To the Shareholders of Berkshire Hathaway Inc.:
Our gain in net worth during 1998 was \$25.9 billion, which increased the per-share book value of both our Class A and Class B stock by 48.3%. Over the last 34 years (that is, since present management took over) per-share book value has grown from \$19 to \$37,801, a rate of 24.7% compounded annually.*
Normally, a gain of 48.3% would call for handsprings — but not this year. Remember Wagner, whose music has been described as better than it sounds? Well, Berkshire’s progress in 1998 — though more than satisfactory — was not as good as it looks. That’s because most of that 48.3% gain came from our issuing shares in acquisitions.
To explain: Our stock sells at a large premium over book value, which means that any issuing of shares we do — whether for cash or as consideration in a merger — instantly increases our per-share book-value figure, even though we’ve earned not a dime. What happens is that we get more per-share book value in such transactions than we give up. These transactions, however, do not deliver us any immediate gain in per-share intrinsic value, because in this respect what we give and what we get are roughly equal. And, as Charlie Munger, Berkshire’s Vice Chairman and my partner, and I can’t tell you too often (though you may feel that we try), it’s the per-share gain in intrinsic value that counts rather than the per-share gain in book value. Though Berkshire’s intrinsic value grew very substantially in 1998, the gain fell well short of the 48.3% recorded for book value. Nevertheless, intrinsic value still far exceeds book value. (For a more extensive discussion of these terms, and other investment and accounting concepts, please refer to our Owner’s Manual, on pages 56-64, in which we set forth our owner-related business principles. Intrinsic value is discussed on pages 61 and 62.)
We entered 1999 with the best collection of businesses and managers in our history. The two companies we acquired in 1998, General Re and Executive Jet, are first-class in every way — more about both later — and the performance of our operating businesses last year exceeded my hopes. GEICO, once again, simply shot the lights out. On the minus side, several of the public companies in which we have major investments experienced significant operating shortfalls that neither they nor I anticipated early in the year. Consequently, our equity portfolio did not perform nearly as well as did the S&P 500. The problems of these companies are almost certainly temporary, and Charlie and I believe that their long-term prospects are excellent.
In our last three annual reports, we furnished you a table that we regard as central to estimating Berkshire's intrinsic value. In the updated version of that table, which follows, we trace our two key components of value, including General Re on a pro-forma basis as if we had owned it throughout the year. The first column lists our per-share ownership of investments (including cash and equivalents but excluding securities held in our financial products operation) and the second column shows our per-share earnings from Berkshire's operating businesses before taxes and purchase-accounting adjustments (discussed on pages 62 and 63), but after all interest and corporate expenses. The second column excludes all dividends, interest and capital gains that we realized from the investments presented in the first column. In effect, the columns show how Berkshire would look if it were split into two parts, with one entity holding our investments and the other operating all of our businesses and bearing all corporate costs.
| Year | Investments Per Share | Pre-tax Earnings Per Share With All Income from Investments Excluded |
| 1968 | $53 | $2.87 |
| 1978 | 465 | 12.85 |
| 1988 | 4,876 | 145.77 |
| 1998 | 47,647 | 474.45 |
Here are the growth rates of the two segments by decade:
| Decade Ending | Investments Per Share | Pre-tax Earnings Per Share With All Income from Investments Excluded |
| 1978 | 24.2% | 16.2% |
| 1988 | 26.5% | 27.5% |
| 1998 | 25.6% | 12.5% |
| Annual Growth Rate, 1968-1998 | 25.4% | 18.6% |
During 1998, our investments increased by \$9,604 per share, or 25.2%, but per-share operating earnings fell by 33.9%. General Re (included, as noted, on a pro-forma basis) explains both facts. This company has very large investments, and these greatly increased our per-share investment figure. But General Re also had an underwriting loss in 1998, and that hurt operating earnings. Had we not acquired General Re, per-share operating earnings would have shown a modest gain.
Though certain of our acquisitions and operating strategies may from time to time affect one column more than the other, we continually work to increase the figures in both. But one thing is certain: Our future rates of gain will fall far short of those achieved in the past. Berkshire’s capital base is now simply too large to allow us to earn truly outsized returns. If you believe otherwise, you should consider a career in sales but avoid one in mathematics (bearing in mind that there are really only three kinds of people in the world: those who can count and those who can’t).
Currently we are working to compound a net worth of \$57.4 billion, the largest of any American corporation (though our figure will be eclipsed if the merger of Exxon and Mobil takes place). Of course, our lead in net worth does not mean that Berkshire outranks all other businesses in value: Market value is what counts for owners and General Electric and Microsoft, for example, have valuations more than three times Berkshire’s. Net worth, though, measures the capital that managers must deploy, and at Berkshire that figure has indeed become huge.
