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1387 lines
74 KiB
1387 lines
74 KiB
2 years ago
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<HEAD>
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<TITLE>Chairman's Letter - 1992</TITLE>
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</HEAD>
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<BODY>
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<P ALIGN=CENTER>
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<B>BERKSHIRE HATHAWAY INC.</B>
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</P>
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<PRE>
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<B>To the Shareholders of Berkshire Hathaway Inc.:</B>
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Our per-share book value increased 20.3% during 1992. Over
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the last 28 years (that is, since present management took over)
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book value has grown from $19 to $7,745, or at a rate of 23.6%
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compounded annually.
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During the year, Berkshire's net worth increased by $1.52
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billion. More than 98% of this gain came from earnings and
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appreciation of portfolio securities, with the remainder coming
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from the issuance of new stock. These shares were issued as a
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result of our calling our convertible debentures for redemption
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on January 4, 1993, and of some holders electing to receive
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common shares rather than the cash that was their alternative.
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Most holders of the debentures who converted into common waited
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until January to do it, but a few made the move in December and
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therefore received shares in 1992. To sum up what happened to
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the $476 million of bonds we had outstanding: $25 million were
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converted into shares before yearend; $46 million were converted
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in January; and $405 million were redeemed for cash. The
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conversions were made at $11,719 per share, so altogether we
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issued 6,106 shares.
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Berkshire now has 1,152,547 shares outstanding. That
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compares, you will be interested to know, to 1,137,778 shares
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outstanding on October 1, 1964, the beginning of the fiscal year
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during which Buffett Partnership, Ltd. acquired control of the
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company.
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We have a firm policy about issuing shares of Berkshire,
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doing so only when we receive as much value as we give. Equal
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value, however, has not been easy to obtain, since we have always
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valued our shares highly. So be it: We wish to increase
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Berkshire's size only when doing that also increases the wealth
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of its owners.
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Those two objectives do not necessarily go hand-in-hand as an
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amusing but value-destroying experience in our past illustrates.
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On that occasion, we had a significant investment in a bank
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whose management was hell-bent on expansion. (Aren't they all?)
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When our bank wooed a smaller bank, its owner demanded a stock
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swap on a basis that valued the acquiree's net worth and earning
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power at over twice that of the acquirer's. Our management -
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visibly in heat - quickly capitulated. The owner of the acquiree
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then insisted on one other condition: "You must promise me," he
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said in effect, "that once our merger is done and I have become a
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major shareholder, you'll never again make a deal this dumb."
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You will remember that our goal is to increase our per-share
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intrinsic value - for which our book value is a conservative, but
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useful, proxy - at a 15% annual rate. This objective, however,
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cannot be attained in a smooth manner. Smoothness is
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particularly elusive because of the accounting rules that apply
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to the common stocks owned by our insurance companies, whose
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portfolios represent a high proportion of Berkshire's net worth.
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Since 1979, generally accepted accounting principles (GAAP) have
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required that these securities be valued at their market prices
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(less an adjustment for tax on any net unrealized appreciation)
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rather than at the lower of cost or market. Run-of-the-mill
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fluctuations in equity prices therefore cause our annual results
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to gyrate, especially in comparison to those of the typical
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industrial company.
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To illustrate just how volatile our progress has been - and
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to indicate the impact that market movements have on short-term
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results - we show on the facing page our annual change in per-
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share net worth and compare it with the annual results (including
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dividends) of the S&P 500.
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You should keep at least three points in mind as you
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evaluate this data. The first point concerns the many businesses
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we operate whose annual earnings are unaffected by changes in
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stock market valuations. The impact of these businesses on both
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our absolute and relative performance has changed over the years.
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Early on, returns from our textile operation, which then
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represented a significant portion of our net worth, were a major
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drag on performance, averaging far less than would have been the
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case if the money invested in that business had instead been
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invested in the S&P 500. In more recent years, as we assembled
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our collection of exceptional businesses run by equally
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exceptional managers, the returns from our operating businesses
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have been high - usually well in excess of the returns achieved
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by the S&P.
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A second important factor to consider - and one that
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significantly hurts our relative performance - is that both the
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income and capital gains from our securities are burdened by a
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substantial corporate tax liability whereas the S&P returns are
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pre-tax. To comprehend the damage, imagine that Berkshire had
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owned nothing other than the S&P index during the 28-year period
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covered. In that case, the tax bite would have caused our
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corporate performance to be appreciably below the record shown in
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the table for the S&P. Under present tax laws, a gain for the
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S&P of 18% delivers a corporate holder of that index a return
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well short of 13%. And this problem would be intensified if
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corporate tax rates were to rise. This is a structural
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disadvantage we simply have to live with; there is no antidote
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for it.
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The third point incorporates two predictions: Charlie
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Munger, Berkshire's Vice Chairman and my partner, and I are
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virtually certain that the return over the next decade from an
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investment in the S&P index will be far less than that of the
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past decade, and we are dead certain that the drag exerted by
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Berkshire's expanding capital base will substantially reduce our
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historical advantage relative to the index.
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Making the first prediction goes somewhat against our grain:
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We've long felt that the only value of stock forecasters is to
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make fortune tellers look good. Even now, Charlie and I continue
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to believe that short-term market forecasts are poison and should
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be kept locked up in a safe place, away from children and also
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from grown-ups who behave in the market like children. However,
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it is clear that stocks cannot forever overperform their
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underlying businesses, as they have so dramatically done for some
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time, and that fact makes us quite confident of our forecast that
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the rewards from investing in stocks over the next decade will be
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significantly smaller than they were in the last. Our second
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conclusion - that an increased capital base will act as an anchor
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on our relative performance - seems incontestable. The only open
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question is whether we can drag the anchor along at some
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tolerable, though slowed, pace.
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We will continue to experience considerable volatility in
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our annual results. That's assured by the general volatility of
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the stock market, by the concentration of our equity holdings in
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just a few companies, and by certain business decisions we have
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made, most especially our move to commit large resources to
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super-catastrophe insurance. We not only accept this volatility
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but welcome it: A tolerance for short-term swings improves our
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long-term prospects. In baseball lingo, our performance
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yardstick is slugging percentage, not batting average.
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<B>The Salomon Interlude</B>
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Last June, I stepped down as Interim Chairman of Salomon Inc
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after ten months in the job. You can tell from Berkshire's 1991-
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92 results that the company didn't miss me while I was gone. But
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the reverse isn't true: I missed Berkshire and am delighted to
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be back full-time. There is no job in the world that is more fun
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than running Berkshire and I count myself lucky to be where I am.
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The Salomon post, though far from fun, was interesting and
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worthwhile: In Fortune's annual survey of America's Most Admired
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Corporations, conducted last September, Salomon ranked second
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among 311 companies in the degree to which it improved its
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reputation. Additionally, Salomon Brothers, the securities
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subsidiary of Salomon Inc, reported record pre-tax earnings last
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year - 34% above the previous high.
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Many people helped in the resolution of Salomon's problems
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and the righting of the firm, but a few clearly deserve special
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mention. It is no exaggeration to say that without the combined
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efforts of Salomon executives Deryck Maughan, Bob Denham, Don
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Howard, and John Macfarlane, the firm very probably would not
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have survived. In their work, these men were tireless,
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effective, supportive and selfless, and I will forever be
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grateful to them.
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Salomon's lead lawyer in its Government matters, Ron Olson
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of Munger, Tolles & Olson, was also key to our success in getting
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through this trouble. The firm's problems were not only severe,
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but complex. At least five authorities - the SEC, the Federal
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Reserve Bank of New York, the U.S. Treasury, the U.S. Attorney
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for the Southern District of New York, and the Antitrust Division
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of the Department of Justice - had important concerns about
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Salomon. If we were to resolve our problems in a coordinated and
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prompt manner, we needed a lawyer with exceptional legal,
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business and human skills. Ron had them all.
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<B>Acquisitions</B>
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Of all our activities at Berkshire, the most exhilarating
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for Charlie and me is the acquisition of a business with
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excellent economic characteristics and a management that we like,
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trust and admire. Such acquisitions are not easy to make but we
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look for them constantly. In the search, we adopt the same
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attitude one might find appropriate in looking for a spouse: It
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pays to be active, interested and open-minded, but it does not
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pay to be in a hurry.
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In the past, I've observed that many acquisition-hungry
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managers were apparently mesmerized by their childhood reading of
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the story about the frog-kissing princess. Remembering her
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success, they pay dearly for the right to kiss corporate toads,
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expecting wondrous transfigurations. Initially, disappointing
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results only deepen their desire to round up new toads.
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("Fanaticism," said Santyana, "consists of redoubling your effort
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when you've forgotten your aim.") Ultimately, even the most
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optimistic manager must face reality. Standing knee-deep in
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unresponsive toads, he then announces an enormous "restructuring"
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charge. In this corporate equivalent of a Head Start program,
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the CEO receives the education but the stockholders pay the
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tuition.
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In my early days as a manager I, too, dated a few toads.
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They were cheap dates - I've never been much of a sport - but my
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results matched those of acquirers who courted higher-priced
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toads. I kissed and they croaked.
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After several failures of this type, I finally remembered
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some useful advice I once got from a golf pro (who, like all pros
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who have had anything to do with my game, wishes to remain
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anonymous). Said the pro: "Practice doesn't make perfect;
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practice makes permanent." And thereafter I revised my strategy
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and tried to buy good businesses at fair prices rather than fair
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businesses at good prices.
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Last year, in December, we made an acquisition that is a
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prototype of what we now look for. The purchase was 82% of
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Central States Indemnity, an insurer that makes monthly payments
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for credit-card holders who are unable themselves to pay because
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they have become disabled or unemployed. Currently the company's
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annual premiums are about $90 million and profits about $10
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million. Central States is based in Omaha and managed by Bill
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Kizer, a friend of mine for over 35 years. The Kizer family -
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which includes sons Bill, Dick and John - retains 18% ownership
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of the business and will continue to run things just as it has in
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the past. We could not be associated with better people.
