investments originated in finance businesses.. (866,843) (160,261) (163,803) (161,043) originated in finance 269,345 19,578 127,913 (5,294) (11,266) 124,760 Net cash flows from investing activities Cash flows from financing activities: (201,657) (573,159) (184,486) Proceeds from other borrowings.... Proceeds from borrowings of finance businesses 1,264,972 591,853 961,565 38,862 455,972 811 Repayments of borrowings of finance businesses Other. Repayments of other borrowings (1,399,901) (316,318) (906,964) (84,792) (462,288) (2,625) (2,860) (2,334) Net cash flows from financing activities (1,581) 137,746 6,337 Cash and cash equivalents Increase in cash and cash equivalents. (9,711) at beginning of year. 1,192,363 662,258 430,363 762,000 247,024 514,976 Cash and cash equivalents at end of year * .... $1,854,621 $1,192,363 762,000

• Cash and cash equivalents at end of year are comprised of the following:

Other.. Commercial and consumer finance businesses. $ 1,838,103 16,518 $ 64,367 32,658 $1.854,021 S1,192,363 1,127,996 762,000 729,342 See accompanying Notes to Consolidated Financial Statements 27

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BERKSHIRE HATHAWAY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS and Subsidiaries December 31, 1993 (1) Significant accounting policies and practices (a) Basis of consolidation The accompanying Consolidated Financial Statements include the accounts of Berkshire Hathaway Inc. (the "Company" and transactions have been eliminated. or "Berkshire") consolidated with accounts of all its subsidiaries. Intercompany accounts In the accompanying Consolidated Balance Sheet as of December 31, 1992, reclassifications have been made 202223 Ettective January 1, 1993, the Company adopted the provisions of Statement of Financial Accounting Standards method of accounting for income taxes from the "deferred method" to the "asset and liability method". No. 109 "Accounting for Income Taxes" ("SFAS 109""). The adoption of SFAS 109 changes the Company's and taxable income. Under the asset and liability method of SEAS 109, deferred tax assets and liabilities Previously the Company deferred the past tax effects of timing differences between financial reporting are recognized for future tax consequences attributable to differences between financial statement carrying that the effect on deferred taxes of a change in tax rates be recognized in income in the period that amounts of existing assets and liabilities and their respective tax bases. The provisions of SFAS 109 require includes the enactment date. See note 6. In May 1993, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards under the statement, the Company has elected to adopt the statement's provisions as of December 31, No. 115 "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS IIS"). As permitted 1993. Among its provisions, the statement requires a change in the accounting for marketable equity carried at the lower of aggregate cost or market. Under the provisions of SFAS 115, these securities securities held by non-insurance entities. Prior to the adoption of SFAS 115, such securities were are now carried at market and accounted for in the same manner as marketable equity securities held by the Company's insurance subsidiaries. See notes 1(d), 4 and 8. (c) Cash equivalents Cash equivalents consist of funds invested in money market accounts and in investments with a maturity of three months or less when purchased. (d) Investments Management determines the appropriate classifications of investments in obligations with fixed maturities balance sheet date. At December 31, 1993, all investments in obligations with fixed maturities are classified and marketable equity securities at the time of purchase and reevaluates such designations as of each as held-to-maturity. Obligations with fixed maturities are deemed to be held-to-maturity securities when carried at amortized cost. Marketable equity securities are classified as available-for-sale. Available-for-sale the Company has the ability and positive intent to hold them to maturity. Held-to-maturity securities are securities are stated at fair value, with unrealized gains and losses, net of tax, reported in a separate component of shareholders' equity. Realized a specific identification basis, are included in the Consolidated Statements of Earnings. gains and losses on sales of investments, as determined on (e) Goodwill and negative goodwill of acquired businesses The difference between purchase cost and the fair value of the net assets amortized on a straight line basis over forty years. The net unamortized balance is carried in other assets. of acquired businesses is Insurance premium acquisition costs For financial reporting purposes, certain costs to ultimate recoverability, and charged to income as the premiums are earned. Generally, the ultimate of acquiring insurance premiums are deferred, recoverability of premium acquisition costs is determined without regard to investment income. 28

[PAGE 31]

(1) Significant accounting policies and practices (Continued) (g) Deferred charges re reinsurance assumed he excess of estimated liabilities for claims and claim costs ultimately payable by the Insurance Grou for indemnification of insurance risk, other than structured settlements, is established as a deferred charge ver consideration received with respect to retroactive property/casualty reinsurance contracts that provid at inception of such contracts. The deferred charges are subsequently amortized using the interest method over the expected settlement periods of the claim liabilities. At December 31, 1993 and 1992, deferre included in other assets. harges re reinsurance assumed in the amounts of $466.0 million and $482.2 million respectively are (h) Losses and loss adjustment expenses Liability for losses and loss adjustment expenses represents the aggregate of such obligations of members of the Insurance Group with respect to: (i) prospective property/casualty insurance and reinsurance contracts, (i) retroactive property/casualty reinsurance contracts that provide for indemnification of insurance risk, other than structured settlements, and (ili) reinsurance contracts providing for periodic payments with respect to settled claims ("structured settlements"). Except for structured settlement liabilities which aggregate of estimated ultimate payment amounts. are stated at discounted present values, the liability for losses and loss adjustment expenses is at the Ultimate payment amounts with respect to prospective contracts are determined from (i) individual case estimates, of losses from ceding (ii) estimates of incurred but not reported losses, based on past experience, and (iii) reports insurers. Ultimate payment amounts with respect to retroactive reinsurance contracts that provide for indemnification at maximum limits of indemnification under the contracts. This liability at December 31, 1993 was of insurance risk, other than structured settlements, are established for financial reporting purposes to deferred charges re reinsurance assumed.) For statutory reporting purposes, liabilities under these contracts $1.181 billion at December 31, 1992 was $1.232 billion. (See also 1(g) above for amounts related ultimately payable thereunder. These "best estimates" yiekled respectively as of December 31, 1993 and not at worst-case maximum loss limits, but at best estimates of claims and claim costs respect to these contracts in the accompanying financial statements were $41 million for 1993, $44 million December 31, 1992 liabilities of $919.8 million and $939.6 million. Underwriting losses reported with for 1992 and $26 million for 1991, whereas for statutory reporting purposes the corresponding figures were a $10 million gain in 1993, and losses of $89 million and $184 million in 1992 and 1991, respectively. Liabilities under structured settlement contracts are established when the contracts are entered into, at the then present value of the actuarially determined ultimate payment amount discounted at the prevailing aggregate of these liabilities for financial reporting purposes at December 31, 1993 was $259.8 million. market interest rate. Thereafter, annual accretions to the liabilities are charged to losses incurred. The For statutory reporting purposes, Insurance Regulatory authorities (5% for contracts incepting after 1986 and 7% with respect to contracts where the liabilities are determined using discount rates mandated by dated prior to 1987), the aggregate of structured settlement liabilities was $343.4 million. 0) Insurance premiums for prospective insurance and non-property catastrophe reinsurance policies are recognized Insurance premiums as revenues ratably over their terms with unearned premiums computed on a monthly or daily pro rata basis. Premiums for catastrophe excess of loss reinsurance contracts are deferred until the earlier of a (k) Reinsurance Provisions for losses and loss adjustment expenses are reported in the accompanying Consolidated Statements of Earnings after deducting estimates of recoveries under reinsurance contracts. Such recoveries totalled $34 million, $90 million and $26 million for 1993, 1992 and 1991, respectively. Reinsurance contracts to the underlying insurance and reinsurance contracts. Estimates of losses and loss expenses recoverable do not relieve the Insurance Group Members of their obligations to indemnify policyholders with respect under reinsurance contracts are included in receivables. 29

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Notes to Consolidated Financial Statements (Continued) (2) Dexter Shoe Companies merger ("Dexter") by reissuing 25,203 shares of its common stock held in treasury in exchange for 100% of the outstanding On November 7, 1993, the Company consummated a merger with the privately held Dexter Shoe Companies 3) Investments in obligations with fixed maturities with fixed maturities are as follows (in thousands): The amortized cost and estimated market values as of December 31, 1993 and 1992, of investments in obligations December 31, 1993 Amortized Unrealized Gross Gross Cost Gains Unrealized Estimated Losses Market Bonds: Value U.S. Treasury securities and obligations Obligations of states, municipalities U.S. government corporations and agencies $ 9,286 $ 131 $ (4) $ 9,413 Redeemable preferred stocks. and political subdivisions 653,884 Mortgage-backed securities* 1,381,882 190,188 50,552 (810) 1,635 (90,060) 1,482,010 703,626 63,550 65,178 $2,108,602 $ 242,506 $ (90,881) $2,260,227 December 31, 1992 Amortized Gross Cost Unrealized Gross Gains Unrealized Estimated Losses Market Value U.S. Treasury securities and obligations of Obligations of states, municipalities U.S. government corporations and agencies . $ 39,084 $ 887 $ (30) $ 39,941 Corporate bonds political subdivisions 133,566 453,277 56,432 30,317 (350) 163,883 509,359 Mortgage-backed securities* Redeemable preferred stocks 1,368,648 39,106 65,357 1,624 (89,701) (34) 1,344,304 40,696 $2,033,681 $ 154,617 $ (90,115) $2,098,183

• Excludes mortgage-backed securities held by commercial and consumer finance businesses. See note 5.

by contractual maturity dates. Actual maturities will differ from contractual maturities because issuers of certain of Shown below are the amortized cost and estimated market values of the above obligations at December 31, 1993 the obligations retain early call or prepayment rights. Amounts are in thousands. Amortized Estimated Cost Market Due in one year or less Due after five years through ten years Due after one year through five years $ 1,126,710 33,196 $ Value 1,305,057 33,789 Due after ten years 878,094 7,052 848,527 2,045,052 2,195,049 7,676 Mortgage-backed securities 63,550 65,178 $2,108,602 $2,260,227 (in thousands): Gross gains and gross losses realized on sales and redemptions of obligations with fixed maturities were as follows Gross realized gains 1993 Gross realized losses $40,109 1992 $80,076 1991 $139,700 (174) 30 (563) -

