ENGLISH
BERKSHIRE HATHAWAY INC.
To the Shareholders of Berkshire Hathaway Inc.:
Our per-share book value increased 20.3% during 1992. Over
the last 28 years (that is, since present management took over)
book value has grown from $19 to $7,745, or at a rate of 23.6%
compounded annually.
During the year, Berkshire's net worth increased by $1.52
billion. More than 98% of this gain came from earnings and
appreciation of portfolio securities, with the remainder coming
from the issuance of new stock. These shares were issued as a
result of our calling our convertible debentures for redemption
on January 4, 1993, and of some holders electing to receive
common shares rather than the cash that was their alternative.
Most holders of the debentures who converted into common waited
until January to do it, but a few made the move in December and
therefore received shares in 1992. To sum up what happened to
the $476 million of bonds we had outstanding: $25 million were
converted into shares before yearend; $46 million were converted
in January; and $405 million were redeemed for cash. The
conversions were made at $11,719 per share, so altogether we
issued 6,106 shares.
Berkshire now has 1,152,547 shares outstanding. That
compares, you will be interested to know, to 1,137,778 shares
outstanding on October 1, 1964, the beginning of the fiscal year
during which Buffett Partnership, Ltd. acquired control of the
company.
We have a firm policy about issuing shares of Berkshire,
doing so only when we receive as much value as we give. Equal
value, however, has not been easy to obtain, since we have always
valued our shares highly. So be it: We wish to increase
Berkshire's size only when doing that also increases the wealth
of its owners.
Those two objectives do not necessarily go hand-in-hand as an
amusing but value-destroying experience in our past illustrates.
On that occasion, we had a significant investment in a bank
whose management was hell-bent on expansion. (Aren't they all?)
When our bank wooed a smaller bank, its owner demanded a stock
swap on a basis that valued the acquiree's net worth and earning
power at over twice that of the acquirer's. Our management -
visibly in heat - quickly capitulated. The owner of the acquiree
then insisted on one other condition: "You must promise me," he
said in effect, "that once our merger is done and I have become a
major shareholder, you'll never again make a deal this dumb."
You will remember that our goal is to increase our per-share
intrinsic value - for which our book value is a conservative, but
useful, proxy - at a 15% annual rate. This objective, however,
cannot be attained in a smooth manner. Smoothness is
particularly elusive because of the accounting rules that apply
to the common stocks owned by our insurance companies, whose
portfolios represent a high proportion of Berkshire's net worth.
Since 1979, generally accepted accounting principles (GAAP) have
required that these securities be valued at their market prices
(less an adjustment for tax on any net unrealized appreciation)
rather than at the lower of cost or market. Run-of-the-mill
fluctuations in equity prices therefore cause our annual results
to gyrate, especially in comparison to those of the typical
industrial company.
To illustrate just how volatile our progress has been - and
to indicate the impact that market movements have on short-term
results - we show on the facing page our annual change in per-
share net worth and compare it with the annual results (including
dividends) of the S&P 500.
You should keep at least three points in mind as you
evaluate this data. The first point concerns the many businesses
we operate whose annual earnings are unaffected by changes in
stock market valuations. The impact of these businesses on both
our absolute and relative performance has changed over the years.
Early on, returns from our textile operation, which then
represented a significant portion of our net worth, were a major
drag on performance, averaging far less than would have been the
case if the money invested in that business had instead been
invested in the S&P 500. In more recent years, as we assembled
our collection of exceptional businesses run by equally
exceptional managers, the returns from our operating businesses
have been high - usually well in excess of the returns achieved
by the S&P.
A second important factor to consider - and one that
significantly hurts our relative performance - is that both the
income and capital gains from our securities are burdened by a
substantial corporate tax liability whereas the S&P returns are
pre-tax. To comprehend the damage, imagine that Berkshire had
owned nothing other than the S&P index during the 28-year period
covered. In that case, the tax bite would have caused our
corporate performance to be appreciably below the record shown in
the table for the S&P. Under present tax laws, a gain for the
S&P of 18% delivers a corporate holder of that index a return
well short of 13%. And this problem would be intensified if
corporate tax rates were to rise. This is a structural
disadvantage we simply have to live with; there is no antidote
for it.
The third point incorporates two predictions: Charlie
Munger, Berkshire's Vice Chairman and my partner, and I are
virtually certain that the return over the next decade from an
investment in the S&P index will be far less than that of the
past decade, and we are dead certain that the drag exerted by
Berkshire's expanding capital base will substantially reduce our
historical advantage relative to the index.
Making the first prediction goes somewhat against our grain:
We've long felt that the only value of stock forecasters is to
make fortune tellers look good. Even now, Charlie and I continue
to believe that short-term market forecasts are poison and should
be kept locked up in a safe place, away from children and also
from grown-ups who behave in the market like children. However,
it is clear that stocks cannot forever overperform their
underlying businesses, as they have so dramatically done for some
time, and that fact makes us quite confident of our forecast that
the rewards from investing in stocks over the next decade will be
significantly smaller than they were in the last. Our second
conclusion - that an increased capital base will act as an anchor
on our relative performance - seems incontestable. The only open
question is whether we can drag the anchor along at some
tolerable, though slowed, pace.
We will continue to experience considerable volatility in
our annual results. That's assured by the general volatility of
the stock market, by the concentration of our equity holdings in
just a few companies, and by certain business decisions we have
made, most especially our move to commit large resources to
super-catastrophe insurance. We not only accept this volatility
but welcome it: A tolerance for short-term swings improves our
long-term prospects. In baseball lingo, our performance
yardstick is slugging percentage, not batting average.
The Salomon Interlude
Last June, I stepped down as Interim Chairman of Salomon Inc
after ten months in the job. You can tell from Berkshire's 1991-
92 results that the company didn't miss me while I was gone. But
the reverse isn't true: I missed Berkshire and am delighted to
be back full-time. There is no job in the world that is more fun
than running Berkshire and I count myself lucky to be where I am.
The Salomon post, though far from fun, was interesting and
worthwhile: In Fortune's annual survey of America's Most Admired
Corporations, conducted last September, Salomon ranked second
among 311 companies in the degree to which it improved its
reputation. Additionally, Salomon Brothers, the securities
subsidiary of Salomon Inc, reported record pre-tax earnings last
year - 34% above the previous high.
Many people helped in the resolution of Salomon's problems
and the righting of the firm, but a few clearly deserve special
mention. It is no exaggeration to say that without the combined
efforts of Salomon executives Deryck Maughan, Bob Denham, Don
Howard, and John Macfarlane, the firm very probably would not
have survived. In their work, these men were tireless,
effective, supportive and selfless, and I will forever be
grateful to them.
Salomon's lead lawyer in its Government matters, Ron Olson
of Munger, Tolles & Olson, was also key to our success in getting
through this trouble. The firm's problems were not only severe,
but complex. At least five authorities - the SEC, the Federal
Reserve Bank of New York, the U.S. Treasury, the U.S. Attorney
for the Southern District of New York, and the Antitrust Division
of the Department of Justice - had important concerns about
Salomon. If we were to resolve our problems in a coordinated and
prompt manner, we needed a lawyer with exceptional legal,
business and human skills. Ron had them all.
Acquisitions
Of all our activities at Berkshire, the most exhilarating
for Charlie and me is the acquisition of a business with
excellent economic characteristics and a management that we like,
trust and admire. Such acquisitions are not easy to make but we
look for them constantly. In the search, we adopt the same
attitude one might find appropriate in looking for a spouse: It
pays to be active, interested and open-minded, but it does not
pay to be in a hurry.
In the past, I've observed that many acquisition-hungry
managers were apparently mesmerized by their childhood reading of
the story about the frog-kissing princess. Remembering her
success, they pay dearly for the right to kiss corporate toads,
expecting wondrous transfigurations. Initially, disappointing
results only deepen their desire to round up new toads.
("Fanaticism," said Santyana, "consists of redoubling your effort
when you've forgotten your aim.") Ultimately, even the most
optimistic manager must face reality. Standing knee-deep in
unresponsive toads, he then announces an enormous "restructuring"
charge. In this corporate equivalent of a Head Start program,
the CEO receives the education but the stockholders pay the
tuition.
In my early days as a manager I, too, dated a few toads.
They were cheap dates - I've never been much of a sport - but my
results matched those of acquirers who courted higher-priced
toads. I kissed and they croaked.
After several failures of this type, I finally remembered
some useful advice I once got from a golf pro (who, like all pros
who have had anything to do with my game, wishes to remain
anonymous). Said the pro: "Practice doesn't make perfect;
practice makes permanent." And thereafter I revised my strategy
and tried to buy good businesses at fair prices rather than fair
businesses at good prices.
Last year, in December, we made an acquisition that is a
prototype of what we now look for. The purchase was 82% of
Central States Indemnity, an insurer that makes monthly payments
for credit-card holders who are unable themselves to pay because
they have become disabled or unemployed. Currently the company's
annual premiums are about $90 million and profits about $10
million. Central States is based in Omaha and managed by Bill
Kizer, a friend of mine for over 35 years. The Kizer family -
which includes sons Bill, Dick and John - retains 18% ownership
of the business and will continue to run things just as it has in
the past. We could not be associated with better people.
