1972 Letter

To the Stockholders of Berkshire Hathaway Inc.:

Operating earnings of Berkshire Hathaway during 1972 amounted to a highly satisfactory 19.8% of beginning shareholders’ equity. Significant improvement was recorded in all of our major lines of business, but the most dramatic gains were in insurance underwriting profit. Due to an unusual convergence of favorable factors—diminishing auto accident frequency, moderating accident severity, and an absence of major catastrophes—underwriting profit margins achieved a level far above averages of the past or expectations of the future.

While we anticipate a modest decrease in operating earnings during 1973, it seems clear that our diversification moves of recent years have established a significantly higher base of normal earning power. Your present management assumed policy control of the company in May, 1965. Eight years later, our 1972 operating earnings of \$11,116,256 represent a return manyfold higher than would have been produced had we continued to devote our resources entirely to the textile business. At the end of the 1964 fiscal year, shareholders’ equity totaled \$22,138,753. Since that time, no additional equity capital has been introduced into the business, either through cash sale or through merger. On the contrary, some stock has been reacquired, reducing outstanding shares by 14%. The increase in book value per share from \$19.46 at fiscal year‐end 1964 to \$69.72 at 1972 year‐end amounts to about 16.5% compounded annually.

Our three major acquisitions of recent years have all worked out exceptionally well—from both the financial and human standpoints. In all three cases, the founders were major sellers and received significant proceeds in cash—and, in all three cases, the same individuals, Jack Ringwalt, Gene Abegg and Vic Raab, have continued to run the businesses with undiminished energy and imagination which have resulted in further improvement of the fine records previously established.

We will continue to search for logical extensions of our present operations, and also for new operations which will allow us to continue to employ our capital effectively.

Textile Operations

As predicted in last year’s annual report, the textile industry experienced a pickup in 1972. In recent years, Ken Chace and Ralph Rigby have developed an outstanding sales organization enjoying a growing reputation for service and reliability. Manufacturing capabilities have been restructured to complement our sales strengths.

Helped by the industry recovery, we experienced some payoff from these efforts in 1972. Inventories were controlled, minimizing close‐out losses in addition to minimizing capital requirements; product mix was greatly improved. While the general level of profitability of the industry will always be the primary factor in determining the level of our textile earnings, we believe that our relative position within the industry has noticeably improved. The outlook for 1973 is good.

Insurance Underwriting

Our exceptional underwriting profits during 1972 in the large traditional area of our insurance business at National Indemnity present a paradox. They served to swell substantially total corporate profits for 1972, but the factors which produced such profits induced exceptional amounts of new competition at what we believe to be a non‐compensatory level of rates. Overall, we probably would have retained better prospects for the next five years if profits had not risen so dramatically this year.

Substantial new competition was forecast in our annual report for last year and we experienced in 1972 the decline in premium volume that we stated such competition implied. Our belief is that industry underwriting profit margins will narrow substantially in 1973 or 1974 and, in time, this may produce an environment in which our historical growth can be resumed. Unfortunately, there is a lag between deterioration of underwriting results and tempering of competition. During this period we expect to continue to have negative volume comparisons in our traditional operation. Our seasoned management, headed by Jack Ringwalt and Phil Liesche, will continue to underwrite to produce a profit, although not at the level of 1972, and base our rates on long‐term expectations rather than short‐term hopes. Although this approach has meant dips in volume from time to time in the past, it has produced excellent long‐term results.

Also as predicted in last year’s report, our reinsurance division experienced many of the same competitive factors in 1972. A multitude of new organizations entered what has historically been a rather small field, and rates were often cut substantially, and we believe unsoundly, particularly in the catastrophe area. The past year turned out to be unusually free of catastrophes and our underwriting experience was good.

George Young has built a substantial and profitable reinsurance operation in just a few years. In the longer term we plan to be a very major factor in the reinsurance field, but an immediate expansion of volume is not sensible against a background of deteriorating rates. In our view, underwriting exposures are greater than ever. When the loss potential inherent in such exposures becomes an actuality, repricing will take place which should give us a chance to expand significantly.