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(4) Investments in marketable equity securities (in thousands): Aggregate data with respect to the consolidated investment in marketable equity securities are shown below December 31, 1993 Cost Unrealized Carrying (a) Gain Market Value Common stock of: Capital Cities/ABC, Inc. (b) GEICO Corporation (c) The Coca-Cola Company.... $ 345,000 $ 894,000 $ 1,239,000 The Gillette Company .. . . 1,023,920 All other marketable equity securitics. .... 600,000 45,713 3,144,055 1,713,881 4,167,975 $ 1,239,000 4,167,975 2,303,125 831,000 1:431,000 1,759,594 1,639,503 (a) 3.942,628 3022000 $4.317,758 $8,222,439 $12,540,197 $12,540,197 December 31, 1992 Cost Unrealized Gain Market Carrying Value Common stock of: The Coca-Cola Company Capital Cities/ABC, Inc. (b) 1,023,920 $ 517,500 $1,005,750 600,000 45,713 2,887,205 $ 1,523,250 2,180,537 3,911,125 $ 1,506,487 The Gillette Company GEICO Corporation (c) 1,893,162 1,040,410(e) 765,000 2,226,250 3,903,918 2,933,512 1,365,000 2,226,250 All other marketable equity securities 2,650,999 1,365,000 $4,080,295 $7,878,902 $11,959,197 $11,652,654 (a) As discussed in Note 1(b), the Company adopted SFAS 115 as of December 31, 1993. Therefore, all marketable equity securities are carried at market value as of December 3l, 1993. The cumulative effect of adopting $171,775 to reflect the unrealized appreciation of marketable equity securities held by the Company and this statement as of December 31, 1993, was to increase the ending balance in shareholders' equity by by its non-insurance subsidiaries, net of related income taxes and minority interest. Prior year financial statements have not been restated. (b) Common shares of Capital Cities/ABC, Inc. (Capital Cities") owned by Berkshire subsidiaries possessed approximately 13% of the voting rights of all Capital Cities shares outstanding at December 31, 1993. The to purchase the shares and otherwise govern until January 3, 1997, the manner by which the shares may shares are held subject to an Agreement, the terms of which grant to Capital Cities a right of first refusal with respect to these shares in favor of Thomas S. Murphy or Daniel B. Burke, so long as either shall be sold or transferred. Also, Berkshire and its subsidiaries have delivered to Capital Cities irrevocable proxies of Capital Cities. The proxies expire on January 2, 1997, or at the earlier date when neither of such persons be the chief executive officer of Capital Cities, to vote the shares at any and all meetings of shareholders is chief executive officer of Capital Cities. (c) Subsidiaries of Berkshire owned shares of common stock of GEICO Corporation that possessed approximately 48% of the voting rights of all GEICO shares outstanding at December 31, 1993. Berkshire maintains an supervisory authority. The Order, dating from Berkshire subsidiaries' major purchase of the shares in 1976, independent proxy arrangement for voting of the shares as required by Order of GEICO's domiciliary insurance prohibits Berkshire from seeking or causing to change the independent proxy. Also, under the Order, no director of GEICO. Because the Order divests Berkshire of its voting rights with respect to the shares, Berkshire officer or director of Berkshire or of any affiliate or subsidiary of Berkshire is permitted to serve as a does not use the equity method of accounting for its investment in GEICO. (d) Represents gross unrealized gains $1,732,295, less gross unrealized losses $92,792. (e) Represents gross unrealized gains $1,101,039, less gross unrealized losses $60,629. 31

[PAGE 34]

Notes to Consolidated Financial Statements (Continued) (4) Investments in marketable equity securities (Continued) Gross realized gains and losses on sales of marketable equity securities were as follows (dollars in thousands): 1993 1992 1991 Gross realized gains $518,347* $ 10,595 $ 62,050 Gross realized losses. (11,860) (171) (9,272)

• During the fourth quarter of 1993, a subsidiary

investment in Capital Cities in connection with that Company's offer to buy from its shareholders up of the Company sold 1,000,000 common shares of its to 2,000,000 of its common shares. Prior to the sale and since 1986, Berkshire subsidiaries owned 3,000,000 shares of Capital Cities or approximately 18% of that Company's outstanding stock. Berkshire's gross realized gain from this transaction was $457.5 million. (5) Assets and liabilities of Berkshire con cercial and conse businesses businesses are summarized below (in thousands): Dec. 31, 1993 Dec. 31, 1992 Cash and cash equivalents. Assets $ 16,518 Real estate loans (a) Installment loans receivable 163,827 $ 64,367 167,609 Mortgages Other and mortgage-backed securities (b) 656,311 101,887 4.088 39,875 68,933 $840,744 $442,671 Liabilities 8.125% Notes, payable in 1996 $120,000 551,909 $120,000 Borrowings under investment agreements (c) 8,862 Savings accounts Other. 51,873 250,612 44,071 $723,782 $423,545 a) During 1993, a federal savings bank assumed Mutual Savings and Loan Association's savings accoun abilities, offset substantially by real estate loans, cash and certain other assets of Mutua (b) At December 31, 1993, mortgage-backed securities of $534,352 were included in this caption. collateralized by mortgages and other financial instruments. Each of these securities has received the securities consist of obligations of U. S. government corporations and agencies and corporate obligations highest rating from at least two rating agencies. At December 31, 1993, these securities had an average two years. The Gratised Amortized Cost Market 1992 1993 $656,311 68,933 $1,375 1,197 $(1,660) (46) $656,026 70,084 Borrowin under towermen agreements for ade put pana to comracy sitars generaly a ming. rangine to equite 0% per a ham as tollons f houns ousanding af December 31, 1993, are 1995 1994. ......• $422,003 1996 62,994 1998 1997. ...... ..... 26,210 After 1998.. ...... 345 ....... 39,873 484 32

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(6) Income taxes of liabilities as follows (in thousands): The liability for income taxes as reflected in the accompanying Consolidated Balance Sheets represent estimates Dec. 31, 1993 Dec. 31, Payable currently 1992 Deferred $ 289,686 2,740,503 $ 2,424,652 92,534 $3.030,189 $2,517,186 adopting SFAS 109 on the Company's financial statements was to decrease 1993 net income by about $71 million. As discussed in Note 1(b), the Company adopted SFAS 109 as of January 1, 1993. The cumulative effect of accounting principle. It primarily represents the impact of adjusting deferred taxes related to unrealized appreciation This amount is reflected in the 1993 Consolidated Statement of Earnings as the cumulative effect of change in as opposed to the 28% rate which was in effect when the deferred taxes originated. The effect of the accounting of marketable equity securities which arose prior to 1987 to reflect the then current capital gain tax rate of 34% statements have not been restated. change on 1993 earnings before income taxes and cumulative effect adjustment was not material. Prior year financial to January 1, 1993. Accordingly, as required under SFAS 109, the company recorded a charge to 1993 earnings of During 1993, the federal corporate income and capital gain tax rate was increased from 34% to 35% retroactive appreciation of marketable equity securities. approximately $75 million. Most of this charge relates to the impact of adjusting deferred taxes applicable to unrealized The Consolidated Statements of Earnings reflect charges for income taxes as shown below (in thousands): 320,419 1991 State.. $120,121 Foreign 20,857 4,026 24,430 3,383 20,281 1,656 $ 345,302 $138,089 $142,058 Current Deferred $ 400,762 (55,460) $183,248 (45,159) $152,563 (10,505) $ 345,302 $138,089 $142,058

• Excludes the cumulative effect of change in accounting for income taxes ($70,984) and the effect of the change

($75,348). in federal income tax rate on deferred taxes applicable to unrealized appreciation of marketable equity securities tax liabilities at December 31, 1993, are shown below (in thousands): The tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred 1993 Deferred tax liabilities: Relating to unrealized appreciation of Other............................ marketable equity securities $2,848,681 73,638 Deferred tax assets... 2,922,319 (181,816) Net deferred tax liability $2,740,503 differences in the recognition of income and expense for income tax and financial reporting purposes. The sources For the years ended December 31, 1992 and 1991, deferred income tax benefit results from the timing and effects of those timing differences are presented below (in thousands): Applicable to: 1992 Losses and loss adjustment expenses, Deferred insurance premium acquisition costs net... $ 7,371 (61,522) $ 1991 3,392 Unearned premiums Other, net. 10,301 (1,309) (4,940) (5,414) (3,543) $ (45,159) $ (10,505) 33

[PAGE 36]

Notes to Consolidated Financial Statements (Continued) (6) Income taxes (Continued) table shown below (in thousands): Charges for income taxes are reconciled to hypothetical amounts computed at the federal statutory rate in the 1993 1992 Net earnings before income taxes... 1991 $1,189,718 Hypothetical amounts applicable to $550,617 $592,986 Decreases, resulting from: computed at the federal statutory rate $ 416,401 $187,210 $201,615 Tax-exempt interest income Dividends received deduction. (68,333) (15,020) (62,085) (14,727) (18,637) State income taxes, less federal income tax benefit 13,557 16,128 (54,923) Net other differences .. (1,303) 11,563 13,385 618 Total income taxes $ 345,302* $138,089 $142,058

