1975 Letter

To the Stockholders of Berkshire Hathaway Inc.:

Last year, when discussing the prospects for 1975, we stated “the outlook for 1975 is not encouraging.” This forecast proved to be distressingly accurate. Our operating earnings for 1975 were \$6,713,592, or \$6.85 per share, producing a return on beginning shareholders’ equity of 7.6%. This is the lowest return on equity experienced since 1967. Furthermore, as explained later in this letter, a large segment of these earnings resulted from Federal income tax refunds which will not be available to assist performance in 1976.

On balance, however, current trends indicate a somewhat brighter 1976. Operations and prospects will be discussed in greater detail below, under specific industry titles. Our expectation is that significantly better results in textiles, earnings added from recent acquisitions, an increase in equity in earnings of Blue Chip Stamps resulting from an enlarged ownership interest, and at least a moderate improvement in insurance underwriting results will more than offset other possible negatives to produce greater earnings in 1976. The major variable—and by far the most difficult to predict with any feeling of confidence—is the insurance underwriting result. Present very tentative indications are that underwriting improvement is in prospect. If such improvement is moderate, our overall gain in earnings in 1976 likewise will prove moderate. More significant underwriting improvement could give us a major gain in earnings.

Textile Operations

During the first half of 1975 sales of textile products were extremely depressed, resulting in major production curtailments. Operations ran at a significant loss, with employment down as much as 53% from a year earlier.

In contrast with previous cyclical slumps, however, most textile producers quickly reduced production to match incoming orders, thus preventing massive industry‐wide accumulation of inventories. Such cutbacks caused quite prompt reflection at the mill operating level when demand revived at retail. As a result, beginning about midyear business rebounded at a fairly rapid rate. This “V” shaped textile depression, while one of the sharpest on record, also became one of the shortest ones in our experience. The fourth quarter produced an excellent profit for our textile division, bringing results for the year into the black.

On April 28, 1975 we acquired Waumbec Mills Incorporated and Waumbec Dyeing and Finishing Co., Inc. located in Manchester, New Hampshire. These companies have long sold woven goods into the drapery and apparel trade. Such drapery materials complement and extend the line already marketed through the Home Fabrics Division of Berkshire Hathaway. In the period prior to our acquisition, the company had run at a very substantial loss, with only about 55% of looms in operation and the finishing plant operating at about 50% of capacity. Losses continued on a reduced basis for a few months after acquisition. Outstanding efforts by our manufacturing, administrative and sales people now have produced major improvements, which, coupled with the general revival in textiles, have moved Waumbec into a significant profit position.

We expect a good level of profits from textiles in 1976. Continued progress is being made in the movement of Waumbec goods into areas of traditional marketing strength of Berkshire Hathaway, productivity should improve in both the weaving and finishing areas at Manchester, and textile demand continues to firm at decent prices.

We have great confidence in the ability of Ken Chace and his team to maximize our strengths in textiles. Therefore, we continue to look for ways to increase further our scale of operations while avoiding major capital investment in new fixed assets which we consider unwise, considering the relatively low returns historically earned on large scale investment in new textile equipment.

Insurance Underwriting

The property and casualty insurance industry had its worst year in history during 1975. We did our share—unfortunately, even somewhat more. Really disastrous results were concentrated in auto and long‐tail (contracts where settlement of loss usually occurs long after the loss event) lines.

Economic inflation, with the increase in cost of repairing humans and property far outstripping the general rate of inflation, produced ultimate loss costs which soared beyond premium levels established in a different cost environment. “Social” inflation caused the liability concept to be expanded continuously, far beyond limits contemplated when rates were established—in effect, adding coverage beyond what was paid for. Such social inflation increased significantly both the propensity to sue and the possibility of collecting mammoth jury awards for events not previously considered statistically significant in the establishment of rates. Furthermore, losses to policyholders which otherwise would result from mushrooming insolvencies of companies inadequately reacting to these problems are divided through Guaranty Funds among remaining solvent insurers. These trends will continue, and should moderate any optimism which otherwise might be justified by the sharply increased rates now taking effect.