In the “home state” operation, our oldest and largest such company, Cornhusker Casualty Company, operating in Nebraska only, achieved good underwriting results. In the second full year, the home state marketing appeal has been proven with the attainment of volume on the order of one‐third of that achieved by “old line” giants who have operated in the state for many decades.

Our two smaller companies, in Minnesota and Texas, had unsatisfactory loss ratios on very small volume. The home state managements understand that underwriting profitably is the yardstick of success and that operations can only be expanded significantly when it is clear that we are doing the right job in the underwriting area. Expense ratios at the new companies are also high, but that is to be expected when they are in the development stage.

John Ringwalt has done an excellent job of launching this operation, and plans to expand into at least one additional state during 1973. While there is much work yet to be done, the home state operation appears to have major long‐range potential.

Last year it was reported that we had acquired Home and Automobile Insurance Company of Chicago. We felt good about the acquisition at the time, and we feel even better now. Led by Vic Raab, this company continued its excellent record in 1972. During 1973 we expect to enter the Florida (Dade County) and California (Los Angeles) markets with the same sort of specialized urban auto coverage which Home and Auto has practiced so successfully in Cook County. Vic has the managerial capacity to run a much larger operation. Our expectation is that Home and Auto will expand significantly within a few years.

Insurance Investment Results

We were most fortunate to experience dramatic gains in premium volume from 1969 to 1971 coincidental with virtually record‐high interest rates. Large amounts of investable funds were thus received at a time when they could be put to highly advantageous use. Most of these funds were placed in tax‐exempt bonds and our investment income, which has increased from \$2,025,201 in 1969 to \$6,755,242 in 1972, is subject to a low effective tax rate.

Our bond portfolio possesses unusually good call protection, and we will benefit for many years to come from the high average yield of the present portfolio. The lack of current premium growth, however, will moderate substantially the growth in investment income during the next several years.

Banking Operations

Our banking subsidiary, The Illinois Bank and Trust Co. of Rockford, maintained its position of industry leadership in profitability. After‐tax earnings of 2.2% on average deposits in 1972 are the more remarkable when evaluated against such moderating factors as: (1) a mix of 50% time deposits heavily weighted toward consumer savings instruments, all paying the maximum rates permitted by law; (2) an unvaryingly strong liquid position and avoidance of money‐market borrowings; (3) a loan policy which has produced a net charge‐off ratio in the last two years of about 5% of that of the average commercial bank. This record is a direct tribute to the leadership of Gene Abegg and Bob Kline who run a bank where the owners and the depositors can both eat well and sleep well.

During 1972, interest paid to depositors was double the amount paid in 1969. We have aggressively sought consumer time deposits, but have not pushed for large “money market” certificates of deposit although, during the past several years, they have generally been a less costly source of time funds.

During the past year, loans to our customers expanded approximately 38%. This is considerably more than indicated by the enclosed balance sheet which includes \$10.9 million in short‐term commercial paper in the 1971 loan total, but which has no such paper included at the end of

1972. Our position as “Rockford’s Leading Bank” was enhanced during 1972. Present rate structures, a decrease in investable funds due to new Federal Reserve collection procedures, and a probable increase in already substantial non‐federal taxes make it unlikely that Illinois National will be able to increase its earnings during 1973.

Financial

On March 15, 1973, Berkshire Hathaway borrowed \$20 million at 8% from twenty institutional lenders. This loan is due March 1, 1993, with principal repayments beginning March 1, 1979. From the proceeds, \$9 million was used to repay our bank loan and the balance is being invested in insurance subsidiaries. Periodically, we expect that there will be opportunities to achieve significant expansion in our insurance business and we intend to have the financial resources available to maximize such opportunities.

Our subsidiaries in banking and insurance have major fiduciary responsibilities to their customers. In these operations we maintain capital strength far above industry norms, but still achieve a good level of profitability on such capital. We will continue to adhere to the former objective and make every effort to continue to maintain the latter.