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Coincidentally, this latest acquisition has much in common
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with our first, made 26 years ago. At that time, we purchased
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another Omaha insurer, National Indemnity Company (along with a
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small sister company) from Jack Ringwalt, another long-time
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friend. Jack had built the business from scratch and, as was the
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case with Bill Kizer, thought of me when he wished to sell.
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(Jack's comment at the time: "If I don't sell the company, my
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executor will, and I'd rather pick the home for it.") National
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Indemnity was an outstanding business when we bought it and
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continued to be under Jack's management. Hollywood has had good
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luck with sequels; I believe we, too, will.
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Berkshire's acquisition criteria are described on page 23.
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Beyond purchases made by the parent company, however, our
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subsidiaries sometimes make small "add-on" acquisitions that
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extend their product lines or distribution capabilities. In this
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manner, we enlarge the domain of managers we already know to be
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outstanding - and that's a low-risk and high-return proposition.
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We made five acquisitions of this type in 1992, and one was not
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so small: At yearend, H. H. Brown purchased Lowell Shoe Company,
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a business with $90 million in sales that makes Nursemates, a
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leading line of shoes for nurses, and other kinds of shoes as
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well. Our operating managers will continue to look for add-on
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opportunities, and we would expect these to contribute modestly
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to Berkshire's value in the future.
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Then again, a trend has emerged that may make further
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acquisitions difficult. The parent company made one purchase in
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1991, buying H. H. Brown, which is run by Frank Rooney, who has
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eight children. In 1992 our only deal was with Bill Kizer,
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father of nine. It won't be easy to keep this string going in
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1993.
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<B>Sources of Reported Earnings</B>
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The table below shows the major sources of Berkshire's
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reported earnings. In this presentation, amortization of
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Goodwill and other major purchase-price accounting adjustments
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are not charged against the specific businesses to which they
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apply, but are instead aggregated and shown separately. This
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procedure lets you view the earnings of our businesses as they
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would have been reported had we not purchased them. I've
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explained in past reports why this form of presentation seems to
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us to be more useful to investors and managers than one utilizing
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GAAP, which requires purchase-price adjustments to be made on a
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business-by-business basis. The total net earnings we show in
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the table are, of course, identical to the GAAP total in our
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audited financial statements.
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<I>
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(000s omitted)
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-----------------------------------------------
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Berkshire's Share
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of Net Earnings
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(after taxes and
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Pre-Tax Earnings minority interests)
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---------------------- ----------------------
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1992 1991 1992 1991</I>
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---------- ---------- ---------- ----------
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Operating Earnings:
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Insurance Group:
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Underwriting ............ $(108,961) $(119,593) $ (71,141) $ (77,229)
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Net Investment Income.... 355,067 331,846 305,763 285,173
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H. H. Brown (acquired 7/1/91) 27,883 13,616 17,340 8,611
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Buffalo News .............. 47,863 37,113 28,163 21,841
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Fechheimer ................ 13,698 12,947 7,267 6,843
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Kirby ..................... 35,653 35,726 22,795 22,555
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Nebraska Furniture Mart ... 17,110 14,384 8,072 6,993
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Scott Fetzer
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Manufacturing Group .... 31,954 26,123 19,883 15,901
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See's Candies ............. 42,357 42,390 25,501 25,575
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Wesco - other than Insurance 15,153 12,230 9,195 8,777
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World Book ................ 29,044 22,483 19,503 15,487
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Amortization of Goodwill .. (4,702) (4,113) (4,687) (4,098)
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Other Purchase-Price
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Accounting Charges ..... (7,385) (6,021) (8,383) (7,019)
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Interest Expense* ......... (98,643) (89,250) (62,899) (57,165)
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Shareholder-Designated
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Contributions .......... (7,634) (6,772) (4,913) (4,388)
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Other ..................... 72,223 77,399 36,267 47,896
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---------- ---------- ---------- ----------
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Operating Earnings .......... 460,680 400,508 347,726 315,753
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Sales of Securities ......... 89,937 192,478 59,559 124,155
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---------- ---------- ---------- ----------
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|
Total Earnings - All Entities $ 550,617 $ 592,986 $ 407,285 $ 439,908
|
||
|
|
========== ========== ========== ==========
|
||
|
|
|
||
|
|
<I>*Excludes interest expense of Scott Fetzer Financial Group and Mutual
|
||
|
|
Savings & Loan. Includes $22.5 million in 1992 and $5.7 million in
|
||
|
|
1991 of premiums paid on the early redemption of debt.</I>
|
||
|
|
|
||
|
|
|
||
|
|
A large amount of additional information about these
|
||
|
|
businesses is given on pages 37-47, where you will also find our
|
||
|
|
segment earnings reported on a GAAP basis. Our goal is to give you
|
||
|
|
all of the financial information that Charlie and I consider
|
||
|
|
significant in making our own evaluation of Berkshire.
|
||
|
|
|
||
|
|
<B>"Look-Through" Earnings</B>
|
||
|
|
|
||
|
|
We've previously discussed look-through earnings, which
|
||
|
|
consist of: (1) the operating earnings reported in the previous
|
||
|
|
section, plus; (2) the retained operating earnings of major
|
||
|
|
investees that, under GAAP accounting, are not reflected in our
|
||
|
|
profits, less; (3) an allowance for the tax that would be paid by
|
||
|
|
Berkshire if these retained earnings of investees had instead been
|
||
|
|
distributed to us. Though no single figure can be perfect, we
|
||
|
|
believe that the look-through number more accurately portrays the
|
||
|
|
earnings of Berkshire than does the GAAP number.
|
||
|
|
|
||
|
|
I've told you that over time look-through earnings must
|
||
|
|
increase at about 15% annually if our intrinsic business value is
|
||
|
|
to grow at that rate. Our look-through earnings in 1992 were $604
|
||
|
|
million, and they will need to grow to more than $1.8 billion by
|
||
|
|
the year 2000 if we are to meet that 15% goal. For us to get
|
||
|
|
there, our operating subsidiaries and investees must deliver
|
||
|
|
excellent performances, and we must exercise some skill in capital
|
||
|
|
allocation as well.
|
||
|
|
|
||
|
|
We cannot promise to achieve the $1.8 billion target. Indeed,
|
||
|
|
we may not even come close to it. But it does guide our decision-
|
||
|
|
making: When we allocate capital today, we are thinking about what
|
||
|
|
will maximize look-through earnings in 2000.
|
||
|
|
|
||
|
|
We do not, however, see this long-term focus as eliminating
|
||
|
|
the need for us to achieve decent short-term results as well.
|
||
|
|
After all, we were thinking long-range thoughts five or ten years
|
||
|
|
ago, and the moves we made then should now be paying off. If
|
||
|
|
plantings made confidently are repeatedly followed by disappointing
|
||
|
|
harvests, something is wrong with the farmer. (Or perhaps with the
|
||
|
|
farm: Investors should understand that for certain companies, and
|
||
|
|
even for some industries, there simply is <I>no</I> good long-term
|
||
|
|
strategy.) Just as you should be suspicious of managers who pump
|
||
|
|
up short-term earnings by accounting maneuvers, asset sales and the
|
||
|
|
like, so also should you be suspicious of those managers who fail
|
||
|
|
to deliver for extended periods and blame it on their long-term
|
||
|
|
focus. (Even Alice, after listening to the Queen lecture her about
|
||
|
|
"jam tomorrow," finally insisted, "It must come sometimes to jam
|
||
|
|
today.")
|
||
|
|
|
||
|
|
The following table shows you how we calculate look-through
|
||
|
|
earnings, though I warn you that the figures are necessarily <I>very</I>
|
||
|
|
rough. (The dividends paid to us by these investees have been
|
||
|
|
included in the operating earnings itemized on page 8, mostly
|
||
|
|
under "Insurance Group: Net Investment Income.")
|
||
|
|
|
||
|
|
Berkshire's Share
|
||
|
|
of Undistributed
|
||
|
|
Berkshire's Approximate Operating Earnings
|
||
|
|
Berkshire's Major Investees Ownership at Yearend (in millions)
|
||
|
|
--------------------------- ----------------------- ------------------
|
||
|
|
1992 1991 1992 1991
|
||
|
|
-------- -------- -------- --------
|
||
|
|
Capital Cities/ABC Inc. ....... 18.2% 18.1% $ 70 $ 61
|
||
|
|
The Coca-Cola Company ......... 7.1% 7.0% 82 69
|
||
|
|
Federal Home Loan Mortgage Corp. 8.2%(1) 3.4%(1) 29(2) 15
|
||
|
|
GEICO Corp. ................... 48.1% 48.2% 34(3) 69(3)
|
||
|
|
General Dynamics Corp. ........ 14.1% -- 11(2) --
|
||
|
|
The Gillette Company .......... 10.9% 11.0% 38 23(2)
|
||
|
|
Guinness PLC .................. 2.0% 1.6% 7 --
|
||
|
|
The Washington Post Company ... 14.6% 14.6% 11 10
|
||
|
|
Wells Fargo & Company ......... 11.5% 9.6% 16(2) (17)(2)
|
||
|
|
-------- -------- -------- --------
|
||
|
|
Berkshire's share of
|
||
|
|
undistributed earnings of major investees $298 $230
|
||
|
|
Hypothetical tax on these
|
||
|
|
undistributed investee earnings (42) (30)
|
||
|
|
Reported operating earnings of Berkshire 348 316
|
||
|
|
-------- --------
|
||
|
|
Total look-through earnings of Berkshire $604 $516
|
||
|
|
|
||
|
|
(1) Net of minority interest at Wesco
|
||
|
|
(2) Calculated on average ownership for the year
|
||
|
|
(3) Excludes realized capital gains, which have been both
|
||
|
|
recurring and significant
|
||
|
|
|
||
|
|
<B>Insurance Operations</B>
|
||
|
|
|
||
|
|
Shown below is an updated version of our usual table
|
||
|
|
presenting key figures for the property-casualty insurance
|
||
|
|
industry:
|
||
|
|
<I>
|
||
|
|
Yearly Change Combined Ratio
|
||
|
|
in Premiums After Policyholder
|
||
|
|
Written (%) Dividends</I>
|
||
|
|
------------- ------------------
|
||
|
|
|
||
|
|
1981 ........................... 3.8 106.0
|
||
|
|
1982 ........................... 3.7 109.6
|
||
|
|
1983 ........................... 5.0 112.0
|
||
|
|
1984 ........................... 8.5 118.0
|
||
|
|
1985 ........................... 22.1 116.3
|
||
|
|
1986 ........................... 22.2 108.0
|
||
|
|
1987 ........................... 9.4 104.6
|
||
|
|
1988 ........................... 4.5 105.4
|
||
|
|
1989 ........................... 3.2 109.2
|
||
|
|
1990 ........................... 4.5 109.6
|
||
|
|
1991 (Revised) ................. 2.4 108.8
|
||
|
|
1992 (Est.) .................... 2.7 114.8
|
||
|
|
|
||
|
|
The combined ratio represents total insurance costs (losses
|
||
|
|
incurred plus expenses) compared to revenue from premiums: A
|
||
|
|
ratio below 100 indicates an underwriting profit, and one above
|
||
|
|
100 indicates a loss. The higher the ratio, the worse the year.