Coincidentally, this latest acquisition has much in common
with our first, made 26 years ago. At that time, we purchased
another Omaha insurer, National Indemnity Company (along with a
small sister company) from Jack Ringwalt, another long-time
friend. Jack had built the business from scratch and, as was the
case with Bill Kizer, thought of me when he wished to sell.
(Jack's comment at the time: "If I don't sell the company, my
executor will, and I'd rather pick the home for it.") National
Indemnity was an outstanding business when we bought it and
continued to be under Jack's management. Hollywood has had good
luck with sequels; I believe we, too, will.
Berkshire's acquisition criteria are described on page 23.
Beyond purchases made by the parent company, however, our
subsidiaries sometimes make small "add-on" acquisitions that
extend their product lines or distribution capabilities. In this
manner, we enlarge the domain of managers we already know to be
outstanding - and that's a low-risk and high-return proposition.
We made five acquisitions of this type in 1992, and one was not
so small: At yearend, H. H. Brown purchased Lowell Shoe Company,
a business with $90 million in sales that makes Nursemates, a
leading line of shoes for nurses, and other kinds of shoes as
well. Our operating managers will continue to look for add-on
opportunities, and we would expect these to contribute modestly
to Berkshire's value in the future.
Then again, a trend has emerged that may make further
acquisitions difficult. The parent company made one purchase in
1991, buying H. H. Brown, which is run by Frank Rooney, who has
eight children. In 1992 our only deal was with Bill Kizer,
father of nine. It won't be easy to keep this string going in
1993.
Sources of Reported Earnings
The table below shows the major sources of Berkshire's
reported earnings. In this presentation, amortization of
Goodwill and other major purchase-price accounting adjustments
are not charged against 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. I've
explained in past reports why this form of presentation seems to
us to be more useful to investors and managers than one utilizing
GAAP, which requires purchase-price adjustments to be made on a
business-by-business basis. The total net earnings we show in
the table are, of course, identical to the GAAP total in our
audited financial statements.
(000s omitted)
-----------------------------------------------
Berkshire's Share
of Net Earnings
(after taxes and
Pre-Tax Earnings minority interests)
---------------------- ----------------------
1992 1991 1992 1991
---------- ---------- ---------- ----------
Operating Earnings:
Insurance Group:
Underwriting ............ $(108,961) $(119,593) $ (71,141) $ (77,229)
Net Investment Income.... 355,067 331,846 305,763 285,173
H. H. Brown (acquired 7/1/91) 27,883 13,616 17,340 8,611
Buffalo News .............. 47,863 37,113 28,163 21,841
Fechheimer ................ 13,698 12,947 7,267 6,843
Kirby ..................... 35,653 35,726 22,795 22,555
Nebraska Furniture Mart ... 17,110 14,384 8,072 6,993
Scott Fetzer
Manufacturing Group .... 31,954 26,123 19,883 15,901
See's Candies ............. 42,357 42,390 25,501 25,575
Wesco - other than Insurance 15,153 12,230 9,195 8,777
World Book ................ 29,044 22,483 19,503 15,487
Amortization of Goodwill .. (4,702) (4,113) (4,687) (4,098)
Other Purchase-Price
Accounting Charges ..... (7,385) (6,021) (8,383) (7,019)
Interest Expense* ......... (98,643) (89,250) (62,899) (57,165)
Shareholder-Designated
Contributions .......... (7,634) (6,772) (4,913) (4,388)
Other ..................... 72,223 77,399 36,267 47,896
---------- ---------- ---------- ----------
Operating Earnings .......... 460,680 400,508 347,726 315,753
Sales of Securities ......... 89,937 192,478 59,559 124,155
---------- ---------- ---------- ----------
Total Earnings - All Entities $ 550,617 $ 592,986 $ 407,285 $ 439,908
========== ========== ========== ==========
*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.
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.
"Look-Through" Earnings
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 no 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 very
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
Insurance Operations
Shown below is an updated version of our usual table
presenting key figures for the property-casualty insurance
industry:
Yearly Change Combined Ratio
in Premiums After Policyholder
Written (%) Dividends
------------- ------------------
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 x dollars of
