1971 Letter

To the Stockholders of Berkshire Hathaway Inc.:

It is a pleasure to report that operating earnings in 1971, excluding capital gains, amounted to more than 14% of beginning shareholders’ equity. This result—considerably above the average of American industry—was achieved in the face of inadequate earnings in our textile operation, making clear the benefits of redeployment of capital inaugurated five years ago. It will continue to be the objective of management to improve return on total capitalization (long term debt plus equity), as well as the return on equity capital. However, it should be realized that merely maintaining the present relatively high rate of return may well prove more difficult than was improvement from the very low levels of return which prevailed throughout most of the 1960’s. Textile Operations

We, in common with most of the textile industry, continued to struggle throughout 1971 with inadequate gross margins. Strong efforts to hammer down costs and a continuous search for less price‐sensitive fabrics produced only marginal profits. However, without these efforts we would have operated substantially in the red. Employment was more stable throughout the year as our program to improve control of inventories achieved reasonable success.

As mentioned last year, Ken Chace and his management group have been swimming against a strong industry tide. This negative environment has only caused them to intensify their efforts. Currently we are witnessing a mild industry pickup which we intend to maximize with our greatly strengthened sales force. With the improvement now seen in volume and mix of business, we would expect better profitability—although not of a dramatic nature—from our textile operation in 1972.

Insurance Operations

An unusual combination of factors—reduced auto accident frequency, sharply higher effective rates in large volume lines, and the absence of major catastrophes—produced an extraordinarily good year for the property and casualty insurance industry. We shared in these benefits, although they are not without their negative connotations.

Our traditional business—and still our largest segment—is in the specialized policy or nonstandard insured. When standard markets become tight because of unprofitable industry underwriting, we experience substantial volume increases as producers look to us. This was the condition several years ago, and largely accounts for the surge of direct volume experienced in 1970 and 1971. Now that underwriting has turned very profitable on an industry‐wide basis, more companies are seeking the insureds they were rejecting a short while back and rates are being cut in some areas. We continue to have underwriting profitability as our primary goal and this may well mean a substantial decrease in National Indemnity’s direct volume during 1972. Jack Ringwalt and Phil Liesche continue to guide this operation in a manner matched by very few in the business.

Our reinsurance business, which has been developed to a substantial operation in just two years by the outstanding efforts of George Young, faces much the same situation. We entered the reinsurance business late in 1969 at a time when rates had risen substantially and capacity was tight. The reinsurance industry was exceptionally profitable in 1971, and we are now seeing rate‐cutting as well as the formation of well‐capitalized aggressive new competitors. These lower rates are frequently accompanied by greater exposure. Against this background we expect to see our business curtailed somewhat in 1972. We set no volume goals in our insurance business generally—and certainly not in reinsurance—as virtually any volume can be achieved if profitability standards are ignored. When catastrophes occur and underwriting experience sours, we plan to have the resources available to handle the increasing volume which we will then expect to be available at proper prices.

We inaugurated our “home‐state” insurance operation in 1970 by the formation of Cornhusker Casualty Company. To date, this has worked well from both a marketing and an underwriting standpoint. We have therefore further developed this approach by the formation of Lakeland Fire & Casualty Company in Minnesota during 1971, and Texas United Insurance in 1972. Each of these companies will devote its entire efforts to a single state seeking to bring the agents and insureds of its area a combination of large company capability and small company accessibility and sensitivity. John Ringwalt has been in overall charge of this operation since inception. Combining hard work with imagination and intelligence, he has transformed an idea into a wellorganized business. The “home‐state” companies are still very small, accounting for a little over \$1.5 million in premium volume during 1971. It looks as though this volume will more than double in 1972 and we will develop a more creditable base upon which to evaluate underwriting performance.

A highlight of 1971 was the acquisition of Home & Automobile Insurance Company, located in Chicago. This company was built by Victor Raab from a small initial investment into a major auto insurer in Cook County, writing about \$7.5 million in premium volume during 1971. Vic is cut from the same cloth as Jack Ringwalt and Gene Abegg, with a talent for operating profitably accompanied by enthusiasm for his business. These three men have built their companies from scratch and, after selling their ownership position for cash, retain every bit of the proprietary interest and pride that they have always had.

While Vic has multiplied the original equity of Home & Auto many times since its founding, his ideas and talents have always been circumscribed by his capital base. We have added capital funds to the company, which will enable it to establish branch operations extending its highlyconcentrated and on‐the‐spot marketing and claims approach to other densely populated areas.