Berkshire Hathaway’s insurance subsidiaries have a disproportionate concentration of business in precisely the lines which produced the worst underwriting results in 1975. Such lines produce unusually high investment income and, therefore, have been particularly attractive to us under previous underwriting conditions. However, our “mix” has been very disadvantageous during the past two years and it well may be that we will remain positioned in the more difficult part of the insurance spectrum during the inflationary years ahead.

The only segment to show improved results for us during 1975 was the “home state” operation, which has made continuous progress under the leadership of John Ringwalt. Although still operating at a significant underwriting loss, the combined ratio improved from 1974. Adjusted for excess costs attributable to operations still in the start‐up phase, underwriting results are satisfactory. Texas United Insurance Company, a major problem a few years ago, has made outstanding progress since George Billing has assumed command. With an almost totally new agency force, Texas United was the winner of the “Chairman’s Cup” for achievement of the lowest loss ratio among the home state companies. Cornhusker Casualty Company, oldest and largest of the home state companies, continues its outstanding operation with major gains in premium volume and a combined ratio slightly under 100. Substantial premium growth is expected at the home state operation during 1976; the measurement of success, however, will continue to be the achievement of a low combined ratio.

Our traditional business at National Indemnity Company, representing well over half of our insurance volume, had an extraordinarily bad underwriting year in 1975. Although rates were increased frequently and significantly, they continually lagged loss experience throughout the year. Several special programs instituted in the early 1970s have caused significant losses, as well as a heavy drain on managerial time and energies. Present indications are that premium volume will show a major increase in 1976, and we hope that underwriting results will improve. Reinsurance suffered the same problems as our direct business during 1975. The same remedial efforts were attempted. Because reinsurance contract settlements lag those of direct business, it well may be that any upturn in results from our direct insurance business will precede those of the reinsurance segment.

At our Home and Automobile Insurance Company subsidiary, now writing auto business only in the Cook County area of Illinois, experience continued very bad in 1975 resulting in a management change in October. John Seward was made President at that time, and has energetically and imaginatively implemented a completely revamped underwriting approach.

Overall, our insurance operation will produce a substantial gain in premium volume during 1976. Much of this will reflect increased rates rather than more policies. Under normal circumstances such a gain in volume would be welcome, but our emotions are mixed at present. Underwriting experience should improve—and we expect it to—but our confidence level is not high. While our efforts will be devoted to obtaining a combined ratio below 100, it is unlikely to be attained during 1976.

Insurance Investments

Gains in investment income were moderate during 1975 because premium volume remained flat and underwriting losses reduced funds available for investment. Invested assets, measured at cost at yearend, were close to identical with the level at the beginning of the year.

At the end of 1974 the net unrealized loss in the stock section of our portfolio amounted to about \$17 million, but we expressed the opinion, nevertheless, that this portfolio overall represented good value at its carrying value of cost. During 1975 a net capital loss of \$2,888,000 before tax credits was realized, but our present expectation is that 1976 will be a year of realized capital gain. On March 31, 1976 our net unrealized gains applicable to equities amounted to about \$15 million. Our equity investments are heavily concentrated in a few companies which are selected based on favorable economic characteristics, competent and honest management, and a purchase price attractive when measured against the yardstick of value to a private owner.

When such criteria are maintained, our intention is to hold for a long time; indeed, our largest equity investment is 467,150 shares of Washington Post “B” stock with a cost of \$10.6 million, which we expect to hold permanently.

With this approach, stock market fluctuations are of little importance to us—except as they may provide buying opportunities—but business performance is of major importance. On this score we have been delighted with progress made by practically all of the companies in which we now have significant investments.

We have continued to maintain a strong liquid position in our insurance companies. In last year’s annual report we explained how variations of 1/10 of 1% in interest rates result in million dollar swings in market value of our bonds. We consider such market fluctuation of minor importance as our liquidity and general financial strength make it highly improbable that bonds will have to be sold at times other than those of our choice.

Banking

It is difficult to find adjectives to describe the performance of Eugene Abegg, Chief Executive of Illinois National Bank and Trust of Rockford, Illinois, our banking subsidiary.