damage 20 years ago could easily cost 10x 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.
Common Stock Investments
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%.
12/31/92
Shares Company Cost Market
------ ------- ---------- ----------
(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 always 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 The Theory of Investment Value, written over 50 years ago,
John Burr Williams set forth the equation for value, which we
condense here: 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. 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 will, 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.
Fixed-Income Securities
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 x
in business value have sold in the market for 1/2x 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 x for
1/2x here. Indeed, in the case of common-stock offerings, selling
shareholders are often motivated to unload only 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.
Two New Accounting Rules and a Plea for One More
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.
Miscellaneous
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
about this idea.
We suggest that new shareholders read the description of our
shareholder-designated contributions program that appears on pages
48-49. 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, 1993 will be ineligible for the 1993
program.
In addition to the shareholder-designated contributions that
Berkshire distributes, managers of our operating businesses make
contributions, including merchandise, averaging about $2.0 million
annually. These contributions support local charities, such as The
United Way, and produce roughly commensurate benefits for our
businesses.
However, neither our operating managers nor officers of the
parent company use Berkshire funds to make contributions to broad
national programs or charitable activities of special personal
interest to them, except to the extent they do so as shareholders.
If your employees, including your CEO, wish to give to their alma
maters or other institutions to which they feel a personal
attachment, we believe they should use their own money, not yours.
* * * * * * * * * * * *
This year the Annual Meeting will be held at the Orpheum
Theater in downtown Omaha at 9:30 a.m. on Monday, April 26, 1993.
A record 1,700 people turned up for the meeting last year, but that
number still leaves plenty of room at the Orpheum.
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
for the meeting and return after it ends.
Charlie and I always enjoy the meeting, and we hope you can
make it. The quality of our shareholders is reflected in the
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.
Warren E. Buffett
March 1, 1993 Chairman of the Board
中文译文
伯克希尔·哈撒韦公司
致伯克希尔·哈撒韦公司股东：
我们的每股账面价值在1992年增长了20.3%。过去28年（即现任管理层接手以来），账面价值从19美元增长至7,745美元，年复合增长率为23.6%。
年内，伯克希尔的净资产增加了15.2亿美元。其中超过98%来自收益及投资组合证券的增值，其余来自发行新股。这些股票是由于我们在1993年1月4日赎回可转换债券，以及部分持有人选择收取普通股而非等值现金而发行的。大部分可转换债券持有人等到1月才进行转换，但少数在12月就转换了，因此他们在1992年就收到了股票。总结一下我们发行的4.76亿美元债券的情况：年底前有2,500万美元转换成了股票；1月份有4,600万美元转换；4.05亿美元以现金赎回。转换价格为每股11,719美元，因此我们总共发行了6,106股。
伯克希尔目前有1,152,547股流通股。你们会有兴趣知道，这与1964年10月1日——巴菲特合伙有限公司取得公司控制权那个财年的起点——的1,137,778股流通股相比，略有所增。
关于发行伯克希尔股票，我们有一条坚定的政策：只有在获得同等价值时才发行。然而，同等价值并不容易获得，因为我们一直对自己的股票估值很高。那就这样吧：只有当扩大伯克希尔的规模同时也能增加其所有者的财富时，我们才愿意这么做。
这两个目标并不一定同步，我们过去一次有趣但摧毁价值的经历就足以说明。当时我们在一家银行有大量投资，该银行管理层一心只想扩张（哪个不是呢？）。当我们的银行向一家小银行示好时，对方所有者要求换股，且估值基础是被收购方的净资产和盈利能力高达收购方的两倍以上。我们的管理层——显然急不可耐——迅速屈服了。被收购方的所有者随后坚持另一个条件：“你必须向我保证，”他实际上说，“一旦我们的合并完成，我成为主要股东后，你绝不能再做这么愚蠢的交易。”
你们还记得，我们的目标是使每股内在价值（账面价值是其保守但有用的近似指标）以每年15%的速率增长。但这个目标无法平稳实现。波动性尤其难以避免，因为我们的保险公司持有的普通股适用会计准则——这些公司的投资组合占伯克希尔净资产很大比例。自1979年以来，美国通用会计准则要求这些证券按市价估值（减去任何未实现增值净额的税收调整），而不是采用成本与市价孰低法。因此，股票价格的日常波动导致我们的年度业绩剧烈动荡，尤其与典型工业公司相比。
为了说明我们的进展有多不稳定——以及市场波动对短期结果的影响——我们在对面页展示了每股净资产的年度变化，并与标普500指数的年度结果（含股息）进行比较。
在评估这些数据时，你至少需要记住三点。第一点涉及我们经营的许多业务——这些业务的年度收益不受股市估值变化的影响。这些业务对我们的绝对和相对表现的影响，多年来已经发生了变化。早年，我们的纺织业务（当时占净资产的很大一部分）回报率很低，平均远低于如果投资于标普500所能获得的水平，严重拖累了业绩。近年来，随着我们组建了一批由同样杰出的经理人经营的杰出企业，我们经营业务的回报率一直很高——通常远超标普500的回报率。
第二个需要考虑的重要因素——并且会显著拖累我们的相对表现——是：我们证券的收入和资本利得都背负着巨额公司税负，而标普500的回报是税前的。要理解这种损害的程度，不妨假设在覆盖的28年期间，伯克希尔除了标普指数外别无他物。在这种情况下，税收的影响会让我们公司的业绩明显低于表格中标普500的纪录。根据现行税法，标普500上涨18%，作为公司持有者，其实际回报远低于13%。如果公司税率上升，这个问题会更严重。这是一个我们必须接受的结构性劣势，没有解药。
第三点包含两个预测：伯克希尔副董事长、我的合伙人查理·芒格和我几乎可以肯定，未来十年投资标普500指数的回报将远低于过去十年；同时我们确信，伯克希尔不断扩大的资本基础所带来的拖累，将大幅削弱我们相对于该指数的历史优势。
做出第一个预测多少有些违背我们的本性：我们一直认为，股市预测者的唯一价值就是让算命先生看起来更靠谱。即使现在，查理和我仍然坚信，短期市场预测是毒药，应该锁在安全的地方，远离儿童，也远离那些在市场上行为举止像儿童的成年人。然而，股票不可能永远跑赢其基础业务——就像它们最近一段时间那样戏剧性地——这一事实让我们对自己的预测相当有信心：未来十年投资股票的回报将明显小于过去十年。第二个结论——资本基础扩大将成为我们相对表现的锚——似乎无可争辩。唯一悬而未决的问题是，我们能否拖着这个锚，以某种可以接受（尽管较慢）的速度前行。