|
||
|
|
When the investment income that an insurer earns from holding
|
||
|
|
policyholders' funds ("the float") is taken into account, a
|
||
|
|
combined ratio in the 106 - 110 range typically produces an
|
||
|
|
overall break-even result, exclusive of earnings on the funds
|
||
|
|
provided by shareholders.
|
||
|
|
|
||
|
|
About four points in the industry's 1992 combined ratio can
|
||
|
|
be attributed to Hurricane Andrew, which caused the largest
|
||
|
|
insured loss in history. Andrew destroyed a few small insurers.
|
||
|
|
Beyond that, it awakened some larger companies to the fact that
|
||
|
|
their reinsurance protection against catastrophes was far from
|
||
|
|
adequate. (It's only when the tide goes out that you learn who's
|
||
|
|
been swimming naked.) One major insurer escaped insolvency
|
||
|
|
solely because it had a wealthy parent that could promptly supply
|
||
|
|
a massive transfusion of capital.
|
||
|
|
|
||
|
|
Bad as it was, however, Andrew could easily have been far
|
||
|
|
more damaging if it had hit Florida 20 or 30 miles north of where
|
||
|
|
it actually did and had hit Louisiana further east than was the
|
||
|
|
case. All in all, many companies will rethink their reinsurance
|
||
|
|
programs in light of the Andrew experience.
|
||
|
|
|
||
|
|
As you know we are a large writer - perhaps the largest in
|
||
|
|
the world - of "super-cat" coverages, which are the policies that
|
||
|
|
other insurance companies buy to protect themselves against major
|
||
|
|
catastrophic losses. Consequently, we too took our lumps from
|
||
|
|
Andrew, suffering losses from it of about $125 million, an amount
|
||
|
|
roughly equal to our 1992 super-cat premium income. Our other
|
||
|
|
super-cat losses, though, were negligible. This line of business
|
||
|
|
therefore produced an overall loss of only $2 million for the
|
||
|
|
year. (In addition, our investee, GEICO, suffered a net loss
|
||
|
|
from Andrew, after reinsurance recoveries and tax savings, of
|
||
|
|
about $50 million, of which our share is roughly $25 million.
|
||
|
|
This loss did not affect our operating earnings, but did reduce
|
||
|
|
our look-through earnings.)
|
||
|
|
|
||
|
|
In last year's report I told you that I hoped that our
|
||
|
|
super-cat business would over time achieve a 10% profit margin.
|
||
|
|
But I also warned you that in any given year the line was likely
|
||
|
|
to be "either enormously profitable or enormously unprofitable."
|
||
|
|
Instead, both 1991 and 1992 have come in close to a break-even
|
||
|
|
level. Nonetheless, I see these results as aberrations and stick
|
||
|
|
with my prediction of huge annual swings in profitability from
|
||
|
|
this business.
|
||
|
|
|
||
|
|
Let me remind you of some characteristics of our super-cat
|
||
|
|
policies. Generally, they are activated only when two things
|
||
|
|
happen. First, the direct insurer or reinsurer we protect must
|
||
|
|
suffer losses of a given amount - that's the policyholder's
|
||
|
|
"retention" - from a catastrophe; and second, industry-wide
|
||
|
|
insured losses from the catastrophe must exceed some minimum
|
||
|
|
level, which usually is $3 billion or more. In most cases, the
|
||
|
|
policies we issue cover only a specific geographical area, such
|
||
|
|
as a portion of the U.S., the entire U.S., or everywhere other
|
||
|
|
than the U.S. Also, many policies are not activated by the first
|
||
|
|
super-cat that meets the policy terms, but instead cover only a
|
||
|
|
"second-event" or even a third- or fourth-event. Finally, some
|
||
|
|
policies are triggered only by a catastrophe of a specific type,
|
||
|
|
such as an earthquake. Our exposures are large: We have one
|
||
|
|
policy that calls for us to pay $100 million to the policyholder
|
||
|
|
if a specified catastrophe occurs. (Now you know why I suffer
|
||
|
|
eyestrain: from watching The Weather Channel.)
|
||
|
|
|
||
|
|
Currently, Berkshire is second in the U.S. property-casualty
|
||
|
|
industry in net worth (the leader being State Farm, which neither
|
||
|
|
buys nor sells reinsurance). Therefore, we have the capacity to
|
||
|
|
assume risk on a scale that interests virtually no other company.
|
||
|
|
We have the appetite as well: As Berkshire's net worth and
|
||
|
|
earnings grow, our willingness to write business increases also.
|
||
|
|
But let me add that means good business. The saying, "a fool
|
||
|
|
and his money are soon invited everywhere," applies in spades in
|
||
|
|
reinsurance, and we actually reject more than 98% of the business
|
||
|
|
we are offered. Our ability to choose between good and bad
|
||
|
|
proposals reflects a management strength that matches our
|
||
|
|
financial strength: Ajit Jain, who runs our reinsurance
|
||
|
|
operation, is simply the best in this business. In combination,
|
||
|
|
these strengths guarantee that we will stay a major factor in the
|
||
|
|
super-cat business so long as prices are appropriate.
|
||
|
|
|
||
|
|
What constitutes an appropriate price, of course, is
|
||
|
|
difficult to determine. Catastrophe insurers can't simply
|
||
|
|
extrapolate past experience. If there is truly "global warming,"
|
||
|
|
for example, the odds would shift, since tiny changes in
|
||
|
|
atmospheric conditions can produce momentous changes in weather
|
||
|
|
patterns. Furthermore, in recent years there has been a
|
||
|
|
mushrooming of population and insured values in U.S. coastal
|
||
|
|
areas that are particularly vulnerable to hurricanes, the number
|
||
|
|
one creator of super-cats. A hurricane that caused <I>x</I> dollars of
|
||
|
|
damage 20 years ago could easily cost 10<I>x</I> now.
|
||
|
|
|
||
|
|
Occasionally, also, the unthinkable happens. Who would have
|
||
|
|
guessed, for example, that a major earthquake could occur in
|
||
|
|
Charleston, S.C.? (It struck in 1886, registered an estimated 6.6
|
||
|
|
on the Richter scale, and caused 60 deaths.) And who could have
|
||
|
|
imagined that our country's most serious quake would occur at New
|
||
|
|
Madrid, Missouri, which suffered an estimated 8.7 shocker in
|
||
|
|
1812. By comparison, the 1989 San Francisco quake was a 7.1 -
|
||
|
|
and remember that each one-point Richter increase represents a
|
||
|
|
ten-fold increase in strength. Someday, a U.S. earthquake
|
||
|
|
occurring far from California will cause enormous losses for
|
||
|
|
insurers.
|
||
|
|
|
||
|
|
When viewing our quarterly figures, you should understand
|
||
|
|
that our accounting for super-cat premiums differs from our
|
||
|
|
accounting for other insurance premiums. Rather than recording
|
||
|
|
our super-cat premiums on a pro-rata basis over the life of a
|
||
|
|
given policy, we defer recognition of revenue until a loss occurs
|
||
|
|
or until the policy expires. We take this conservative approach
|
||
|
|
because the likelihood of super-cats causing us losses is
|
||
|
|
particularly great toward the end of the year. It is then that
|
||
|
|
weather tends to kick up: Of the ten largest insured losses in
|
||
|
|
U.S. history, nine occurred in the last half of the year. In
|
||
|
|
addition, policies that are not triggered by a first event are
|
||
|
|
unlikely, by their very terms, to cause us losses until late in
|
||
|
|
the year.
|
||
|
|
|
||
|
|
The bottom-line effect of our accounting procedure for
|
||
|
|
super-cats is this: Large losses may be reported in any quarter
|
||
|
|
of the year, but significant profits will only be reported in the
|
||
|
|
fourth quarter.
|
||
|
|
|
||
|
|
* * * * * * * * * * * *
|
||
|
|
|
||
|
|
As I've told you in each of the last few years, what counts
|
||
|
|
in our insurance business is "the cost of funds developed from
|
||
|
|
insurance," or in the vernacular, "the cost of float." Float -
|
||
|
|
which we generate in exceptional amounts - is the total of loss
|
||
|
|
reserves, loss adjustment expense reserves and unearned premium
|
||
|
|
reserves minus agents' balances, prepaid acquisition costs and
|
||
|
|
deferred charges applicable to assumed reinsurance. The cost of
|
||
|
|
float is measured by our underwriting loss.
