From fb29bed45e21a8bbaa5f3ee09cdae0b561bd9dc6 Mon Sep 17 00:00:00 2001 From: Paul Pham <148553+cryptogoth@users.noreply.github.com> Date: Sun, 18 Jun 2023 22:38:12 -0400 Subject: [PATCH] Add 1994 Berkshire annual letter. --- 1994/bh-annual-letter-1994.txt | 1185 ++++++++++++++++++++++++++++++++ 1 file changed, 1185 insertions(+) create mode 100644 1994/bh-annual-letter-1994.txt diff --git a/1994/bh-annual-letter-1994.txt b/1994/bh-annual-letter-1994.txt new file mode 100644 index 0000000..104baba --- /dev/null +++ b/1994/bh-annual-letter-1994.txt @@ -0,0 +1,1185 @@ +BERKSHIRE HATHAWAY INC. + +To the Shareholders of Berkshire Hathaway Inc.: + + + Our gain in net worth during 1994 was $1.45 billion or 13.9%. +Over the last 30 years (that is, since present management took +over) our per-share book value has grown from $19 to $10,083, or +at a rate of 23% compounded annually. + + Charlie Munger, Berkshire's Vice Chairman and my partner, +and I make few predictions. One we will confidently offer, +however, is that the future performance of Berkshire won't come +close to matching the performance of the past. + + The problem is not that what has worked in the past will +cease to work in the future. To the contrary, we believe that +our formula - the purchase at sensible prices of businesses that +have good underlying economics and are run by honest and able +people - is certain to produce reasonable success. We expect, +therefore, to keep on doing well. + + A fat wallet, however, is the enemy of superior investment +results. And Berkshire now has a net worth of $11.9 billion +compared to about $22 million when Charlie and I began to manage +the company. Though there are as many good businesses as ever, +it is useless for us to make purchases that are inconsequential +in relation to Berkshire's capital. (As Charlie regularly +reminds me, "If something is not worth doing at all, it's not +worth doing well.") We now consider a security for purchase only +if we believe we can deploy at least $100 million in it. Given +that minimum, Berkshire's investment universe has shrunk +dramatically. + + Nevertheless, we will stick with the approach that got us +here and try not to relax our standards. Ted Williams, in +The Story of My Life, explains why: "My argument is, to be +a good hitter, you've got to get a good ball to hit. It's the +first rule in the book. If I have to bite at stuff that is out +of my happy zone, I'm not a .344 hitter. I might only be a .250 +hitter." Charlie and I agree and will try to wait for +opportunities that are well within our own "happy zone." + + We will continue to ignore political and economic forecasts, +which are an expensive distraction for many investors and +businessmen. Thirty years ago, no one could have foreseen the +huge expansion of the Vietnam War, wage and price controls, two +oil shocks, the resignation of a president, the dissolution of +the Soviet Union, a one-day drop in the Dow of 508 points, or +treasury bill yields fluctuating between 2.8% and 17.4%. + + But, surprise - none of these blockbuster events made the +slightest dent in Ben Graham's investment principles. Nor did +they render unsound the negotiated purchases of fine businesses +at sensible prices. Imagine the cost to us, then, if we had let +a fear of unknowns cause us to defer or alter the deployment of +capital. Indeed, we have usually made our best purchases when +apprehensions about some macro event were at a peak. Fear is the +foe of the faddist, but the friend of the fundamentalist. + + A different set of major shocks is sure to occur in the next +30 years. We will neither try to predict these nor to profit +from them. If we can identify businesses similar to those we +have purchased in the past, external surprises will have little +effect on our long-term results. + + What we promise you - along with more modest gains - is that +during your ownership of Berkshire, you will fare just as Charlie +and I do. If you suffer, we will suffer; if we prosper, so will +you. And we will not break this bond by introducing compensation +arrangements that give us a greater participation in the upside +than the downside. + + We further promise you that our personal fortunes will +remain overwhelmingly concentrated in Berkshire shares: We will +not ask you to invest with us and then put our own money +elsewhere. In addition, Berkshire dominates both the investment +portfolios of most members of our families and of a great many +friends who belonged to partnerships that Charlie and I ran in +the 1960's. We could not be more motivated to do our best. + + Luckily, we have a good base from which to work. Ten years +ago, in 1984, Berkshire's insurance companies held securities +having a value of $1.7 billion, or about $1,500 per Berkshire +share. Leaving aside all income and capital gains from those +securities, Berkshire's pre-tax earnings that year were only +about $6 million. We had earnings, yes, from our various +manufacturing, retailing and service businesses, but they were +almost entirely offset by the combination of underwriting losses +in our insurance business, corporate overhead and interest +expense. + + Now we hold securities worth $18 billion, or over $15,000 +per Berkshire share. If you again exclude all income from these +securities, our pre-tax earnings in 1994 were about $384 million. +During the decade, employment has grown from 5,000 to 22,000 +(including eleven people at World Headquarters). + + We achieved our gains through the efforts of a superb corps +of operating managers who get extraordinary results from some +ordinary-appearing businesses. Casey Stengel described managing +a baseball team as "getting paid for home runs other fellows +hit." That's my formula at Berkshire, also. + + The businesses in which we have partial interests are +equally important to Berkshire's success. A few statistics will +illustrate their significance: In 1994, Coca-Cola sold about 280 +billion 8-ounce servings and earned a little less than a penny on +each. But pennies add up. Through Berkshire's 7.8% ownership of +Coke, we have an economic interest in 21 billion of its servings, +which produce "soft-drink earnings" for us of nearly $200 +million. Similarly, by way of its Gillette stock, Berkshire has +a 7% share of the world's razor and blade market (measured by +revenues, not by units), a proportion according us about $250 +million of sales in 1994. And, at Wells Fargo, a $53 billion +bank, our 13% ownership translates into a $7 billion "Berkshire +Bank" that earned about $100 million during 1994. + + It's far better to own a significant portion of the Hope +diamond than 100% of a rhinestone, and the companies just +mentioned easily qualify as rare gems. Best of all, we aren't +limited to simply a few of this breed, but instead possess a +growing collection. + + Stock prices will continue to fluctuate - sometimes sharply +- and the economy will have its ups and down. Over time, +however, we believe it highly probable that the sort of +businesses we own will continue to increase in value at a +satisfactory rate. + + +Book Value and Intrinsic Value + + We regularly report our per-share book value, an easily +calculable number, though one of limited use. Just as