1973 Letter

To the Stockholders of Berkshire Hathaway Inc.:

Our financial results for 1973 were satisfactory, with operating earnings of \$11,930,592, producing a return of 17.4% on beginning stockholders’ equity. Although operating earnings improved from \$11.43 to \$12.18 per share, earnings on equity decreased from the 19.8% of 1972. This decline occurred because the gain in earnings was not commensurate with the increase in shareholders’ investment. We had forecast in last year’s report that such a decline was likely. Unfortunately, our forecast proved to be correct.

Our textile, banking, and most insurance operations had good years, but certain segments of the insurance business turned in poor results. Overall, our insurance business continues to be a most attractive area in which to employ capital.

Management’s objective is to achieve a return on capital over the long term which averages somewhat higher than that of American industry generally—while utilizing sound accounting and debt policies. We have achieved this goal in the last few years, and are trying to take those steps which will enable us to maintain this performance in the future. Prospects for 1974 indicate some further decline in rate of return on our enlarged capital base.

Textile Operations

Textile demand remained unusually strong throughout 1973. Our main problems revolved around shortages of fiber, which complicated operations and resulted in something less than full utilization of loom capacity. Prices of some fibers skyrocketed during the year.

Cost of Living Council regulations prevented the pricing of many finished products at levels of some of our competitors. However, profits were reasonably commensurate with our capital investment, although below those that apparently might have been achieved had we been able to price at market levels. The textile business has been highly cyclical and price controls may have served to cut down some of the hills while still leaving us with the inevitable valleys.

Because of the extraordinary price rises in raw materials during 1973, which show signs of continuing in 1974, we have elected to adopt the “lifo” method of inventory pricing. This method more nearly matches current costs against current revenues, and minimizes inventory “profits” included in reported earnings. Further information on this change is included in the footnotes to our financial statements.

Insurance Operations

During 1973, Jack Ringwalt retired as President of National Indemnity Company after an absolutely brilliant record since founding the business in 1940. He was succeeded by Phil Liesche who, fortunately for us, possesses the same underwriting and managerial philosophy that worked so well for Jack.

Our traditional business, specialized auto and general liability lines conducted through National Indemnity Company and National Fire and Marine Insurance Company, had an exceptionally fine underwriting year during 1973. We again experienced a decline in volume. Competition was intense, and we passed up the chance to match rate‐cutting by more optimistic underwriters. There currently are faint indications that some of these competitors are learning of the inadequacy of their rates (and also of their loss reserves) which may result in easing of market pressures as the year develops. If so, we may again experience volume increases.

Our reinsurance operation had a somewhat similar year—good underwriting experience, but difficulty in maintaining previous volume levels. This operation, guided by the tireless and welldirected efforts of George Young, has been a major profit producer since its inception in 1969.

Our “home state” insurance companies made excellent progress in Nebraska and Minnesota, with both good growth in volume and acceptable loss ratios. We began operations late in the year in Iowa. To date, our big problem has been Texas. In that state we virtually had to start over during 1973 as the initial management we selected proved incapable of underwriting successfully. The Texas experience has been expensive, and we still have our work cut out for us. Overall, however, the home state operation appears to have a promising potential.

Our specialized urban auto operation, Home and Automobile Insurance Company, experienced very poor underwriting in Chicago during 1973. It would appear that rates are inadequate in our primary Cook County marketing area, although the current energy situation confuses the picture. The question is whether possible lowered accident frequency because of reduced driving will more than offset continuing inflation in medical and repair costs, as well as jury awards. We believe that inflation will hurt us more than reduced driving will help us, but some of our competitors appear to believe otherwise.

Home and Auto expanded into Florida and California during the year, but it is too early to know how these moves will prove out financially.

A contributing factor in our unsatisfactory earnings at Home and Auto during 1973 was an accounting system which was not bringing information to management on a sufficiently timely basis.

On the investment side of our insurance operation, we made substantial additional commitments in common stocks during 1973. We had significant unrealized depreciation—over \$12 million—in our common stock holdings at year‐end, as indicated in our financial statements. Nevertheless, we believe that our common stock portfolio at cost represents good value in terms of intrinsic business worth. In spite of the large unrealized loss at year‐end, we would expect satisfactory results from the portfolio over the longer term.

Banking Operations

The Illinois National Bank & Trust Co. of Rockford again had a record year in 1973. Average deposits were approximately \$130 million, of which approximately 60% were time deposits.

Interest rates were increased substantially in the important consumer savings area when regulatory maximums were raised at mid‐year.

Despite this mix heavily weighted toward interest bearing deposits, our operating earnings after taxes (including a new Illinois state income tax) were again over 2.1% of average deposits.