Nonetheless, Charlie and I will do our best to increase intrinsic value in the future at an average rate of 15%, a result we consider to be at the very peak of possible outcomes. We may have years when we exceed 15%, but we will most certainly have other years when we fall far short of that — including years showing negative returns — and those will bring our average down. In the meantime, you should understand just what an average gain of 15% over the next five years implies: It means we will need to increase net worth by \$58 billion. Earning this daunting 15% will require us to come up with big ideas: Popcorn stands just won’t do. Today’s markets are not friendly to our search for “elephants,” but you can be sure that we will stay focused on the hunt.
Whatever the future holds, I make you one promise: I’ll keep at least 99% of my net worth in Berkshire for as long as I am around. How long will that be? My model is the loyal Democrat in Fort Wayne who asked to be buried in Chicago so that he could stay active in the party. To that end, I’ve already selected a “power spot” at the office for my urn.
************
Our financial growth has been matched by employment growth: We now have 47,566 on our payroll, with the acquisitions of 1998 bringing 7,074 employees to us and internal growth adding another 2,500. To balance this gain of 9,500 in hands-on employees, we have enlarged the staff at world headquarters from 12 to 12.8. (The .8 doesn’t refer to me or Charlie: We have a new person in accounting, working four days a week.) Despite this alarming trend toward corporate bloat, our after-tax overhead last year was about \$3.5 million, or well under one basis point (.01 of 1%) of the value of the assets we manage.
Taxes
One beneficiary of our increased size has been the U.S. Treasury. The federal income taxes that Berkshire and General Re have paid, or will soon pay, in respect to 1998 earnings total \$2.7 billion. That means we shouldered all of the U.S. Government’s expenses for more than a half-day.
Follow that thought a little further: If only 625 other U.S. taxpayers had paid the Treasury as much as we and General Re did last year, no one else — neither corporations nor 270 million citizens — would have had to pay federal income taxes or any other kind of federal tax (for example, social security or estate taxes). Our shareholders can truly say that they “gave at the office.”
Writing checks to the IRS that include strings of zeros does not bother Charlie or me. Berkshire as a corporation, and we as individuals, have prospered in America as we would have in no other country. Indeed, if we lived in some other part of the world and completely escaped taxes, I’m sure we would be worse off financially (and in many other ways as well). Overall, we feel extraordinarily lucky to have been dealt a hand in life that enables us to write large checks to the government rather than one requiring the government to regularly write checks to us — say, because we are disabled or unemployed.
Berkshire’s tax situation is sometimes misunderstood. First, capital gains have no special attraction for us: A corporation pays a 35% rate on taxable income, whether it comes from capital gains or from ordinary operations. This means that Berkshire’s tax on a long-term capital gain is fully 75% higher than what an individual would pay on an identical gain.
Some people harbor another misconception, believing that we can exclude 70% of all dividends we receive from our taxable income. Indeed, the 70% rate applies to most corporations and also applies to Berkshire in cases where we hold stocks in non-insurance subsidiaries. However, almost all of our equity investments are owned by our insurance companies, and in that case the exclusion is 59.5%. That still means a dollar of dividends is considerably more valuable to us than a dollar of ordinary income, but not to the degree often assumed.
* * * * * * * * * * * *
Berkshire truly went all out for the Treasury last year. In connection with the General Re merger, we wrote a \$30 million check to the government to pay an SEC fee tied to the new shares created by the deal. We understand that this payment set an SEC record. Charlie and I are enormous admirers of what the Commission has accomplished for American investors. We would rather, however, have found another way to show our admiration.
GEICO (1-800-847-7536)
Combine a great idea with a great manager and you’re certain to obtain a great result. That mix is alive and well at GEICO. The idea is low-cost auto insurance, made possible by direct-to-customer marketing, and the manager is Tony Nicely. Quite simply, there is no one in the business world who could run GEICO better than Tony does. His instincts are unerring, his energy is boundless, and his execution is flawless. While maintaining underwriting discipline, Tony is building an organization that is gaining market share at an accelerating rate.
This pace has been encouraged by our compensation policies. The direct writing of insurance — that is, without there being an agent or broker between the insurer and its policyholder — involves a substantial front-end investment. First-year business is therefore unprofitable in a major way. At GEICO, we do not wish this cost to deter our associates from the aggressive pursuit of new business — which, as it renews, will deliver significant profits — so we leave it out of our compensation formulas. What’s included then? We base 50% of our associates’ bonuses and profit sharing on the earnings of our “seasoned” book, meaning policies that have been with us for more than a year. The other 50% is tied to growth in policyholders — and here we have stepped on the gas.