|
||
|
|
|
||
|
|
The table below shows our cost of float since we entered the
|
||
|
|
business in 1967.
|
||
|
|
|
||
|
|
(1) (2) Yearend Yield
|
||
|
|
Underwriting Approximate on Long-Term
|
||
|
|
Loss Average Float Cost of Funds Govt. Bonds
|
||
|
|
------------ ------------- --------------- -------------
|
||
|
|
(In $ Millions) (Ratio of 1 to 2)
|
||
|
|
|
||
|
|
1967 ......... profit $17.3 less than zero 5.50%
|
||
|
|
1968 ......... profit 19.9 less than zero 5.90%
|
||
|
|
1969 ......... profit 23.4 less than zero 6.79%
|
||
|
|
1970 ......... $ 0.37 32.4 1.14% 6.25%
|
||
|
|
1971 ......... profit 52.5 less than zero 5.81%
|
||
|
|
1972 ......... profit 69.5 less than zero 5.82%
|
||
|
|
1973 ......... profit 73.3 less than zero 7.27%
|
||
|
|
1974 ......... 7.36 79.1 9.30% 8.13%
|
||
|
|
1975 ......... 11.35 87.6 12.96% 8.03%
|
||
|
|
1976 ......... profit 102.6 less than zero 7.30%
|
||
|
|
1977 ......... profit 139.0 less than zero 7.97%
|
||
|
|
1978 ......... profit 190.4 less than zero 8.93%
|
||
|
|
1979 ......... profit 227.3 less than zero 10.08%
|
||
|
|
1980 ......... profit 237.0 less than zero 11.94%
|
||
|
|
1981 ......... profit 228.4 less than zero 13.61%
|
||
|
|
1982 ......... 21.56 220.6 9.77% 10.64%
|
||
|
|
1983 ......... 33.87 231.3 14.64% 11.84%
|
||
|
|
1984 ......... 48.06 253.2 18.98% 11.58%
|
||
|
|
1985 ......... 44.23 390.2 11.34% 9.34%
|
||
|
|
1986 ......... 55.84 797.5 7.00% 7.60%
|
||
|
|
1987 ......... 55.43 1,266.7 4.38% 8.95%
|
||
|
|
1988 ......... 11.08 1,497.7 0.74% 9.00%
|
||
|
|
1989 ......... 24.40 1,541.3 1.58% 7.97%
|
||
|
|
1990 ......... 26.65 1,637.3 1.63% 8.24%
|
||
|
|
1991 ......... 119.59 1,895.0 6.31% 7.40%
|
||
|
|
1992 ......... 108.96 2,290.4 4.76% 7.39%
|
||
|
|
|
||
|
|
Last year, our insurance operation again generated funds at a
|
||
|
|
cost below that incurred by the U.S. Government on its newly-issued
|
||
|
|
long-term bonds. This means that in 21 years out of the 26 years
|
||
|
|
we have been in the insurance business we have beaten the
|
||
|
|
Government's rate, and often we have done so by a wide margin.
|
||
|
|
(If, on average, we didn't beat the Government's rate, there would
|
||
|
|
be no economic reason for us to be in the business.)
|
||
|
|
|
||
|
|
In 1992, as in previous years, National Indemnity's commercial
|
||
|
|
auto and general liability business, led by Don Wurster, and our
|
||
|
|
homestate operation, led by Rod Eldred, made excellent
|
||
|
|
contributions to our low cost of float. Indeed, both of these
|
||
|
|
operations recorded an underwriting profit last year, thereby
|
||
|
|
generating float at a less-than-zero cost. The bulk of our float,
|
||
|
|
meanwhile, comes from large transactions developed by Ajit. His
|
||
|
|
efforts are likely to produce a further growth in float during
|
||
|
|
1993.
|
||
|
|
|
||
|
|
Charlie and I continue to like the insurance business, which
|
||
|
|
we expect to be our main source of earnings for decades to come.
|
||
|
|
The industry is huge; in certain sectors we can compete world-wide;
|
||
|
|
and Berkshire possesses an important competitive advantage. We
|
||
|
|
will look for ways to expand our participation in the business,
|
||
|
|
either indirectly as we have done through GEICO or directly as we
|
||
|
|
did by acquiring Central States Indemnity.
|
||
|
|
|
||
|
|
|
||
|
|
<B>Common Stock Investments</B>
|
||
|
|
|
||
|
|
Below we list our common stock holdings having a value of over
|
||
|
|
$100 million. A small portion of these investments belongs to
|
||
|
|
subsidiaries of which Berkshire owns less than 100%.
|
||
|
|
<I>
|
||
|
|
12/31/92
|
||
|
|
Shares Company Cost Market</I>
|
||
|
|
------ ------- ---------- ----------
|
||
|
|
(000s omitted)
|
||
|
|
3,000,000 Capital Cities/ABC, Inc. ............. $ 517,500 $1,523,500
|
||
|
|
93,400,000 The Coca-Cola Company. ............... 1,023,920 3,911,125
|
||
|
|
16,196,700 Federal Home Loan Mortgage Corp.
|
||
|
|
("Freddie Mac") ................... 414,257 783,515
|
||
|
|
34,250,000 GEICO Corp. .......................... 45,713 2,226,250
|
||
|
|
4,350,000 General Dynamics Corp. ............... 312,438 450,769
|
||
|
|
24,000,000 The Gillette Company ................. 600,000 1,365,000
|
||
|
|
38,335,000 Guinness PLC ......................... 333,019 299,581
|
||
|
|
1,727,765 The Washington Post Company .......... 9,731 396,954
|
||
|
|
6,358,418 Wells Fargo & Company ................ 380,983 485,624
|
||
|
|
|
||
|
|
Leaving aside splits, the number of shares we held in these
|
||
|
|
companies changed during 1992 in only four cases: We added
|
||
|
|
moderately to our holdings in Guinness and Wells Fargo, we more
|
||
|
|
than doubled our position in Freddie Mac, and we established a new
|
||
|
|
holding in General Dynamics. We like to buy.
|
||
|
|
|
||
|
|
Selling, however, is a different story. There, our pace of
|
||
|
|
activity resembles that forced upon a traveler who found himself
|
||
|
|
stuck in tiny Podunk's only hotel. With no T.V. in his room, he
|
||
|
|
faced an evening of boredom. But his spirits soared when he spied
|
||
|
|
a book on the night table entitled "Things to do in Podunk."
|
||
|
|
Opening it, he found just a single sentence: "You're doing it."
|
||
|
|
|
||
|
|
We were lucky in our General Dynamics purchase. I had paid
|
||
|
|
little attention to the company until last summer, when it
|
||
|
|
announced it would repurchase about 30% of its shares by way of a
|
||
|
|
Dutch tender. Seeing an arbitrage opportunity, I began buying the
|
||
|
|
stock for Berkshire, expecting to tender our holdings for a small
|
||
|
|
profit. We've made the same sort of commitment perhaps a half-
|
||
|
|
dozen times in the last few years, reaping decent rates of return
|
||
|
|
for the short periods our money has been tied up.
|
||
|
|
|
||
|
|
But then I began studying the company and the accomplishments
|
||
|
|
of Bill Anders in the brief time he'd been CEO. And what I saw
|
||
|
|
made my eyes pop: Bill had a clearly articulated and rational
|
||
|
|
strategy; he had been focused and imbued with a sense of urgency in
|
||
|
|
carrying it out; and the results were truly remarkable.
|
||
|
|
|
||
|
|
In short order, I dumped my arbitrage thoughts and decided
|
||
|
|
that Berkshire should become a long-term investor with Bill. We
|
||
|
|
were helped in gaining a large position by the fact that a tender
|
||
|
|
greatly swells the volume of trading in a stock. In a one-month
|
||
|
|
period, we were able to purchase 14% of the General Dynamics shares
|
||
|
|
that remained outstanding after the tender was completed.
|
||
|
|
|
||
|
|
* * * * * * * * * * * *
|
||
|
|
|
||
|
|
Our equity-investing strategy remains little changed from what
|
||
|
|
it was fifteen years ago, when we said in the 1977 annual report:
|
||
|
|
"We select our marketable equity securities in much the way we
|
||
|
|
would evaluate a business for acquisition in its entirety. We want
|
||
|
|
the business to be one (a) that we can understand; (b) with
|
||
|
|
favorable long-term prospects; (c) operated by honest and competent
|
||
|
|
people; and (d) available at a very attractive price." We have
|
||
|
|
seen cause to make only one change in this creed: Because of both
|
||
|
|
market conditions and our size, we now substitute "an attractive
|
||
|
|
price" for "a very attractive price."
|
||
|
|
|
||
|
|
But how, you will ask, does one decide what's "attractive"?
|
||
|
|
In answering this question, most analysts feel they must choose
|
||
|
|
between two approaches customarily thought to be in opposition:
|
||
|
|
"value" and "growth." Indeed, many investment professionals see
|
||
|
|
any mixing of the two terms as a form of intellectual cross-
|
||
|
|
dressing.
|
||
|
|
|
||
|
|
We view that as fuzzy thinking (in which, it must be
|
||
|
|
confessed, I myself engaged some years ago). In our opinion, the
|
||
|
|
two approaches are joined at the hip: Growth is <I>always</I> a component
|
||
|
|
in the calculation of value, constituting a variable whose
|
||
|
|
importance can range from negligible to enormous and whose impact
|
||
|
|
can be negative as well as positive.
|
||
|
|
|
||
|
|
In addition, we think the very term "value investing" is
|
||
|
|
redundant. What is "investing" if it is not the act of seeking
|
||
|
|
value at least sufficient to justify the amount paid? Consciously
|
||
|
|
paying more for a stock than its calculated value - in the hope
|
||
|
|
that it can soon be sold for a still-higher price - should be
|
||
|
|
labeled speculation (which is neither illegal, immoral nor - in our
|
||
|
|
view - financially fattening).