We continue to be the largest bank in Rockford. We continue to maintain unusual liquidity. We continue to meet the increasing loan demands of our customers. And we continue to maintain our unusual profitability. This is a direct tribute to the abilities of Gene Abegg, Chairman, who has been running the Bank since it opened its doors in 1931, and Bob Kline, our President.

Merger With Diversified Retailing Company, Inc.

Your Directors have approved the merger of Diversified Retailing Company, Inc. into Berkshire Hathaway Inc. on terms involving issuance of 195,000 shares of Berkshire stock for the 1,000,000 shares of Diversified stock outstanding. Because Diversified and its subsidiaries own 109,551 shares of Berkshire, the net increase in the number of shares of Berkshire outstanding after giving effect to this transaction will not exceed 85,449. Various regulatory approvals must be obtained before this merger can be completed, and proxy material will be submitted to you later this year so that you may vote upon it.

Diversified Retailing Company, Inc., though subsidiaries, operates a chain of popular‐priced women’s apparel stores and also conducts a reinsurance business. In the opinion of management, its most important asset is 16% of the stock of Blue Chip Stamps.

Blue Chip Stamps

Our holdings of stock in Blue Chip Stamps at year‐end amounted to approximately 19% of that company’s outstanding shares. Since year‐end, we have increased our holdings so that they now represent approximately 22.5%: implementation of the proposed merger with Diversified Retailing Company, Inc. would increase this figure to about 38.5%.

Our equity in earnings of Blue Chip Stamps became significant for the first time in 1973, and posed an accounting question as to just what period’s earnings should be recognized by Berkshire Hathaway Inc. as applicable to the financial statements covered by this annual report. Blue Chip’s fiscal year ends on the Saturday closest to February 28, or two months after the fiscal year‐end of Berkshire Hathaway Inc. Or, viewed alternatively, their year ends ten months prior to Berkshire Hathaway’s. An acceptable accounting choice for us, and one which, if made, would not have required an auditor’s disclaimer as to scope, was to recognize in our 1973 income an equity of \$632,000 in Blue Chip’s earnings for their year ended March 3, 1973 with regard to the fewer shares of Blue Chip we owned during this earlier period. But such an approach seemed at odds with reality, and would have meant a ten month lag each year in the future. Therefore, we chose to reflect as 1973 income our equity of \$1,008,000 in Blue Chip’s earnings based upon unaudited interim earnings through November as publicly reported by Blue Chip Stamps and with regard to our shareholdings during 1973. Because we made this choice of unaudited but current figures, as opposed to the alternative of audited but far from current figures, Peat, Marwick, Mitchell & Co. were unable to express an opinion on our 1973 earnings attributable to Blue Chip Stamps.

The annual report of Blue Chip Stamps, which will contain financial statements for the year ending March 2, 1974 audited by Price, Waterhouse and Company, will be available in early

May. Any shareholder of Berkshire Hathaway Inc. who desires an annual report of Blue Chip Stamps may obtain it at that time by writing Mr. Robert H. Bird, Secretary, Blue Chip Stamps, 5801 South Eastern Avenue, Los Angeles, California 90040.

Blue Chip’s trading stamp business has declined drastically over the past year or so, but it has important sources of earning power in its See’s Candy Shops subsidiary as well as Wesco Financial Corporation, a 54% owned subsidiary engaged in the savings and loan business. We expect Blue Chip Stamps to achieve satisfactory earnings in future years related to capital employed, although certainly at a much lower level than would have been achieved if the trading stamp business had been maintained at anything close to former levels.

Your Chairman is on the Board of Directors of Blue Chip Stamps, as well as Wesco Financial Corporation, and is Chairman of the Board of See’s Candy Shops Incorporated. Operating management of all three entities is in the hands of first‐class, able, experienced executives.

Sun Newspapers, Inc.

In the 1969 annual report we commented on the purchase of Sun Newspapers Inc., a group of weekly papers published in the metropolitan Omaha area. Since that time we have not commented on their operations in the text of our annual reports, nor have we consolidated their financial results since the operation, because of the small investment involved, has been “financially insignificant.”

During 1973 it was made quite apparent that such insignificance did not extend to publishing quality. On May 7th Sun Newspapers was awarded a Pulitzer Prize for local investigative reporting (the first time in history that a weekly had won in this category) for its special section of March 30,1972 relating to Boys Town. We reported the extraordinary contrast between decreasing services and mounting wealth that had taken place since Father Flanagan’s death in 1948.