In 1995, the year prior to its acquisition by Berkshire, GEICO spent \$33 million on marketing and had 652 telephone counselors. Last year the company spent \$143 million, and the counselor count grew to 2,162. The effects that these efforts had at the company are shown by the new business and in-force figures below:
| Years | New Auto Policies* | Auto Policies In-Force* |
| 1993 | 354,882 | 2,011,055 |
| 1994 | 396,217 | 2,147,549 |
| 1995 | 461,608 | 2,310,037 |
| 1996 | 617,669 | 2,543,699 |
| 1997 | 913,176 | 2,949,439 |
| 1998 | 1,317,761 | 3,562,644 |
* “Voluntary” only; excludes assigned risks and the like.
In 1999, we will again increase our marketing budget, spending at least \$190 million. In fact, there is no limit to what Berkshire is willing to invest in GEICO’s new-business activity, as long as we can concurrently build the infrastructure the company needs to properly serve its policyholders.
Because of the first-year costs, companies that are concerned about quarterly or annual earnings would shy from similar investments, no matter how intelligent these might be in terms of building long-term value. Our calculus is different: We simply measure whether we are creating more than a dollar of value per dollar spent — and if that calculation is favorable, the more dollars we spend the happier I am.
There is far more to GEICO’s success, of course, than low prices and a torrent of advertising. The handling of claims must also be fair, fast and friendly — and ours is. Here’s an impartial scorecard on how we shape up: In New York, our largest-volume state, the Insurance Department recently reported that GEICO’s complaint ratio in 1997 was not only the lowest of the five largest auto insurers but was also less than half the average of the other four.
GEICO’s 1998 profit margin of 6.7% was better than we had anticipated — and, indeed, better than we wished. Our results reflect an industry-wide phenomenon: In recent years, both the frequency of auto accidents and their severity have unexpectedly declined. We responded by reducing rates 3.3% in 1998, and we will reduce them still more in 1999. These moves will soon bring profit margins down — at the least to 4%, which is our target, and perhaps considerably lower. Whatever the case, we believe that our margins will continue to be much better than those of the industry.
With GEICO’s growth and profitability both outstanding in 1998, so also were its profit-sharing and bonus payments. Indeed, the profit-sharing payment of \$103 million or 32.3% of salary — which went to all 9,313 associates who had been with us for more than a year — may well have been the highest percentage payment at any large company in the country. (In addition, associates benefit from a company-funded pension plan.)
The 32.3% may turn out to be a high-water mark, given that the profitability component in our profit-sharing calculation is almost certain to come down in the future. The growth component, though, may well increase. Overall, we expect the two benchmarks together to dictate very significant profit-sharing payments for decades to come. For our associates, growth pays off in other ways as well: Last year we promoted 4,612 people.
Impressive as the GEICO figures are, we have far more to do. Our market share improved significantly in 1998 but only from 3% to 3½%. For every policyholder we now have, there are another ten who should be giving us their business.
Some of you who are reading this may be in that category. About 40% of those who check our rates find that they can save money by doing business with us. The proportion is not 100% because insurers differ in their underwriting judgements, with some giving more credit than we do to drivers who live in certain geographical areas or work at certain occupations. We believe, however, that we more frequently offer the low price than does any other national carrier selling insurance to all comers. Furthermore, in 40 states we can offer a special discount — usually 8% — to our shareholders. So give us a call and check us out.
************
You may think that one commercial in this section is enough. But I have another to present, this one directed at managers of publicly-owned companies.
At Berkshire we feel that telling outstanding CEOs, such as Tony, how to run their companies would be the height of foolishness. Most of our managers wouldn’t work for us if they got a lot of backseat driving. (Generally, they don’t have to work for anyone, since 75% or so are independently wealthy.) Besides, they are the Mark McGwires of the business world and need no advice from us as to how to hold the bat or when to swing.
Nevertheless, Berkshire’s ownership may make even the best of managers more effective. First, we eliminate all of the ritualistic and nonproductive activities that normally go with the job of CEO. Our managers are totally in charge of their personal schedules. Second, we give each a simple mission: Just run your business as if: 1) you own 100% of it; 2) it is the only asset in the world that you and your family have or will ever have; and 3) you can’t sell or merge it for at least a century. As a corollary, we tell them they should not let any of their decisions be affected even slightly by accounting considerations. We want our managers to think about what counts, not how it will be counted.
Very few CEOs of public companies operate under a similar mandate, mainly because they have owners who focus on short-term prospects and reported earnings. Berkshire, however, has a shareholder base — which it will have for decades to come — that has the longest investment horizon to be found in the public-company universe. Indeed, a majority of our shares are held by investors who expect to die still holding them. We can therefore ask our CEOs to manage for maximum long-term value, rather than for next quarter’s earnings. We certainly don’t ignore the current results of our businesses — in most cases, they are of great importance — but we never want them to be achieved at the expense of our building ever-greater competitive strengths.