|
||
|
|
|
||
|
|
Whether appropriate or not, the term "value investing" is
|
||
|
|
widely used. Typically, it connotes the purchase of stocks having
|
||
|
|
attributes such as a low ratio of price to book value, a low price-
|
||
|
|
earnings ratio, or a high dividend yield. Unfortunately, such
|
||
|
|
characteristics, even if they appear in combination, are far from
|
||
|
|
determinative as to whether an investor is indeed buying something
|
||
|
|
for what it is worth and is therefore truly operating on the
|
||
|
|
principle of obtaining value in his investments. Correspondingly,
|
||
|
|
opposite characteristics - a high ratio of price to book value, a
|
||
|
|
high price-earnings ratio, and a low dividend yield - are in no way
|
||
|
|
inconsistent with a "value" purchase.
|
||
|
|
|
||
|
|
Similarly, business growth, per se, tells us little about
|
||
|
|
value. It's true that growth often has a positive impact on value,
|
||
|
|
sometimes one of spectacular proportions. But such an effect is
|
||
|
|
far from certain. For example, investors have regularly poured
|
||
|
|
money into the domestic airline business to finance profitless (or
|
||
|
|
worse) growth. For these investors, it would have been far better
|
||
|
|
if Orville had failed to get off the ground at Kitty Hawk: The more
|
||
|
|
the industry has grown, the worse the disaster for owners.
|
||
|
|
|
||
|
|
Growth benefits investors only when the business in point can
|
||
|
|
invest at incremental returns that are enticing - in other words,
|
||
|
|
only when each dollar used to finance the growth creates over a
|
||
|
|
dollar of long-term market value. In the case of a low-return
|
||
|
|
business requiring incremental funds, growth hurts the investor.
|
||
|
|
|
||
|
|
In <U>The Theory of Investment Value</U>, written over 50 years ago,
|
||
|
|
John Burr Williams set forth the equation for value, which we
|
||
|
|
condense here: <I>The value of any stock, bond or business today is
|
||
|
|
determined by the cash inflows and outflows - discounted at an
|
||
|
|
appropriate interest rate - that can be expected to occur during
|
||
|
|
the remaining life of the asset.</I> Note that the formula is the same
|
||
|
|
for stocks as for bonds. Even so, there is an important, and
|
||
|
|
difficult to deal with, difference between the two: A bond has a
|
||
|
|
coupon and maturity date that define future cash flows; but in the
|
||
|
|
case of equities, the investment analyst must himself estimate the
|
||
|
|
future "coupons." Furthermore, the quality of management affects
|
||
|
|
the bond coupon only rarely - chiefly when management is so inept
|
||
|
|
or dishonest that payment of interest is suspended. In contrast,
|
||
|
|
the ability of management can dramatically affect the equity
|
||
|
|
"coupons."
|
||
|
|
|
||
|
|
The investment shown by the discounted-flows-of-cash
|
||
|
|
calculation to be the cheapest is the one that the investor should
|
||
|
|
purchase - irrespective of whether the business grows or doesn't,
|
||
|
|
displays volatility or smoothness in its earnings, or carries a
|
||
|
|
high price or low in relation to its current earnings and book
|
||
|
|
value. Moreover, though the value equation has usually shown
|
||
|
|
equities to be cheaper than bonds, that result is not inevitable:
|
||
|
|
When bonds are calculated to be the more attractive investment,
|
||
|
|
they should be bought.
|
||
|
|
|
||
|
|
Leaving the question of price aside, the best business to own
|
||
|
|
is one that over an extended period can employ large amounts of
|
||
|
|
incremental capital at very high rates of return. The worst
|
||
|
|
business to own is one that must, or <I>will</I>, do the opposite - that
|
||
|
|
is, consistently employ ever-greater amounts of capital at very low
|
||
|
|
rates of return. Unfortunately, the first type of business is very
|
||
|
|
hard to find: Most high-return businesses need relatively little
|
||
|
|
capital. Shareholders of such a business usually will benefit if
|
||
|
|
it pays out most of its earnings in dividends or makes significant
|
||
|
|
stock repurchases.
|
||
|
|
|
||
|
|
Though the mathematical calculations required to evaluate
|
||
|
|
equities are not difficult, an analyst - even one who is
|
||
|
|
experienced and intelligent - can easily go wrong in estimating
|
||
|
|
future "coupons." At Berkshire, we attempt to deal with this
|
||
|
|
problem in two ways. First, we try to stick to businesses we
|
||
|
|
believe we understand. That means they must be relatively simple
|
||
|
|
and stable in character. If a business is complex or subject to
|
||
|
|
constant change, we're not smart enough to predict future cash
|
||
|
|
flows. Incidentally, that shortcoming doesn't bother us. What
|
||
|
|
counts for most people in investing is not how much they know, but
|
||
|
|
rather how realistically they define what they don't know. An
|
||
|
|
investor needs to do very few things right as long as he or she
|
||
|
|
avoids big mistakes.
|
||
|
|
|
||
|
|
Second, and equally important, we insist on a margin of safety
|
||
|
|
in our purchase price. If we calculate the value of a common stock
|
||
|
|
to be only slightly higher than its price, we're not interested in
|
||
|
|
buying. We believe this margin-of-safety principle, so strongly
|
||
|
|
emphasized by Ben Graham, to be the cornerstone of investment
|
||
|
|
success.
|
||
|
|
|
||
|
|
<B>Fixed-Income Securities</B>
|
||
|
|
|
||
|
|
Below we list our largest holdings of fixed-income securities:
|
||
|
|
|
||
|
|
(000s omitted)
|
||
|
|
------------------------------------
|
||
|
|
Cost of Preferreds and
|
||
|
|
Issuer Amortized Value of Bonds Market
|
||
|
|
------ ------------------------ ----------
|
||
|
|
ACF Industries Debentures ...... $133,065(1) $163,327
|
||
|
|
American Express "Percs" ....... 300,000 309,000(1)(2)
|
||
|
|
Champion International Conv. Pfd. 300,000(1) 309,000(2)
|
||
|
|
First Empire State Conv. Pfd. .. 40,000 68,000(1)(2)
|
||
|
|
Salomon Conv. Pfd. ............. 700,000(1) 756,000(2)
|
||
|
|
USAir Conv. Pfd. ............... 358,000(1) 268,500(2)
|
||
|
|
Washington Public Power Systems Bonds 58,768(1) 81,002
|
||
|
|
|
||
|
|
(1) Carrying value in our financial statements
|
||
|
|
(2) Fair value as determined by Charlie and me
|
||
|
|
|
||
|
|
During 1992 we added to our holdings of ACF debentures, had
|
||
|
|
some of our WPPSS bonds called, and sold our RJR Nabisco position.
|
||
|
|
|
||
|
|
Over the years, we've done well with fixed-income investments,
|
||
|
|
having realized from them both large capital gains (including $80
|
||
|
|
million in 1992) and exceptional current income. Chrysler
|
||
|
|
Financial, Texaco, Time-Warner, WPPSS and RJR Nabisco were
|
||
|
|
particularly good investments for us. Meanwhile, our fixed-income
|
||
|
|
losses have been negligible: We've had thrills but so far no
|
||
|
|
spills.
|
||
|
|
|
||
|
|
Despite the success we experienced with our Gillette
|
||
|
|
preferred, which converted to common stock in 1991, and despite our
|
||
|
|
reasonable results with other negotiated purchases of preferreds,
|
||
|
|
our overall performance with such purchases has been inferior to
|
||
|
|
that we have achieved with purchases made in the secondary market.
|
||
|
|
This is actually the result we expected. It corresponds with our
|
||
|
|
belief that an intelligent investor in common stocks will do better
|
||
|
|
in the secondary market than he will do buying new issues.
|
||
|
|
|
||
|
|
The reason has to do with the way prices are set in each
|
||
|
|
instance. The secondary market, which is periodically ruled by
|
||
|
|
mass folly, is constantly setting a "clearing" price. No matter
|
||
|
|
how foolish that price may be, it's what counts for the holder of a
|
||
|
|
stock or bond who needs or wishes to sell, of whom there are always
|
||
|
|
going to be a few at any moment. In many instances, shares worth <I>x</I>
|
||
|
|
in business value have sold in the market for 1/2<I>x</I> or less.
|
||
|
|
|
||
|
|
The new-issue market, on the other hand, is ruled by
|
||
|
|
controlling stockholders and corporations, who can usually select
|
||
|
|
the timing of offerings or, if the market looks unfavorable, can
|
||
|
|
avoid an offering altogether. Understandably, these sellers are
|
||
|
|
not going to offer any bargains, either by way of a public offering
|
||
|
|
or in a negotiated transaction: It's rare you'll find <I>x</I> for
|
||
|
|
1/2<I>x</I> here. Indeed, in the case of common-stock offerings, selling
|
||
|
|
shareholders are often motivated to unload <I>only</I> when they feel the
|
||
|
|
market is overpaying. (These sellers, of course, would state that
|
||
|
|
proposition somewhat differently, averring instead that they simply
|
||
|
|
resist selling when the market is underpaying for their goods.)
|
||
|
|
|
||
|
|
To date, our negotiated purchases, as a group, have fulfilled
|
||
|
|
but not exceeded the expectation we set forth in our 1989 Annual
|
||
|
|
Report: "Our preferred stock investments should produce returns
|
||
|
|
modestly above those achieved by most fixed-income portfolios." In
|
||
|
|
truth, we would have done better if we could have put the money
|
||
|
|
that went into our negotiated transactions into open-market
|
||
|
|
purchases of the type we like. But both our size and the general
|
||
|
|
strength of the markets made that difficult to do.