我们将继续经历年度业绩的显著波动。股市的整体波动、我们的股权投资集中在少数几家公司，以及我们做出的某些商业决策——尤其是将大量资源投入超级巨灾保险——都保证了这一点。我们不仅接受这种波动，而且欢迎它：容忍短期波动会改善我们的长期前景。用棒球术语来说，我们的业绩衡量标准是长打率，而不是打击率。
所罗门插曲
去年6月，在担任所罗门公司（Salomon Inc）临时董事长十个月后，我卸任了。从伯克希尔1991-92年的业绩可以看出，我不在的这段时间公司并没有想我。但反过来就不一样了：我很想念伯克希尔，能回来全职工作真让我高兴。世上没有比经营伯克希尔更有趣的工作，我庆幸自己能身处此地。
所罗门的职位虽然远谈不上有趣，但既有趣又有价值：在《财富》杂志去年9月举办的年度"美国最受尊敬企业"调查中，所罗门在311家公司中声誉改善程度排名第二。此外，所罗门公司的证券子公司所罗门兄弟（Salomon Brothers）去年报告了创纪录的税前利润——比此前最高水平高出34%。
许多人在解决所罗门的问题和扭转公司局面的过程中提供了帮助，但有几位显然值得特别提及。毫不夸张地说，如果没有所罗门高管Deryck Maughan、Bob Denham、Don Howard和John Macfarlane的共同努力，这家公司很可能已经不复存在。他们不知疲倦、卓有成效、相互支持、无私奉献，我将永远感激他们。
所罗门在政府事务方面的首席律师——来自Munger, Tolles & Olson律所的Ron Olson——也是我们成功渡过难关的关键人物。公司的问题不仅严重，而且复杂。至少有五个监管机构——美国证券交易委员会（SEC）、纽约联邦储备银行、美国财政部、纽约南区联邦检察官办公室以及司法部反垄断司——对所罗门有重大关切。如果我们想以协调、迅速的方式解决问题，我们需要一位兼具出色法律、商业和人际能力的律师。Ron正是这样的人。
**收购**
在伯克希尔的所有活动中，最让查理和我兴奋的莫过于收购一家既有优秀经济特性、又拥有我们喜欢、信任和欣赏的管理层的企业。这样的收购并不容易，但我们一直在寻找。在寻找过程中，我们采取的态度大概和找配偶时一样：积极主动、有兴趣、保持开放心态是值得的，但匆忙行事就不值得了。
过去我曾注意到，许多渴望收购的经理人显然被童年时读过的"青蛙公主"故事迷住了。记得公主的成功后，他们不惜重金买下亲吻企业"蛤蟆"的权利，期待奇迹般的变形。最初令人失望的结果只会加深他们寻找新蛤蟆的欲望。（桑塔亚纳说过："狂热，就是在你忘记目标时加倍努力。"）最终，即使最乐观的经理人也必须面对现实。站在及膝深、毫无反应的蛤蟆堆中，他宣布一笔巨额的"重组"费用。在这种企业版的"启蒙计划"中，CEO接受教育，但股东支付学费。
在我早期做经理人的日子里，我也约会过几只蛤蟆。它们约会成本很低——我从来不是个爱挥霍的人——但我的结果和那些追求高价蛤蟆的收购者一样。我亲了，它们呱呱叫了。
在经历几次这类失败后，我终于想起了一位高尔夫球手给我的有用建议（这位球手和所有曾指点过我球技的教练一样，希望匿名）。他说："练习不能让你完美；练习只能让你定型。"此后我调整了策略，努力以公平的价格买入好生意，而不是以好价格买入公平的生意。
去年12月，我们完成了一笔收购，这笔交易堪称我们目前寻觅目标的典范。我们收购了Central States Indemnity（中央各州保险公司）82%的股份，这家保险公司为因伤残或失业而无法还款的信用卡持卡人提供月度还款服务。目前该公司年保费约9,000万美元，利润约1,000万美元。Central States总部设在奥马哈，由我的老友Bill Kizer管理，我们相识已超过35年。Kizer家族——包括他的儿子Bill、Dick和John——保留了公司18%的股权，并将一如既往地继续经营业务。能与这样优秀的人共事，再好不过。
巧合的是，这笔最新收购与我们26年前的第一笔收购有许多相似之处。当时，我们从另一位长期好友Jack Ringwalt手中收购了另一家奥马哈保险公司National Indemnity Company（国民赔偿公司）（连同其一家小型姊妹公司）。Jack白手起家创立了这家企业，就像Bill Kizer一样，当他想要出售时，想到了我。（Jack当时说：“如果我不卖掉公司，我的遗嘱执行人也会卖，我宁愿自己为它挑个好归宿。”）National Indemnity在我们收购时就是一家出色的企业，在Jack的管理下依然如此。好莱坞喜欢拍续集，而且运气不错；我相信我们也会如此。
伯克希尔的收购标准在第23页有所描述。不过，除了母公司进行的收购外，我们的子公司有时也会进行一些小型“补充性”收购，以拓展其产品线或分销能力。通过这种方式，我们扩大了已知杰出管理者的业务版图——这是一项低风险、高回报的提议。1992年我们进行了五笔此类收购，其中一笔规模不小：年末时，H. H. Brown收购了Lowell Shoe Company（洛厄尔鞋业公司），该公司年销售额9,000万美元，生产Nursemates（护士伴侣）——护士鞋中的领先品牌——以及其他鞋类。我们的运营经理将继续寻找补充性收购机会，预计这些收购未来将为伯克希尔的价值做出适度贡献。
不过，一种趋势已经显现，可能使未来的收购变得困难。母公司1991年进行了一笔收购，买下了由Frank Rooney经营的H. H. Brown，他有八个孩子。1992年我们唯一的一笔交易是与Bill Kizer进行的，他有九个孩子。要在1993年延续这一记录可不容易。
报告盈利来源
下表列示了伯克希尔报告利润的主要来源。在本表中，商誉摊销及其他主要收购价会计调整并未计入其所对应的具体业务，而是汇总后单独列示。这种处理方式让你能够看到这些业务的盈利——如同我们未收购它们时本应报告的数据。我在过去的报告中解释过，这种呈现方式在我们看来比美国通用会计准则（GAAP）按业务逐项进行收购价调整的做法，对投资者和管理者更有帮助。当然，表中列示的净利润总额与我们经审计财务报表中的GAAP总额完全一致。
（单位：千美元）
-----------------------------------------------
伯克希尔应占净收益
（税后及扣除少数股东权益）
税前利润
---------------------- ----------------------
1992 1991 1992 1991
---------- ---------- ---------- ----------
经营利润：
保险集团：
承销 ................. $(108,961) $(119,593) $ (71,141) $ (77,229)
净投资收益 ........... 355,067 331,846 305,763 285,173
H. H. Brown（布朗鞋业，1991年7月1日收购） 27,883 13,616 17,340 8,611
Buffalo News（布法罗新闻报） ........ 47,863 37,113 28,163 21,841
Fechheimer（费希海默） ................ 13,698 12,947 7,267 6,843
Kirby（科伟） ..................... 35,653 35,726 22,795 22,555
Nebraska Furniture Mart（内布拉斯加家具城） 17,110 14,384 8,072 6,993
Scott Fetzer Manufacturing Group（斯科特·费策尔制造集团） 31,954 26,123 19,883 15,901
See's Candies（喜诗糖果） ............ 42,357 42,390 25,501 25,575
Wesco（韦斯科）——保险业务除外 15,153 12,230 9,195 8,777
World Book（世界图书） ................ 29,044 22,483 19,503 15,487
商誉摊销 ............... (4,702) (4,113) (4,687) (4,098)
其他收购价会计调整 ..... (7,385) (6,021) (8,383) (7,019)
利息费用* .............. (98,643) (89,250) (62,899) (57,165)
股东指定捐赠 ........... (7,634) (6,772) (4,913) (4,388)
其他 .................. 72,223 77,399 36,267 47,896
---------- ---------- ---------- ----------
经营利润 ............... 460,680 400,508 347,726 315,753
证券出售 ............... 89,937 192,478 59,559 124,155
---------- ---------- ---------- ----------
所有实体总利润 ......... $ 550,617 $ 592,986 $ 407,285 $ 439,908
========== ========== ========== ==========
*不包括Scott Fetzer Financial Group（斯科特·费策尔金融集团）和Mutual Savings & Loan（互助储蓄与贷款公司）的利息费用。包含1992年2,250万美元和1991年570万美元的债务提前赎回溢价。
有关这些业务的大量额外信息见第37-47页，您还可以在那里找到按GAAP基础报告的分部利润。我们的目标是向您提供所有Charlie和我认为对评估伯克希尔有意义的财务信息。
"透视盈余"
我们之前讨论过透视盈余，它包括：(1) 上一节报告的经营利润，加上；(2) 主要被投资公司中未体现在我们利润中的留存经营利润（根据GAAP会计准则），再减去；(3) 如果这些被投资公司的留存收益实际分配给我们，伯克希尔需缴纳的预估税款。虽然没有单一数字是完美的，但我们相信透视盈余比GAAP数字更能准确反映伯克希尔的盈利状况。
我曾告诉过你们，如果我们的内在商业价值要按年化15%的速度增长，那么透视盈余也必须以大致相同的速度增长。1992年我们的透视盈余为6.04亿美元，要达到15%的增长目标，到2000年它需要增长到18亿美元以上。为了达成这个目标，我们的运营子公司和被投资公司必须交出优异的表现，同时我们在资本配置方面也要施展一些技巧。
我们无法承诺一定实现18亿美元的目标。事实上，我们甚至可能连边都挨不上。但它的确指导着我们的决策：今天配置资本时，我们思考的是如何让2000年的透视盈余最大化。