In a year when many banking operations experienced major troubles, Illinois National continued its outstanding record. Against average loans of about \$65 million, net loan losses were \$24,000, or .04%. Unusually high liquidity is maintained with obligations of the U. S. Government and its agencies, all due within one year, at yearend amounting to about 75% of demand deposits. Maximum rates of interest are paid on all consumer savings instruments which make up more than \$2 million, it consistently has generated favorable earnings. Positioned as we now are with respect to income taxes, the addition of a solid source of taxable income is particularly welcome.

General Review

Your present management assumed responsibility at Berkshire Hathaway in May, 1965. At the end of the prior fiscal year (September, 1964) the net worth of the Company was \$22.1 million, and 1,137,778 common shares were outstanding, with a resulting book value of \$19.46 per share. Ten years earlier, Berkshire Hathaway’s net worth had been \$53.4 million. Dividends and stock repurchases accounted for over \$21 million of the decline in company net worth, but aggregate net losses of \$9.8 million had been incurred on sales of \$595 million during the decade.

In 1965, two New England textile mills were the company’s only sources of earning power and, before Ken Chace assumed responsibility for the operation, textile earnings had been erratic and, cumulatively, something less than zero subsequent to the merger of Berkshire Fine Spinning and Hathaway Manufacturing. Since 1964, net worth has been built to \$92.9 million, or \$94.92 per share. We have acquired total, or virtually total ownership of six businesses through negotiated purchases for cash (or cash and notes) from private owners, started four others, purchased a 31.5% interest in a large affiliate enterprise and reduced the number of outstanding shares of Berkshire Hathaway to 979,569. Overall, equity per share has compounded at an annual rate of slightly over 15%.

While 1975 was a major disappointment, efforts will continue to develop growing and diversified sources of earnings. Our objective is a conservatively financed and highly liquid business—possessing extra margins of balance sheet strength consistent with the fiduciary obligations inherent in the banking and insurance industries—which will produce a long term rate of return on equity capital exceeding that of American industry as a whole.

Warren E. Buffett, Chairman

1975年致股东的信

致伯克希尔·哈撒韦公司的股东：

去年，在讨论1975年的前景时，我们曾表示"1975年的前景并不鼓舞人心"。事实证明，这个预测准确得令人沮丧。我们1975年的经营利润为6,713,592美元，合每股6.85美元，期初股东权益回报率为7.6%。这是自1967年以来最低的净资产收益率。此外，正如稍后在本信中所解释的，这些利润中的很大一部分来自联邦所得税退税，而这项收益在1976年将不复存在。

不过，总体来看，当前的趋势显示1976年可能会稍微光明一些。各业务板块的运营和前景将在下文按具体行业进行更详细的讨论。我们预计，纺织业务的显著改善、近期收购带来的利润增加、因持股比例扩大而享有的蓝筹印花公司权益收益的增长，以及保险承销业绩至少温和的改善，将足以抵消其他可能的负面因素，从而在1976年创造更高的利润。最大的变量——也是迄今为止最难以有把握预测的——是保险承销业绩。目前非常初步的迹象表明，承销业绩有望改善。如果这种改善是温和的，那么我们1976年的整体利润增长也将是温和的。更显著的承销改善则可能给我们带来利润的大幅增长。

纺织业务

1975年上半年，纺织品销售极度低迷，导致产能大幅缩减。运营出现严重亏损，雇员人数比上一年同期减少了多达53%。

然而，与以往周期性衰退不同的是，大多数纺织品生产商迅速削减产量以匹配新订单，从而防止了整个行业范围内库存的大规模积压。当零售需求复苏时，这种减产措施很快就在工厂运营层面得到了反映。结果，大约从年中开始，业务以相当快的速度回升。这次"V"字形的纺织业衰退，虽然是有记录以来最剧烈的几次之一，但也是我们经历中最短的一次。第四季度，我们的纺织部门实现了可观的利润，使全年业绩扭亏为盈。