|
||
|
|
|
||
|
|
There was one other memorable line in the 1989 Annual Report:
|
||
|
|
"We have no ability to forecast the economics of the investment
|
||
|
|
banking business, the airline industry, or the paper industry." At
|
||
|
|
the time some of you may have doubted this confession of ignorance.
|
||
|
|
Now, however, even my mother acknowledges its truth.
|
||
|
|
|
||
|
|
In the case of our commitment to USAir, industry economics had
|
||
|
|
soured before the ink dried on our check. As I've previously
|
||
|
|
mentioned, it was I who happily jumped into the pool; no one pushed
|
||
|
|
me. Yes, I knew the industry would be ruggedly competitive, but I
|
||
|
|
did not expect its leaders to engage in prolonged kamikaze
|
||
|
|
behavior. In the last two years, airline companies have acted as
|
||
|
|
if they are members of a competitive tontine, which they wish to
|
||
|
|
bring to its conclusion as rapidly as possible.
|
||
|
|
|
||
|
|
Amidst this turmoil, Seth Schofield, CEO of USAir, has done a
|
||
|
|
truly extraordinary job in repositioning the airline. He was
|
||
|
|
particularly courageous in accepting a strike last fall that, had
|
||
|
|
it been lengthy, might well have bankrupted the company.
|
||
|
|
Capitulating to the striking union, however, would have been
|
||
|
|
equally disastrous: The company was burdened with wage costs and
|
||
|
|
work rules that were considerably more onerous than those
|
||
|
|
encumbering its major competitors, and it was clear that over time
|
||
|
|
any high-cost producer faced extinction. Happily for everyone, the
|
||
|
|
strike was settled in a few days.
|
||
|
|
|
||
|
|
A competitively-beset business such as USAir requires far more
|
||
|
|
managerial skill than does a business with fine economics.
|
||
|
|
Unfortunately, though, the near-term reward for skill in the
|
||
|
|
airline business is simply survival, not prosperity.
|
||
|
|
|
||
|
|
In early 1993, USAir took a major step toward assuring
|
||
|
|
survival - and eventual prosperity - by accepting British Airways'
|
||
|
|
offer to make a substantial, but minority, investment in the
|
||
|
|
company. In connection with this transaction, Charlie and I were
|
||
|
|
asked to join the USAir board. We agreed, though this makes five
|
||
|
|
outside board memberships for me, which is more than I believe
|
||
|
|
advisable for an active CEO. Even so, if an investee's management
|
||
|
|
and directors believe it particularly important that Charlie and I
|
||
|
|
join its board, we are glad to do so. We expect the managers of
|
||
|
|
our investees to work hard to increase the value of the businesses
|
||
|
|
they run, and there are times when large owners should do their bit
|
||
|
|
as well.
|
||
|
|
|
||
|
|
<B>Two New Accounting Rules and a Plea for One More</B>
|
||
|
|
|
||
|
|
A new accounting rule having to do with deferred taxes becomes
|
||
|
|
effective in 1993. It undoes a dichotomy in our books that I have
|
||
|
|
described in previous annual reports and that relates to the
|
||
|
|
accrued taxes carried against the unrealized appreciation in our
|
||
|
|
investment portfolio. At yearend 1992, that appreciation amounted
|
||
|
|
to $7.6 billion. Against $6.4 billion of that, we carried taxes at
|
||
|
|
the current 34% rate. Against the remainder of $1.2 billion, we
|
||
|
|
carried an accrual of 28%, the tax rate in effect when that portion
|
||
|
|
of the appreciation occurred. The new accounting rule says we must
|
||
|
|
henceforth accrue all deferred tax at the current rate, which to us
|
||
|
|
seems sensible.
|
||
|
|
|
||
|
|
The new marching orders mean that in the first quarter of 1993
|
||
|
|
we will apply a 34% rate to all of our unrealized appreciation,
|
||
|
|
thereby increasing the tax liability and reducing net worth by $70
|
||
|
|
million. The new rule also will cause us to make other minor
|
||
|
|
changes in our calculation of deferred taxes.
|
||
|
|
|
||
|
|
Future changes in tax rates will be reflected immediately in
|
||
|
|
the liability for deferred taxes and, correspondingly, in net
|
||
|
|
worth. The impact could well be substantial. Nevertheless, what
|
||
|
|
is important in the end is the tax rate at the time we sell
|
||
|
|
securities, when unrealized appreciation becomes realized.
|
||
|
|
|
||
|
|
Another major accounting change, whose implementation is
|
||
|
|
required by January 1, 1993, mandates that businesses recognize
|
||
|
|
their present-value liability for post-retirement health benefits.
|
||
|
|
Though GAAP has previously required recognition of pensions to be
|
||
|
|
paid in the future, it has illogically ignored the costs that
|
||
|
|
companies will then have to bear for health benefits. The new rule
|
||
|
|
will force many companies to record a huge balance-sheet liability
|
||
|
|
(and a consequent reduction in net worth) and also henceforth to
|
||
|
|
recognize substantially higher costs when they are calculating
|
||
|
|
annual profits.
|
||
|
|
|
||
|
|
In making acquisitions, Charlie and I have tended to avoid
|
||
|
|
companies with significant post-retirement liabilities. As a
|
||
|
|
result, Berkshire's present liability and future costs for post-
|
||
|
|
retirement health benefits - though we now have 22,000 employees -
|
||
|
|
are inconsequential. I need to admit, though, that we had a near
|
||
|
|
miss: In 1982 I made a huge mistake in committing to buy a company
|
||
|
|
burdened by extraordinary post-retirement health obligations.
|
||
|
|
Luckily, though, the transaction fell through for reasons beyond
|
||
|
|
our control. Reporting on this episode in the 1982 annual report,
|
||
|
|
I said: "If we were to introduce graphics to this report,
|
||
|
|
illustrating favorable business developments of the past year, two
|
||
|
|
blank pages depicting this blown deal would be the appropriate
|
||
|
|
centerfold." Even so, I wasn't expecting things to get as bad as
|
||
|
|
they did. Another buyer appeared, the business soon went bankrupt
|
||
|
|
and was shut down, and thousands of workers found those bountiful
|
||
|
|
health-care promises to be largely worthless.
|
||
|
|
|
||
|
|
In recent decades, no CEO would have dreamed of going to his
|
||
|
|
board with the proposition that his company become an insurer of
|
||
|
|
uncapped post-retirement health benefits that other corporations
|
||
|
|
chose to install. A CEO didn't need to be a medical expert to know
|
||
|
|
that lengthening life expectancies and soaring health costs would
|
||
|
|
guarantee an insurer a financial battering from such a business.
|
||
|
|
Nevertheless, many a manager blithely committed his own company to
|
||
|
|
a self-insurance plan embodying precisely the same promises - and
|
||
|
|
thereby doomed his shareholders to suffer the inevitable
|
||
|
|
consequences. In health-care, open-ended promises have created
|
||
|
|
open-ended liabilities that in a few cases loom so large as to
|
||
|
|
threaten the global competitiveness of major American industries.
|
||
|
|
|
||
|
|
I believe part of the reason for this reckless behavior was
|
||
|
|
that accounting rules did not, for so long, require the booking of
|
||
|
|
post-retirement health costs as they were incurred. Instead, the
|
||
|
|
rules allowed cash-basis accounting, which vastly understated the
|
||
|
|
liabilities that were building up. In effect, the attitude of both
|
||
|
|
managements and their accountants toward these liabilities was
|
||
|
|
"out-of-sight, out-of-mind." Ironically, some of these same
|
||
|
|
managers would be quick to criticize Congress for employing "cash-
|
||
|
|
basis" thinking in respect to Social Security promises or other
|
||
|
|
programs creating future liabilities of size.
|
||
|
|
|
||
|
|
Managers thinking about accounting issues should never forget
|
||
|
|
one of Abraham Lincoln's favorite riddles: "How many legs does a
|
||
|
|
dog have if you call his tail a leg?" The answer: "Four, because
|
||
|
|
calling a tail a leg does not make it a leg." It behooves managers
|
||
|
|
to remember that Abe's right even if an auditor is willing to
|
||
|
|
certify that the tail is a leg.
|
||
|
|
|
||
|
|
* * * * * * * * * * * *
|
||
|
|
|
||
|
|
The most egregious case of let's-not-face-up-to-reality
|
||
|
|
behavior by executives and accountants has occurred in the world of
|
||
|
|
stock options. In Berkshire's 1985 annual report, I laid out my
|
||
|
|
opinions about the use and misuse of options. But even when
|
||
|
|
options are structured properly, they are accounted for in ways
|
||
|
|
that make no sense. The lack of logic is not accidental: For
|
||
|
|
decades, much of the business world has waged war against
|
||
|
|
accounting rulemakers, trying to keep the costs of stock options
|
||
|
|
from being reflected in the profits of the corporations that issue
|
||
|
|
them.
|
||
|
|
|
||
|
|
Typically, executives have argued that options are hard to
|
||
|
|
value and that therefore their costs should be ignored. At other
|
||
|
|
times managers have said that assigning a cost to options would
|
||
|
|
injure small start-up businesses. Sometimes they have even
|
||
|
|
solemnly declared that "out-of-the-money" options (those with an
|
||
|
|
exercise price equal to or above the current market price) have no
|
||
|
|
value when they are issued.
|
||
|
|
|
||
|
|
Oddly, the Council of Institutional Investors has chimed in
|
||
|
|
with a variation on that theme, opining that options should not be
|
||
|
|
viewed as a cost because they "aren't dollars out of a company's
|
||
|
|
coffers." I see this line of reasoning as offering exciting
|
||
|
|
possibilities to American corporations for instantly improving
|
||
|
|
their reported profits. For example, they could eliminate the cost
|
||
|
|
of insurance by paying for it with options. So if you're a CEO and
|
||
|
|
subscribe to this "no cash-no cost" theory of accounting, I'll make
|
||
|
|
you an offer you can't refuse: Give us a call at Berkshire and we
|
||
|
|
will happily sell you insurance in exchange for a bundle of long-
|
||
|
|
term options on your company's stock.