不过，我们并不认为这种长期聚焦能免除我们同时取得不错短期成果的必要性。毕竟，我们在五年前或十年前就在思考长期问题，当时采取的行动现在应该开始见效了。如果满怀信心播下的种子一而再、再而三地换来令人失望的收成，那肯定是农夫出了问题。（也可能是农场本身的问题：投资者应该明白，对于某些公司，甚至某些行业，根本就不存在什么好的长期策略。）正如你们应该警惕那些通过会计手段、资产出售等方式粉饰短期利润的管理层一样，你们也应该警惕那些长期业绩不佳却归咎于"长期思维"的管理层。（即便是爱丽丝，在听完红皇后大谈"明天就有果酱"之后，也终于忍不住说："总得有时候是今天就有果酱吧。"）
下表展示了我们如何计算透视盈余，不过我要提醒你们，这些数字必然非常粗略。（这些被投资公司向我们支付的股息已计入第8页列示的经营利润中，主要归在"保险集团：净投资收益"项下。）
这是伯克希尔主要被投资公司的持股及收益情况：
伯克希尔主要被投资公司 年末持股比例 伯克希尔应占未分配经营利润（百万美元）
--------------------------- ----------------------- ------------------
1992 1991 1992 1991
-------- -------- -------- --------
首都城市/ABC公司（Capital Cities/ABC Inc.）...... 18.2% 18.1% $ 70 $ 61
可口可乐公司（The Coca-Cola Company）......... 7.1% 7.0% 82 69
联邦住宅贷款抵押公司（Federal Home Loan Mortgage Corp.） 8.2%(1) 3.4%(1) 29(2) 15
GEICO保险公司（GEICO Corp.）................... 48.1% 48.2% 34(3) 69(3)
通用动力公司（General Dynamics Corp.）........ 14.1% -- 11(2) --
吉列公司（The Gillette Company）.......... 10.9% 11.0% 38 23(2)
健力士公司（Guinness PLC）.................. 2.0% 1.6% 7 --
华盛顿邮报公司（The Washington Post Company）... 14.6% 14.6% 11 10
富国银行公司（Wells Fargo & Company）......... 11.5% 9.6% 16(2) (17)(2)
-------- -------- -------- --------
伯克希尔应占主要被投资公司未分配利润 $298 $230
这些未分配被投资公司收益的假设税项 (42) (30)
伯克希尔报告的经营利润 348 316
-------- --------
伯克希尔的总透视盈余 $604 $516
(1) 扣除了Wesco的少数股东权益
(2) 按年度平均持股计算
(3) 未包括已实现资本利得，该利得既持续且重大
保险业务
下表是我们常用表格的更新版，展示了财产意外险行业的关键数据：
保费收入年增长率(%) 股东分红后综合成本率
------------- ------------------
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（修订后）................. 2.4 108.8
1992（估计值）................ 2.7 114.8
综合成本率代表保险总成本（已发生损失加费用）与保费收入之比：比率低于100表示承保盈利，高于100表示亏损。比率越高，年份越差。如果将保险公司持有保单持有人资金（即"浮存金"）赚取的投资收益考虑在内，综合成本率在106-110之间通常能达到整体盈亏平衡，但不包括股东出资所赚取的收益。
1992年保险行业综合成本率中约有四个百分点可归因于安德鲁飓风，这场飓风造成了历史上最大的保险损失。安德鲁摧毁了几家小型保险公司。除此之外，它还让一些大公司意识到，它们针对巨灾的再保险保障远远不够。（只有退潮时才知道谁在裸泳。）一家大型保险公司之所以能免于破产，完全是因为它有一位富有的母公司能够迅速提供大规模的资金注入。
然而，尽管损失惨重，但如果安德鲁登陆佛罗里达的位置比实际位置偏北20或30英里，并且在路易斯安那州登陆的位置比实际更靠东，那么破坏性可能会大得多。总之，许多公司会基于安德鲁的经验重新审视它们的再保险方案。
如你所知，我们是"超级巨灾"保险的大额承保方——或许是世界上最大的——这类保单是其他保险公司为保护自己免受重大巨灾损失而购买的。因此，我们也在安德鲁飓风中受到了冲击，损失约为1.25亿美元，大致相当于我们1992年超级巨灾保费收入的总和。不过，我们其他超级巨灾的损失微乎其微。因此，这条业务线当年整体亏损仅为200万美元。（此外，我们的被投资公司GEICO（政府雇员保险公司）在扣除再保险赔付和税收优惠后，因安德鲁飓风净损失约5000万美元，其中我们承担的份额约为2500万美元。这笔损失没有影响我们的经营利润，但确实减少了我们的透视盈余。）
在去年的报告中，我告诉过你们，我希望我们的超级巨灾业务能随着时间的推移实现10%的利润率。但我也提醒过你们，在任何一年里，这条业务线很可能会"要么大赚，要么大亏"。然而，1991年和1992年却都接近盈亏平衡。尽管如此，我认为这些结果属于异常情况，并坚持我对该业务利润将出现大幅年度波动的预测。
让我再提醒你们一下我们超级巨灾保单的一些特点。通常，只有在两种情况同时发生时才会触发赔付。第一，我们保护的直接保险公司或再保险公司必须因一场巨灾遭受一定金额的损失——即保单持有人的"自留额"；第二，该巨灾导致的行业总保险损失必须超过某个最低门槛，这个门槛通常是30亿美元或更多。在大多数情况下，我们签发的保单只覆盖特定的地理区域，例如美国部分地区、全美或美国以外的所有地区。此外，许多保单并非由符合保单条款的第一次超级巨灾触发，而是只覆盖"第二次事件"，甚至第三次或第四次事件。最后，有些保单仅由特定类型的巨灾触发，例如地震。我们的风险敞口很大：我们有一份保单规定，如果发生特定的巨灾，我们需要向保单持有人支付1亿美元。（现在你知道为什么我眼睛疲劳了：一直盯着天气频道看。）
目前，伯克希尔在美国财产险/意外险行业中净资产排名第二（排名第一的是State Farm，该公司既不购买也不出售再保险）。因此，我们有能力承担几乎其他公司都不感兴趣的大规模风险。我们也有这个胃口：随着伯克希尔的净资产和收益增长，我们承保业务的意愿也在增加。但我要补充一句，这意味着好的业务。俗话说，“傻瓜和他的钱很快就会被到处邀请”，在再保险领域尤其如此，实际上我们拒绝了超过98%的报价。我们在好坏提案之间做出选择的能力，反映了与财务实力相匹配的管理实力：负责我们再保险业务的Ajit Jain，就是这一行里最好的。这些优势加在一起，保证了只要价格合适，我们就会继续在超级巨灾业务中扮演重要角色。
当然，什么样的价格才算合适很难确定。巨灾保险公司不能简单地根据过去经验外推。例如，如果真的存在“全球变暖”，那么概率就会发生变化，因为大气条件的微小变化会导致天气模式的巨大变化。此外，近年来，美国沿海地区的人口和受保价值急剧膨胀，这些地区特别容易受到飓风（超级巨灾的头号制造者）的袭击。20年前造成x美元损失的飓风，现在可能轻易造成10倍损失。
偶尔也会发生无法想象的事情。例如，谁能猜到南卡罗来纳州查尔斯顿会发生大地震？（那次地震发生在1886年，估计里氏6.6级，造成60人死亡。）谁又能想象，我国最严重的地震会发生在密苏里州新马德里，1812年那里发生了估计为8.7级的震撼性地震。相比之下，1989年旧金山地震为7.1级——记住里氏每增加一级，强度增加十倍。总有一天，美国远离加州的地震会给保险公司带来巨大损失。
在查看我们的季度数据时，您应该了解我们对超级巨灾保费的会计处理与其他保险保费不同。我们不是按保单期限按比例确认超级巨灾保费，而是在损失发生或保单到期时递延确认收入。我们采取这种保守做法，因为超级巨灾给我们造成损失的可能性在年底特别大。那时天气往往会变得剧烈：美国历史上最大的十次保险损失中，有九次发生在下半年。此外，那些未被首次事件触发的保单，按条款本身也往往在年底前不会给我们造成损失。
我们对超级巨灾会计处理的最终影响是：大额损失可能在一年中的任何一个季度报告，但重大利润只会在第四季度报告。
* * * * * * * * * * * *
正如我在过去几年中每年都告诉您的那样，我们保险业务的关键是“保险业务产生的资金成本”，或者说“浮存金成本”。浮存金——我们以异常庞大的规模产生——是损失准备金、损失调整费用准备金和未赚保费准备金减去代理人余额、预付取得成本和与假定再保险相关的递延费用后的总额。浮存金成本通过我们的承保亏损来衡量。
下表显示了我们自1967年进入该行业以来的浮存金成本。
（承保亏损以百万美元计）
年份 承保亏损 平均浮存金 资金成本 美国国库券收益率
(1) (2) (3) (4) (5)
1967 盈利 $17 盈利 4.2%
1968 盈利 20 盈利 5.2%
1969 盈利 23 盈利 6.0%
1970 盈利 26 盈利 6.2%
1971 盈利 30 盈利 4.1%
1972 盈利 42 盈利 3.9%
1973 盈利 51 盈利 6.1%
1974 4.0 57 7.0% 7.2%
1975 9.5 62 15.3% 6.1%
1976 0.3 59 0.5% 5.2%
1977 7.3 69 10.6% 5.6%
1978 5.8 76 7.6% 7.1%
1979 5.2 83 6.3% 10.0%
1980 10.6 90 11.8% 11.6%
1981 13.5 96 14.1% 13.1%
1982 23.1 104 22.2% 10.9%
1983 14.4 115 12.5% 8.9%
1984 13.0 120 10.8% 10.0%
1985 4.5 140 3.2% 8.0%
1986 3.8 155 2.5% 6.2%
1987 4.4 208 2.1% 6.1%
1988 5.6 229 2.4% 6.8%
1989 4.3 295 1.5% 8.2%
1990 9.3 345 2.7% 7.6%
1991 8.5 390 2.2% 5.8%
1992 7.6 407 1.9% 3.7%
(1) (2) 年末长期政府
承销亏损 平均浮存金 近似资金成本 债券收益率
------------ ------------- --------------- -------------
（单位：百万美元） （1与2之比）
1967 ......... 盈利 $17.3 低于零 5.50%