• Excludes the cumulative effect of change in accounting for income taxes and the effect of the change in

jederal income tax rates on deferred taxes applicable to unrealized appreciation of marketable equity securities. (7) Borrowings under investment agreements and other debt Liabilities reflected for this balance sheet caption are as follows (in thousands): Dec. 31, $ 1993 Dec. 31, orrowings under investment agreemen 1992 915,079 $ 640,483 Other debt ero Coupon Convertible Subordinated Note 57,310 451,945 62,269 $ 972,389 $1,154,697 three months to forty years and calling for interest payable, normally semiannually, at fixed rates ranging from Borrowings under investment agreements are made pursuant to contracts with terms generally ranging from 3.0% to 9.0% per annum. The borrowings are senior unsecured debt obligations of the Company. was convertible at any time prior to redemption into 0.4515 shares of common stock. Prior to the redemption, certain The Zero Coupon Convertible Subordinated Notes, originally issued in 1989, were redeemed in 1993. Each note 2,162 shares to holders electing to convert during 1992 and an additional 3,944 shares to holders electing conversion note holders exercised their right to convert their notes into shares of Berkshire common stock. The Company issued subsequent to December 31, 1992. On January 4, 1993, holders not electing to convert received $404.75 million in redemption proceeds for all remaining outstanding notes. No materially restrictive covenants are included in any of the various debt agreements. (in thousands): Payments of amounts outstanding at December 31, 1993, are expected to be required no earlier than as follows 1995 1994..................... $106,264 1996 .... ... .. 26,528 25,602 1997 1998 ..// . . . • 31,882 After 1998....... .... 752,897 29,216 34

[PAGE 37]

(8) Shareholders' equity account: except per share amounts): Changes in Shareholders' Equity accounts during the most recent three years were as follows (dollars in thousands Stack of $5 Common in excess Capital Par Value of par value Net Unrealized Appreciation Retained Treasury Earnings Stock Balance December 31, 1990 Increase during 1991 in unrealized appreciation •• $6,876 $157,377 $2,310,433 $2,855,061 $42,293 included in carrying value of marketable equity 2,526,248 Increase in minority shareholders' interest in (858,969) Net earnings 1991 unrealized appreciation (14,723) 439,908 Increase during 1992 in unrealized Balance December 31, 1991 appreciation ... 6,876 157,377 3,962,989 3,294,969 42,293 securities included in carrying value of marketable equity Change during 1992 in deemed applicable income 1,644,810 Increase taxes. unrealized appreciation in minority shareholders interest in (559,235) Common stock (2,162 shares) issued upon conversion (1,345) Net earnings 1992 of Zero Conpon Converible Subordinated Nores: 11 24,887 407,285 Balance December 31, 1992 Common stock (3,944 shares) issued upon conversion 6,887 182,264 5,047,219 3,702,254 42,293 20 45,457 Increase during 1993 in unrealized appreciation with acquisition of Dexter Shoe Companies 428,353 (4,659) securities included in carrying value of marketable equity Change during 1993 in deemed applicable income 316,002 Increase in minority taxes. unrealized appreciation shareholders interest in (119,843) Net earnings 1993 (2,501) 688,121 SFAS 115 (See notes 1[b] and 4) ... 171.775 Balance December 31, 1993 $6,907 $656,074 $5,412,652 $4.390.375 $37,634 (9) Interest and dividend income Interest and dividend income for each of the past three years were comprised of the following (in thousands): 1993 1992 1991 Interest earned by: Commercial and consumer Insurance businesses finance businesses $ 55,958 22,597 78,394 $ 62,042 56,898 74,053 $ 62,839 59,713 98,740 Dividends earned by: Insurance Other...... businesses 306,725 16,132 287,464 14,952 244,702 15,799 Interest and dividend income. $479.806 $495,409 $481,793 35

[PAGE 38]

Notes to Consolidated Financial Statements (Continued) (10) Interest expense late of certain term debt. Premiums paid and related costs for such redemptions were $22.5 million for 1992 an Interest expense for 1992 and 1991 includes premiums paid and related costs to permit e22s rion prior to maturity 5.7 million for 1991. Interest expense is comprised of interest on debt, including the aforementioned early redemptio premiums and related costs, plus interest on savings accounts of Mutual Savings and Loan Association ("Mutual") 1993 1992 1991 Debt of commercial and consumer finance businesses $ 18,412 $ 13,867 $ 14,286 Savings accounts of Mutual* Other debt and borrowings .. •••• 56,545 98,643 89,250 ....... 5,792 11,986 18,311 $ 80,749 $124,496 $121,847

• See note 5(a).

(11) Dividend restrictions - Insurance subsidiaries prior regulatory approval in 1994, Berkshire can receive up to approximately $223 million as dividends from insurance Payments of dividends by Insurance Group members are restricted by insurance statutes and regulations. Without subsidiaries. (Statutory Surplus as Regards Policyholders) was approximately $11.5 billion at December 31, 1993. This amount Combined shareholders equity of insurance subsidiaries determined pursuant to statutory accounting rules exceeded by accounting principles; the difference principally represents deferred income tax assets and liabilities recognized for approximately $2.1 billion the corresponding amount determined on the basis of generally accepted financial reporting purposes but not for statutory reporting purposes. (12) Fair values of financial instruments ('SFAS 107"'), requires certain fair value disclosures. Fair value disclosures are required for most investment securities Statement of Financial Accounting Standards No. 107, "Disclosures about Fair Value of Financial Instruments" market prices were not available, the Company used independent pricing services or appraisals by the Company's rates of similar instruments. in a current market exchange. The use of different market assumptions and/or estimation methodologies may have Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize Considerable judgement is necessarily required in interpreting market data to develop the estimates of fair value. a material effect on the estimated fair value. are deemed to be reasonable estimates of their fair values. The estimated fair values of the Company's other financial The carrying values of cash and cash equivalents, receivables and accounts payable, accruals and other liabilities instruments as of December 31, 1993 and 1992, are as follows (in thousands): 1993 Carrying Value 1992 Estimated Fair Value 1993 1992 Investments in obligations with fixed Investments in marketable equity securities maturities $ 2,108,602 Assets of commercial and consumer 12,540,197 $ 2,033,681 11,652,654 $ 2,260,227 12,540,197 2,098, 13: 1,959,19 Borance s sine investment agreements and 840,744 442,671 859,199 463,998 Liabilities of commercial and consumer other debt.... 972,389 1,154,697 1,048,623 1,180,518 finance businesses 723,782 423,545 730,426 423,637 36

[PAGE 39]

(13) Supplemental cash flow information A summary of supplemental cash flow information is presented in the following table (in thousands): Non-cash investing and financing activities: 1993 1992 1991 Liabilities assumed in connection with acquisition of businesses.......... Common shares issued Convertible Subordinated Notes ..... apon conversions of Zero Coupon $ 26,093 $ 45,735 $ 11,390 Common shares issued in connection with acquisition of * 45,477 24,898 - Cash paid during the year for: Dexter Shoe Companies ..... 433,012 - - Income taxes.... Interest...... 235,015 70,629 121,027 95,730 183,097 93,951 (14) Quarterly data table. This information is unaudited. Dollars are in thousands, except per share amounts. A summary of revenues and earnings by quarter for each of the last two years is presented in the following 1993 Quarter 1st Quarter 2nd Quarter 3rd Quarter 4th Revenues Earnings: $725,827 $703,698 $744,127 $1,479,831 Excluding realized investment gain and Realized investment gain.• cumulative effect of accounting change $ 84,105 16,630 $103,836 8,127 $ 12,389* $ 202,073 Cumulative effect of change in accounting 10,405 321,540** for income taxes. (70,984) Net earnings .. $ 29,751 $111,963 $ 22,794 $ 523,613 Earnings per share: Before realized cumulative effect of accounting change. investment gain and $72.97 Realized Cumulative effect of change in accounting investment gain.... 14.43 $90.09 7.05 $10.75 9.03 $173.10 275.45 for income taxes (61.59) Net earnings $25.81 $97.14 $19.78 $448.55

• Includes a non-recurring charge of $75,348 ($65.38/share) representing the effect of the change in federal income

tax rates on deferred taxes applicable to unrealized appreciation. See note 6. **Includes $297,375 ($254. 75/share), net of taxes, related to sale of 1,000,000 shares of Capital Cities/ABC, Inc. common stock. See note 4. 1st 2nd 3rd 4th 1992 Quarter Quarter Quarter Quarter Revenues $640,778 $655,876 $827,734 $ 904,952 Earnings: Realized investment gain Excluding realized investment gain •••• $ 66,682 747 $ 98,619 (575) $ 26,247 12,086 $ 156,178 47,301 Net earnings $ 67,429 $ 98,044 $ 38,333 $ 203,479 Earnings per share: Before realized investment Realized investment gain gain $58.17 0.65 $86.02 (0.50) $22.90 10.54 $136.20 41.25 Net earnings $58.82 $85.52 $33.44 $177.45 revenues for that business are normally recorded. A non-seasonal factor that may influence Berkshire's interim consolidated See's Candies' sales peak at Easter and more notably so in the fourth quarter when more than one-half of annual financial statements is that estimation error, inherent to the process of determining liabilities for unpaid losses of insurance subsidiaries, can be relatively more significant to results of interim periods than to results for a full year. Variations in amount and timing of realized securities gains or losses cause significant variations in periodic net earnings. 37

[PAGE 40]

Notes to Consolidated Financial Statements (Continued) (15) Business Segment Data lentity and headquarter Business Product Activity See's Candies South San Francisco, CA Candy Manufacture and distribution at retail and by catalog solicitation orld Boo hicago, I Encyclopedias and other reference materials Publication and marketing, principally by the direct sales method Kirby, Douglas and Cleveland Wood Divisions of The Scott Fetzer Company Cleveland, O Home cleaning systems Manufacture and sale principally to distributors Nebraska Furniture Mart Omaha, NE Home furnishings Retailing Buffalo News Buffalo, NY Newspaper Publication of a daily and Sunday newspaper I. H. Brown Shoe Co. Dexter Shoe Companies Lowell Shoe, Inc. and reenwich, CT, Hudson Shoes Manufacture, importing and distribution at wholesale H and Dexter, ME and retail Technimati on Co. Uniforms Manufacture and distribution at wholesale and retail The business segments identified above were responsible in 1993 for 83% of Berkshire's consolidated revenues. as her business activities that contributed for 1993, in the aggregate, 16% of Berkshire's consolidated revenues, were Business identity Adalet Product/Service/Activity BHR Conduit fittings, explosion proof junction boxes, couplings and terminators Berkshire Hathaway Real estate management Blue Chip Stamp redit Corporation Commercial financing orsheim's Carefree Campbell Hausfel Halex France Meriam K&W Products Northland Precision Powerwinch ScotCare Quikut Scott Fetzer Financial Group Scot Labs Wayne Stahl 38