|
||
|
|
|
||
|
|
Shareholders should understand that companies incur costs when
|
||
|
|
they deliver something of value to another party and not just when
|
||
|
|
cash changes hands. Moreover, it is both silly and cynical to say
|
||
|
|
that an important item of cost should not be recognized simply
|
||
|
|
because it can't be quantified with pinpoint precision. Right now,
|
||
|
|
accounting abounds with imprecision. After all, no manager or
|
||
|
|
auditor knows how long a 747 is going to last, which means he also
|
||
|
|
does not know what the yearly depreciation charge for the plane
|
||
|
|
should be. No one knows with any certainty what a bank's annual
|
||
|
|
loan loss charge ought to be. And the estimates of losses that
|
||
|
|
property-casualty companies make are notoriously inaccurate.
|
||
|
|
|
||
|
|
Does this mean that these important items of cost should be
|
||
|
|
ignored simply because they can't be quantified with absolute
|
||
|
|
accuracy? Of course not. Rather, these costs should be estimated
|
||
|
|
by honest and experienced people and then recorded. When you get
|
||
|
|
right down to it, what other item of major but hard-to-precisely-
|
||
|
|
calculate cost - other, that is, than stock options - does the
|
||
|
|
accounting profession say should be ignored in the calculation of
|
||
|
|
earnings?
|
||
|
|
|
||
|
|
Moreover, options are just not that difficult to value.
|
||
|
|
Admittedly, the difficulty is increased by the fact that the
|
||
|
|
options given to executives are restricted in various ways. These
|
||
|
|
restrictions affect value. They do not, however, eliminate it. In
|
||
|
|
fact, since I'm in the mood for offers, I'll make one to any
|
||
|
|
executive who is granted a restricted option, even though it may be
|
||
|
|
out of the money: On the day of issue, Berkshire will pay him or
|
||
|
|
her a substantial sum for the right to any future gain he or she
|
||
|
|
realizes on the option. So if you find a CEO who says his newly-
|
||
|
|
issued options have little or no value, tell him to try us out. In
|
||
|
|
truth, we have far more confidence in our ability to determine an
|
||
|
|
appropriate price to pay for an option than we have in our ability
|
||
|
|
to determine the proper depreciation rate for our corporate jet.
|
||
|
|
|
||
|
|
It seems to me that the realities of stock options can be
|
||
|
|
summarized quite simply: If options aren't a form of compensation,
|
||
|
|
what are they? If compensation isn't an expense, what is it? And,
|
||
|
|
if expenses shouldn't go into the calculation of earnings, where in
|
||
|
|
the world should they go?
|
||
|
|
|
||
|
|
The accounting profession and the SEC should be shamed by the
|
||
|
|
fact that they have long let themselves be muscled by business
|
||
|
|
executives on the option-accounting issue. Additionally, the
|
||
|
|
lobbying that executives engage in may have an unfortunate by-
|
||
|
|
product: In my opinion, the business elite risks losing its
|
||
|
|
credibility on issues of significance to society - about which it
|
||
|
|
may have much of value to say - when it advocates the incredible on
|
||
|
|
issues of significance to itself.
|
||
|
|
|
||
|
|
<B>Miscellaneous</B>
|
||
|
|
|
||
|
|
We have two pieces of regrettable news this year. First,
|
||
|
|
Gladys Kaiser, my friend and assistant for twenty-five years, will
|
||
|
|
give up the latter post after the 1993 annual meeting, though she
|
||
|
|
will certainly remain my friend forever. Gladys and I have been a
|
||
|
|
team, and though I knew her retirement was coming, it is still a
|
||
|
|
jolt.
|
||
|
|
|
||
|
|
Secondly, in September, Verne McKenzie relinquished his role
|
||
|
|
as Chief Financial Officer after a 30-year association with me that
|
||
|
|
began when he was the outside auditor of Buffett Partnership, Ltd.
|
||
|
|
Verne is staying on as a consultant, and though that job
|
||
|
|
description is often a euphemism, in this case it has real meaning.
|
||
|
|
I expect Verne to continue to fill an important role at Berkshire
|
||
|
|
but to do so at his own pace. Marc Hamburg, Verne's understudy for
|
||
|
|
five years, has succeeded him as Chief Financial Officer.
|
||
|
|
|
||
|
|
I recall that one woman, upon being asked to describe the
|
||
|
|
perfect spouse, specified an archeologist: "The older I get," she
|
||
|
|
said, "the more he'll be interested in me." She would have liked
|
||
|
|
my tastes: I treasure those extraordinary Berkshire managers who
|
||
|
|
are working well past normal retirement age and who concomitantly
|
||
|
|
are achieving results much superior to those of their younger
|
||
|
|
competitors. While I understand and empathize with the decision of
|
||
|
|
Verne and Gladys to retire when the calendar says it's time, theirs
|
||
|
|
is not a step I wish to encourage. It's hard to teach a new dog
|
||
|
|
old tricks.
|
||
|
|
|
||
|
|
* * * * * * * * * * * *
|
||
|
|
|
||
|
|
I am a moderate in my views about retirement compared to Rose
|
||
|
|
Blumkin, better known as Mrs. B. At 99, she continues to work
|
||
|
|
seven days a week. And about her, I have some particularly good
|
||
|
|
news.
|
||
|
|
|
||
|
|
You will remember that after her family sold 80% of Nebraska
|
||
|
|
Furniture Mart (NFM) to Berkshire in 1983, Mrs. B continued to be
|
||
|
|
Chairman and run the carpet operation. In 1989, however, she left
|
||
|
|
because of a managerial disagreement and opened up her own
|
||
|
|
operation next door in a large building that she had owned for
|
||
|
|
several years. In her new business, she ran the carpet section but
|
||
|
|
leased out other home-furnishings departments.
|
||
|
|
|
||
|
|
At the end of last year, Mrs. B decided to sell her building
|
||
|
|
and land to NFM. She'll continue, however, to run her carpet
|
||
|
|
business at its current location (no sense slowing down just when
|
||
|
|
you're hitting full stride). NFM will set up shop alongside her,
|
||
|
|
in that same building, thereby making a major addition to its
|
||
|
|
furniture business.
|
||
|
|
|
||
|
|
I am delighted that Mrs. B has again linked up with us. Her
|
||
|
|
business story has no parallel and I have always been a fan of
|
||
|
|
hers, whether she was a partner or a competitor. But believe me,
|
||
|
|
partner is better.
|
||
|
|
|
||
|
|
This time around, Mrs. B graciously offered to sign a non-
|
||
|
|
compete agreement - and I, having been incautious on this point
|
||
|
|
when she was 89, snapped at the deal. Mrs. B belongs in the
|
||
|
|
Guinness Book of World Records on many counts. Signing a non-
|
||
|
|
compete at 99 merely adds one more.
|
||
|
|
|
||
|
|
* * * * * * * * * * * *
|
||
|
|
|
||
|
|
Ralph Schey, CEO of Scott Fetzer and a manager who I hope is
|
||
|
|
with us at 99 also, hit a grand slam last year when that company
|
||
|
|
earned a record $110 million pre-tax. What's even more impressive
|
||
|
|
is that Scott Fetzer achieved such earnings while employing only
|
||
|
|
$116 million of equity capital. This extraordinary result is not
|
||
|
|
the product of leverage: The company uses only minor amounts of
|
||
|
|
borrowed money (except for the debt it employs - appropriately - in
|
||
|
|
its finance subsidiary).
|
||
|
|
|
||
|
|
Scott Fetzer now operates with a significantly smaller
|
||
|
|
investment in both inventory and fixed assets than it had when we
|
||
|
|
bought it in 1986. This means the company has been able to
|
||
|
|
distribute more than 100% of its earnings to Berkshire during our
|
||
|
|
seven years of ownership while concurrently increasing its earnings
|
||
|
|
stream - which was excellent to begin with - by a lot. Ralph just
|
||
|
|
keeps on outdoing himself, and Berkshire shareholders owe him a
|
||
|
|
great deal.
|
||
|
|
|
||
|
|
* * * * * * * * * * * *
|
||
|
|
|
||
|
|
Those readers with particularly sharp eyes will note that our
|
||
|
|
corporate expense fell from $5.6 million in 1991 to $4.2 million in
|
||
|
|
1992. Perhaps you will think that I have sold our corporate jet,
|
||
|
|
The Indefensible. Forget it! I find the thought of retiring the
|
||
|
|
plane even more revolting than the thought of retiring the
|
||
|
|
Chairman. (In this matter I've demonstrated uncharacteristic
|
||
|
|
flexibility: For years I argued passionately against corporate
|
||
|
|
jets. But finally my dogma was run over by my karma.)
|
||
|
|
|
||
|
|
Our reduction in corporate overhead actually came about
|
||
|
|
because those expenses were especially high in 1991, when we
|
||
|
|
incurred a one-time environmental charge relating to alleged pre-
|
||
|
|
1970 actions of our textile operation. Now that things are back to
|
||
|
|
normal, our after-tax overhead costs are under 1% of our reported
|
||
|
|
operating earnings and less than 1/2 of 1% of our look-through
|
||
|
|
earnings. We have no legal, personnel, public relations, investor
|
||
|
|
relations, or strategic planning departments. In turn this means
|
||
|
|
we don't need support personnel such as guards, drivers,
|
||
|
|
messengers, etc. Finally, except for Verne, we employ no
|
||
|
|
consultants. Professor Parkinson would like our operation - though
|
||
|
|
Charlie, I must say, still finds it outrageously fat.