I believe the GEICO story demonstrates the benefits of Berkshire’s approach. Charlie and I haven’t taught Tony a thing — and never will — but we have created an environment that allows him to apply all of his talents to what’s important. He does not have to devote his time or energy to board meetings, press interviews, presentations by investment bankers or talks with financial analysts. Furthermore, he need never spend a moment thinking about financing, credit ratings or “Street” expectations for earnings per share. Because of our ownership structure, he also knows that this operational framework will endure for decades to come. In this environment of freedom, both Tony and his company can convert their almost limitless potential into matching achievements.
If you are running a large, profitable business that will thrive in a GEICO-like environment, check our acquisition criteria on page 21 and give me a call. I promise a fast answer and will mention your inquiry to no one except Charlie.
Executive Jet Aviation (1-800-848-6436)
To understand the huge potential at Executive Jet Aviation (EJA), you need some understanding of its business, which is selling fractional shares of jets and operating the fleet for its many owners. Rich Santulli, CEO of EJA, created the fractional ownership industry in 1986, by visualizing an important new way of using planes. Then he combined guts and talent to turn his idea into a major business.
In a fractional ownership plan, you purchase a portion — say /8th — of any of a wide variety of jets that EJA1 offers. That purchase entitles you to 100 hours of flying time annually. (“Dead-head” hours don’t count against your allotment, and you are also allowed to average your hours over five years.) In addition, you pay both a monthly management fee and a fee for hours actually flown.
Then, on a few hours notice, EJA makes your plane, or another at least as good, available to you at your choice of the 5500 airports in the U.S. In effect, calling up your plane is like phoning for a taxi.
I first heard about the NetJets® program, as it is called, about four years ago from Frank Rooney, our manager at H.H. Brown. Frank had used and been delighted with the service and suggested that I meet Rich to investigate signing up for my family’s use. It took Rich about 15 minutes to sell me a quarter (200 hours annually) of a Hawker 1000. Since then, my family has learned firsthand — through flying 900 hours on 300 trips — what a friendly, efficient, and safe operation EJA runs. Quite simply, they love this service. In fact, they quickly grew so enthusiastic that I did a testimonial ad for EJA long before I knew there was any possibility of our purchasing the business. I did, however, ask Rich to give me a call if he ever got interested in selling. Luckily, he phoned me last May, and we quickly made a \$725 million deal, paying equal amounts of cash and stock.
EJA, which is by far the largest operator in its industry, has more than 1,000 customers and 163 aircraft (including 23 “core” aircraft that are owned or leased by EJA itself, so that it can make sure that service is first-class even during the times when demand is heaviest). Safety, of course, is the paramount issue in any flight operation, and Rich’s pilots now numbering about 650 — receive extensive training at least twice a year from FlightSafety International, another Berkshire subsidiary and the world leader in pilot training. The bottom line on our pilots: I’ve sold the Berkshire plane and will now do all of my business flying, as well as my personal flying, with NetJets’ crews.
Being the leader in this industry is a major advantage for all concerned. Our customers gain because we have an armada of planes positioned throughout the country at all times, a blanketing that allows us to provide unmatched service. Meanwhile, we gain from the blanketing because it reduces dead-head costs. Another compelling attraction for our clients is that we offer products from Boeing, Gulfstream, Falcon, Cessna, and Raytheon, whereas our two competitors are owned by manufacturers that offer only their own planes. In effect, NetJets is like a physician who can recommend whatever medicine best fits the needs of each patient; our competitors, in contrast, are producers of a “house” brand that they must prescribe for one and all.
In many cases our clients, both corporate and individual, own fractions of several different planes and can therefore match specific planes to specific missions. For example, a client might own /16th of three different jets (each giving it 1 50 hours of flying time), which in total give it a virtual fleet, obtained for a small fraction of the cost of a single plane.
Significantly, it is not only small businesses that can benefit from fractional ownership. Already, some of America’s largest companies use NetJets as a supplement to their own fleet. This saves them big money in both meeting peak requirements and in flying missions that would require their wholly-owned planes to log a disproportionate amount of dead-head hours.
When a plane is slated for personal use, the clinching argument is that either the client signs up now or his children likely will later. That’s an equation I explained to my wonderful Aunt Alice 40 years ago when she asked me whether she could afford a fur coat. My reply settled the issue: “Alice, you aren’t buying it; your heirs are.”
EJA’s growth has been explosive: In 1997, it accounted for 31% of all corporate jets ordered in the world. Nonetheless, Rich and I believe that the potential of fractional ownership has barely been scratched. If many thousands of owners find it sensible to own 100% of a plane — which must be used 350-400 hours annually if it’s to make economic sense — there must be a large multiple of that number for whom fractional ownership works.
In addition to being a terrific executive, Rich is fun. Like most of our managers, he has no economic need whatsoever to work. Rich spends his time at EJA because it’s his baby — and he wants to see how far he can take it. We both already know the answer, both literally and figuratively: to the ends of the earth.
************
And now a small hint to Berkshire directors: Last year I spent more than nine times my salary at Borsheim’s and EJA. Just think how Berkshire’s business would boom if you’d only spring for a raise.