regularly, +we tell you that what counts is intrinsic value, a number that is +impossible to pinpoint but essential to estimate. + + For example, in 1964, we could state with certitude that +Berkshire's per-share book value was $19.46. However, that +figure considerably overstated the stock's intrinsic value since +all of the company's resources were tied up in a sub-profitable +textile business. Our textile assets had neither going-concern +nor liquidation values equal to their carrying values. In 1964, +then, anyone inquiring into the soundness of Berkshire's balance +sheet might well have deserved the answer once offered up by a +Hollywood mogul of dubious reputation: "Don't worry, the +liabilities are solid." + + Today, Berkshire's situation has reversed: Many of the +businesses we control are worth far more than their carrying +value. (Those we don't control, such as Coca-Cola or Gillette, +are carried at current market values.) We continue to give you +book value figures, however, because they serve as a rough, +albeit significantly understated, tracking measure for Berkshire's +intrinsic value. Last year, in fact, the two measures moved in +concert: Book value gained 13.9%, and that was the approximate +gain in intrinsic value also. + + We define intrinsic value as the discounted value of the +cash that can be taken out of a business during its remaining +life. Anyone calculating intrinsic value necessarily comes up +with a highly subjective figure that will change both as +estimates of future cash flows are revised and as interest rates +move. Despite its fuzziness, however, intrinsic value is all- +important and is the only logical way to evaluate the relative +attractiveness of investments and businesses. + + To see how historical input (book value) and future output +(intrinsic value) can diverge, let's look at another form of +investment, a college education. Think of the education's cost +as its "book value." If it is to be accurate, the cost should +include the earnings that were foregone by the student because he +chose college rather than a job. + + For this exercise, we will ignore the important non-economic +benefits of an education and focus strictly on its economic +value. First, we must estimate the earnings that the graduate +will receive over his lifetime and subtract from that figure an +estimate of what he would have earned had he lacked his +education. That gives us an excess earnings figure, which must +then be discounted, at an appropriate interest rate, back to +graduation day. The dollar result equals the intrinsic economic +value of the education. + + Some graduates will find that the book value of their +education exceeds its intrinsic value, which means that whoever +paid for the education didn't get his money's worth. In other +cases, the intrinsic value of an education will far exceed its +book value, a result that proves capital was wisely deployed. In +all cases, what is clear is that book value is meaningless as an +indicator of intrinsic value. + + Now let's get less academic and look at Scott Fetzer, an +example from Berkshire's own experience. This account will not +only illustrate how the relationship of book value and intrinsic +value can change but also will provide an accounting lesson that +I know you have been breathlessly awaiting. Naturally, I've +chosen here to talk about an acquisition that has turned out to +be a huge winner. + + Berkshire purchased Scott Fetzer at the beginning of 1986. +At the time, the company was a collection of 22 businesses, and +today we have exactly the same line-up - no additions and no +disposals. Scott Fetzer's main operations are World Book, Kirby, +and Campbell Hausfeld, but many other units are important +contributors to earnings as well. + + We paid $315.2 million for Scott Fetzer, which at the time +had $172.6 million of book value. The $142.6 million premium we +handed over indicated our belief that the company's intrinsic +value was close to double its book value. + + In the table below we trace the book value of Scott Fetzer, +as well as its earnings and dividends, since our purchase. + + (1) (4) + Beginning (2) (3) Ending +Year Book Value Earnings Dividends Book Value +---- ---------- -------- --------- ---------- + (In $ Millions) (1)+(2)-(3) + +1986 ............... $172.6 $ 40.3 $125.0 $ 87.9 +1987 ............... 87.9 48.6 41.0 95.5 +1988 ............... 95.5 58.0 35.0 118.6 +1989 ............... 118.6 58.5 71.5 105.5 +1990 ............... 105.5 61.3 33.5 133.3 +1991 ............... 133.3 61.4 74.0 120.7 +1992 ............... 120.7 70.5 80.0 111.2 +1993 ............... 111.2 77.5 98.0 90.7 +1994 ............... 90.7 79.3 76.0 94.0 + + + Because it had excess cash when our deal was made, Scott +Fetzer was able to pay Berkshire dividends of $125 million in +1986, though it earned only $40.3 million. I should mention that +we have not introduced leverage into Scott Fetzer's balance +sheet. In fact, the company has gone from very modest debt when +we purchased it to virtually no debt at all (except for debt used +by its finance subsidiary). Similarly, we have not sold plants +and leased them back, nor sold receivables, nor the like. +Throughout our years of ownership, Scott Fetzer has operated as a +conservatively-financed and liquid enterprise. + + As you can see, Scott Fetzer's earnings have increased +steadily since we bought it, but book value has not grown +commensurately. Consequently, return on equity, which was +exceptional at the time of our purchase, has now become truly +extraordinary. Just how extraordinary is illustrated by +comparing Scott Fetzer's performance to that of the Fortune 500, +a group it would qualify for if it were a stand-alone company. + + Had Scott Fetzer been on the 1993 500 list - the latest +available for inspection - the company's return on equity would +have ranked 4th. But that is far from the whole story. The top +three companies in return on equity were Insilco, LTV and Gaylord +Container, each of which emerged from bankruptcy in 1993 and none +of which achieved meaningful earnings that year except for those +they realized when they were accorded debt forgiveness in +bankruptcy proceedings. Leaving aside such non-operating +windfalls, Scott Fetzer's return on equity would have ranked it +first on the Fortune 500, well ahead of number two. Indeed, +Scott Fetzer's return on equity was double that of the company +ranking tenth. + + You might expect that Scott Fetzer's success could only be +explained by a cyclical peak in earnings, a monopolistic +position, or leverage. But no such circumstances apply. Rather, +the company's success comes from the managerial expertise of CEO +Ralph Schey, of whom I'll tell you more later. + + First, however, the promised accounting lesson: When we +paid a $142.6 million premium over book value for Scott Fetzer, +that figure had to be recorded on Berkshire's balance sheet. +I'll spare you the details of how this worked (these were laid +out in an appendix to our 1986 Annual Report) and get to the +bottom line: After a premium is initially recorded, it must in +almost all cases be written off over time through annual charges +that are shown as costs in the acquiring company's earnings +statement. + + The following table shows, first, the annual charges +Berkshire has made to gradually extinguish the Scott Fetzer +acquisition premium and, second, the premium that remains on our +books. These charges have no effect on cash or the taxes we pay, +and are not, in our view, an economic cost (though many +accountants would disagree with us). They are merely a way for +us to reduce the carrying value of Scott Fetzer on our books so +that the figure will eventually match the net worth that Scott +Fetzer actually employs in its business. + + Beginning Purchase-Premium Ending + Purchase Charge to Purchase +Year Premium Berkshire Earnings Premium +---- --------- ------------------ -------- + (In $ Millions) + +1986 ................ $142.6 $ 11.6 $131.0 +1987 ................ 131.0 7.1 123.9 +1988 ................ 123.9 7.9 115.9 +1989 ................ 115.9 7.0 108.9 +1990 ................ 108.9 7.1 101.9 +1991 ................ 101.9 6.9 95.0 +1992 ................ 95.0 7.7 87.2 +1993 ................ 87.2 28.1 59.1 +1994 ................ 59.1 4.9 54.2 + + Note that by the end of 1994 the premium was reduced to +$54.2 million. When this figure is added to Scott Fetzer's year- +end book value of $94 million, the total is $148.2 million, which +is the current carrying value of Scott Fetzer on Berkshire's +books. That amount is less than half of our carrying value for +the company when it was acquired. Yet Scott Fetzer is now +earning about twice what it then did. Clearly, the intrinsic +value of the business has consistently grown, even though we have +just as consistently marked down its carrying value through +purchase-premium charges that reduced Berkshire's earnings and +net worth. + + The difference between Scott Fetzer's intrinsic value and +its carrying value on Berkshire's books is now huge. As I +mentioned earlier - but am delighted to mention again - credit +for this agreeable mismatch goes to Ralph Schey, a focused, smart +and high-grade manager. + + The reasons for Ralph's success are not complicated. Ben +Graham taught me 45 years ago that in investing it is not +necessary to do extraordinary things to get extraordinary +results. In later life, I have been surprised to find that this +statement holds true in business management as well. What a +manager must do is handle the basics well and not get diverted. +That's precisely Ralph's formula. He establishes the right goals +and never forgets what he set out to do. On the personal side, +Ralph is a joy to work with. He's forthright about problems and +is self-confident without being self-important. + + He is also experienced. Though I don't know Ralph's age, I +do know that, like many of our managers, he is over 65. At +Berkshire, we look to performance, not to the calendar. Charlie +and I, at 71 and 64 respectively, now keep George Foreman's +picture on our desks. You can make book that our scorn for a +mandatory retirement age will grow stronger every year. + + +Intrinsic Value and Capital Allocation + + Understanding intrinsic value is as important for managers +as it is for investors. When managers are making capital +allocation decisions - including decisions to repurchase shares - +it's vital that they act in ways that increase per-share +intrinsic value and avoid moves that decrease it. This principle +may seem obvious but we constantly see it violated. And, when +misallocations occur, shareholders are hurt. + + For example, in contemplating business mergers and +acquisitions, many managers tend to focus on whether the +transaction is immediately dilutive or anti-dilutive to earnings +per share (or, at financial institutions, to per-share book +value). An emphasis of this sort carries great dangers. Going +back to our college-education example, imagine that a 25-year-old +first-year MBA student is considering merging his future economic +interests with those of a 25-year-old day laborer. The MBA +student, a non-earner, would find that a "share-for-share" merger +of his equity interest in himself with that of the day laborer +would enhance his near-term earnings (in a big way!). But what +could be sillier for the student than a deal of this kind? + + In corporate transactions, it's equally silly for the would- +be purchaser to focus on current earnings when the prospective +acquiree has either different prospects, different amounts of +non-operating assets, or a different capital structure. At +Berkshire, we have rejected many merger and purchase +opportunities that would have boosted current and near-term +earnings but that would have reduced per-share intrinsic value. +Our approach, rather, has been to follow Wayne Gretzky's advice: +"Go to where the puck is going to be, not to where it is." As a +result, our shareholders are now many billions of dollars richer +than they would have been if we had used the standard catechism. + + The sad fact is that most major acquisitions display an +egregious imbalance: They are a bonanza for the shareholders of +the acquiree; they increase the income and status of the +acquirer's management; and they are a honey pot for the +investment bankers and other professionals on both sides. But, +alas, they usually reduce the wealth of the acquirer's shareholders, +often to a substantial extent. That happens because the acquirer +typically gives up more intrinsic value than it receives. Do that +enough, says John Medlin, the retired head of Wachovia Corp., and +"you are running a chain letter in reverse." + + Over time, the skill with which a company's managers +allocate capital has an enormous impact on the enterprise's +value. Almost by definition, a really good business generates +far more money (at least after its early years) than it can use +internally. The company could, of course, distribute the money +to shareholders by way of dividends or share repurchases. But +often the CEO asks a strategic planning staff, consultants or +investment bankers whether an acquisition or two might make +sense. That's like asking your interior decorator whether you +need a $50,000 rug. + + The acquisition problem is often compounded by a biological +bias: Many CEO's attain their positions in part because they +possess an abundance of animal spirits and ego. If an executive +is heavily endowed with these qualities - which, it should be +acknowledged, sometimes have their advantages - they won't +disappear when he reaches the top. When such a CEO is encouraged +by his advisors to make deals, he responds much as would a +teenage boy who is encouraged by his father to have a normal sex +life. It's not a push he needs. + + Some years back, a CEO friend of mine - in jest, it must be +said - unintentionally described the pathology of many big deals. +This friend, who ran a property-casualty insurer, was explaining +to his directors why he wanted to acquire a certain life +insurance company. After droning rather unpersuasively through +the economics and strategic rationale for the acquisition, he +abruptly abandoned the script. With an impish look, he simply +said: "Aw, fellas, all the other kids have one." + + At Berkshire, our managers will continue to earn +extraordinary returns from what appear to be ordinary businesses. +As a first step, these managers will look for ways to deploy +their