[PAGE 41]

(15) Business Segment Data (Continued) tables which follow on this and the following page. Amounts are in thousands. A disaggregation of Berkshire's consolidated data for each of the three most recent years is presented in the 1993 Revenues 1992 1991 Operating profit before taxes Identified Segments: 1993 1992 1991 Insurance... Non-insurance businesses. $1,597,328 $1,078,419 $1,230,608 1,443.079 3,040,407 1,284,523 1,204.755 $ 961,774 $ 298,715 $ 323,006 2,362,942 2,435,363 224,795 1,186,569 508,586 209,871 176,134 Interest expense * Other than identified segments 499,140 613,076 666,398 670,633 (56,545) 59,694 140,674 (98,643). 183,096 (89,250) Aggregate consolidated total $3.653.483 $3.029.340 $3.105.996 $1,189.718 $ 550,617 $ 592,986

• Amounts of interest expense represent those for borrowings under investment agreements and other debt exclusive

of that of commercial and consumer finance businesses. See note 10. Insurance Segment Revenues Premiums earned: * 1993 1992 1991 Operating profit before taxes 1993 1992 1991 Primary or direct. Reinsurance ceded Reinsurance assumed 249,585 $ 448,040 179,441 $ 175,882 (41,284) 530,525 (45,673) (36,981) 637,512 Underwriting 656,341 664,293 776,413 Investment income Realized investment gain 555,868 385,119 361,517 52,609 343,442 $ 29,960 $(108,961) $(119,593) 110,753 375,946 555,868 355,067 52,609 110,753 331,846 $1,597.328 $1,078.419 $1,230,608 $ 961.774 $ 298,715 $ 323.006

• Premiums written were as follows:

1993 1992 1991 Reinsurance assumed Primary or direct.. $ 247,173 $ 153,177 $ 169,120 Reinsurance ceded 534,383 (38,854) - 626,159 (39,769) 669,148 (35,746) $ 742,702 $ 739,567 $ 802.522 Non-Insurance Business Segments 1993 Revenues 1992 1991 Operating profit before taxes 1993 1992 1991 Candy. Home cleaning systems Encyclopedias, other reference material 201,243 $ 197,186 $ 195,978 198,807 193,891 190,072 246,107 311,509 $ 186,096 171,002 192,001 19,375 40,944 22,232 Newspaper Home furnishings 37,332 145,470 139,764 130,259 21,094 13,939 122,470 372,064 215,006 104,045 50,390 110,292 99,961 40,003 36,527 Shoes. Uniforms 12,719 25,586 12,975 12,464 12,224 §1.443.079 $1,284,523 $1,204.755 $ 224,795 $ 209,871 $ 176,134 39

[PAGE 42]

Notes to Consolidated Financial Statements (Continued) (15) Business Segment Data (Continued) Other Than Identified Segments Revenues 1993 1992 1991 Operating profit before taxes 1993 1992 1991 Other businesses Not identified with specific businesses: $595,513 $567,719 $524,395 $ 54,808 $ 54,321 $ 49,355 Realized investment gain (loss) Interest and dividend income 26,608 61,011 63,686 All other except interest expense (9,444) 399 37,328 340 81,725 26,608 (9,444) 61,011 37,328 63,686 827 _(12,278) (11,986) _(11,670) 81,725 $613,076 $666,398 $670,633 $ 59,694 $140,674 $183,096 1993 Capital expenditures * of tangible assets Deprec. & amort. 1992 1991 1993 1992 1991 Insurance. Encyclopedias, Candy .. $ 1,207 $ 1,071 $ 1,437 $ Home cleaning systems. other reference material 6,531 4,167 184 4,687 4,116 812 $ 4,061 840 $ 3,882 992 1,470 736 769 3,107 Newspaper Home furnishings. 5,254 8,528 1,104 5,259 1,449 1,379 1,449 3,602 3,370 2,552 2,663 2,210 4,942 5,092 Uniforms Shoes. 4,407 817 1,855 2,373 2,949 1,613 1,041 2,660 2,171 1,482 1,050 1,836 5,201 3,027 1,580 Other . 12,962 8,881 13,648 17,321 14,692 1,833 14,094 1,411 $37,210 $31,801 $29,884 $40,512 $35,357 $33,062

• Expenditures which were part of business acquisitions are excluded.

Identifiable assets 1993 at year-end 1992 Insurance. 1991 Candy $16,163,378 70,201 $14,788,237 65,880 $12,406,654 Home cleaning systems Encyclopedias, other reference material. 74,676 83,778 94,927 68,300 Home furnishings 101,147 48,703 50,692 88,331 76,396 51,929 Shoes.. Newspaper 45,402 43,751 44,061 Other.. Uniforms ....... 641,548 87,546 208,218 85,392 157,902 _ 2,287,868 74,190 1,717,719 1,487,543 $19,520,469 $17,131,998 $14,461,902 40

[PAGE 43]

BERKSHIRE HATHAWAY INC. Financial Condition and Results of Operations Management's Discussion and Analysis of Results of Operations are after deducting minority interests and taxes. Net earnings for each of the past three years are disaggregated in the table that follows. Amounts 1993 _(dollars in millions)_ Insurance Segment: 1992 1991 Underwriting.. Realized investment gain Investment income $ 19.2 321.3 (71.1) 305.8 $ (77.2) 285.1 Non-Insurance business segments. Total - Insurance Segment 362.7 703.2 36.1 73.8 Realized investment gain (loss) not included above Other businesses... 133.3 270.8 32.8 123.4 281.7 Interest expense * All other except interest expense.. (6.1) 30.7 104.2 6.8 23.4 27.6 21.9 50.3 Earnings before effect of change and cumulative effect of accounting change in income tax rate (35.6) (62.9) (57.2) 33.3 Effect of change in income tax rate on deferred taxes 834.4 407.3 439.9 Cumulative effect of change in accounting for income taxes applicable to unrealized appreciation ** _(71.0) (75.3) = = Net earnings $688.1 $407.3 $439.9 is reflected in amounts shown for Interest expense incurred by commercial and consumer finance businesses is not reflected as "Interest expense" but instead "Other businesses'! ** For a discussion regarding these items refer 10 Notes 1(b) and 6 to the Consolidated Financial Statements. pages of this report should be read in conjunction with this discussion. The business segment data (Note 15 to the Consolidated Financial Statements) on the preceding Insurance Underwriting The after-tax figures shown above for Insurance underwriting derive from the following: 1993 _(dollars in millions) Underwriting gain (loss): 1992 1991 Primary or direct insurance Reinsurance assumed $ 12.7 Underwriting gain (loss) - pre-tax 17.3 $ 8.0 Applicable minority interest. Applicable income taxes.. (10.2) 30.0 (109.0) (117.0) $ (2.5) (117.1) After-tax underwriting gain (loss) $ 19.2 (0.6) 37.7 (119.6) 0.2 42.2 0.2 $ (71.1) $ (77.2) The Berkshire Hathaway Insurance Group engages in both insurance and property/casualty risks. In its insurance activities, as distinguished from its reinsurance activities, its members reinsurance of assume risks of loss from persons primarily and directly subject to the risks. In its reinsurance activities, have subjected themselves in their own insuring activities. the members assume defined portions of similar or dissimilar risks to which other insurers and reinsurers above average capital strength. Statutory surplus as regards policyholders of the Berkshire Hathaway Insurance A significant marketing strategy followed by all Insurance Group members is the maintenance of Group increased to approximately $11.5 billion at year-end 1993. This extraordinary capital strength creates designed to meet unique needs of sophisticated insurance and reinsurance buyers. opportunities for Berkshire Group members to negotiate and enter into contracts of insurance specially 41

[PAGE 44]

Management's Discussion (continued) Insurance Underwriting (continued) of reinsurance ceded. For purposes of this Discussion, premiums and losses and loss expenses amounts are stated net Reinsurance Assumed with respect to the reinsurance assumed business for the past three years are summarized in the following table. Underwriting results, stated on the basis of generally accepted accounting principles ("GAAP"), 1993 (dollars in millions). Amount % Amount % 1991 Premiums written $ 534.3 $ 607.2 Amount $ 667.0 %. Premiums earned Losses and loss expenses $ 448.0 100.0 356.3 109.5 $ 511.5 100.0 $ 635.4 100.0 Underwriting expenses... 74.4 16.6 79.5 589.7 115.3 38.8 7.6 731.9 115.2 Total losses and expenses. 430.7 96.1 628.5 122.9 20.6 752.5 3.2 Underwriting gain (loss) - pre-tax $ 17.3 $(117.0) 118.4 $(117.1) Disaggregated data follows for these activities. Premiums Earned (dollars in millions). 1993 1992 1991 Underwriting Gain (Loss) 1993 1992 1991 Year-End Reserves* Retroactive reinsurance and 1993 1992 1991 Other reinsurance structured settlements $ 43.8 $145.5 $363.2 $448.0 404.2 $ (64.3) $ (66.0) $ (49.0) $1,441.0 $1,498.0 $1,573.9 $(117.0) $(117.1) $2,467.7 1,026.7 $2,415.2 $2,282.2 708.3