1968 ......... 盈利 19.9 低于零 5.90%
1969 ......... 盈利 23.4 低于零 6.79%
1970 ......... $ 0.37 32.4 1.14% 6.25%
1971 ......... 盈利 52.5 低于零 5.81%
1972 ......... 盈利 69.5 低于零 5.82%
1973 ......... 盈利 73.3 低于零 7.27%
1974 ......... 7.36 79.1 9.30% 8.13%
1975 ......... 11.35 87.6 12.96% 8.03%
1976 ......... 盈利 102.6 低于零 7.30%
1977 ......... 盈利 139.0 低于零 7.97%
1978 ......... 盈利 190.4 低于零 8.93%
1979 ......... 盈利 227.3 低于零 10.08%
1980 ......... 盈利 237.0 低于零 11.94%
1981 ......... 盈利 228.4 低于零 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%
去年，我们的保险业务再度以低于美国政府新发行长期债券成本的成本获得了资金。这意味着，在我们涉足保险业务的26年中，有21年我们击败了政府的利率，而且常常以很大优势胜出。（如果我们平均下来连政府利率都跑不过，那做这门生意就没有经济意义了。）
1992年，与往年一样，由Don Wurster领导的国民赔偿公司商业车险与一般责任险业务，以及由Rod Eldred领导的州内业务，对我们低成本浮存金的贡献非常出色。事实上，这两项业务去年都录得了承销盈利，从而以负成本创造了浮存金。与此同时，我们大部分浮存金来自Ajit操刀的大额交易。他的努力很可能在1993年让浮存金进一步增长。
查理和我仍然喜欢保险这门生意，我们预计它将在未来几十年里成为我们主要的盈利来源。这个行业规模庞大；在某些领域，我们可以在全球范围内竞争；而且伯克希尔拥有一个重要竞争优势。我们将寻找扩大保险业务参与度的方式——无论是像通过盖可保险这样的间接方式，还是像通过收购中央赔偿保险公司这样的直接方式。
**普通股投资**
以下列出我们持有的市值超过1亿美元的普通股投资。其中一小部分属于伯克希尔持股不足100%的子公司。
1992年12月31日
持股数量 公司 成本 市值
------ ------- ---------- ----------
（单位：千美元）
3,000,000 Capital Cities/ABC, Inc. (大都会/ABC公司) ............. $ 517,500 $1,523,500
93,400,000 The Coca-Cola Company (可口可乐公司) ............... 1,023,920 3,911,125
16,196,700 Federal Home Loan Mortgage Corp. (联邦住房贷款抵押公司)
("Freddie Mac") ................... 414,257 783,515
34,250,000 GEICO Corp. (GEICO公司) .......................... 45,713 2,226,250
4,350,000 General Dynamics Corp. (通用动力公司) ............... 312,438 450,769
24,000,000 The Gillette Company (吉列公司) ................. 600,000 1,365,000
38,335,000 Guinness PLC (吉尼斯公司) ......................... 333,019 299,581
1,727,765 The Washington Post Company (华盛顿邮报公司) .......... 9,731 396,954
6,358,418 Wells Fargo & Company (富国银行公司) ................ 380,983 485,624
不考虑拆股，1992年我们持有的这些公司股份数量仅在四种情况下发生了变化：我们适度增持了吉尼斯和富国银行，将Freddie Mac的持仓增加了一倍多，并新建了通用动力的头寸。我们喜欢买入。
然而，卖出则是另一回事。在这方面，我们的活动节奏类似于一个旅行者被困在小镇Podunk唯一一家酒店里。房间里没有电视，他面临一个无聊的夜晚。但当他看到床头柜上有一本名为《Podunk能做的事》的书时，他精神大振。打开书，他只看到一句话："你现在就在做。"
我们购买通用动力很幸运。直到去年夏天，我对这家公司几乎没怎么留意，当时它宣布将通过荷兰式要约收购回购约30%的股份。看到了套利机会，我开始为伯克希尔买入这只股票，预期将我们的持股投标以获得小额利润。过去几年里我们做过大约半打类似的操作，在资金被占用的短期内获得了不错的回报。
但随后我开始研究这家公司以及Bill Anders在担任CEO的短暂时间里所取得的成就。我所看到的让我目瞪口呆：Bill有一个清晰阐述的理性战略；他在执行时专注且充满紧迫感；而其成果确实非凡。
很快，我抛弃了套利的想法，决定伯克希尔应该与Bill一起成为长期投资者。要约收购会极大地增加一只股票的交易量，这帮助我们获得了大量仓位。在一个月的时间里，我们购入了通用动力在要约完成后剩余流通股的14%。
* * * * * * * * * * * *
我们的股权投资策略与15年前相比几乎没有变化，我们在1977年年报中说过："我们选择上市股票的方式，与我们评估一家企业进行整体收购的方式大致相同。我们希望这家企业是(a)我们能理解的；(b)具有有利的长期前景；(c)由诚实且能干的人经营；(d)能以非常吸引人的价格买到。"我们只有一个理由改变这个信条：由于市场状况和我们的规模，我们现在用"有吸引力的价格"代替了"非常吸引人的价格"。
但你会问，如何判断什么是"有吸引力"？在回答这个问题时，大多数分析师认为他们必须在通常被认为是对立的两种方法之间做出选择："价值"和"成长"。事实上，许多投资专业人士将两种术语的任何混合视为一种知识层面的"异装癖"。
我们将之视为糊涂想法（我必须承认，自己多年前也曾深陷其中）。在我们看来，这两种方法其实是一体两面：增长始终是价值计算中的一个组成部分，它是一个变量，其重要性可忽略不计，也可举足轻重，其影响既可为正，亦可为负。
此外，我们认为"价值投资"这个说法本身就是多余的。如果"投资"不是寻求至少足以证明所付金额合理的价值，那它还能是什么呢？明知一支股票的价格高于其计算价值——却寄望于很快能以更高价格卖出——这种行为应该被贴上"投机"的标签（投机既不违法，也不缺德，但依我们看，与发家致富也沾不上边）。
不管恰当与否，"价值投资"这个词被广泛使用。通常，它指的是买入具有以下特征的股票：市净率低、市盈率低、或股息率高。遗憾的是，这些特征即便同时出现，也远不能确定投资者是否真的在以物有所值的方式买入，并因此真正遵循了在投资中获得价值的原则。相应地，相反的特征——高市净率、高市盈率、低股息率——也丝毫不与"价值"买入相悖。
同样地，企业增长本身并不能说明价值。没错，增长常常对价值产生正面影响，有时甚至成效惊人。但这种影响远非确定无疑。例如，投资者曾不断往国内航空业砸钱，去资助无利可图（甚至更糟）的增长。对于这些投资者，如果当年奥威尔·莱特（Orville Wright）在基蒂霍克（Kitty Hawk）就没能飞起来，那结果要好得多：这个行业越发展，对所有者而言灾难就越深重。
只有当企业能够以诱人的增量回报进行投资时——换句话说，只有当每一美元用于支持增长的资金都能创造出超过一美元的长期市场价值时——增长才会让投资者受益。对于需要增量资金的低回报企业，增长反而损害投资者利益。
五十多年前，约翰·伯尔·威廉姆斯（John Burr Williams）在《投资价值理论》（The Theory of Investment Value）中提出了价值的公式，我们在此简化为：任何股票、债券或企业今天的价值，都取决于该资产存续期内预期发生的现金流入和流出——按适当的利率折现。请注意，这个公式对股票和债券都一样。即便如此，两者之间仍有一个重要且难以处理的不同：债券有票息和到期日，定义了未来的现金流；但面对股票，投资分析师必须自己估算未来的"票息"。而且，管理层的素质很少影响债券票息——主要只有当管理层无能或不诚实到暂停支付利息时才会。相比之下，管理层的能力会极大地影响股票的"票息"。
通过折现现金流计算显示最便宜的投资，就是投资者应当买入的——无论企业增长与否，无论其盈利是波动还是平稳，也无论其相对于当前盈利和账面价值的价格是高是低。此外，尽管价值等式通常显示股票比债券更便宜，但这一结果并非必然：当计算出债券更具吸引力时，就应该买入债券。
暂不讨论价格问题，最值得拥有的企业，是那种在很长一段时期内能够大量投入增量资本、并取得很高回报率的企业。最不值得拥有的企业，是那种必须——或者将会——反其道而行之的企业，也就是一直投入越来越多的资本、却只能取得很低回报率的企业。遗憾的是，第一种企业非常难找：大多数高回报企业需要的资本相对较少。这类企业的股东，如果公司将大部分盈利以股息形式派发，或者进行大规模股份回购，通常能从中受益。
虽然评估股票所需的数学计算并不复杂，但一名分析人员——哪怕经验丰富、头脑聪明——也容易在估算未来“息票”时出错。在伯克希尔，我们试图通过两种方式来应对这个问题。首先，我们努力坚守自己相信能够理解的企业。这意味着这些企业必须性质相对简单和稳定。如果一家企业很复杂，或者不断变化，我们就不够聪明去预测其未来现金流。顺便说一句，这个短板并不困扰我们。对大多数投资者来说，重要的不是他们知道多少，而是他们如何实事求是地界定自己不知道的东西。一个投资者只要避免犯大错，他只需要做对很少几件事就够了。
其次，同样重要的一点是，我们坚持在买入价格上留有安全边际。如果我们计算出一只普通股的价值只比它的价格略高一点，我们就对买入不感兴趣。我们相信，Ben Graham 如此强调的安全边际原则，是投资成功的基石。
固定收益证券
下面列出我们持有的主要固定收益证券：
（单位：千美元）
------------------------------------
优先股成本及债券摊销价值 市值
发行人 ------------------------ ----------
ACF 工业公司信用债券 ........... $133,065(1) $163,327
美国运通"Percs" ............... 300,000 309,000(1)(2)
冠军国际可转换优先股 ........... 300,000(1) 309,000(2)