earnings advantageously in their businesses. What's left, +they will send to Charlie and me. We then will try to use those +funds in ways that build per-share intrinsic value. Our goal +will be to acquire either part or all of businesses that we +believe we understand, that have good, sustainable underlying +economics, and that are run by managers whom we like, admire and +trust. + + +Compensation + + At Berkshire, we try to be as logical about compensation as +about capital allocation. For example, we compensate Ralph Schey +based upon the results of Scott Fetzer rather than those of +Berkshire. What could make more sense, since he's responsible +for one operation but not the other? A cash bonus or a stock +option tied to the fortunes of Berkshire would provide totally +capricious rewards to Ralph. He could, for example, be hitting +home runs at Scott Fetzer while Charlie and I rang up mistakes at +Berkshire, thereby negating his efforts many times over. +Conversely, why should option profits or bonuses be heaped upon +Ralph if good things are occurring in other parts of Berkshire +but Scott Fetzer is lagging? + + In setting compensation, we like to hold out the promise of +large carrots, but make sure their delivery is tied directly to +results in the area that a manager controls. When capital +invested in an operation is significant, we also both charge +managers a high rate for incremental capital they employ and +credit them at an equally high rate for capital they release. + + The product of this money's-not-free approach is definitely +visible at Scott Fetzer. If Ralph can employ incremental funds +at good returns, it pays him to do so: His bonus increases when +earnings on additional capital exceed a meaningful hurdle charge. +But our bonus calculation is symmetrical: If incremental +investment yields sub-standard returns, the shortfall is costly +to Ralph as well as to Berkshire. The consequence of this two- +way arrangement is that it pays Ralph - and pays him well - to +send to Omaha any cash he can't advantageously use in his +business. + + It has become fashionable at public companies to describe +almost every compensation plan as aligning the interests of +management with those of shareholders. In our book, alignment +means being a partner in both directions, not just on the upside. +Many "alignment" plans flunk this basic test, being artful forms +of "heads I win, tails you lose." + + A common form of misalignment occurs in the typical stock +option arrangement, which does not periodically increase the +option price to compensate for the fact that retained earnings +are building up the wealth of the company. Indeed, the +combination of a ten-year option, a low dividend payout, and +compound interest can provide lush gains to a manager who has +done no more than tread water in his job. A cynic might even +note that when payments to owners are held down, the profit to +the option-holding manager increases. I have yet to see this +vital point spelled out in a proxy statement asking shareholders +to approve an option plan. + + I can't resist mentioning that our compensation arrangement +with Ralph Schey was worked out in about five minutes, +immediately upon our purchase of Scott Fetzer and without the +"help" of lawyers or compensation consultants. This arrangement +embodies a few very simple ideas - not the kind of terms favored +by consultants who cannot easily send a large bill unless they +have established that you have a large problem (and one, of +course, that requires an annual review). Our agreement with +Ralph has never been changed. It made sense to him and to me in +1986, and it makes sense now. Our compensation arrangements with +the managers of all our other units are similarly simple, though +the terms of each agreement vary to fit the economic +characteristics of the business at issue, the existence in some +cases of partial ownership of the unit by managers, etc. + + In all instances, we pursue rationality. Arrangements that +pay off in capricious ways, unrelated to a manager's personal +accomplishments, may well be welcomed by certain managers. Who, +after all, refuses a free lottery ticket? But such arrangements +are wasteful to the company and cause the manager to lose focus +on what should be his real areas of concern. Additionally, +irrational behavior at the parent may well encourage imitative +behavior at subsidiaries. + + At Berkshire, only Charlie and I have the managerial +responsibility for the entire business. Therefore, we are the +only parties who should logically be compensated on the basis of +what the enterprise does as a whole. Even so, that is not a +compensation arrangement we desire. We have carefully designed +both the company and our jobs so that we do things we enjoy with +people we like. Equally important, we are forced to do very few +boring or unpleasant tasks. We are the beneficiaries as well of +the abundant array of material and psychic perks that flow to the +heads of corporations. Under such idyllic conditions, we don't +expect shareholders to ante up loads of compensation for which we +have no possible need. + + Indeed, if we were not paid at all, Charlie and I would be +delighted with the cushy jobs we hold. At bottom, we subscribe +to Ronald Reagan's creed: "It's probably true that hard work +never killed anyone, but I figure why take the chance." + + +Sources of Reported Earnings + + The table on the next page shows the main sources of +Berkshire's reported earnings. In this presentation, purchase- +premium charges of the type we discussed in our earlier analysis +of Scott Fetzer are not assigned to the specific businesses to +which they apply, but are instead aggregated and shown +separately. This procedure lets you view the earnings of our +businesses as they would have been reported had we not purchased +them. This form of presentation seems to us to be more useful to +investors and managers than one utilizing GAAP, which requires +purchase premiums to be charged off, business-by-business. The +total earnings we show in the table are, of course, identical to +the GAAP total in our audited financial statements. + + + + Berkshire's Share + of Net Earnings + (after taxes and + Pre-Tax Earnings minority interests) + ------------------- ------------------- + 1994 1993 1994 1993 + -------- -------- -------- -------- + (000s omitted) + +Operating Earnings: + Insurance Group: + Underwriting ............... $129,926 $ 30,876 $ 80,860 $ 20,156 + Net Investment Income ...... 419,422 375,946 350,453 321,321 + Buffalo News ................. 54,238 50,962 31,685 29,696 + Fechheimer ................... 14,260 13,442 7,107 6,931 + Finance Businesses ........... 21,568 22,695 14,293 14,161 + Kirby ........................ 42,349 39,147 27,719 25,056 + Nebraska Furniture Mart ...... 17,356 21,540 8,652 10,398 + Scott Fetzer Manufacturing Group 39,435 38,196 24,909 23,809 + See's Candies ................ 47,539 41,150 28,247 24,367 + Shoe Group ................... 85,503 44,025* 55,750 28,829 + World Book ................... 24,662 19,915 17,275 13,537 + Purchase-Price Premium Charges (22,595) (17,033) (19,355) (13,996) + Interest Expense** ........... (60,111) (56,545) (37,264) (35,614) + Shareholder-Designated + Contributions ............. (10,419) (9,448) (6,668) (5,994) + Other ........................ 