• Net unpaid losses and loss adjustment expenses

$21 million in 1993, $144 million in 1992 and $362 million in 1991. These contracts were few in number Premiums earned from retroactive reinsurance - coverages of past loss events - amounted to but produced sizable premiums. Increasing competition in the retroactive reinsurance markets resulted in settlement contracts totalled about $22 million, reflecting increased marketing efforts which began early fewer opportunities to write such business during 1993 and 1992. In 1993, premiums earned from structured in the year. including catastrophe policies, and quota share contracts. The increase in premiums earned in 1992 over Premiums earned from other reinsurance activities are principally derived from excess of loss contracts, 1991 was largely attributed to increased amounts earned under catastrophe excess of loss contracts. The increase in premiums earned in 1993 over 1992 was primarily attributed to amounts earned under quota share treaties. Underwriting Gain/Loss The underwriting loss from retroactive reinsurance coverages amounted to $41 million for 1993, re reinsurance assumed. See Note 1(g) to the Consolidated Financial Statements for information with respect $44 million for 1992 and $26 million for 1991, reflecting principally the amortization of deferred charges for each of the past three years. These losses reflect accounting procedures which employ time-value-of- to these charges. Underwriting losses from structured settlement activities were between $22 and $23 million structured settlement liabilities. The amortization and accretion are reported as losses incurred, and thus, money concepts — amortization of deferred charges re reinsurance assumed and accretion of discounted because there is no related premium income, as underwriting losses. Amortization and accretion charges of about $65 million are expected in 1994. 42

[PAGE 45]

Insurance Underwriting (continued) Reinsurance Assumed (continued) were significantly influenced by the magnitude of losses incurred under catastrophe excess of loss In each of the past three years, the net underwriting results from other reinsurance activities events occurring in prior years. In 1992 and 1991, catastrophe losses incurred were about $125 million contracts. In 1993, catastrophe losses incurred totalled about $14 million (deriving from a variety of loss (Hurricane Andrew) and about $38 million (Typhoon Mireille), respectively. As a result, this business results in the prior two years. generated an underwriting gain of about $110 million during 1993 as compared to nearly breakeven with 1992 or 1991 or (b) the current expectation that the January 1994 Los Angeles earthquake will only Little comfort should be gained from either (a) the lack of catastrophe losses in 1993 as compared produce a nominal loss. The underwriting gains produced by this business in any given year can be easily exceeded by losses in the next. Thus periodic underwriting results were and are expected to be subject to substantial volatility. Berkshire's management, however, is willing to accept such volatility, provided that the prospect of long term profitability is favorable. 1993. In 1992 and 1991, the preponderance of net underwriting losses reported as "other reinsurance" The non-catastrophe reinsurance business produced an underwriting loss of about $28 million for derived from non-catastrophe contracts. Underwriting results from other reinsurance for 1991 are net of credits for favorable development totalling about $30 million with respect to liabilities under pre-1990 of loss development. share reinsurance contracts. Underwriting results in 1993 and 1992 reflect relatively minor amounts an important consideration due to the anticipated extended claim payment period - or "tail". This is In pricing most non-catastrophe reinsurance contracts, the concept of the time-value-of-money is for which are based in significant part on time discounting of expected losses. Losses and loss expenses especially true with respect to pricing reinsurance of certain casualty or liability coverages, the premiums financial reporting purposes. are established for these contracts on an undiscounted basis, thus resulting in underwriting losses for investable policyholder funds (or "float") that it produces. This business is accepted, nonetheless, because of the large amounts of as shown in the preceding table, totalled about $2.5 billion at the end of 1993, an increase of about The estimated liability for unpaid losses and loss expenses from reinsurance assumed businesses, $1.0 billion since the end of 1990. Subsequent loss development with respect to a liability of this magnitude is another factor which may cause substantial volatility in future periodic earnings. Primary or Direct Insurance Underwriting Berkshire Hathaway Insurance Group's primary or direct insurance operations. A summary follows of the combined underwriting results, stated on a GAAP basis, of the 1993 (dollars are in millions)_ 1992 Premiums written Amount % Amount Amount 1991 Premiums earned $ 208.4 $ 132.4 % $ 208.3 100.0 $ 152.8 $ 135.5 Losses and loss expenses 99.8 47.9 98.0 100.0 64.1 $ 141.0 95.2 100.0 Underwriting expenses. 95.8 46.0 46.8 30.7 48.3 34.3 67.5 Total losses and expenses 195.6 93.2 144.8 94.8 143.5 Underwriting gain (loss) - pre-tax 101.8 $ 12.7 8.0 $ (2.5) Favorable loss development, reserves represented respectively, 20.0%, 23.8% and 16.9% of premiums earned in 1993, 1992 and 1991. discussed on the following pages, of beginning-of-the-year loss Without such credits, total losses and expenses as a percentage of premiums earned were: 1993 - 113.9%, 1992 - 118.6%, and 1991 - 118.7%. 43

[PAGE 46]

Management's Discussion (continued) Insurance Underwriting (continued) Primary or Direct Insurance Underwriting (continued) of Omaha ("CST"). Berkshire acquired 82% of CSI at the end of 1992. CSI, which underwrites credit or direct insurance underwriting results for 1993 include Central States Indemnity Co. card credit insurance for individuals, produced premiums earned of $68.5 million and a net underwriting gain of $4.9 million for 1993. of the Insurance Group. CSI's premiums derive from a high volume of small dollar premium transactions CST's business differs substantially from the insurance business underwritten by the other members underwriting expenses of the other Insurance Group members. On the other hand, CST's losses and generated through credit card issuers. CSI's underwriting expenses are normally much higher than loss expenses incurred, as percentages of premiums earned are substantially lower than for the other primary or direct underwriting units. Overall, periodic underwriting results from this business anticipated to be less volatile than the other primary or direct insurance operations. are $153 million and $141 million for Premiums earned by Berkshire's other primary or direct insurance businesses totalled $140 million, underwriting gains of about $8 million for 1993 and 1992 compared to a loss of $2.5 million in 1991. 1993, 1992 and 1991, respectively. Those businesses produced net National Indemnity Company's Omaha offices. This business represents principally casualty coverages for The other primary or direct insurance activities include the "traditional" business, directed from Stamford, Connecticut, enter into commercial accounts. The commercial casualty/professional liability/specialty risk operations located in nature and/or especially large in amount. The homestate companies underwrite various commercial "tailored" insurance contracts for insureds presenting risks unusual in In 1992, the homestate units began to expand their operations by underwriting similar risks located coverages for standard risks located predominantly in their home states - Nebraska, Kansas and Colorado. Insurance Company, a specialty carrier, underwrites workers' compensation risks in a highly competitive outside their home states. Additional expansion of the homestate business is planned in 1994. Cypress market environment in California. Each of the units employ disciplined underwriting approaches. Members are encouraged to amounts of primary or direct insurance by charging lower prices than those of the Group. Historically, periods of abundant industry insuring capacity, as has prevailed since 1986, competitors write increasing these lower prices have led competitors to exit the markets as a result of incurring unacceptable losses. of primary or direct insurance offerings to the Group. However, management does not foresee any Management believes this situation will recur at an unpredictable future time, leading to increases premium volume. significant changes in current market conditions which would soon reverse the current trend of lower Summarized below is loss and loss expense data from primary or direct insurance underwriting: 1993 (dollars in million.)._. 1992 1991 Unpaid losses and loss expenses at beginning of year....... Incurred losses recorded: $563.2 $566.9 $586.6 Current year occurrences...• All prior years' occurrences (41.6) 141.4 (36.4) 134.4 119.0 99.8 98.0 (23.8) Payments with respect to: 95.2 All prior years' occurrences Current year occurrences. 101.2 32.6 86.1 42.1 23.3 133.8 128.2 114.9 91.6 Unpaid losses and loss expenses at end of year............ $529.2 $536.7* $S66.9

• Excludes unpaid losses and loss expenses of Central States Indemnity Co. of Omaha - acquired by Berkshire at the end

of 1992. 44

[PAGE 47]

Insurance Underwriting (continued) Primary or Direct Insurance Underwriting (continued) occurrences." They are corrections of estimation error that are credited or charged to earnings in the Credits against incurred losses were recorded in each of the last three years for "all prior year of the respective year, the "savings" were: 1993 - 7.4%, 1992 — 6.4%, and 1991 - 4.1%. The favorable year made. Relating these credits for each year to the related estimated unpaid amounts at the beginning development recorded in each commercial automobile business of the National Indemnity Primary Group. While the trend of favorable of the most recent three years related principally to the traditional imprecise, particularly with respect to losses which are reported and settled over lengthy periods of time. development recognized in recent years is encouraging, the nature of estimating losses is inherently In the future, additional information will be revealed, including reports of additional cases of an unknown year-end estimate of unpaid losses and loss expenses which in the aggregate is subject to favorable or number and magnitude for pre-1994 losses. A provision for late reported cases is included in the 1993 unfavorable development recognizable in future years. Insurance Segment Investment Income Following is a summary of Insurance Group net investment income for the past three years. 1993 -(dollars in millions). 1992 1991 Investment income before taxes Applicable minority interest... Applicable income taxes...... $375.9 51.3 $355.1 3.3 46.5 $331.8 2.8 43.8 2.9 Investment income after taxes and minority interest .... $321.3 $305.8 $285.1 contributed over $200 million additional capital to the Group. Reinvested earnings of the Group for that assets increased in each of the past three years. In the three year period, Berkshire period amounted to approximately $1 billion. That figure excludes charges related to changes in accounting nature of these charges. Contributing to a further increase in invested assets was about a $1.1 billion for income taxes. See Note 6 to Consolidated Financial Statements for additional information about the increase during the past three year period in the amount of "float" from policyholder funds. That term denotes the sum of unpaid losses, unpaid loss adjustment expenses and unearned premiums, less the 45

[PAGE 48]