General Re
On December 21, we completed our \$22 billion acquisition of General Re Corp. In addition to owning 100% of General Reinsurance Corporation, the largest U.S. property-casualty reinsurer, the company also owns (including stock it has an arrangement to buy) 82% of the oldest reinsurance company in the world, Cologne Re. The two companies together reinsure all lines of insurance and operate in 124 countries.
For many decades, General Re’s name has stood for quality, integrity and professionalism in reinsurance — and under Ron Ferguson’s leadership, this reputation has been burnished still more. Berkshire can add absolutely nothing to the skills of General Re’s and Cologne Re’s managers. On the contrary, there is a lot that they can teach us.
Nevertheless, we believe that Berkshire’s ownership will benefit General Re in important ways and that its earnings a decade from now will materially exceed those that would have been attainable absent the merger. We base this optimism on the fact that we can offer General Re’s management a freedom to operate in whatever manner will best allow the company to exploit its strengths.
Let’s look for a moment at the reinsurance business to understand why General Re could not on its own do what it can under Berkshire. Most of the demand for reinsurance comes from primary insurers who want to escape the wide swings in earnings that result from large and unusual losses. In effect, a reinsurer gets paid for absorbing the volatility that the client insurer wants to shed.
Ironically, though, a publicly-held reinsurer gets graded by both its owners and those who evaluate its credit on the smoothness of its own results. Wide swings in earnings hurt both credit ratings and p/e ratios, even when the business that produces such swings has an expectancy of satisfactory profits over time. This market reality sometimes causes a reinsurer to make costly moves, among them laying off a significant portion of the business it writes (in transactions that are called “retrocessions”) or rejecting good business simply because it threatens to bring on too much volatility.
Berkshire, in contrast, happily accepts volatility, just as long as it carries with it the expectation of increased profits over time. Furthermore, we are a Fort Knox of capital, and that means volatile earnings can’t impair our premier credit ratings. Thus we have the perfect structure for writing — and retaining — reinsurance in virtually any amount. In fact, we’ve used this strength over the past decade to build a powerful super-cat business.
What General Re gives us, however, is the distribution force, technical facilities and management that will allow us to employ our structural strength in every facet of the industry. In particular, General Re and Cologne Re can now accelerate their push into international markets, where the preponderance of industry growth will almost certainly occur. As the merger proxy statement spelled out, Berkshire also brings tax and investment benefits to General Re. But the most compelling reason for the merger is simply that General Re’s outstanding management can now do what it does best, unfettered by the constraints that have limited its growth.
Berkshire is assuming responsibility for General Re’s investment portfolio, though not for Cologne Re’s. We will not, however, be involved in General Re’s underwriting. We will simply ask the company to exercise the discipline of the past while increasing the proportion of its business that is retained, expanding its product line, and widening its geographical coverage — making these moves in recognition of Berkshire’s financial strength and tolerance for wide swings in earnings. As we’ve long said, we prefer a lumpy 15% return to a smooth 12%.
Over time, Ron and his team will maximize General Re’s new potential. He and I have known each other for many years, and each of our companies has initiated significant business that it has reinsured with the other. Indeed, General Re played a key role in the resuscitation of GEICO from its near-death status in 1976.
Both Ron and Rich Santulli plan to be at the annual meeting, and I hope you get a chance to say hello to them.
The Economics of Property-Casualty Insurance
With the acquisition of General Re — and with GEICO’s business mushrooming — it becomes more important than ever that you understand how to evaluate an insurance company. The key determinants are: (1) the amount of float that the business generates; (2) its cost; and (3) most important of all, the long-term outlook for both of these factors.
To begin with, float is money we hold but don't own. In an insurance operation, float arises because premiums are received before losses are paid, an interval that sometimes extends over many years. During that time, the insurer invests the money. Typically, this pleasant activity carries with it a downside: The premiums that an insurer takes in usually do not cover the losses and expenses it eventually must pay. That leaves it running an "underwriting loss," which is the cost of float. An insurance business has value if its cost of float over time is less than the cost the company would otherwise incur to obtain funds. But the business is a lemon if its cost of float is higher than market rates for money.
A caution is appropriate here: Because loss costs must be estimated, insurers have enormous latitude in figuring their underwriting results, and that makes it very difficult for investors to calculate a company's true cost of float. Errors of estimation, usually innocent but sometimes not, can be huge. The consequences of these miscalculations flow directly into earnings. An experienced observer can usually detect large-scale errors in reserving, but the general public can typically do no more than accept what's presented, and at times I have been amazed by the numbers that big-name auditors have implicitly blessed. As for Berkshire, Charlie and I attempt to be conservative in presenting its underwriting results to you, because we have found that virtually all surprises in insurance are unpleasant ones.