36,232 28,428 22,576 15,094 + -------- -------- -------- -------- +Operating Earnings ............. 839,365 643,296 606,239 477,751 +Sales of Securities ............ 91,332 546,422 61,138 356,702 +Decline in Value of + USAir Preferred Stock ..... (268,500) --- (172,579) --- +Tax Accruals Caused by + New Accounting Rules ...... --- --- --- (146,332) + -------- --------- -------- -------- +Total Earnings - All Entities .. $662,197 $1,189,718 $494,798 $688,121 + ======== ========= ======== ======== + +* Includes Dexter's earnings only from the date it was acquired, + November 7, 1993. + +**Excludes interest expense of Finance Businesses. + + + A large amount of information about these businesses is given +on pages 37-48, where you will also find our segment earnings +reported on a GAAP basis. In addition, on pages 53-59, we have +rearranged Berkshire's financial data into four segments on a non- +GAAP basis, a presentation that corresponds to the way Charlie and +I think about the company. Our intent is to supply you with the +financial information that we would wish you to give us if our +positions were reversed. + +"Look-Through" Earnings + + In past reports, we've discussed look-through earnings, which +we believe more accurately portray the earnings of Berkshire than +does our GAAP result. As we calculate them, look-through earnings +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. The "operating earnings" of which we speak here +exclude capital gains, special accounting items and major +restructuring charges. + + If our intrinsic value is to grow at our target rate of 15%, +our look-through earnings, over time, must also increase at about +that pace. When I first explained this concept a few years back, I +told you that meeting this 15% goal would require us to generate +look-through earnings of about $1.8 billion by 2000. Because we've +since issued about 3% more shares, that figure has grown to $1.85 +billion. + + We are now modestly ahead of schedule in meeting our goal, but +to a significant degree that is because our super-cat insurance +business has recently delivered earnings far above trend-line +expectancy (an outcome I will discuss in the next section). Giving +due weight to that abnormality, we still expect to hit our target +but that, of course, is no sure thing. + + The following table shows how we calculate look-through +earnings, though I warn you that the figures are necessarily very +rough. (The dividends paid to us by these investees have been +included in the operating earnings itemized on page 12, 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) +--------------------------- ----------------------- ------------------ + + 1994 1993 1994 1993 + ------ ------ ------ ------ +American Express Company ...... 5.5% 2.4% $ 25(2) $ 16 +Capital Cities/ABC, Inc. ...... 13.0% 13.0% 85 83(2) +The Coca-Cola Company ......... 7.8% 7.2% 116(2) 94 +Federal Home Loan Mortgage Corp. 6.3%(1) 6.8%(1) 47(2) 41(2) +Gannett Co., Inc. ............. 4.9% --- 4(2) --- +GEICO Corp. ................... 50.2% 48.4% 63(3) 76(3) +The Gillette Company .......... 10.8% 10.9% 51 44 +PNC Bank Corp. ................ 8.3% --- 10(2) --- +The Washington Post Company ... 15.2% 14.8% 18 15 +Wells Fargo & Company ......... 13.3% 12.2% 73 53(2) + ------ ------ +Berkshire's share of undistributed + earnings of major investees $ 492 $422 +Hypothetical tax on these undistributed + investee earnings(4) (68) (59) +Reported operating earnings of Berkshire 606 478 + ------- ------ + Total look-through earnings of Berkshire $1,030 $ 841 + + (1) Does not include shares allocable to the minority interest + at Wesco + (2) Calculated on average ownership for the year + (3) Excludes realized capital gains, which have been both + recurring and significant + (4) The tax rate used is 14%, which is the rate Berkshire pays + on the dividends it receives + +Insurance Operations + + As we've explained in past reports, what counts in our +insurance business is, first, the amount of "float" we develop and, +second, its cost to us. Float is money we hold but don't own. In +an insurance operation, float arises because most policies require +that premiums be prepaid and, more importantly, because it usually +takes time for an insurer to hear about and resolve loss claims. + + Typically, the premiums that an insurer takes in do not cover +the losses and expenses it must pay. That leaves it running an +"underwriting loss" - and that loss is the cost of float. + + An insurance business is profitable over time if its cost of +float is less than the cost the company would otherwise incur to +obtain funds. But the business has a negative value if the cost of +its float is higher than market rates for money. + + As the numbers in the following table show, Berkshire's +insurance business has been an enormous winner. For the table, we +have compiled our float - which we generate in exceptional amounts +relative to our premium volume - by adding loss reserves, loss +adjustment reserves, funds held under reinsurance assumed and unearned +premium reserves and then subtracting agents' balances, prepaid +acquisition costs, prepaid taxes and deferred charges applicable to +assumed reinsurance. Our cost of float is determined by our +underwriting loss or profit. In those years when we have had an +underwriting profit, such as the last two, our cost of float has been +negative, and we have determined our insurance earnings by adding +underwriting profit to float income. + + (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% +1993 .......... profit 2,624.7 less than zero 6.35% +1994 .......... profit 3,056.6 less than zero 7.88% + + Charlie and I are delighted that our float grew in 1994 and +are even more pleased that it proved to be cost-free. But our +message this year echoes the one we delivered in 1993: Though we +have a fine insurance business, it is not as good as it currently +looks. + + The reason we must repeat this caution is that our "super-cat" +business (which sells policies that insurance and reinsurance +companies buy to protect themselves from the effects of mega- +catastrophes) was again highly profitable. Since truly major +catastrophes occur infrequently, our super-cat business can be +expected to show large profits in most years but occasionally to +record a huge loss. In other words, the attractiveness of our +super-cat business will take many years to measure. Certainly 1994 +should be regarded as close to a best-case. Our only significant +losses arose from the California earthquake in January. I will add +that we do not expect to suffer a major loss from the early-1995 +Kobe earthquake. + + Super-cat policies are small in number, large in size and non- +standardized. Therefore, the underwriting of this business +requires far more judgment than, say, the underwriting of auto +policies, for which a mass of data is available. Here Berkshire +has a major advantage: Ajit Jain, our super-cat manager, whose +underwriting skills are the finest. His value to us is simply +enormous. + + In addition, Berkshire has a special advantage in the super- +cat business because of our towering