|
||
|
|
|
||
|
|
At some companies, corporate expense runs 10% or more of
|
||
|
|
operating earnings. The tithing that operations thus makes to
|
||
|
|
headquarters not only hurts earnings, but more importantly slashes
|
||
|
|
capital values. If the business that spends 10% on headquarters'
|
||
|
|
costs achieves earnings at its operating levels identical to those
|
||
|
|
achieved by the business that incurs costs of only 1%, shareholders
|
||
|
|
of the first enterprise suffer a 9% loss in the value of their
|
||
|
|
holdings simply because of corporate overhead. Charlie and I have
|
||
|
|
observed no correlation between high corporate costs and good
|
||
|
|
corporate performance. In fact, we see the simpler, low-cost
|
||
|
|
operation as more likely to operate effectively than its
|
||
|
|
bureaucratic brethren. We're admirers of the Wal-Mart, Nucor,
|
||
|
|
Dover, GEICO, Golden West Financial and Price Co. models.
|
||
|
|
|
||
|
|
* * * * * * * * * * * *
|
||
|
|
|
||
|
|
Late last year Berkshire's stock price crossed $10,000.
|
||
|
|
Several shareholders have mentioned to me that the high price
|
||
|
|
causes them problems: They like to give shares away each year and
|
||
|
|
find themselves impeded by the tax rule that draws a distinction
|
||
|
|
between annual gifts of $10,000 or under to a single individual and
|
||
|
|
those above $10,000. That is, those gifts no greater than $10,000
|
||
|
|
are completely tax-free; those above $10,000 require the donor to
|
||
|
|
use up a portion of his or her lifetime exemption from gift and
|
||
|
|
estate taxes, or, if that exemption has been exhausted, to pay gift
|
||
|
|
taxes.
|
||
|
|
|
||
|
|
I can suggest three ways to address this problem. The first
|
||
|
|
would be useful to a married shareholder, who can give up to
|
||
|
|
$20,000 annually to a single recipient, as long as the donor files
|
||
|
|
a gift tax return containing his or her spouse's written consent to
|
||
|
|
gifts made during the year.
|
||
|
|
|
||
|
|
Secondly, a shareholder, married or not, can make a bargain
|
||
|
|
sale. Imagine, for example, that Berkshire is selling for $12,000
|
||
|
|
and that one wishes to make only a $10,000 gift. In that case,
|
||
|
|
sell the stock to the giftee for $2,000. (Caution: You will be
|
||
|
|
taxed on the amount, if any, by which the sales price to your
|
||
|
|
giftee exceeds your tax basis.)
|
||
|
|
|
||
|
|
Finally, you can establish a partnership with people to whom
|
||
|
|
you are making gifts, fund it with Berkshire shares, and simply
|
||
|
|
give percentage interests in the partnership away each year. These
|
||
|
|
interests can be for any value that you select. If the value is
|
||
|
|
$10,000 or less, the gift will be tax-free.
|
||
|
|
|
||
|
|
We issue the customary warning: Consult with your own tax
|
||
|
|
advisor before taking action on any of the more esoteric methods of
|
||
|
|
gift-making.
|
||
|
|
|
||
|
|
We hold to the view about stock splits that we set forth in
|
||
|
|
the 1983 Annual Report. Overall, we believe our owner-related
|
||
|
|
policies - including the no-split policy - have helped us assemble
|
||
|
|
a body of shareholders that is the best associated with any widely-
|
||
|
|
held American corporation. Our shareholders think and behave like
|
||
|
|
rational long-term owners and view the business much as Charlie and
|
||
|
|
I do. Consequently, our stock consistently trades in a price range
|
||
|
|
that is sensibly related to intrinsic value.
|
||
|
|
|
||
|
|
Additionally, we believe that our shares turn over far less
|
||
|
|
actively than do the shares of any other widely-held company. The
|
||
|
|
frictional costs of trading - which act as a major "tax" on the
|
||
|
|
owners of many companies - are virtually non-existent at Berkshire.
|
||
|
|
(The market-making skills of Jim Maguire, our New York Stock
|
||
|
|
Exchange specialist, definitely help to keep these costs low.)
|
||
|
|
Obviously a split would not change this situation dramatically.
|
||
|
|
Nonetheless, there is no way that our shareholder group would be
|
||
|
|
upgraded by the new shareholders enticed by a split. Instead we
|
||
|
|
believe that modest degradation would occur.
|
||
|
|
|
||
|
|
* * * * * * * * * * * *
|
||
|
|
|
||
|
|
As I mentioned earlier, on December 16th we called our zero-
|
||
|
|
coupon, convertible debentures for payment on January 4, 1993.
|
||
|
|
These obligations bore interest at 5 1/2%, a low cost for funds
|
||
|
|
when they were issued in 1989, but an unattractive rate for us at
|
||
|
|
the time of call.
|
||
|
|
|
||
|
|
The debentures could have been redeemed at the option of the
|
||
|
|
holder in September 1994, and 5 1/2% money available for no longer
|
||
|
|
than that is not now of interest to us. Furthermore, Berkshire
|
||
|
|
shareholders are disadvantaged by having a conversion option
|
||
|
|
outstanding. At the time we issued the debentures, this
|
||
|
|
disadvantage was offset by the attractive interest rate they
|
||
|
|
carried; by late 1992, it was not.
|
||
|
|
|
||
|
|
In general, we continue to have an aversion to debt,
|
||
|
|
particularly the short-term kind. But we are willing to incur
|
||
|
|
modest amounts of debt when it is both properly structured and of
|
||
|
|
significant benefit to shareholders.
|
||
|
|
|
||
|
|
|
||
|
|
* * * * * * * * * * * *
|
||
|
|
|
||
|
|
|
||
|
|
About 97% of all eligible shares participated in Berkshire's
|
||
|
|
1992 shareholder-designated contributions program. Contributions
|
||
|
|
made through the program were $7.6 million, and 2,810 charities
|
||
|
|
were recipients. I'm considering increasing these contributions in
|
||
|
|
the future at a rate greater than the increase in Berkshire's book
|
||
|
|
value, and I would be glad to hear from you as to your thinking
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about this idea.
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We suggest that new shareholders read the description of our
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shareholder-designated contributions program that appears on pages
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48-49. To participate in future programs, you must make sure your
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shares are registered in the name of the actual owner, not in the
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nominee name of a broker, bank or depository. Shares not so
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registered on August 31, 1993 will be ineligible for the 1993
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program.
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In addition to the shareholder-designated contributions that
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Berkshire distributes, managers of our operating businesses make
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contributions, including merchandise, averaging about $2.0 million
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annually. These contributions support local charities, such as The
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|
United Way, and produce roughly commensurate benefits for our
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|
businesses.
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However, neither our operating managers nor officers of the
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|
parent company use Berkshire funds to make contributions to broad
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|
national programs or charitable activities of special personal
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|
|
interest to them, except to the extent they do so as shareholders.
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|
If your employees, including your CEO, wish to give to their alma
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|
|
maters or other institutions to which they feel a personal
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|
|
attachment, we believe they should use their own money, not yours.
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* * * * * * * * * * * *
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This year the Annual Meeting will be held at the Orpheum
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|
Theater in downtown Omaha at 9:30 a.m. on Monday, April 26, 1993.
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|
A record 1,700 people turned up for the meeting last year, but that
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|
number still leaves plenty of room at the Orpheum.
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We recommend that you get your hotel reservations early at one
|
||
|
|
of these hotels: (1) The Radisson-Redick Tower, a small (88 rooms)
|
||
|
|
but nice hotel across the street from the Orpheum; (2) the much
|
||
|
|
larger Red Lion Hotel, located about a five-minute walk from the
|
||
|
|
Orpheum; or (3) the Marriott, located in West Omaha about 100 yards
|
||
|
|
from Borsheim's, which is a twenty minute drive from downtown. We
|
||
|
|
will have buses at the Marriott that will leave at 8:30 and 8:45
|
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|
|
for the meeting and return after it ends.
|
||
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|
||
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|
Charlie and I always enjoy the meeting, and we hope you can
|
||
|
|
make it. The quality of our shareholders is reflected in the
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||
|
|
quality of the questions we get: We have never attended an annual
|
||
|
|
meeting anywhere that features such a consistently high level of
|
||
|
|
intelligent, owner-related questions.
|
||
|
|
|
||
|
|
An attachment to our proxy material explains how you can
|
||
|
|
obtain the card you will need for admission to the meeting. With
|
||
|
|
the admission card, we will enclose information about parking
|
||
|
|
facilities located near the Orpheum. If you are driving, come a
|
||
|
|
little early. Nearby lots fill up quickly and you may have to walk
|
||
|
|
a few blocks.
|
||
|
|
|
||
|
|
As usual, we will have buses to take you to Nebraska Furniture
|
||
|
|
Mart and Borsheim's after the meeting and to take you from there to
|
||
|
|
downtown hotels or the airport later. I hope that you will allow
|
||
|
|
plenty of time to fully explore the attractions of both stores.
|
||
|
|
Those of you arriving early can visit the Furniture Mart any day of
|
||
|
|
the week; it is open from 10 a.m. to 5:30 p.m. on Saturdays and
|
||
|
|
from noon to 5:30 p.m. on Sundays. While there, stop at the See's
|
||
|
|
Candy Cart and find out for yourself why Charlie and I are a good
|
||
|
|
bit wider than we were back in 1972 when we bought See's.
|
||
|
|
|
||
|
|
Borsheim's normally is closed on Sunday but will be open for
|
||
|
|
shareholders and their guests from noon to 6 p.m. on Sunday, April
|
||
|
|
25. Charlie and I will be in attendance, sporting our jeweler's
|
||
|
|
loupes, and ready to give advice about gems to anyone foolish
|
||
|
|
enough to listen. Also available will be plenty of Cherry Cokes,
|
||
|
|
See's candies, and other lesser goodies. I hope you will join us.
|
||
|
|
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||
|
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|
||
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|
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||
|
|
Warren E. Buffett
|
||
|
|
March 1, 1993 Chairman of the Board
|
||
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|
</PRE>
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</HTML>
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