In addition to the Pulitzer Prize, the reporting job also won the Public Service Award of Sigma Delta Chi, the national society of professional journalists, as well as seven other national awards.

Our congratulations go to Paul Williams, Editor, and Stan Lipsey, Publisher, as well as the entire editorial staff of Sun Newspapers for their achievement, which vividly illustrated that size need not be equated with significance in publishing.

Warren E. Buffett Chairman of the Board March 29, 1974

1973年信函

致伯克希尔·哈撒韦公司股东：

1973年的财务业绩令人满意，经营利润1,193.05万美元，按年初股东权益计算回报率为17.4%。尽管每股经营利润从11.43美元提高到12.18美元，但股东权益回报率却从1972年的19.8%下降。这一下降是因为利润增长未能与股东投资的增长相匹配。我们在去年的报告中曾预测这种下降可能性较大。不幸的是，我们的预测应验了。

我们的纺织、银行和大部分保险业务表现良好，但保险业务的某些板块业绩不佳。总体而言，保险业务仍然是运用资本最具吸引力的领域之一。

管理层的目标是，在运用稳健的会计和债务政策的同时，实现长期平均回报率高于美国工业整体水平。过去几年我们实现了这一目标，如今正努力采取必要措施，以便在未来保持这一业绩。1974年的前景表明，在我们扩大的资本基数上，回报率将进一步下降。

纺织业务

整个1973年，纺织品需求异常强劲。我们的主要问题围绕纤维短缺展开，这使运营变得复杂，并导致织机产能未能充分利用。年内部分纤维价格暴涨。

生活成本委员会的法规使我们无法像部分竞争对手那样对许多成品定价。然而，利润与我们的资本投入基本相称，尽管若能在市场水平定价，利润显然可能更高。纺织业高度周期性，价格管制或许削平了一些高峰，但不可避免的低谷依然存在。

由于原材料价格在1973年异常上涨，且迹象显示1974年将继续上涨，我们选择采用"后进先出法"对库存进行计价。这种方法使当前成本与当前收入更接近匹配，并最大限度减少计入报告利润的库存"利润"。此项变更的更多信息包含在财务报表附注中。

保险业务

1973年，Jack Ringwalt辞去了国民赔偿公司总裁的职务，他自1940年创立该公司以来业绩斐然。继任者是Phil Liesche，对我们而言幸运的是，他秉持与Jack同样出色的承销和管理理念。

我们的传统业务——通过国民赔偿公司和国民火险与海事保险公司开展的专业汽车及一般责任险——在1973年承销业绩异常出色。我们的业务量再次下降。竞争激烈，我们放弃了与更乐观的承销商比拼降价的时机。目前有微弱迹象表明，部分竞争对手正认识到自己费率不足（以及损失准备金不足），这可能随着年内发展而缓解市场压力。若果真如此，我们可能会再次实现业务量增长。

我们的再保险业务情况类似——承销经验良好，但难以维持之前的业务量水平。这项业务在George Young不懈且方向正确的努力指导下，自1969年成立以来一直是主要的利润来源。

我们的"本州"保险公司在内布拉斯加州和明尼苏达州取得了卓越进展，业务量增长良好，损失率也可接受。我们在年底开始在爱荷华州开展业务。迄今为止，我们最大的问题是德克萨斯州。在该州，我们几乎不得不在1973年从头开始，因为我们最初选定的管理层被证明无法成功承销。德克萨斯的经历代价高昂，我们仍有大量工作要做。不过总体而言，本州业务似乎潜力可观。

我们的专业城市汽车保险业务——家庭与汽车保险公司——1973年在芝加哥承销业绩非常糟糕。看来我们在库克县主要市场的费率不足，尽管当前能源状况使局面复杂化。问题是：驾驶减少可能带来事故频率下降，这是否足以抵消医疗和维修成本以及陪审团裁决额的持续通胀？我们认为通胀对我们的伤害将超过驾驶减少带来的好处，但部分竞争对手似乎持相反观点。

家庭与汽车保险公司年内扩张到了佛罗里达和加利福尼亚，但判断这些举措的财务效果还为时尚早。

1973年家庭与汽车保险公司盈利不理想的一个促成因素是，会计系统未能及时向管理层提供信息。

在保险业务投资方面，我们在1973年对普通股进行了大量追加投资。正如财务报表所示，年末我们持有的普通股存在大量未实现减值——超过1200万美元。尽管如此，我们相信按成本计算的普通股投资组合就其内在商业价值而言是物有所值的。尽管年末存在巨额未实现损失，我们预期长期内该组合将产生令人满意的结果。