1975年4月28日，我们收购了位于新罕布什尔州曼彻斯特的Waumbec Mills Incorporated和Waumbec Dyeing and Finishing Co., Inc.。这些公司长期以来一直向窗帘和服装行业销售机织产品。这类窗帘材料补充并扩展了伯克希尔·哈撒韦家居面料部门已有的产品线。在我们收购之前的时期，该公司一直处于严重亏损状态，只有大约55%的织机在运转，印染厂的产能利用率约为50%。收购后的头几个月，亏损仍在持续，但幅度有所减小。经过我们在生产、管理和销售方面的杰出努力，情况已大为改善，再加上纺织业的普遍复苏，Waumbec已进入显著的盈利状态。

我们预计1976年纺织业务将实现良好的盈利水平。Waumbec的产品正在稳步进入伯克希尔·哈撒韦传统优势的销售领域，曼彻斯特的织造和印染厂的生产效率都应能提高，同时纺织品的需求持续坚挺，价格合理。

我们对Ken Chace及其团队在纺织领域最大化我们优势的能力充满信心。因此，我们会继续寻找进一步扩大运营规模的方法，同时避免在新固定资产上进行重大资本投资——鉴于历史上大规模投资新纺织设备所获得的回报相对较低，我们认为这种投资是不明智的。

保险承销

1975年，财产和意外险行业经历了其历史上最糟糕的一年。我们"贡献"了应得的份额——不幸的是，甚至还要多一些。真正灾难性的结果集中在汽车险和长尾险种（那些损失结算通常远在损失事件发生之后才完成的合同）上。

经济通胀，加上修复人和财产成本的上涨速度远超一般通胀率，导致了最终的损失成本飙升，远远超过了在不同成本环境下确定的保费水平。"社会"通胀导致责任概念不断被扩大，远远超出了制定费率时设想的范围——实际上，相当于给投保人增加了超出其付费范围的保障。这种社会通胀显著增加了诉讼倾向，以及因以前在制定费率时认为统计上不显著的事件而获得巨额陪审团裁决的可能性。此外，那些因未能充分应对这些问题而濒临破产的公司，其本应由保单持有人承担的损失，通过保证基金被分摊到剩余的偿付能力正常的保险公司身上。这些趋势将继续下去，并应缓和任何可能因现在生效的大幅提价而变得合理的乐观情绪。

伯克希尔·哈撒韦的保险子公司恰好将业务不成比例地集中在了1975年承销业绩最差的险种上。这类险种能产生异常高的投资收益，因此在以往的承销条件下对我们特别有吸引力。然而，我们的"业务组合"在过去两年里非常不利，而且在未来通胀的岁月里，我们很可能仍将停留在保险行业中最困难的那部分领域。

1975年，唯一表现有所改善的板块是"本州"业务，它在John Ringwalt的领导下取得了持续进步。尽管仍处于显著的承销亏损状态，但其综合成本率相比1974年有所改善。若剔除仍处于初创阶段运营所产生的超额成本，该业务的承销结果令人满意。德州联合保险公司，几年前还是个大麻烦，自George Billing接手以来取得了卓越的进步。借助几乎全新的代理网络，德州联合保险公司因实现了本州公司中最低的赔付率而赢得了"主席杯"。康涅斯加意外险公司，作为本州公司中历史最久、规模最大的，继续其出色的运营，保费收入大幅增长，综合成本率略低于100。预计1976年本州业务的保费将有大幅增长；然而，衡量成功的标准仍将是实现较低的综合成本率。

我们在国民赔偿保险公司（National Indemnity Company）的传统业务，占了我们保险业务总量的过半，在1975年经历了一个异常糟糕的承保年度。尽管费率频繁且大幅上调，但它们在整个年度内都持续落后于损失经验。70年代初启动的几个特殊项目造成了重大损失，并严重消耗了管理层的精力和时间。目前迹象显示，1976年的保费收入将有大幅增长，我们希望承保业绩将有所改善。再保险在1975年遭遇了与我们直接业务相同的问题，也采取了同样的补救措施。由于再保险合同的结算比直接业务滞后，我们直接保险业务结果的任何好转很可能都会先于再保险板块的改善。

在我们的家庭及汽车保险公司（Home and Automobile Insurance Company）子公司（目前仅在伊利诺伊州库克县地区承保汽车险），1975年的经验继续非常糟糕，导致10月份更换了管理层。当时，John Seward被任命为总裁，他精力充沛且富有想象力地实施了一套全新的承保方法。