financial strength, which +helps us in two ways. First, a prudent insurer will want its +protection against true mega-catastrophes - such as a $50 billion +windstorm loss on Long Island or an earthquake of similar cost in +California - to be absolutely certain. But that same insurer knows +that the disaster making it dependent on a large super-cat recovery +is also the disaster that could cause many reinsurers to default. +There's not much sense in paying premiums for coverage that will +evaporate precisely when it is needed. So the certainty that +Berkshire will be both solvent and liquid after a catastrophe of +unthinkable proportions is a major competitive advantage for us. + + The second benefit of our capital strength is that we can +write policies for amounts that no one else can even consider. For +example, during 1994, a primary insurer wished to buy a short-term +policy for $400 million of California earthquake coverage and we +wrote the policy immediately. We know of no one else in the world +who would take a $400 million risk, or anything close to it, for +their own account. + + Generally, brokers attempt to place coverage for large amounts +by spreading the burden over a number of small policies. But, at +best, coverage of that sort takes considerable time to arrange. In +the meantime, the company desiring reinsurance is left holding a +risk it doesn't want and that may seriously threaten its well- +being. At Berkshire, on the other hand, we will quote prices for +coverage as great as $500 million on the same day that we are asked +to bid. No one else in the industry will do the same. + + By writing coverages in large lumps, we obviously expose +Berkshire to lumpy financial results. That's totally acceptable to +us: Too often, insurers (as well as other businesses) follow sub- +optimum strategies in order to "smooth" their reported earnings. +By accepting the prospect of volatility, we expect to earn higher +long-term returns than we would by pursuing predictability. + + Given the risks we accept, Ajit and I constantly focus on our +"worst case," knowing, of course, that it is difficult to judge +what this is, since you could conceivably have a Long Island +hurricane, a California earthquake, and Super Cat X all in the same +year. Additionally, insurance losses could be accompanied by non- +insurance troubles. For example, were we to have super-cat losses +from a large Southern California earthquake, they might well be +accompanied by a major drop in the value of our holdings in See's, +Wells Fargo and Freddie Mac. + + All things considered, we believe our worst-case insurance +loss from a super-cat is now about $600 million after-tax, an +amount that would slightly exceed Berkshire's annual earnings from +other sources. If you are not comfortable with this level of +exposure, the time to sell your Berkshire stock is now, not after +the inevitable mega-catastrophe. + + Our super-cat volume will probably be down in 1995. Prices +for garden-variety policies have fallen somewhat, and the torrent +of capital that was committed to the reinsurance business a few +years ago will be inclined to chase premiums, irrespective of their +adequacy. Nevertheless, we have strong relations with an important +group of clients who will provide us with a substantial amount of +business in 1995. + + Berkshire's other insurance operations had excellent results +in 1994. Our homestate operation, led by Rod Eldred; our workers' +compensation business, headed by Brad Kinstler; our credit card +operation, managed by the Kizer family; National Indemnity's +traditional auto and general liability business, led by Don Wurster +- all of these generated significant underwriting profits +accompanied by substantial float. + + We can conclude this section as we did last year: All in all, +we have a first-class insurance business. Though its results will +be highly volatile, this operation possesses an intrinsic value +that exceeds its book value by a large amount - larger, in fact, +than is the case at any other Berkshire business. + +Common Stock Investments + + Below we list our common stockholdings having a value of over +$300 million. A small portion of these investments belongs to +subsidiaries of which Berkshire owns less than 100%. + + 12/31/94 + Shares Company Cost Market + ------ ------- ---------- ---------- + (000s omitted) + 27,759,941 American Express Company. .......... $ 723,919 $ 818,918 + 20,000,000 Capital Cities/ABC, Inc. ........... 345,000 1,705,000 +100,000,000 The Coca-Cola Company. ............. 1,298,888 5,150,000 + 12,761,200 Federal Home Loan Mortgage Corp. + ("Freddie Mac") ................. 270,468 644,441 + 6,854,500 Gannett Co., Inc. .................. 335,216 365,002 + 34,250,000 GEICO Corp. ........................ 45,713 1,678,250 + 24,000,000 The Gillette Company ............... 600,000 1,797,000 + 19,453,300 PNC Bank Corporation ............... 503,046 410,951 + 1,727,765 The Washington Post Company ........ 9,731 418,983 + 6,791,218 Wells Fargo & Company .............. 423,680 984,727 + + Our investments continue to be few in number and simple in +concept: The truly big investment idea can usually be explained in +a short paragraph. We like a business with enduring competitive +advantages that is run by able and owner-oriented people. When +these attributes exist, and when we can make purchases at sensible +prices, it is hard to go wrong (a challenge we periodically manage +to overcome). + + Investors should remember that their scorecard is not computed +using Olympic-diving methods: Degree-of-difficulty doesn't count. +If you are right about a business whose value is largely dependent +on a single key factor that is both easy to understand and +enduring, the payoff is the same as if you had correctly analyzed +an investment alternative characterized by many constantly shifting +and complex variables. + + We try to price, rather than time, purchases. In our view, it +is folly to forego buying shares in an outstanding business whose +long-term future is predictable, because of short-term worries +about an economy or a stock market that we know to be +unpredictable. Why scrap an informed decision because of an +uninformed guess? + + We purchased National Indemnity in 1967, See's in 1972, +Buffalo News in 1977, Nebraska Furniture Mart in 1983, and Scott +Fetzer in 1986 because those are the years they became available +and because we thought the prices they carried were acceptable. In +each case, we pondered what the business was likely to do, not what +the Dow, the Fed, or the economy might do. If we see this approach +as making sense in the purchase of businesses in their entirety, +why should we change tack when we are purchasing small pieces of +wonderful businesses in the stock market? + + Before looking at new investments, we consider adding to old +ones. If a business is attractive enough to buy once, it may well +pay to repeat the process. We would love to increase our economic +interest in See's or Scott Fetzer, but we haven't found a way to +add to a 100% holding. In the stock market, however, an investor +frequently gets the chance to increase his economic interest in +businesses he knows and likes. Last year we went that direction