第一帝国州可转换优先股 ......... 40,000 68,000(1)(2)
所罗门可转换优先股 ............. 700,000(1) 756,000(2)
全美航空可转换优先股 ........... 358,000(1) 268,500(2)
华盛顿公共电力系统债券 ......... 58,768(1) 81,002
(1) 财务报表中的账面价值
(2) Charlie 和我确定的公允价值
1992 年，我们增加了对 ACF 信用债券的持有，部分 WPPSS 债券被赎回，并卖出了 RJR 纳贝斯克的头寸。
多年来，我们在固定收益投资上做得不错，既实现了大笔资本利得（包括 1992 年的 8000 万美元），也获得了丰厚的当期收益。克莱斯勒金融、德士古、时代华纳、WPPSS 和 RJR 纳贝斯克对我们来说都是特别好的投资。同时，我们的固定收益损失微乎其微：我们有过刺激，但至今没有翻车。
尽管我们在吉列优先股上取得了成功（该优先股于 1991 年转换为普通股），并且其他几笔协议购买的优先股也获得了合理结果，但总体而言，这类协议购买的优先股表现，不如我们在二级市场上购买的投资。这实际上是我们预料之中的结果。它符合我们的信念：一个聪明的普通股投资者，在二级市场会比买入新股表现得更好。
原因在于两种情况下的定价方式不同。二级市场偶尔会被群体性愚蠢行为主导，不断设定着"清算"价格。无论这个价格多么愚蠢，对于那些需要或希望卖出的股票或债券持有人来说，它都是关键——在任何时刻，总有那么几位这样的人。在许多情况下，商业价值值 x 的股票，在市场上的售价只有 1/2x 甚至更低。
而新股发行市场则不同，它由控股股东和公司主导，他们通常可以选择发行时机，如果市场看起来不利，甚至可以完全避免发行。可以理解的是，这些卖家既不会通过公开发行，也不会通过协商交易来提供任何便宜货：你很少能在那里找到以 1/2x 的价格买到 x 的机会。事实上，在普通股发行的情况下，卖出股东之所以会有动力脱手，通常只是因为他们觉得市场出价过高。（当然，这些卖家会用不同的措辞来表述这一观点，声称他们只是不愿在市场低估其商品价值时卖出。）
迄今为止，我们通过协商购买的这些投资，作为一个整体，实现了但并未超越我们在1989年年报中设定的预期："我们的优先股投资所应产生的回报，应略高于大多数固定收益投资组合的收益。" 说实话，如果我们当时能够把投入这些协商交易的钱，用于我们喜欢的那种公开市场购买，我们的表现会更好。但我们的规模以及市场的普遍强势，使得这样做变得困难。
1989年年报中还有一句令人难忘的话："我们不具备预测投资银行业、航空业或造纸业经济状况的能力。" 当时，你们中的一些人可能曾怀疑过这一无知的自白。然而现在，连我母亲都承认这是事实。
在我们承诺投资全美航空（USAir）的案例中，支票上的墨迹未干，行业经济就已经恶化。正如我之前提到的，是我自己欢快地跳进了泳池；没人推我。是的，我知道这个行业竞争异常激烈，但我没有预料到其领导者会长期采取自杀式行为。在过去两年里，航空公司仿佛在玩一场竞争性的"唐提式"游戏（最后幸存者赢得全部奖金的互助基金），而且个个都盼着尽快结束比赛。
在这场混乱中，全美航空的CEO Seth Schofield 在重新定位公司方面做得非常出色。他尤其勇敢地接受了去年秋天的一场罢工——如果罢工持续下去，公司很可能破产。然而，向罢工的工会让步同样会是灾难性的：公司当时的工资成本和工作规则远比其主要竞争对手更为繁重，很明显，任何高成本生产商最终都将面临灭绝。对所有人来说幸运的是，罢工在几天内就解决了。
像全美航空这样受竞争困扰的企业，所需要的管理技能远高于那些经济状况优良的企业。然而不幸的是，在航空业，技能带来的短期回报仅仅是生存，而非繁荣。
1993年初，全美航空向前迈出了一大步，以确保持续经营——并最终走向繁荣——它接受了英国航空的注资提议，后者由此成为该公司重要的少数股东。作为此项交易的一部分，查理和我受邀加入全美航空董事会。我们同意了，尽管这使我同时担任了五家外部公司的董事，对于一位活跃的CEO来说，我认为这超出了合理范围。即便如此，如果被投资公司的管理层和董事认为查理和我加入其董事会尤为重要，我们也很乐意这样做。我们期望所投公司的管理者能努力提升其经营企业的价值，有时，作为大股东，我们也应当尽一份力。
两项新会计准则，及对另一项的恳求
一项关于递延税的新会计准则于1993年生效。它纠正了我们账目中一个我已在此前年度报告中描述过的差异，该差异与针对我们投资组合中未实现增值所计提的应付税款有关。在1992年底，这部分增值达76亿美元。其中64亿美元，我们按当时34%的税率计提了税款。剩余12亿美元的增值，我们则按28%的税率计提递延税款，那部分增值发生时正适用此税率。新会计准则规定，此后我们所有递延税均须按当前税率计提，我们认为这合情合理。
这一新指令意味着，在1993年第一季度，我们将对所有未实现增值适用34%的税率，从而增加税负并减少7000万美元的净资产。新准则还将导致我们在计算递延税时做出其他微小调整。
未来税率的变动将立即反映在递延税负债及相应的净资产上。其影响可能相当显著。然而，最终重要的是我们出售证券时的税率，届时未实现增值将变为已实现收益。
另一项重大的会计变动，必须在1993年1月1日前实施，它要求企业确认其退休后医疗福利的现值负债。尽管美国通用会计准则此前已要求确认未来应付的养老金，但不合逻辑地忽略了公司届时仍需承担的医疗福利成本。新准则将迫使许多公司在资产负债表上记录一笔巨额负债（并导致净资产随之减少），并且今后在计算年度利润时，确认显著更高的成本。
在进行收购时，查理和我倾向于避开那些承担着大量退休后负债的公司。因此，伯克希尔目前的退休后医疗福利负债及未来成本——尽管我们现在有22，000名员工——微不足道。不过，我得承认，我们差一点就栽了跟头：1982年，我犯下了一个大错，承诺收购一家背负着异常沉重的退休后医疗福利负担的公司。幸运的是，由于一些我们无法控制的原因，这笔交易最终告吹。在1982年的年报中报道此事时，我曾说：“如果我们打算在报告中加入图表来展示过去一年的利好发展，那么用两个空白页来描绘这笔泡汤的交易，将是合适的中心插页。”即便如此，我也没预料到事情会变得如此糟糕。后来出现了另一个买家，那家企业很快破产倒闭，数千名工人发现那些慷慨的医疗福利承诺大多一文不值。
近几十年来，没有哪位CEO会异想天开地跑到董事会面前，建议公司去为别的企业选择的、上不封顶的退休后医疗福利做承保人。一位CEO不需要成为医学专家也知道，人均寿命延长和医疗成本飙升，会注定让干这行的保险公司被揍得鼻青脸肿。然而，许多管理者却轻飘飘地让自己的公司承担起一份自保计划，承诺的内容与上述保险一模一样——从而把股东拖下水，去承受不可避免的后果。在医疗领域，开放式承诺制造出了开放式负债，在少数案例中，这些负债的规模大到足以威胁美国主要产业的全球竞争力。
我认为这种鲁莽行为的部分原因是，长期以来会计规则不要求在退休后医疗成本发生时入账。相反，规则允许使用权责发生制（实际上是收付实现制——译注），这极大地低估了正在累积的负债。实际上，管理层和会计师对这些负债的态度就是"眼不见，心不烦"。讽刺的是，其中一些管理者在指责国会对待社会保障承诺或其他产生巨额未来负债的项目时采用"收付实现"思维时，倒是反应迅速。
管理者在思考会计问题时，永远不该忘记亚伯拉罕·林肯最喜欢的一个谜语："如果把狗的尾巴叫做腿，那它有几条腿？"答案是："四条，因为把尾巴叫做腿并不能让它变成腿。"管理者应当记住林肯是对的，哪怕审计师愿意证明尾巴就是腿。
* * * * * * * * * * * *
高管和会计师最恶劣的逃避现实行为，发生在股票期权领域。在伯克希尔1985年的年报中，我阐述过自己对期权使用及滥用的看法。但即使期权结构设计得当，它们的会计处理方式也毫无道理。这种缺乏逻辑并非偶然：几十年来，商界的大部分力量一直在对会计准则制定者发动战争，试图阻止股票期权的成本反映在发行公司的利润中。
通常，高管们辩称期权难以估值，因此其成本应该被忽略。另一些时候，管理者又说给期权定价会伤害初创小企业。有时他们甚至一本正经地宣称"价外"期权（行权价等于或高于当前市价的期权）在发行时没有价值。
奇怪的是，机构投资者委员会也附和了这种论调的一种变体，认为期权不应被视为成本，因为它们"不是公司金库里掏出去的美元"。我认为这种推理为美国公司提供了即刻提高报告利润的激动人心的可能性。例如，他们可以用期权来支付保险费，从而消除保险成本。所以，如果你是一位CEO，并且信奉这种"没现金就没成本"的会计理论，那我给你一个你无法拒绝的提议：打电话给伯克希尔，我们会很乐意卖给你保险，只要你拿一堆你们公司股票的长期期权来换。
股东应当理解，当一家企业向另一方交付有价值的东西时，就会产生成本——而不仅仅是在现金易手的时候。此外，仅仅因为某项重要的成本项目无法精确量化，就认为不应该被确认，这既愚蠢又虚伪。眼下，会计领域本身就充满了不精确。毕竟，没有哪位经理人或审计师知道一架波音747能飞多久，这意味着他也不知道这架飞机每年该计提多少折旧。没有人能确切知道一家银行每年的贷款损失准备应该是多少。财产险公司对损失所做的估算，其不准确也是出了名的。
这是否意味着这些重要的成本项目就应该因为无法绝对精确地量化而被忽略？当然不是。相反，这些成本应该由诚信且经验丰富的人估算出来，然后予以记录。说到底，在那些重要但难以精确计算的成本项目当中——除了股票期权之外——会计行业还有哪一项说过应该在计算收益时被忽略？
更何况，股票期权并没有那么难以估值。诚然，由于给予高管的期权受到了各种限制，估值的难度确实增加了。这些限制会影响期权的价值，但并不会消除价值。事实上，既然我现在有心情提个提议，我愿意向任何获得受限期权的（即使可能是价外期权）高管做一个承诺：在期权发行当日，伯克希尔将支付给他/她一笔可观的现金，以换取他/她未来从该期权中实现的全部收益。所以，如果你发现某位首席执行官说他新发行的期权价值很小或者毫无价值，那就让他来找我们试试。说实话，我们对自己能为一份期权确定一个合适的购买价格，远比对自己能为公司喷气式飞机确定一个合适的折旧率要有信心得多。
在我看来，股票期权的现实情况可以简单地概括：如果期权不是一种薪酬形式，那它是什么？如果薪酬不是一项费用，那它又是什么？而且，如果费用不应该计入收益的计算，那它到底该放到哪里去？
会计行业和美国证券交易委员会（SEC）早该感到羞愧，因为他们长期任由企业高管在期权会计问题上施加影响。此外，高管们所进行的游说还可能带来一个不幸的副产品：在我看来，当企业精英们在与自身利益攸关的问题上鼓吹那些令人难以置信的观点时，他们在社会重大问题上的公信力（而他们在这些问题上也许有很多有价值的见解可说）就有丧失的风险。
杂项