Management's Discussion (continued) Non-Insurance Business Segments three years. A summary follows of results to Berkshire from these identified business segments for the past 1993 (dollars in millions) 1992 Amount % Amount % Amount 1991 Cost and expenses Revenues $1,443.1 Income taxes Operating profit 1,218.3 100.0 224.8 84.4 $1,284.5 Minority Interest 87.8 15.6 1,074.6 100.0 3.7 6.1 209.9 83.7 $1,204.8 1,028.7 100.0 0.3 83.2 16.3 176.1 85.4 3.3 0.2 6.5 69.0 14.6 2.9 0.2 5.7 Contribution to net earnings $ 133.3 9.2 $ 123.4 9.6 $ 104.2 identifiable non-insurance business segments follows. A comparison of revenues and operating profits between 1993, 1992 and 1991 for each of the seven (dollars in millions) as a % of Revenues Operating Profit Segment 1993 Revenues 1992 1991 1993 Operating Profits 1992 1991 1993 Candy 1992 1991 Home cleaning systems Encyclopedias, other reference material $ 201.2 193.9 198.8 $ 246.1 197.2 $ 196.0 $ 40.3 $ 41.4 $ 41.4 209.1 190.1 311.5 192.0 40.9 19.4 28.2 37.7 22.2 20.0 21.0 21.1 171.0 21.1 16.7 13.9 37.3 21.1 9.8 19.8 11.5 19.4 7.1 Newspaper Home furnishings 372.1 145.5 139.7 186.1 104.0 130.3 50.4 40.0 25.6 47.3 36.6 10.1 9.0 10.7 28.0 8.2 Uniforms Shoes 122.5 110.3 215.0 100.0 12.7 13.0 12.2 12.5 34.6 33.8 10.4 11.9 11.8 12.2 12.0 $1,443.1 $1,284.5 $1,204.8 $224.8 $209.9 $176.1 1993 compared to 1992 $158.6 million (12.3%) from the prior year. The overall operating profit from these business segments of Revenues from the seven identifiable non-insurance business segments of $1,443.1 million increased $224.8 million increased $14.9 million (7.1%). The "shoes" segment and the "encyclopedias, other reference material" segment experienced the most significant variations in comparative results between 1993 and 1992. The following discussion will focus primarily on those segments' comparative results. Shoes As reflected in the preceding table, the most significant revenue increase occurred within this of 1992 this segment was comprised solely of H. H. Brown Shoe Company, Inc. ("H. H. Brown"), a segment. Much of the increase arose as a result of two significant acquisitions. Just prior to the end manufacturer and distributor of work, safety and casual footwear. In December 1992, the acquisition casual, service and nurses' footwear. Lowell accounted for almost $90 million of the revenue increase for cash of Lowell Shoe, Inc. ("Lowell") was completed. Lowell manufactures and markets women's between years. a merger with the Dexter Shoe Companies ("Dexter"). Dexter is a manufacturer of men's and women's A second, larger acquisition was completed on November 7, 1993, when Berkshire consummated dress, causal and athletic footwear. In addition, Dexter operates seventy-seven retail outlet stores located Maine as well as two plants located in Puerto Rico. The merger was accounted for as a purchase and primarily in the northeastern United States. Dexter's shoes are produced at five production facilities in $30 million of the increase in comparative revenues. Dexter's results of operations have been included from the date of the merger, accounting for approximately increased approximately 17% as compared to the prior year. Much of the increase can be attributed to H. H. Brown accounted for the remainder of the increase in the shoe segment revenues. Revenues the popularity of work shoes, as this business continues to benefit from reduced demand for athletic shoes. In 1994, it is expected that the combined revenues from the three businesses now comprising this segment will exceed $550 million. 46

[PAGE 49]

Non-Insurance Business Segments (continued) 1993 compared to 1992 (continued) Shoes (continued) profit as stringent inventory control procedures. Excluding these charges of approximately $3.8 million, operating a percentage of revenues was relatively unchanged between years. Encyclopedias, Other Reference Material $47.3 million (19.2%). The decline is primarily a result of the continuation of a reduction, which began During 1993, revenues from the "encyclopedias, other reference material" segment declined in 1989, in World Book and Childcraft unit sales. Since 1989, unit sales of these products have declined almost 50%. Management cannot predict whether or not unit sales will rebound. Management is industry has experienced substantial reductions in unit sales during this period. However, it has dealing with the causes that they believe have contributed to the decline. The entire printed encyclopedia been widely reported that CD-ROM technology has contributed to the reduced demand for printed has increased dramatically and this increase is expected to continue. At the same time, several CD-ROM encyclopedias. Over the last few years the number of home computers equipped with CD-ROM hardware versions of encyclopedias have been introduced. A CD-ROM version of World Book was developed in 1989 and has since been marketed on a limited basis. It is expected that an enhanced version of this product will be marketed, beginning in April 1994, both in conjunction products as well as on a stand alone basis. What impact this new product will have on future business with printed World Book cannot be stated with any degree of certainty. This segment's 1993 operating profits are net of a non-recurring charge of approximately $3.3 555523 division. Excluding this charge, operating profits in 1993 declined 19.5%. Such decline is largely attributable to the aforementioned decline in unit sales of encyclopedias. Other Non-Insurance Business Segments the prior year. Increases were achieved in all major product categories. Revenues during the last eight Revenues from the home furnishings segment increased in 1993 by $23.0 million (12.4%) over months of 1993 also benefitted from the opening of a factory outlet store adjacent to the Nebraska foot appliance and electronics superstore, also to be located adjacent to the NFM, is planned for opening Furniture Mart ("NFM") for manufacturers' closeouts and discontinued product lines. A 100,000 square during the third quarter of 1994. The new store will add such products as music compact discs and an expanded computer software line to NFM's already large selection of electronics and appliances. It is as a result of this addition. However, it is also anticipated that this lower margin business will cause expected that NFM's revenues will increase rather significantly beginning in the fourth quarter of 1994 increase its market share through aggressive pricing. future overall operating profits as a percentage of sales to decline somewhat as NFM plans to dramatically The newspaper segment's 1993 revenues of $145.5 million increased $5.8 million (4.1%) over the increased $3.1 million (6.6%) when compared to the prior year. The favorable comparative results arose prior year. Both advertising and circulation revenues increased modestly between years. Operating profits largely because in 1992 a special charge of $2.9 million was recorded relating to the buy out of employees with lifetime job guarantees. During 1993, the Buffalo News began to derive benefits from this favorable development were increased costs per employee for health care and other employee benefits. the buy outs which had taken place during each of the past two years. However, somewhat offsetting past several years have declined or remained relatively unchanged. The Buffalo News results also continued to be favorably impacted by newsprint costs which for the 47

[PAGE 50]

Management's Discussion (continued) Non-Insurance Business Segments (continued) 1993 compared to 1992 (continued) Other Non-Insurance Business Segments (continued) year. Domestic unit sales of Kirby home cleaning systems increased 5% as compared to the prior year Revenues from the home cleaning systems segment were $3.8 million (2.0%) above the prior unit sales was the fact that the Generation III model system, with its added features and higher price, while foreign unit sales declined about 14%. Offsetting the effect on revenues of the decline in foreign markets for the full year. accounted for all foreign sales in 1993 whereas during 1992 the model was not available in all foreign sold decreased 1% The candy segment experienced a slight decrease in volume during 1993 as pounds of candy offset the effect of reduced volume on revenues. During 1993, See's intensified its marketing efforts in from the prior year. A 3% price increase at the beginning of the year more than catalog and other marketing efforts resulted in an improvement in mail orders and quantity order sales its mail order and quantity order programs. The expanded distribution of its competitive mail order during 1993. are largely attributable to acquisitions during the second half of 1992 of ten additional retail locations The uniform segment's revenue increased $12.2 million (11.1%) in 1993. The increased revenues as compared to a partial year in 1992. and a manufacturer of specialty uniforms. Thus, results for 1993 reflect a full year for these businesses 1992 compared to 1991 compared to 1991. The acquisition of H. H. Brown in July 1991, more than accounts for the increase as Revenues from the non-insurance business segments increased $79.7 million (6.6%) in 1992 as of $215.0 million exceeded 1991 half year revenues by $111.0 million. Offsetting this increase was a full year 1992 results are being compared to six month results for 1991. H. H. Brown's 1992 revenues reduction in World Book revenues of $65.4 million (21.0%). World Book's reduced revenues resulted in part from a significant decline in unit sales. (See preceding section regarding comparative 1993 vs 1992 "encyclopedias, other reference material" segment also arose from the discontinuance during December results for a discussion regarding the decline in World Book unit sales.) Reduced revenues of the 1991 of the syndication business. This business consisted of direct mail marketing of primarily non- compared to $789.3 million during 1991. None of the five segments had revenue increases in excess of educational products. Revenues from Berkshire's other five reportable segments were $823.4 during 1992 10.5% and only the home cleaning systems segment with a decline of 1% had lower revenues in 1992 than in 1991. The inclusion of H. H. Brown results for a full year in 1992 vs only six months of 1991 as compared to 1991. Operating profits of $209.9 million during 1992 were $33.8 million (19.2%) greater accounts for almost 40% of the change between years. Favorable comparative operating profit results profits were roughly unchanged between years. were also achieved by all of the other reportable segments except for See's where comparative operating Business Other Than Identified Segments 1993 _(dollars in millions). Revenues 1992 1991 $595.5 $567.7 $524.4 Operating profit.. Minority interest Income taxes $ 54.8 20.8 $ 54.3 21.8 $ 49.3 19.3 1.2 1.8 2.4 Contribution to net earnings $ 32.8 $ 30.7 $ 27.6 management believes that narrative discussion of the results of the constituent businesses would not The above represent aggregate data for businesses that numbered 23 in 1993. Berkshire yield year-to-year aggregate data. significant benefit to investors or others, particularly in view of the relative consistency of the 48

[PAGE 51]