The table that follows shows the float generated by Berkshire’s insurance operations since we entered the business 32 years ago. The data are for every fifth year and also the last, which includes General Re’s huge float. For the table we have calculated our float — which we generate in large amounts relative to our premium volume — by adding net loss reserves, loss adjustment reserves, funds held under reinsurance assumed and unearned premium reserves, and then subtracting agents balances, prepaid acquisition costs, prepaid taxes and deferred charges applicable to assumed reinsurance. (Got that?)
| Year | Average Float(in $ millions) |
| 1967 | 17 |
| 1972 | 70 |
| 1977 | 139 |
| 1982 | 221 |
| 1987 | 1,267 |
| 1992 | 2,290 |
| 1997 | 7,093 |
| 1998 | 22,762 (yearend) |
Impressive as the growth in our float has been — 25.4% compounded annually — what really counts is the cost of this item. If that becomes too high, growth in float becomes a curse rather than a blessing.
At Berkshire, the news is all good: Our average cost over the 32 years has been well under zero. In aggregate, we have posted a substantial underwriting profit, which means that we have been paid for holding a large and growing amount of money. This is the best of all worlds. Indeed, though our net float is recorded on our balance sheet as a liability, it has had more economic value to us than an equal amount of net worth would have had. As long as we can continue to achieve an underwriting profit, float will continue to outrank net worth in value.
During the next few years, Berkshire’s growth in float may well be modest. The reinsurance market is soft, and in this business, relationships change slowly. Therefore, General Re’s float — /3rds of our total — is unlikely to2 increase significantly in the near term. We do expect, however, that our cost of float will remain very attractive compared to that of other insurers.
Sources of Reported Earnings
The table that follows shows the main sources of Berkshire's reported earnings. In this presentation, purchaseaccounting adjustments are not assigned to 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. For the reasons discussed on pages 62 and 63, this form of presentation seems to us to be more useful to investors and managers than one utilizing generally-accepted accounting principles (GAAP), which require purchase-premiums to be charged off business-by-business. The total earnings we show in the table are, of course, identical to the GAAP total in our audited financial statements.
| (in millions) | ||||
| Pre-Tax Earnings | Berkshire’s Share of Net Earnings(after taxes and minority interests) | |||
| 1998 | 1997 | 1998 | 1997 | |
| Operating Earnings: | ||||
| Insurance Group: | ||||
| Underwriting — Super-Cat | $154 | $283 | $100 | $183 |
| Underwriting — Other Reinsurance | (175) | (155) | (114) | (100) |
| Underwriting — GEICO | 269 | 281 | 175 | 181 |
| Underwriting — Other Primary | 17 | 53 | 10 | 34 |
| Net Investment Income | 974 | 882 | 731 | 704 |
| Buffalo News | 53 | 56 | 32 | 33 |
| Finance and Financial Products Businesses | 205(1) | 28 | 133(1) | 18 |
| Flight Services | 181 | 140(2) | 110 | 84 |
| Home Furnishings | 72 | 57 | 41 | 32(2) |
| International Dairy Queen | 58 | — | 35 | — |
| Jewelry | 39 | 32 | 23 | 18 |
| Scott Fetzer (excluding finance operation) | 137 | 119 | 85 | 77 |
| See’s Candies | 62 | 59 | 40 | 35 |
| Shoe Group | 33 | 49 | 23 | 32 |
| General Re | 26(3) | — | 16(3) | — |
| Purchase-Accounting Adjustments | (123) | (101) | (118) | (94) |
| Interest Expense(4) | (100) | (107) | (63) | (67) |
| Shareholder-Designated Contributions | (17) | (15) | (11) | (10) |
| Other | 34 | 60 | 29 | 37 |
| Operating Earnings | 1,899 | 1,721 | 1,277 | 1,197 |
| Capital Gains from Investments | 2,415 | 1,106 | 1,553 | 704 |
| Total Earnings - All Entities | $4,314 | $2,827 | $2,830 | $1,901 |
Includes Executive Jet from August 7, 1998 .(1)
From date of acquisition, December 21, 1998.(3)
Includes Star Furniture from July 1, 1997.(2)
Excludes interest expense of Finance Businesses.(4)
You can be proud of our operating managers. They almost invariably deliver earnings that are at the very top of what conditions in their industries allow, meanwhile fortifying their businesses’ long-term competitive strengths. In aggregate, they have created many billions of dollars of value for you.
An example: In my 1994 letter, I reported on Ralph Schey’s extraordinary performance at Scott Fetzer. Little did I realize that he was just warming up. Last year Scott Fetzer, operating with no leverage (except for a conservative level of debt in its finance subsidiary), earned a record \$96.5 million after-tax on its \$112 million net worth.
Today, Berkshire has an unusually large number of individuals, such as Ralph, who are truly legends in their industries. Many of these joined us when we purchased their companies, but in recent years we have also identified a number of strong managers internally. We further expanded our corps of all-stars in an important way when we acquired General Re and EJA.