All in all, it is questionable whether volume added by Home & Auto, plus the “home‐state” business in 1972, will offset possible declines in direct and reinsurance business of National Indemnity Company. However, our large volume gains in 1970 and 1971 brought in additional funds for investment at a time of high interest rates, which will be of continuing benefit in future years. Thus, despite the unimpressive prospects regarding premium volume, the outlook for investment income and overall earnings from insurance in 1972 is reasonably good.

Banking Operations

Our banking subsidiary, The Illinois National Bank & Trust Company, continued to lead its industry as measured by earnings as a percentage of deposits. In 1971, Illinois National earned well over 2% after tax on average deposits while (1) not using borrowed funds except for very occasional reserve balancing transactions; (2) maintaining a liquidity position far above average; (3) recording loan losses far below average; and (4) utilizing a mix of over 50% time deposits with all consumer savings accounts receiving maximum permitted interest rates throughout the year. This reflects a superb management job by Gene Abegg and Bob Kline.

Interest rates received on loans and investments were down substantially throughout the banking industry during 1971. In the last few years, Illinois National’s mix of deposits has moved considerably more than the industry average away from demand money to much more expensive time money. For example, interest paid on deposits has gone from under \$1.7 million in 1969 to over \$2.7 million in 1971. Nevertheless, the unusual profitability of the Bank has been maintained. Marketing efforts were intensified during the year, with excellent results.

With interest rates even lower now than in 1971, the banking industry is going to have trouble achieving gains in earnings during 1972. Our deposit gains at Illinois National continue to come in the time money area, which produces only very marginal incremental income at present. It will take very close cost control to enable Illinois National to maintain its 1971 level of earnings during 1972.

Financial

Because of the volume gains being experienced by our insurance subsidiaries early in 1971, we re‐cast Berkshire Hathaway’s bank loan so as to provide those companies with additional capital funds. This financing turned out to be particularly propitious when the opportunity to purchase Home & Auto occurred later in the year.

Our insurance and banking subsidiaries possess a fiduciary relationship with the public. We retain a fundamental belief in operating from a very strongly financed position so as to be in a position to unquestionably fulfill our responsibilities. Thus, we will continue to map our financial future for maximum financial strength in our subsidiaries as well as at the parent company level.

Warren E. Buffett Chairman of the Board March 13, 1972

1971年致股东信

致伯克希尔·哈撒韦公司股东：

很高兴报告，1971年经营利润（不含资本利得）为期初股东权益的14%以上。这一结果——远高于美国工业平均水平——是在纺织业务盈利不足的情况下取得的，清楚地证明了五年前启动的资本重新配置的益处。提高总资本（长期债务加权益）回报率以及净资产收益率，仍将是管理层的目标。然而，应该认识到，仅仅维持当前相对较高的回报率，可能比从1960年代大部分时间里普遍存在的极低回报率水平上提升要困难得多。

纺织业务

与大多数纺织行业一样，我们在1971年全年继续因毛利率不足而挣扎。大力削减成本的努力以及对价格敏感度较低面料的持续探索，仅产生了微薄利润。但如果没有这些努力，我们将大幅亏损。全年就业更加稳定，因为我们改善库存控制的计划取得了合理成功。

如去年所述，Ken Chace 和他的管理团队一直在逆行业大潮游泳。这种不利环境只会促使他们加倍努力。目前我们正看到行业温和回暖，我们打算利用大幅增强的销售队伍将其最大化。随着业务量和业务结构的改善，我们预计1972年纺织业务的盈利能力将会提高——尽管不会很显著。

保险业务

多种因素不寻常地结合在一起——汽车事故率下降、大额保单实际费率大幅提高、以及没有发生重大巨灾——使财产和意外险行业迎来了异常出色的一年。我们分享了这些好处，尽管它们并非没有负面含义。

我们的传统业务——目前仍是最大板块——是专业保单或非标准被保险人业务。当标准市场因行业承销亏损而变得紧张时，保险代理人会转向我们，我们的业务量就会大幅增长。这正是几年前的情况，很大程度上解释了1970年和1971年直接业务量的激增。如今，全行业承销变得非常有利可图，更多公司开始争夺它们不久前还在拒绝的被保险人，部分地区正在降费。我们仍然将承销盈利作为首要目标，这很可能意味着国民赔偿公司1972年直接业务量将大幅下降。Jack Ringwalt 和 Phil Liesche 继续以业内少有的方式领导这项业务。