银行业务

罗克福德伊利诺伊国民银行与信托公司在1973年再次取得创纪录业绩。平均存款约1.3亿美元，其中约60%为定期存款。

年中监管上限提高后，重要的消费者储蓄领域利率大幅上升。

尽管这一存款结构高度偏向有息存款，我们的税后经营利润（包括新征收的伊利诺伊州所得税）再次达到平均存款的2.1%以上。

我们仍是罗克福德最大的银行。我们继续保持异常的流动性。我们继续满足客户日益增长的贷款需求。我们继续维持异常的盈利能力。这直接归功于自1931年银行开业以来一直经营该行的董事长Gene Abegg和我们的行长Bob Kline的才干。

与多元化零售公司合并

你们的董事已批准将多元化零售公司并入伯克希尔·哈撒韦公司，条款规定伯克希尔发行19.5万股股票换取多元化零售公司已发行的100万股股票。由于多元化零售公司及其子公司持有伯克希尔109,551股，此项交易生效后伯克希尔流通股净增加数不超过85,449股。此项合并完成前需获得各项监管批准，代理材料将在今年晚些时候提交给你们，以便你们投票表决。

多元化零售公司通过子公司经营一家平价女装连锁店，并开展再保险业务。管理层认为，其最重要的资产是蓝筹印花公司16%的股份。

蓝筹印花公司

年末，我们持有的蓝筹印花公司股票约占该公司流通股的19%。自年底以来，我们增加了持股，目前约占22.5%；与多元化零售公司的拟议合并实施后，这一比例将增至约38.5%。

我们在蓝筹印花公司利润中的权益在1973年首次变得重要，并引发了一个会计问题：伯克希尔·哈撒韦公司应确认哪一期间的利润作为本年度报告所涵盖财务报表的适用部分？蓝筹印花的财政年度在每年最接近2月28日的周六结束，即伯克希尔·哈撒韦财政年度结束后两个月。或者换一种视角，他们的年度结束时间比伯克希尔早十个月。我们有一种可接受的会计选择，若采用则无需审计师出具范围限定意见，即：针对我们早期持有的较少蓝筹股份，在1973年利润中确认我们在蓝筹截至1973年3月3日财年利润中的权益63.2万美元。但这种方法似乎与现实不符，并且意味着未来每年将有十个月的滞后。因此，我们选择基于蓝筹印花公司公开报告的截至11月的未经审计中期利润以及我们1973年的持股情况，在1973年利润中反映我们在蓝筹利润中的权益100.8万美元。由于我们选择了未经审计但当前的数据，而非经审计但远非当前的数据，Peat, Marwick, Mitchell & Co.无法对我们在蓝筹印花公司相关利润上1973年的利润表达意见。

蓝筹印花公司的年度报告（将包含截至1974年3月2日财政年度经Price, Waterhouse and Company审计的财务报表）将于5月初提供。任何希望获得蓝筹印花公司年度报告的伯克希尔·哈撒韦公司股东届时可致函：Mr. Robert H. Bird, Secretary, Blue Chip Stamps, 5801 South Eastern Avenue, Los Angeles, California 90040。

过去一年左右，蓝筹的贸易印花业务急剧下滑，但其See's糖果店子公司以及持有54%股权的从事储蓄与贷款业务的Wesco金融公司拥有重要的盈利来源。我们预期蓝筹印花公司未来几年在所用资本方面将取得令人满意的利润，尽管水平肯定远低于贸易印花业务维持在接近先前水平时所能达到的程度。

你们的董事长是蓝筹印花公司以及Wesco金融公司的董事会成员，并担任See's糖果店公司的董事会主席。三家实体的经营管理均由一流、能干且经验丰富的执行官负责。

太阳报业公司

在1969年年报中，我们曾评论收购太阳报业公司的情况，该公司在奥马哈都会区出版一组周报。此后，我们未在年报正文中评论其运营，也未合并其财务业绩，因为该业务由于投资规模较小而"在财务上无关紧要"。

1973年，这种无关紧要显然不适用于出版质量。5月7日，太阳报业因其1972年3月30日关于男孩镇的特刊获得普利策地方调查报道奖（历史上周报首次在此类别获奖）。我们报道了自1948年弗拉纳根神父去世以来，服务减少与财富增加之间形成的惊人反差。

除普利策奖外，该报道还获得了全国职业记者协会Sigma Delta Chi的公共服务奖，以及另外七个全国性奖项。

我们向编辑Paul Williams、发行人Stan Lipsey以及太阳报业全体编辑人员表示祝贺，他们的成就生动地说明，规模不必与出版业的重要性划等号。

沃伦·E·巴菲特
董事会主席
1974年3月29日