by +enlarging our holdings in Coca-Cola and American Express. + + Our history with American Express goes way back and, in fact, +fits the pattern of my pulling current investment decisions out of +past associations. In 1951, for example, GEICO shares comprised +70% of my personal portfolio and GEICO was also the first stock I +sold - I was then 20 - as a security salesman (the sale was 100 +shares to my Aunt Alice who, bless her, would have bought anything +I suggested). Twenty-five years later, Berkshire purchased a major +stake in GEICO at the time it was threatened with insolvency. In +another instance, that of the Washington Post, about half of my +initial investment funds came from delivering the paper in the +1940's. Three decades later Berkshire purchased a large position +in the company two years after it went public. As for Coca-Cola, +my first business venture - this was in the 1930's - was buying a +six-pack of Coke for 25 cents and selling each bottle for 5 cents. +It took only fifty years before I finally got it: The real money +was in the syrup. + + My American Express history includes a couple of episodes: In +the mid-1960's, just after the stock was battered by the company's +infamous salad-oil scandal, we put about 40% of Buffett Partnership +Ltd.'s capital into the stock - the largest investment the +partnership had ever made. I should add that this commitment gave +us over 5% ownership in Amex at a cost of $13 million. As I write +this, we own just under 10%, which has cost us $1.36 billion. +(Amex earned $12.5 million in 1964 and $1.4 billion in 1994.) + + My history with Amex's IDS unit, which today contributes about +a third of the earnings of the company, goes back even further. I +first purchased stock in IDS in 1953 when it was growing rapidly +and selling at a price-earnings ratio of only 3. (There was a lot +of low-hanging fruit in those days.) I even produced a long report +- do I ever write a short one? - on the company that I sold for $1 +through an ad in the Wall Street Journal. + + Obviously American Express and IDS (recently renamed American +Express Financial Advisors) are far different operations today from +what they were then. Nevertheless, I find that a long-term +familiarity with a company and its products is often helpful in +evaluating it. + +Mistake Du Jour + + Mistakes occur at the time of decision. We can only make our +mistake-du-jour award, however, when the foolishness of the +decision become obvious. By this measure, 1994 was a vintage year +with keen competition for the gold medal. Here, I would like to +tell you that the mistakes I will describe originated with Charlie. +But whenever I try to explain things that way, my nose begins to +grow. + + And the nominees are . . . + + Late in 1993 I sold 10 million shares of Cap Cities at $63; at +year-end 1994, the price was $85.25. (The difference is $222.5 +million for those of you who wish to avoid the pain of calculating +the damage yourself.) When we purchased the stock at $17.25 in +1986, I told you that I had previously sold our Cap Cities holdings +at $4.30 per share during 1978-80, and added that I was at a loss +to explain my earlier behavior. Now I've become a repeat offender. +Maybe it's time to get a guardian appointed. + + Egregious as it is, the Cap Cities decision earns only a +silver medal. Top honors go to a mistake I made five years ago +that fully ripened in 1994: Our $358 million purchase of USAir +preferred stock, on which the dividend was suspended in September. +In the 1990 Annual Report I correctly described this deal as an +"unforced error," meaning that I was neither pushed into the +investment nor misled by anyone when making it. Rather, this was a +case of sloppy analysis, a lapse that may have been caused by the +fact that we were buying a senior security or by hubris. Whatever +the reason, the mistake was large. + + Before this purchase, I simply failed to focus on the problems +that would inevitably beset a carrier whose costs were both high +and extremely difficult to lower. In earlier years, these life- +threatening costs posed few problems. Airlines were then protected +from competition by regulation, and carriers could absorb high +costs because they could pass them along by way of fares that were +also high. + + When deregulation came along, it did not immediately change +the picture: The capacity of low-cost carriers was so small that +the high-cost lines could, in large part, maintain their existing +fare structures. During this period, with the longer-term problems +largely invisible but slowly metastasizing, the costs that were +non-sustainable became further embedded. + + As the seat capacity of the low-cost operators expanded, their +fares began to force the old-line, high-cost airlines to cut their +own. The day of reckoning for these airlines could be delayed by +infusions of capital (such as ours into USAir), but eventually a +fundamental rule of economics prevailed: In an unregulated +commodity business, a company must lower its costs to competitive +levels or face extinction. This principle should have been obvious +to your Chairman, but I missed it. + + Seth Schofield, CEO of USAir, has worked diligently to correct +the company's historical cost problems but, to date, has not +managed to do so. In part, this is because he has had to deal with +a moving target, the result of certain major carriers having +obtained labor concessions and other carriers having benefitted +from "fresh-start" costs that came out of bankruptcy proceedings. +(As Herb Kelleher, CEO of Southwest Airlines, has said: +"Bankruptcy court for airlines has become a health spa.") +Additionally, it should be no surprise to anyone that those airline +employees who contractually receive above-market salaries will +resist any reduction in these as long as their checks continue to +clear. + + Despite this difficult situation, USAir may yet achieve the +cost reductions it needs to maintain its viability long-term. But +it is far from sure that will happen. + + Accordingly, we wrote our USAir investment down to $89.5 +million, 25 cents on the dollar at yearend 1994. This valuation +reflects both a possibility that our preferred will have its value +fully or largely restored and an opposite possibility that the +stock will eventually become worthless. Whatever the outcome, we +will heed a prime rule of investing: You don't have to make it +back the way that you lost it. + + The accounting effects of our USAir writedown are complicated. +Under GAAP accounting, insurance companies are required to carry +all stocks on their balance sheets at estimated market value. +Therefore, at the end of last year's third quarter, we were +carrying our USAir preferred at $89.5 million, or 25% of cost. In +other words, our net worth was at that time reflecting a value for +USAir that was far below our $358 million cost. + + But in the fourth quarter, we concluded that the decline in +value was, in accounting terms, "other than temporary," and that +judgment required us to send the writedown of $269 million through +our income statement. The amount will have no other fourth-quarter +effect. That is, it will not reduce our net worth, because the +diminution of value had