总体而言，我们的保险业务在1976年将产生可观的保费收入增长。这很大程度上将反映费率的提高，而非保单数量的增加。在正常情况下，这样的增长是可喜的，但目前我们心情复杂。承保经验应该会改善——我们也期望如此——但我们的信心水平并不高。虽然我们将努力使综合成本率低于100，但在1976年达到这一目标的可能性不大。

保险投资业务

1975年，投资收益增长温和，原因是保费收入持平，且承保亏损减少了可供投资的资金。按年末成本计，投资资产与年初水平几乎相同。

1974年底，我们股票投资组合的未实现亏损净额约为1,700万美元，但我们当时认为，按成本计值的该投资组合总体上价值良好。1975年，我们实现了税前信贷抵免前的净资本亏损2,888,000美元，但我们目前预计1976年将是实现资本利得的一年。1976年3月31日，我们适用于股权的未实现收益净额约为1,500万美元。我们的股权投资高度集中于少数几家公司，这些公司的选择基于有利的经济特征、称职且诚实的管理层，以及相对于私营企业主估值标准而言有吸引力的购买价格。

在保持这些标准的情况下，我们的意图是长期持有；事实上，我们最大的股权投资是467,150股华盛顿邮报的"B"股，成本为1,060万美元，我们期望永久持有。

采用这种方法，股市波动对我们来说无关紧要——除非它提供买入机会——但企业的表现则至关重要。在这方面，我们对目前拥有重大投资的几乎所有公司所取得的进展都感到非常满意。

我们继续在我们的保险公司中保持强劲的流动性头寸。在去年的年报中，我们解释了利率千分之一的变动如何导致我们债券市值出现百万美元的波动。我们认为这种市场波动无关紧要，因为我们的流动性和整体财务实力雄厚，使得债券不太可能在非我们选择的时机被迫出售。

银行业务

很难找到合适的形容词来描述我们的银行子公司——伊利诺伊州洛克福德市伊利诺伊国家银行及信托公司——首席执行官Eugene Abegg的表现。

在众多银行运营遭遇重大麻烦的一年里，伊利诺伊国家银行延续了其卓越的业绩记录。在约6,500万美元的平均贷款规模下，贷款净损失仅为24,000美元，即0.04%。该行保持了异常高的流动性，年末持有的一年内到期的美国政府及机构债券约占活期存款的75%。所有面向消费者的储蓄工具均按最高利率支付利息，这些储蓄工具构成了超过200万美元的存款，并持续稳定地产生可观的收益。鉴于我们目前的所得税状况，增加一个可靠的应税收入来源尤其受欢迎。

总体回顾

现任管理层于1965年5月接手伯克希尔·哈撒韦公司的管理责任。在上一财年结束（1964年9月）时，公司的净资产为2,210万美元，发行在外的普通股为1,137,778股，相应的每股账面价值为19.46美元。十年前，伯克希尔·哈撒韦的净资产为5,340万美元。股息和股份回购导致了公司净资产超过2,100万美元的下降，但在那十年期间，公司在5.95亿美元的销售额上累计净亏损了980万美元。

1965年，两家新英格兰纺织厂是公司唯一的盈利来源，在Ken Chace接管运营之前，自伯克希尔精纺公司与哈撒韦制造公司合并以来，纺织业务的盈利一直不稳定，累计来看几乎是零。自1964年以来，净资产已增至9,290万美元，合每股94.92美元。我们通过从私人所有者处协商购买现金（或现金加票据）的方式，收购了六家企业的全部或几乎全部所有权，另外创办了四家企业，购买了一家大型联营企业31.5%的权益，并将伯克希尔·哈撒韦的发行在外股份数量缩减至979,569股。总体而言，每股权益以略高于15%的年复合增长率增长。

虽然1975年令人大失所望，但我们仍将继续努力发展不断增长且多元化的盈利来源。我们的目标是建立一个融资保守、流动性极强的企业——拥有与银行和保险业固有的受托责任相称的额外资产负债表安全边际——从而产生超过美国工业整体水平的长期股本回报率。

沃伦·E·巴菲特 主席