Charlie and I have the easy jobs at Berkshire: We do very little except allocate capital. And, even then, we are not all that energetic. We have one excuse, though: In allocating capital, activity does not correlate with achievement. Indeed, in the fields of investments and acquisitions, frenetic behavior is often counterproductive. Therefore, Charlie and I mainly just wait for the phone to ring.
Our managers, however, work very hard — and it shows. Naturally, they want to be paid fairly for their efforts, but pay alone can’t explain their extraordinary accomplishments. Instead, each is primarily motivated by a vision of just how far his or her business can go — and by a desire to be the one who gets it there. Charlie and I thank them on your behalf and ours.
* * * * * * * * * * * *
Additional information about our various businesses is given on pages 39-53, where you will also find our segment earnings reported on a GAAP basis. In addition, on pages 65-71, we have rearranged Berkshire's financial data into four segments on a non-GAAP basis, a presentation that corresponds to the way Charlie and I think about the company.
Normally, we follow this section with one on “Look-Through” Earnings. Because the General Re acquisition occurred near yearend, though, neither a historical nor a pro-forma calculation of a 1998 number seems relevant. We will resume the look-through calculation in next year’s report.
Investments
Below we present our common stock investments. Those with a market value of more than \$750 million are itemized.
| 12/31/98 | |||
| Shares | Company | Cost* | Market |
| (dollars in millions) | |||
| 50,536,900 | American Express Company | $1,470 | $5,180 |
| 200,000,000 | The Coca-Cola Company | 1,299 | 13,400 |
| 51,202,242 | The Walt Disney Company | 281 | 1,536 |
| 60,298,000 | Freddie Mac | 308 | 3,885 |
| 96,000,000 | The Gillette Company | 600 | 4,590 |
| 1,727,765 | The Washington Post Company | 11 | 999 |
| 63,595,180 | Wells Fargo & Company | 392 | 2,540 |
| Others | 2,683 | 5,135 | |
| Total Common Stocks | $7,044 | $37,265 | |
* Represents tax-basis cost which, in aggregate, is \$1.5 billion less than GAAP cost.
During the year, we slightly increased our holdings in American Express, one of our three largest commitments, and left the other two unchanged. However, we trimmed or substantially cut many of our smaller positions. Here, I need to make a confession (ugh): The portfolio actions I took in 1998 actually decreased our gain for the year. In particular, my decision to sell McDonald’s was a very big mistake. Overall, you would have been better off last year if I had regularly snuck off to the movies during market hours.
At yearend, we held more than \$15 billion in cash equivalents (including high-grade securities due in less than one year). Cash never makes us happy. But it’s better to have the money burning a hole in Berkshire’s pocket than resting comfortably in someone else’s. Charlie and I will continue our search for large equity investments or, better yet, a really major business acquisition that would absorb our liquid assets. Currently, however, we see nothing on the horizon.
Once we knew that the General Re merger would definitely take place, we asked the company to dispose of the equities that it held. (As mentioned earlier, we do not manage the Cologne Re portfolio, which includes many equities.) General Re subsequently eliminated its positions in about 250 common stocks, incurring \$935 million of taxes in the process. This “clean sweep” approach reflects a basic principle that Charlie and I employ in business and investing: We don’t back into decisions.
Last year I deviated from my standard practice of not disclosing our investments (other than those we are legally required to report) and told you about three unconventional investments we had made. There were several reasons behind that disclosure. First, questions about our silver position that we had received from regulatory authorities led us to believe that they wished us to publicly acknowledge this investment. Second, our holdings of zero-coupon bonds were so large that we wanted our owners to know of this investment’s potential impact on Berkshire’s net worth. Third, we simply wanted to alert you to the fact that we sometimes do make unconventional commitments.
Normally, however, as discussed in the Owner’s Manual on page 61, we see no advantage in talking about specific investment actions. Therefore — unless we again take a position that is particularly large — we will not post you as to what we are doing in respect to any specific holding of an unconventional sort. We can report, however, that we have eliminated certain of the positions discussed last year and added certain others.
Our never-comment-even-if-untrue policy in regard to investments may disappoint “piggybackers” but will benefit owners: Your Berkshire shares would be worth less if we discussed what we are doing. Incidentally, we should warn you that media speculation about our investment moves continues in most cases to be incorrect. People who rely on such commentary do so at their own peril.
Accounting — Part 1
Our General Re acquisition put a spotlight on an egregious flaw in accounting procedure. Sharp-eyed shareholders reading our proxy statement probably noticed an unusual item on page 60. In the pro-forma statement of income — which detailed how the combined 1997 earnings of the two entities would have been affected by the merger — there was an item stating that compensation expense would have been increased by \$63 million.