Interest Expense was completed. Including redemptions of other term debt which occurred during 1992, outstanding term In January 1993, the redemption of Berkshire's Zero Coupon Convertible Subordinated Notes debt has been reduced by about $650 million from the level which existed at December 31, 1991. Somewhat offsetting these reductions are increases in outstanding borrowings under investment agreements costs from reduced levels of borrowings along with the fact that interest expense for 1992 includes which have increased approximately $520 million during the same period. The resulting lower interest premiums paid to redeem term debt of $16.2 million writeoff of deferred financing costs related to the aforementioned Zero Coupon Convertible Subordinated and a charge of $6.3 million representing the Notes account for the decline in 1993 interest expense as compared to the prior year. Realized Investment Gain common shares During the fourth quarter of 1993, an insurance subsidiary of the Company sold one million that Company's offer to buy from its shareholders up to two million of its common shares. Prior of its investment in Capital Cities/ABC, Inc. ("Capital Cities") in connection with to the sale and since 1986, Berkshire subsidiaries owned three million shares of Capital Cities or was $457.5 million. of that Company's outstanding stock. Berkshire's pre-tax gain from this transaction The amount - recorded when appreciated Realized investment gain has been a recurring element in Berkshire's net earnings for many years. period to period, with a meaningful effect upon Berkshire's consolidated net earnings. But, the amount securities are sold - tends to fluctuate significantly from period to period have no practical analytical value, particularly in view of the unrealized price appreciation of realized investment gain for any given period has no predictive value, and variations in amount from now existing in Berkshire's consolidated investment portfolio. Liquidity and Capital Resources In the past three years, Berkshire shareholders equity has increased from approximately $5.3 billion Berkshire's Consolidated Balance Sheet as of December 31, 1993, reflects continuing capital strength. at December 31, 1990 to approximately $10.4 billion at December 31, 1993. In that three-year period, earnings, other than realized securities gains, were about $1.0 billion. realized and unrealized securities gains increased equity capital by approximately $3.6 billion, and reinvested 49

[PAGE 52]

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

[PAGE 53]

we operate through a large, fairly widely-held corporation. Our Treasury ruling will allow such "Wherever feasible, I believe in maintaining such a partnership frame of mind, even though partnership-like behavior in this area... that a large and growing number of major corporations have charitable policies pursuant to which "I am pleased that Berkshire donations can become owner-directed. It is ironic, but understandable, they will match gifts made by their employees (and - brace yourself for this one - many even by owners. I say "understandable" because much of the stock of many large corporations is owned match gifts made by directors) but none, to my knowledge, has a plan matching charitable gifts lack a long-term owner's perspective ... on a "revolving door" basis by institutions that have short-term investment horizons, and that the end of each year more than 98% of our shares are owned by people who were shareholders "Our own shareholders are a different breed. As I mentioned in the 1979 annual report, at at the beginning of the year. This long-term commitment to the business reflects an owner mentality policy is an example of that intent?' hich, as your manager, 1 intend to acknowledge in all feasible ways. The designated contribution:

• * *

The history of contributions made pursuant to this program since its inception follows: Specified Amount Eligible* Shares Percent of Year per share Participating_ Amount Contributed Charities No. of 1982 1981 $2 95.6% 1984 1983 $1 $3 95.8% $1,783,655 $3,066,501 $ 890,948 704 675 96.4% 1985 $3 97.2% $4,006,260 $3,179,049 1,353 1986 $4 1988 1987 $4 96.8% $5 $5 97.1% 97.4% 97.2% $3,996,820 $4,937,574 1990 1989 $6 $6 97.3% 96.9% $5,867,254 $4,965,665 1991 $7 $8 97.7% $5,823,672 1993 1992 $10 97.0% $6,772,024 97.3% $9,448,370 $7,634,784

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

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

• * *

substandard or no tax deductions. In other years Berkshire expects to inform shareholders of the amount The program may not be conducted in the occasional year, if any, when the contributions would produce respond with their designations. If the program is conducted in 1994, the notice will be mailed on or per share that may be designated, and a reply form will accompany the notice allowing shareholders to about September 15 to shareholders of record reflected in our Registrar's records as of the close of business August 31, 1994, and shareholders will be given until November 15 to respond. in the program. To qualify, shares must be registered with our Registrar on August 31 in the Shareholders should note the fact that shares held in street name are not eligible to participate owner's individual name(s) or the name of an owning trust, corporation, partnership or estate, as applicable. 51

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BERKSHIRE HATHAWAY INC. COMBINED FINANCIAL STATEMENTS BUSINESS GROUPS Berkshire's consolidated data is rearranged in the presentations on the following seven pages into four categories, corresponding to the way Mr. Buffett and Mr. Munger think about Berkshire's businesses. The presentations may be helpful to readers in making estimates of Berkshire's intrinsic value. The presentations in this section do not conform in all respects to generally accepted accounting principles. Principal departures from GAAP relate to accounting treatment for assets acquired in business acquisitions, although students and practitioners of accounting will recognize others. Opinions of Berkshire's independent auditors were not solicited for this data. The four-category presentations in no way fell within their purview. 52

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BERKSHIRE HATHAWAY INC. INSURANCE GROUP he members underwrite multiple lines of principally casualty coverages t Berkshire's insurance business is conducted by 14 separate subsidiaries. rimarily commercial accounts, providing, for example, liability coverag for truck and bus operators, and casualty coverages for especially large or Liability and Special Risk Division solicit and underwrite the special large unusual risks. The Commercial Casualty Division and the Professional Nebraska provide Member companies domiciled in the states of Colorado, Kansas and "homestate" residents. A California domiciled member provides standard multiple-line property/casualty insurance to Berkshire acquired 82% of Central States Indemnity ("CSI"). The primary workers' compensation insurance to employers in that state. In December 1992, product line of CSI is credit insurance distributed through credit card issuers insurers and reinsurers. This division is currently one of the leading providers A Reinsurance Division provides treaty reinsurance to other property/casualty for reinsurers). in the world of property/catastrophe retrocessional protection (i.e., reinsurance unparalleled high levels, significantly higher than normal in the industry. This The Berkshire Hathaway Insurance Group maintains capital strength at strength differentiates Group members from their competitors. For example, Group's year-end the Group's net premiums written in 1993 were approximately 9% of the premiums-to-surplus ratio of about 140% (for 1992). The obvious margins of statutory surplus. That compares to an industry average marketing of individually negotiated insurance and reinsurance contracts. satety thus provided to insureds of the Group are particularly persuasive in no fly dined in to col sam to eat aced come ripe and are presented on the following two pages. 53

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BERKSHIRE HATHAWAY INC. INSURANCE GROUP (dollars in millions) Balance Sheets 1993 December 31, 1992 Assets Investments: Fixed maturities at amortized cost: Bonds Preferred stocks: $ 726.7 $ 538.0 Salomon Inc.. Champion International. 279.0 USAir 650.0 279.0 Equity securities at market: Other 348.0 650.0 23.9 348.0 10.6 Common stocks: Capital Cities/ABC, Inc. FHLMC Coca-Cola Company 1,208.0 4,157.3 3,901.1 1,497.9 GEICO 681.0 Gillette. General Dynamics 1,759.6 2,226.2 435.2 401.3 Washington Post Guinness PLC 1,431.0 450.8 270.8 1,365.0 854.6 440.1 396.9 299.5 Other .... Wells Fargo & Company 672.0 471.5 Preferred American Express Company stocks: 86.9 Other 355.3 76.7 290.5 14,335.3 121.2 13,368.3 Cash and Receivables cash equivalents 1,388.5 280.6 471.2 Other Deferred costs 490.6 375.3 10.1 529.2 8.0 $16,505.1 $14,752.0 Liabilities Losses and loss adjustment expenses Accounts payable, accruals and other....... Unearned premiums.... $ 3,128.8 315.8 $ 3,151.6 231.8 Income taxes, principally deferred... 2,943.9 482.1 2,476.3 390.0 6,870.6 6,249.7 Equity Berkshire shareholders' Minority shareholders' ... ... 9,509.6 124.9 8,431.9 70.4 9,634.5 8,502.3 $16,505.1 $14,752.0 These statements do not conform to GAP in all respects These statements are unaudited 54

[PAGE 57]

BERKSHIRE HATHAWAY INC. INSURANCE GROUP Statements of Earnings (dollars in millions) Premiums written 1993 Premiums earned .. . . $ 742.7 1992 1991 $ 739.6 $ 802.5 Losses and loss expenses .... • $ 656.3 $ 664.3 Underwriting expenses ....... 687.6 Total losses and expenses Underwriting gain (loss) - pre-tax .•.. 625.4 85.7 Realized investment gain Net investment income... 375.9 30.9 773.3 (109.0) Income tax Earnings from operations before income taxes. $55.9 355.1 expense (254.4) 962.7 298.7 52.6 Minority interest. 708.3 (25.4) Net earnings.. $ 704.2 4.1 273.3 2.6 $ 270.7 Statements of Net Investment Income (dollars in millions) Interest: 1993 1992 1991 Taxable Substantially exempt from federal income taxes $ 44.5 33.9 $ 43.1 78.4 30.9 $ 54.6 74.0 44.1 Dividends: 98.7 Capital Cities/ABC, Inc. American Express Company 24.9 25.8 0.6 0.6 0.6 9.2 Coca-Cola Company Champion International FHLMC 63.3 GEICO 23.3 6.2 4.4 0.2 General Gillette ... Dynamics 19.4 7.9 2.4 Salomon Inc. Guinness PLC 58.5 7.0 7.4 1.2 USAir ..... 32.2 Washington Wells Fargo & Company Post .... 14.2 7.3 7.3 385.1 16.1 7.7 7.3 Other ... 8.7 Investment expenses Net investment income ..•. _(9.2) $ 375.9 $ 355.1 These statements do not conform to GAAP in all respects These statements are unaudited 55

[PAGE 58]