我们的再保险业务，在 George Young 的卓越努力下短短两年就发展成为一项重要业务，如今面临着几乎相同的局面。我们于1969年底进入再保险业务，当时费率已大幅上升，承保能力紧张。再保险行业在1971年异常盈利，现在我们看到费率下降，以及资本充足、进取心强的新竞争对手的涌现。这些较低的费率往往伴随着更大的风险敞口。在此背景下，我们预计1972年业务会有所缩减。我们在保险业务中一般不设定量目标——在再保险业务中当然更不设定——因为如果忽略盈利能力标准，几乎任何业务量都可以实现。当巨灾发生、承销业绩恶化时，我们计划拥有足够的资源来处理届时预计能以合理价格获得的增长的业务量。

我们于1970年成立了 Cornhusker Casualty Company（康休斯克意外险公司），启动了我们的“本州”保险业务。到目前为止，无论是从营销还是从承销角度看，效果都很好。因此，我们进一步拓展了这一模式，于1971年在明尼苏达州成立了 Lakeland Fire & Casualty Company（湖地火灾与意外险公司），并于1972年成立了 Texas United Insurance（德克萨斯联合保险公司）。这些公司都将全部精力专注于一个州，力求为其地区的代理人和被保险人提供大公司的能力与小公司的便捷性和敏感度相结合的服务。自成立以来，John Ringwalt 一直全面负责这项业务。他将勤奋工作与想象力和智慧相结合，将一个想法变成了组织有序的业务。“本州”保险公司规模仍然很小，1971年保费规模略超150万美元。看起来这个数字在1972年将翻一番以上，我们将建立起一个更可靠的评估承销业绩的基础。

1971年的一大亮点是收购了位于芝加哥的 Home & Automobile Insurance Company（家庭与汽车保险公司）。这家公司由 Victor Raab 从一笔小额初始投资发展成库克县的主要汽车保险公司，1971年保费规模约为750万美元。Vic 与 Jack Ringwalt 和 Gene Abegg 是同一块料子，既有盈利经营的天赋，又对自己的事业充满热情。这三位都是从零开始建立自己的公司，在将所有权换成现金后，仍然保持着他们一贯的所有者利益和自豪感。

尽管 Vic 自 Home & Auto 成立以来将其初始股本增长了许多倍，但他的想法和才能始终受到资本基数的限制。我们为该公司增加了资本金，使其能够建立分支机构，将其高度集中、现场营销和理赔的方式扩展到其他人口密集地区。

总的来说，Home & Auto 加上1972年“本州”业务增加的业务量能否抵消国民赔偿公司直接业务和再保险业务可能的下降，尚存疑问。然而，我们在1970年和1971年大幅增长的业务量，在高利率时期带来了额外投资资金，这将在未来几年持续带来好处。因此，尽管保费规模的前景并不令人印象深刻，但1972年保险业务的投资收益和总体收益前景相当不错。

银行业务

我们的银行子公司伊利诺伊国民银行与信托公司，以存款收益率为衡量标准，继续领先于行业。1971年，伊利诺伊国民银行的平均存款税后收益率远超2%，同时：(1) 除极偶尔的储备平衡交易外，不使用借入资金；(2) 保持远高于平均水平的流动性；(3) 贷款损失远低于平均水平；(4) 存款组合中超过50%为定期存款，所有个人储蓄账户全年都获得允许的最高利率。这反映了 Gene Abegg 和 Bob Kline 出色的管理工作。

1971年，整个银行业的贷款和投资利率大幅下降。过去几年，伊利诺伊国民银行的存款组合从活期存款转向成本更高的定期存款，其幅度远超行业平均水平。例如，存款利息支出从1969年的不到170万美元增加到1971年的超过270万美元。尽管如此，该银行非凡的盈利能力得以保持。当年加大了营销力度，效果显著。

由于当前利率甚至低于1971年，银行业在1972年将难以实现收益增长。我们在伊利诺伊国民银行的存款增长仍然来自定期存款领域，目前只能产生非常微薄的增量收入。伊利诺伊国民银行要想在1972年保持1971年的收益水平，需要非常严格的成本控制。

财务

由于我们的保险子公司在1971年初业务量增长，我们重组了伯克希尔·哈撒韦的银行贷款，以便为这些公司提供额外的资本金。当同年晚些时候出现收购 Home & Auto 的机会时，这次融资显得尤为及时。

我们的保险和银行子公司与公众存在受托关系。我们始终坚持一个基本信念：从非常强劲的财务基础出发进行经营，以便毫无疑问地履行我们的责任。因此，我们将继续规划未来的财务安排，以在子公司和母公司层面都实现最大的财务实力。

沃伦·E·巴菲特
董事会主席
1972年3月13日