今年我们有两件令人遗憾的事。第一，我的朋友兼助手Gladys Kaiser在我身边工作了二十五年，将在1993年股东大会后辞去助理一职，不过她当然永远是我的朋友。Gladys和我一直是一个团队，虽然我知道她退休的日子终会到来，但这事仍然让我感到震动。
第二，九月份，Verne McKenzie辞去了首席财务官的职务，他与我共事了三十年，始于他担任巴菲特合伙公司外部审计师的时候。Verne将作为顾问留任。尽管"顾问"这个头衔常常是一种委婉说法，但在这里它却有实际意义。我希望Verne能继续在伯克希尔扮演重要角色，但按他自己的节奏来。担任Verne五年副手的Marc Hamburg已经接替他成为首席财务官。
我记得有位女士，当被问及理想的配偶时，她选定了考古学家：“我越老，”她说，“他就会对我越感兴趣。”她一定会喜欢我的品味：我非常珍视那些远超正常退休年龄仍在工作的杰出伯克希尔经理人，他们同时取得的业绩远胜于那些年轻的竞争对手。虽然我理解并同情Verne和Gladys到了年龄就退休的决定，但这并不是我希望鼓励的做法。教新狗学老把戏很难。
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与Rose Blumkin（更广为人知的是B太太）相比，我在退休问题上的观点算是温和的。她99岁了，仍然每周工作七天。关于她，我有些特别好的消息。
你们还记得，1983年她的家族将内布拉斯加家具城（NFM）80%的股份卖给伯克希尔后，B太太继续担任董事长并管理地毯业务。然而1989年，她因管理分歧离开了，并在隔壁一栋她拥有多年的大楼里开办了自己的生意。在她的新业务中，她经营地毯部门，但将其他家居装饰部门出租。
去年年底，B太太决定将她的建筑和土地卖给NFM。但她将继续在现在的地点经营她的地毯业务（正值全速前进之时，没有理由放慢脚步）。NFM将在同一栋楼里在她旁边开店，从而大幅扩展其家具业务。
我很高兴B太太再次与我们合作。她的商业故事无与伦比，我一直是她的粉丝，无论是作为合伙人还是竞争对手。但请相信我，合伙人更好。
这次，B太太慷慨地提出签署一份竞业禁止协议——而我，在她89岁时曾在这方面不够谨慎，这次迫不及待地抓住了这个机会。B太太在很多方面都该列入吉尼斯世界纪录。99岁签署竞业禁止协议，只是再添一项。
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Scott Fetzer的首席执行官Ralph Schey，一位我希望99岁也与我们同在的经理人，去年打出了一记满贯本垒打，该公司实现了创纪录的1.1亿美元税前利润。更令人印象深刻的是，Scott Fetzer仅用了1.16亿美元的股本资本就取得了这样的盈利。这一非凡成就并非杠杆的产物：该公司只使用了少量借款（除了其金融子公司适当使用的债务外）。
Scott Fetzer现在的运营中，库存和固定资产的投资都比1986年我们收购时显著减少。这意味着在我们持股的七年里，该公司能够向伯克希尔分配超过100%的收益，同时其盈利流——原本就已非常出色——还大幅增长。Ralph不断超越自己，伯克希尔的股东们欠他很多。
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眼神特别尖的读者会注意到，我们的公司费用从1991年的560万美元下降到1992年的420万美元。也许你们以为我卖掉了公司的专机“不可辩护号”。想都别想！我发现让飞机退休的想法比让董事长退休更令人反感。（在这件事上，我表现出了不同寻常的灵活性：多年来我强烈反对公司专机。但最终，我的教条被我的业力碾过了。）
公司管理费用之所以下降，实际是因为1991年这些支出格外高，那年我们因纺织业务涉嫌在1970年前的行为而计提了一次性环境支出。如今一切恢复正常，我们的税后管理费用不到报告经营利润的1%，不到透视盈余的0.5%。我们没有法务、人事、公关、投资者关系或战略规划部门。这反过来意味着我们不需要警卫、司机、信差等后勤人员。最后，除了Verne，我们不雇佣任何咨询顾问。帕金森教授会喜欢我们的运作——不过我得说，Charlie仍然觉得它臃肿得离谱。
有些公司的管理费用占经营利润的10%甚至更高。业务部门向总部缴纳的这笔"什一税"不仅损害了盈利，更重要的是削减了资本价值。如果一家公司把10%的成本花在总部，而另一家只花1%，两者在业务层面取得相同的利润，那么前者的股东仅仅因为公司管理费用就损失了9%的持股价值。Charlie和我从未发现高额公司成本与良好业绩之间存在关联。实际上，我们观察到那些简单、低成本的运营模式比其臃肿的官僚同行更可能高效运作。我们欣赏沃尔玛（Wal-Mart）、纽柯（Nucor）、多佛（Dover）、GEICO、金西金融（Golden West Financial）和Price Co.的模式。
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去年年底，伯克希尔的股价突破了10,000美元。几位股东向我提到，高股价给他们带来了麻烦：他们每年都想赠送股票，但被税法规定所阻碍，该规定区分了对单个受赠人年度赠与10,000美元及以下和超过10,000美元的情况。也就是说，不超过10,000美元的赠与完全免税；超过10,000美元则要求赠与人消耗其部分终身赠与税和遗产税免税额，或者如果免税额已用完，则需缴纳赠与税。
我可以建议三种办法来解决这个问题。第一种对已婚股东有用：只要赠与人提交包含配偶书面同意当年赠与的赠与税申报表，就可以每年向单个受赠人赠与高达20,000美元。
其次，无论是否已婚，股东都可以做一笔低价出售。假设伯克希尔股价为12,000美元，而您只想赠与10,000美元。这种情况下，以2,000美元的价格将股票卖给受赠人。（注意：如果卖给受赠人的价格超过您的计税基础，则需对差额部分纳税。）
最后，您可以与受赠人成立一个合伙企业，用伯克希尔股票出资，然后每年赠与合伙企业的百分比权益。这些权益可以是您选择的任何价值。如果价值不超过10,000美元，则赠与免税。
我们照例给出警告：在采用任何更复杂的赠与方式之前，请咨询您自己的税务顾问。
我们坚持在1983年年报中阐述的关于股票拆分的观点。总体而言，我们相信我们的股东相关政策——包括不拆分政策——帮助我们汇聚了一批任何一家美国大公司都无法比拟的优秀股东群体。我们的股东思考和行事方式就像理性的长期所有者，看待企业的方式与Charlie和我非常相似。因此，我们的股价始终在一个与内在价值合理相关的范围内交易。
此外，我们相信，我们的股票换手率远低于其他任何一家广泛持股的公司。交易摩擦成本——对许多公司的股东来说相当于一笔沉重的"税收"——在伯克希尔几乎不存在。（我们纽约证券交易所的专业做市商Jim Maguire的做市技巧，无疑有助于保持低成本。）显然，拆股并不会显著改变这一状况。尽管如此，通过拆股吸引来的新股东，绝不会让我们的股东群体得到提升；相反，我们认为会出现某种程度的降质。
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正如我之前提到的，12月16日我们通知赎回零息可转换债券，兑付日为1993年1月4日。这些债券的票面利率为5.5%，在1989年发行时属于低成本资金，但到赎回时对我们而言已不再有吸引力。
这些债券原本可由持有人在1994年9月选择赎回，而期限不超过此的5.5%资金，如今已引不起我们的兴趣。此外，伯克希尔的股东也会因存在转换权而处于不利地位。在我们发行这些债券时，这一劣势被其诱人的票面利率所抵消；但到1992年底，情况已截然不同。
总的来说，我们仍然厌恶债务，尤其是短期债务。但若债务结构得当且能为股东带来显著利益，我们愿意承担适度的债务。
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大约97%的合格股份参与了伯克希尔1992年的股东指定捐款计划。通过该计划的捐款总额为760万美元，共有2,810家慈善机构受益。我正考虑未来以超过伯克希尔账面价值增长的速度增加这些捐款，并很乐意听取您对此想法的意见。
我们建议新股东阅读第48-49页关于股东指定捐款计划的说明。要参与未来的计划，您必须确保您的股份以实际所有者的名义登记，而非以经纪商、银行或存管机构的代名人名义登记。未在1993年8月31日如此登记的股份将没有资格参与1993年的计划。
除了伯克希尔分配的股东指定捐款外，我们各运营公司的经理也会进行捐款（包括实物），年均约200万美元。这些捐款用于支持当地慈善机构，如联合之路，并为我们的业务带来大致相当的回报。
然而，无论是我们的运营经理还是母公司的管理人员，均不利用伯克希尔的资金向全国性计划或他们个人特别关心的慈善活动捐款，除非他们是以股东身份这样做。如果您的员工（包括CEO）希望向母校或其他他们个人有感情联系的机构捐款，我们认为他们应该用自己的钱，而不是您的钱。
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今年股东大会将于1993年4月26日星期一上午9:30在奥马哈市中心的欧菲姆剧院举行。去年有创纪录的1,700人参加会议，但这个人数在欧菲姆剧院仍然绰绰有余。
我们建议您尽早预订以下酒店的房间：(1) Radisson-Redick Tower（雷迪森-雷迪克大厦），这是一家小巧（88间房）但舒适的酒店，就在Orpheum剧院对面；(2) 规模大得多的Red Lion Hotel（红狮酒店），距离Orpheum剧院约步行五分钟；(3) Marriott（万豪酒店），位于奥马哈西部，距离Borsheim's约100码，从市中心开车需二十分钟。我们将在万豪酒店安排巴士，于上午8:30和8:45出发前往会场，并在会议结束后返回。
查理和我一直很享受这场年会，希望您能参加。从我们收到的提问质量就能看出股东的水平：我们参加过的任何年会，都没有哪场能像这样持续涌现出如此高水平的、与股东利益相关的睿智问题。
随股东委托书附上的说明会告诉您如何获取入场所需的会议卡。我们会在会议卡中附上Orpheum剧院附近停车场的信息。如果您开车前来，请提早一点到。附近的停车场很快会停满，您可能得步行几个街区。
和往常一样，会后我们会安排巴士送您去内布拉斯加家具城和Borsheim's，之后还会送您前往市中心酒店或机场。希望您能留出充裕的时间，充分逛遍这两家店的魅力。提前抵达的朋友可以随时去家具城——周六上午10点到下午5:30，周日中午12点到下午5:30。到了那里，别忘了光顾See's糖果推车，亲自体验一下为什么查理和我比1972年收购See's时胖了一大圈。
Borsheim's通常周日不营业，但4月25日（周日）中午12点到下午6点将专门为股东及嘉宾开放。查理和我会戴上珠宝放大镜到场，随时准备给那些笨到愿意听的人提供宝石选购建议。现场还有大量的樱桃可乐、See's糖果以及其他小零食。希望您能光临。
沃伦·E·巴菲特
1993年3月1日 董事会主席