BERKSHIRE HATHAWAY INC. MANUFACTURING, PUBLISHING AND RETAILING BUSINESSES lot fully adjusted to conform to Generally Accepted Accounting Principles - are presented on the following pag Combined financial statements of Berkshire's Manufacturing, Publishing and Retailing businesses - unaudited and The operations whose data have been combined in these presentations include the following Operation Product/Service/Activity Adaler Conduit fittings, explosion proof junction boxes, couplings and terminators Blue Chip Stamps Marketing motivational services Borsheim's Retailing fine jewelry Buffalo News Daily and Sunday newspaper Campbell Hausfeld Air compressors, air tools and painting systems Carefree Sun and shade control products and accessories for RVs Cleveland Wood Products Vacuum cleaner brushes Dexter Shoe Companies Dress, casual and athletic shoes Douglas Products Hand-held electric and cordless vacuum cleaners Fechheimer Bros. Co. Uniforms and accessories France Appliance controls, ignition and sign transformers H. H. Brown Shoe Co. Work shoes, boots and casual footwear Halex Zine die cast electrical fittings K&W Products Automotive compounds Kirby Home cleaning systems Lowell Shoe, Inc. Women's and nurses' shoes Meriam Pressure and flow measurement devices Nebraska Furniture Mart Retailing home furnishings Northland Fractional horsepower motors Powerwinch Boat winches, windlasses Precision Steel Products Steel service center Quikut Cutlery ScotCare Cardiopulmonary rehabilitation and monitoring equipment Scot Labs Cleaning and maintenance chemicals See's Candies Boxed chocolates and other confectionery products Stahl Custom steel service bodies and tool boxes for trucks Wayne Furnace burners; sump, utility and sewage pumps Western Enterprises Compressed gas fittings and regulators Western Plastics Molded plastic components World Book Encyclopedias and other reference materials 56

[PAGE 59]

BERKSHIRE HATHAWAY INC. MANUFACTURING, PUBLISHING and RETAILING BUSINESSES (dollars in millions) Balance Sheets December 31, Assets 1993 1992 Cash and cash equivalents Inventories ............................ Accuntb $ 275.9 90.4 $ 62.7 Other Properties and equipment 351.0 353:9 195.9 $ 949.3 36.1 163.9 $ 741.1 29.9 Liabilities Income taxes..... Accounts payable, accruals and other. $ 257.2 Term debt and other borrowings 24.7 38.5 $ 223.3 40.6 28.1 320.4 292.0 Equity Minority shareholders' Berkshire shareholders' 593.1 35.8 33.2 $ 949.3 628.9 415.9 449.1 $ 741.1 Statements of Earnings (dollars in millions) 1993 1992 1991 Revenues: Sales and service revenues Interest income $1,962.9 Sundry income. ... 8.0 $1,774.4 1,975.9 5.0 3.0 7.5 $1,651.1 2.1 8.5 1,784.9 1,661.7 Costs and expenses: Selling, general and administrative Costs of products and services sold 1,172.5 Interest on debt. 527.2 1,043.6 933.7 3.7 484.5 508.6 4.6 4.9 Income tax expense Earnings from operations before income taxes 1,703.4 1,532.7 103.7 272.5 252.2 1,447.2 97.4 214.5 82.3 Minority interest 168.8 Net earnings.. 4.5 154.8 4.2 132.6 $ 164.3 $ 150.6 $ 127.6 Dexter's results of operations only for the period subsequent to the acquisition date. Dexter's financial position at Dexter Shoe Company ("Dexter") was acquired effective November 7, 1993. Accordingly, this presentation reflects December 31, 1993, is included in the 1993 balance sheet. not reflected in these statements, but instead are reflected in the statements of non-operating activities at page 59. Purchase-price accounting adjustments, including goodwill, arising from Berkshire's business acquisitions are These statements do not conform to GAAP in all respects These statements are unaudited 57

[PAGE 60]

BERKSHIRE HATHAWAY INC. COMMERCIAL AND CONSUMER FINANCE BUSINESSES and consumer finance businesses. Scott Feizer Financial Group, Inc. Monito Berter is haad Satis and rain make up kites cone in offset substantially by real estate loans, cash and certain other assets of Mutual. this group of businesses. In October 1993, a federal savings bank assumed Mutual's savings account liabilities, (dollars in millions) Balance Sheets 1993 December 31, 1992 FHLMC common stock * Cash and cash equivalents. $ 16.5 Installment and Mortgages and mortgage-backed securities Deferred tax assets. other receivables 656.3 179.8 1.3 4.0 4.9 Liabilities $ 857.9 Accounts payable, accruals and other Borrowings under investment agreements and other debt. $ 772.7 51.9 $ 145.1 Income taxes 0.4 27.8 Savings accounts 0.7 825.0 250.9 Equity 424.5 Minority shareholders' Berkshire shareholders' 32.9 12.5 $ 857.9 32.9 82.2 $ 519.2 94.7 Statements of Earnings (dollars in millions) Revenues: 1993 1992 1991 Interest and fees on loans and financed receivables Interest and dividends on Sundry income. investment securities $ 42.3 20.5 $ 16.4 49.7 $ 53.2 1.9 18.3 Expenses: 64.7 66.5 0.4 72.8 1.3 Interest on savings accounts Interest on debt 19.4 General and administrative.. 16.8 5.8 13.9 20.8 12.0 14.3 20.7 18.3 Income tax expense Earnings from operations before income taxes. 42.0 46.7 53.3 ..... 22.7 7.7 19.8 19.5 13.4 6.4 4.6 Minority interest Realized investment Earnings before realized investment gain gain ....• 15.0 ... .... 14.2 0.8 0.7 14.9 0.9 12.7 14.0 4.5 Net earnings. $ 14.2 $ 12.7 $ 18.5 terry Mutand Loan Association) was merged into Wesco These statements do not conform to GAAP in all respects These statements are unaudited 58

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BERKSHIRE HATHAWAY INC. NON-OPERATING ACTIVITIES Statements of Net Assets (dollars in millions) December 31 Assets 1993 1992 Cash and cash equivalents .............. Investments: $ 358.9 $ 595.3 Fixed maturities: Preferred stocks... 81.0 127.1 Unamortized Equity securities Deferred tax assets goodwill and property account adjustments ** 232.5 81.0 541.8 277.7 38.1 Other 174.9 7.7 22.5 6.0 Liabilities $1.396.8 $1,147.7 Income taxes.. Accounts payable, accruals and other. $ 59.4 62.8 $ 16.5 Borrowings under investment agreements and other debt 960.2 10.5 1,082.4 1,141.0 Equity 1,168.0 Minority shareholders' Berkshire shareholders' 292.8 21.6 13.4 314.4 (33.7) $1.396.8 (20.3) Statements of Earnings $1.147.7 (dollars in millions) Revenues: 1993 1992 1991 Interest and dividend income . Realized investment gain (loss) $ 24.3 $ 58.9 $ Sundry income.. (9.4) 4.1 37.3 3.3 4.4 Expenses: 19.0 99.5 Shareholder-designated contributions Corporate administration.. ..• 4.9 4.2 Interest on debt Amortization of goodwill and property account adjustments . 17.1 9.4 7.6 6.8 5.6 Other costs and expenses... 54.0 12.0 94.5 1.3 0.9 87.2 1.8 119.6 107.8 Income tax expense Earnings (loss) before income taxes (125.8)* (68.2) (20.1) 26.2 (8.9) (12.7) (194.0) (29.0) 13.5 Minority interest 0.6 (2.3) 1.5 Net earnings (loss) $ (194.6) $ (26.7) 12.0

• In 1993, a new accounting

In 1992, and prior years these securities were carried at the lower of aggregate cost or market. rule was adopted which requires that equity securities be carried at market. ** Property account adjustments and goodwill arose in accounting for business acquisitions. for income laxes. Includes non-recurring charges of $146.3 million related to adoption of a new rule regarding the accounting These statements do not conform to GAAP in all respects These statements are unaudited 59

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BERKSHIRE HATHAWAY INC. COMMON STOCK Stock Transfer Agent as Transfer Agent and Registrar for the Company's common stock. Correspondence with the Divisior The Bank of Boston Shareholder Services Division, P.O. Box 644, Boston, MA 02102-0644 serves be directed to the Transfer Processing Section, Mail Stop 45-01-05. Certificates should not be mailed may be directed to Investor Relations, Mail Stop 45-02-09. Certificates for re-issue or transfer should to the Company. Shareholders Record owners included nominees holding at least 180,000 shares on behalf of beneficial-but-not-of-record The Company had approximately 7,600 record holders of its common stock at March 8, 1994. owners. Management believes that the Company has more than 16,000 beneficial owners. Price Range of Common Stock The Company's Common Stock is listed for trading on the New York Stock Exchange, trading the New York Stock Exchange Composite List during the periods indicated: symbol: BRA. The following table sets forth the high and low sales prices per share, as reported on 1993 Second Quarter First Quarter High Low 1992 $13,200 Fourth Quarter ......... Third Quarter........ 10,200 $11,350 11,800 First Quarter High Low 17,800 16,200 15,100 Third Quarter.......... Second Quarter $9,000 .•.. 9,300 $8,575 Fourth Quarter ......... 1,75 ,950 8,850 3,050 Dividends Berkshire has not declared a cash dividend since 1967. 60

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BERKSHIRE HATHAWAY INC. DIRECTORS WARREN E. BUFFETT, Chairman Chief Executive Officer of Berkshire CHARLES T. MUNGER, Vice Chairman of Berkshire SUSAN T. BUFFETT HOWARD G. BUFFETT, Vice President of Archer Daniels Midland Company, engaged principally in the business of processing and merchandising agricultural commodities. MALCOLM G. CHACE, II WALTER SCOTT, JK., Chairman and Chief Executive Officer of Peter Kiewit Sons, ine, engaged worldwide in construction, mining, packaging and timberlands. OFFICHRS WARREN E. BUFFETT, Chairman and CEO CHARLES T. MUNGER, Vice Chairman ROBERT H. BIRD, rice Prondent MARC D. HAMBUTO, Vic President, Treasurer STANFORD LIPSE, Vice President DANIEL J. JAKSICH, Conroller FORREST N. KRUTTER, Secreiary ROBERT M. FITZSIMMONS, Director of Internal Auditing Director of Taxes JERRY W. HUFTON, MARK D. MILLARD, Director of Financial Assets One is from reports for 1977 through 1986, the other, from reports for 1987 through 1990. Two compilations of letters from earlier Annual Reports are available upon request. Single copies are furnished without charge in response to requests received by the Company at 3555 Farnam St., Suite 1440, Omaha, NE 68131.

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BERKSHIRE HATHAWAY INC. Executive Offices - 1440 Kiewit Plaza, Omaha, Nebraskar 68/31 Printed on recycled paper