Warren E. Buffett Chairman of the Board March 16, 1973

1972年致伯克希尔·哈撒韦股东的信

伯克希尔·哈撒韦公司1972年的经营利润达到期初股东权益的19.8%，这是一个非常令人满意的数字。我们所有主要业务线都取得了显著改善，但最引人注目的增长来自保险承销利润。由于一系列有利因素同时出现——汽车事故频率下降、事故严重程度减轻、且没有重大巨灾——承销利润率达到了远高于历史平均水平或未来预期的水平。

虽然我们预计1973年经营利润会略有下降，但显然，近几年的多元化举措已经为我们建立了一个显著更高的正常盈利能力基础。现任管理层于1965年5月取得公司政策控制权。八年后，我们1972年11,116,256美元的经营利润，相比如果我们继续将所有资源投入纺织业务所能产生的回报，高出许多倍。在1964财年末，股东权益总计22,138,753美元。自那以后，没有通过现金出售或并购引入额外股权资本。相反，我们回购了一些股票，使流通股减少了14%。每股账面价值从1964财年末的19.46美元增至1972年末的69.72美元，复合年增长率约为16.5%。

近几年我们完成的三次重大收购，无论从财务角度还是人文角度来看，都取得了非常出色的成果。在这三次收购中，创始人都作为主要卖方获得了可观的现金收益——而且，在这三位人士——Jack Ringwalt、Gene Abegg和Vic Raab——的领导下，他们继续以不减的劲头和想象力经营企业，使得之前已经相当出色的记录又有了进一步的提升。

我们将继续寻找现有业务的合理延伸，以及能让我们继续有效运用资本的新业务。

纺织业务

正如去年年报所预测的，纺织行业在1972年出现了复苏。近年来，Ken Chace和Ralph Rigby打造了一支优秀的销售团队，在服务和可靠性方面声誉日隆。生产能力也进行了重组，以配合我们的销售优势。

在行业复苏的助力下，我们在1972年看到了这些努力的回报。库存得到有效控制，最大限度地减少了清仓损失和资金占用；产品结构大幅改善。虽然行业的整体盈利水平始终是决定我们纺织业务收益的主要因素，但我们相信，我们在行业内的相对地位已显著提升。1973年前景看好。

保险承销

1972年，我们的传统大型保险业务——国民赔偿公司（National Indemnity）——取得了非同寻常的承销利润，这带来一个悖论。这些利润大幅推高了公司1972年的整体利润，但产生这些利润的因素，却在我们认为毫无补偿性的费率水平上，引来了大量新的竞争者。总体而言，如果今年利润没有如此急剧增长，我们未来五年的前景可能反而更好。

我们在去年年报中预测会出现大量新竞争，而1972年我们确实经历了保费收入下降，正如我们所说，这种竞争必然导致如此。我们相信，行业承销利润率将在1973或1974年大幅收窄，届时可能创造一个环境，使我们能够恢复历史性的增长。不幸的是，承销业绩恶化与竞争降温之间存在时滞。在此期间，我们预计传统业务的保费量将继续同比下滑。以Jack Ringwalt和Phil Liesche为首的经验丰富的管理团队，将继续以盈利为目标进行承销——虽不会达到1972年的水平——并将费率建立在长期预期而非短期希望之上。虽然这种做法过去曾不时导致业务量下滑，但它带来了优异的长期业绩。

同样如去年年报所预测，我们的再保险部门在1972年也面临许多相同的竞争因素。大量新机构涌入这个历来规模较小的领域，费率往往大幅下调，我们认为这种做法是不稳健的，尤其是在巨灾领域。过去一年异常地没有发生重大巨灾，因此我们的承销业绩不错。

George Young在短短几年内就建立了一个规模可观且盈利的再保险业务。长期来看，我们计划在再保险领域成为一个非常重要的角色，但在费率恶化的背景下，立即扩大业务量并不明智。在我们看来，承保风险比以往任何时候都大。当这些敞口中潜藏的损失成为现实时，费率将重新定价，届时我们应有机会大幅扩张。