already been reflected. + + Charlie and I will not stand for reelection to USAir's board +at the upcoming annual meeting. Should Seth wish to consult with +us, however, we will be pleased to be of any help that we can. + +Miscellaneous + + Two CEO's who have done great things for Berkshire +shareholders retired last year: Dan Burke of Capital Cities/ABC +and Carl Reichardt of Wells Fargo. Dan and Carl encountered very +tough industry conditions in recent years. But their skill as +managers allowed the businesses they ran to emerge from these +periods with record earnings, added luster, and bright prospects. +Additionally, Dan and Carl prepared well for their departure and +left their companies in outstanding hands. We owe them our +gratitude. + + * * * * * * * * * * * * + + About 95.7% of all eligible shares participated in Berkshire's +1994 shareholder-designated contributions program. Contributions +made through the program were $10.4 million and 3,300 charities +were recipients. + + Every year a few shareholders miss participating in the +program because they either do not have their shares registered in +their own names on the prescribed record date or because they fail +to get the designation form back to us within the 60-day period +allowed for its return. Since we don't make exceptions when +requirements aren't met, we urge that both new shareholders and old +read the description of our shareholder-designated contributions +program that appears on pages 50-51. + + To participate in future programs, you must make sure your +shares are registered in the name of the actual owner, not in the +nominee name of a broker, bank or depository. Shares not so +registered on August 31, 1995 will be ineligible for the 1995 +program. + + * * * * * * * * * * * * + + We made only one minor acquisition during 1994 - a small +retail shoe chain - but our interest in finding good candidates +remains as keen as ever. The criteria we employ for purchases or +mergers is detailed in the appendix on page 21. + + Last spring, we offered to merge with a large, family- +controlled business on terms that included a Berkshire convertible +preferred stock. Though we failed to reach an agreement, this +episode made me realize that we needed to ask our shareholders to +authorize preferred shares in case we wanted in the future to move +quickly if a similar acquisition opportunity were to appear. +Accordingly, our proxy presents a proposal that you authorize a +large amount of preferred stock, which will be issuable on terms +set by the Board of Directors. You can be sure that Charlie and I +will not use these shares without being completely satisfied that +we are receiving as much in intrinsic value as we are giving. + + * * * * * * * * * * * * + + Charlie and I hope you can come to the Annual Meeting - at a +new site. Last year, we slightly overran the Orpheum Theater's +seating capacity of 2,750, and therefore we will assemble at 9:30 +a.m. on Monday, May 1, 1995, at the Holiday Convention Centre. The +main ballroom at the Centre can handle 3,300, and if need be, we +will have audio and video equipment in an adjacent room capable of +handling another 1,000 people. + + Last year we displayed some of Berkshire's products at the +meeting, and as a result sold about 800 pounds of candy, 507 pairs +of shoes, and over $12,000 of World Books and related publications. +All these goods will be available again this year. Though we like +to think of the meeting as a spiritual experience, we must remember +that even the least secular of religions includes the ritual of the +collection plate. + + Of course, what you really should be purchasing is a video +tape of the 1995 Orange Bowl. Your Chairman views this classic +nightly, switching to slow motion for the fourth quarter. Our +cover color this year is a salute to Nebraska's football coach, Tom +Osborne, and his Cornhuskers, the country's top college team. I +urge you to wear Husker red to the annual meeting and promise you +that at least 50% of your managerial duo will be in appropriate +attire. + + We recommend that you promptly get hotel reservations for the +meeting, as we expect a large crowd. Those of you who like to be +downtown (about six miles from the Centre) may wish to stay at the +Radisson Redick Tower, a small (88 rooms) but nice hotel or at the +much larger Red Lion Hotel a few blocks away. In the vicinity of +the Centre are the Holiday Inn (403 rooms), Homewood Suites (118 +rooms) and Hampton Inn (136 rooms). Another recommended spot is +the Marriott, whose west Omaha location is about 100 yards from +Borsheim's and a ten-minute drive from the Centre. There will be +buses at the Marriott that will leave at 8:45 and 9:00 for the +meeting and return after it ends. + + An attachment to our proxy material explains how you can +obtain the card you will need for admission to the meeting. A +good-sized parking area is available at the Centre, while those who +stay at the Holiday Inn, Homewood Suites and Hampton Inn will be +able to walk to the meeting. + + As usual, we will have buses to take you to the Nebraska +Furniture Mart and Borsheim's after the meeting and to take you +from there to hotels or the airport later. I hope you make a +special effort to visit the Nebraska Furniture Mart because it has +opened the Mega Mart, a true retailing marvel that sells +electronics, appliances, computers, CD's, cameras and audio +equipment. Sales have been sensational since the opening, and you +will be amazed by both the variety of products available and their +display on the floor. + + The Mega Mart, adjacent to NFM's main store, is on our 64-acre +site about two miles north of the Centre. The stores are open from +10 a.m. to 9 p.m. on Fridays, 10 a.m. to 6 p.m. on Saturdays and +noon to 6 p.m. on Sundays. When you're there be sure to say hello +to Mrs. B, who, at 101, will be hard at work in our Mrs. B's +Warehouse. She never misses a day at the store - or, for that +matter, an hour. + + Borsheim's normally is closed on Sunday but will be open for +shareholders and their guests from noon to 6 p.m. on Sunday. This +is always a special day, and we will try to have a few surprises. +Usually this is the biggest sales day of the year, so for more +reasons than one Charlie and I hope to see you there. + + On Saturday evening, April 29, there will be a baseball game +at Rosenblatt Stadium between the Omaha Royals and the Buffalo +Bisons. The Buffalo team is owned by my friends, Mindy and Bob +Rich, Jr., and I'm hoping they will attend. If so, I will try to +entice Bob into a one-pitch duel on the mound. Bob is a +capitalist's Randy Johnson - young, strong and athletic - and not +the sort of fellow you want to face early in the season. So I will +need plenty of vocal support. + + The proxy statement will include information about obtaining +tickets to the game. About 1,400 shareholders attended the event +last year. Opening the game that night, I had my stuff and threw a +strike that the scoreboard reported at eight miles per hour. What +many fans missed was that I shook off the catcher's call for my +fast ball and instead delivered my change-up. This year it will be +all smoke. + + + + Warren E. Buffett +March 7, 1995 Chairman of the Board + +