在“本州”业务中，我们历史最悠久、规模最大的公司——仅在内布拉斯加州运营的Cornhusker Casualty Company——取得了良好的承销业绩。在第二个完整年度中，“本州”营销方式的吸引力已得到证实，其业务量达到了在该州经营数十年的“老牌”巨头业务量的三分之一左右。

我们在明尼苏达州和德克萨斯州的两家规模较小的公司，由于业务量极小，损失率不理想。本州公司的管理层明白，承销盈利是成功的衡量标准，只有在明确我们在承销领域工作到位的情况下，业务才能显著扩张。新公司的费用率也很高，但这在发展阶段是意料之中的。

John Ringwalt在启动这项业务方面做得非常出色，并计划在1973年至少再进入一个州。虽然还有许多工作要做，但本州业务似乎具有重大的长期潜力。

去年我们报告收购了芝加哥的家庭与汽车保险公司（Home and Automobile Insurance Company of Chicago）。当时我们对这次收购感觉良好，现在感觉更好。在Vic Raab的领导下，这家公司在1972年继续保持优异记录。1973年，我们预计将进入佛罗里达州（戴德县）和加利福尼亚州（洛杉矶）市场，提供与家庭与汽车公司在库克县成功运作的同类专业化城市汽车保险。Vic 有能力管理规模更大的业务。我们预期家庭与汽车公司将在几年内显著扩张。

保险投资成果

我们非常幸运，在1969年至1971年间保费收入大幅增长，而这一时期恰好利率几乎处于历史最高水平。因此，我们在大量可投资资金能够被最有利地运用的时候收到了它们。这些资金大部分投资于免税债券，我们的投资收益从1969年的2,025,201美元增至1972年的6,755,242美元，且实际税率很低。

我们的债券组合拥有异常良好的赎回保护，未来许多年我们都能从当前组合的高平均收益率中受益。然而，当前保费增长乏力，将大大减缓未来几年投资收益的增长。

银行业务

我们的银行子公司——伊利诺伊州罗克福德银行与信托公司（The Illinois Bank and Trust Co. of Rockford）——保持了行业盈利领先地位。1972年税后利润占平均存款的2.2%，考虑到以下制约因素，这一成绩更为突出：（1）存款组合中50%为定期存款，且绝大多数为消费者储蓄工具，均支付法律允许的最高利率；（2）始终保持强劲的流动性头寸，避免货币市场借款；（3）贷款政策使得过去两年的净核销率仅为普通商业银行平均水平的约5%。这一记录直接归功于Gene Abegg和Bob Kline的领导，他们经营的银行让所有者和存款人都能既吃得好又睡得安稳。

1972年支付给存款人的利息是1969年的两倍。我们积极争取消费者定期存款，但没有大力推销大额“货币市场”存单，尽管在过去几年中，后者通常是成本更低的定期资金来源。

过去一年，我们向客户发放的贷款增加了约38%。这比附上的资产负债表所显示的数字要高得多，因为1971年的贷款总额中包含了1,090万美元的短期商业票据，而1972年末则没有此类票据。我们作为“罗克福德领先银行”的地位在1972年得到加强。目前的利率结构、因美联储新收款程序导致的可投资资金减少，以及本已沉重的非联邦税可能增加，都使得伊利诺伊国民银行（Illinois National）难以在1973年提高盈利。

财务

1973年3月15日，伯克希尔·哈撒韦向20家机构贷款人借入2,000万美元，利率8%。这笔贷款于1993年3月1日到期，本金偿还从1979年3月1日开始。其中900万美元用于偿还我们的银行贷款，其余部分投资于保险子公司。我们预计，未来将不时有机会实现保险业务的显著扩张，我们打算准备好财务资源，以充分利用这些机会。

我们的银行和保险子公司对其客户负有重大受托责任。在这些业务中，我们维持着远高于行业平均水平的资本实力，同时仍在此基础上实现了良好的盈利水平。我们将继续坚持前一个目标，并尽一切努力保持后一个目标。

沃伦·E·巴菲特
董事会主席
1973年3月16日