This item, we hasten to add, does not signal that either Charlie or I have experienced a major personality change. (He still travels coach and quotes Ben Franklin.) Nor does it indicate any shortcoming in General Re’s accounting practices, which have followed GAAP to the letter. Instead, the pro-forma adjustment came about because we are replacing General Re’s longstanding stock option plan with a cash plan that ties the incentive compensation of General Re managers to their operating achievements. Formerly what counted for these managers was General Re’s stock price; now their payoff will come from the business performance they deliver.
The new plan and the terminated option arrangement have matching economics, which means that the rewards they deliver to employees should, for a given level of performance, be the same. But what these people could have formerly anticipated earning from new option grants will now be paid in cash. (Options granted in past years remain outstanding.)
Though the two plans are an economic wash, the cash plan we are putting in will produce a vastly different accounting result. This Alice-in-Wonderland outcome occurs because existing accounting principles ignore the cost of stock options when earnings are being calculated, even though options are a huge and increasing expense at a great many corporations. In effect, accounting principles offer management a choice: Pay employees in one form and count the cost, or pay them in another form and ignore the cost. Small wonder then that the use of options has mushroomed. This lop-sided choice has a big downside for owners, however: Though options, if properly structured, can be an appropriate, and even ideal, way to compensate and motivate top managers, they are more often wildly capricious in their distribution of rewards, inefficient as motivators, and inordinately expensive for shareholders.
Whatever the merits of options may be, their accounting treatment is outrageous. Think for a moment of that \$190 million we are going to spend for advertising at GEICO this year. Suppose that instead of paying cash for our ads, we paid the media in ten-year, at-the-market Berkshire options. Would anyone then care to argue that Berkshire had not borne a cost for advertising, or should not be charged this cost on its books?
Perhaps Bishop Berkeley — you may remember him as the philosopher who mused about trees falling in a forest when no one was around — would believe that an expense unseen by an accountant does not exist. Charlie and I, however, have trouble being philosophical about unrecorded costs. When we consider investing in an optionissuing company, we make an appropriate downward adjustment to reported earnings, simply subtracting an amount equal to what the company could have realized by publicly selling options of like quantity and structure. Similarly, if we contemplate an acquisition, we include in our evaluation the cost of replacing any option plan. Then, if we make a deal, we promptly take that cost out of hiding.
Readers who disagree with me about options will by this time be mentally quarreling with my equating the cost of options issued to employees with those that might theoretically be sold and traded publicly. It is true, to state one of these arguments, that employee options are sometimes forfeited — that lessens the damage done to shareholders — whereas publicly-offered options would not be. It is true, also, that companies receive a tax deduction when employee options are exercised; publicly-traded options deliver no such benefit. But there’s an offset to these points: Options issued to employees are often repriced, a transformation that makes them much more costly than the public variety.
It’s sometimes argued that a non-transferable option given to an employee is less valuable to him than would be a publicly-traded option that he could freely sell. That fact, however, does not reduce the cost of the nontransferable option: Giving an employee a company car that can only be used for certain purposes diminishes its value to the employee, but does not in the least diminish its cost to the employer.
The earning revisions that Charlie and I have made for options in recent years have frequently cut the reported per-share figures by 5%, with 10% not all that uncommon. On occasion, the downward adjustment has been so great that it has affected our portfolio decisions, causing us either to make a sale or to pass on a stock purchase we might otherwise have made.
A few years ago we asked three questions in these pages to which we have not yet received an answer: “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?”
Accounting — Part 2
The role that managements have played in stock-option accounting has hardly been benign: A distressing number of both CEOs and auditors have in recent years bitterly fought FASB’s attempts to replace option fiction with truth and virtually none have spoken out in support of FASB. Its opponents even enlisted Congress in the fight, pushing the case that inflated figures were in the national interest.
Still, I believe that the behavior of managements has been even worse when it comes to restructurings and merger accounting. Here, many managements purposefully work at manipulating numbers and deceiving investors. And, as Michael Kinsley has said about Washington: “The scandal isn’t in what’s done that’s illegal but rather in what’s legal.”
It was once relatively easy to tell the good guys in accounting from the bad: The late 1960's, for example, brought on an orgy of what one charlatan dubbed “bold, imaginative accounting” (the practice of which, incidentally, made him loved for a time by Wall Street because he never missed expectations). But most investors of that period knew who was playing games. And, to their credit, virtually all of America’s most-admired companies then shunned deception.
In recent years, probity has eroded. Many major corporations still play things straight, but a significant and growing number of otherwise high-grade managers — CEOs you would be happy to have as spouses for your children or as trustees under your will — have come to the view that it’s okay to manipulate earnings to satisfy what they believe are Wall Street’s desires. Indeed, many CEOs think this kind of manipulation is not only okay, but actually their duty.
These managers start with the assumption, all too common, that their job at all times is to encourage the highest stock price possible (a premise with which we adamantly disagree). To pump the price, they strive, admirably, for operational excellence. But when operations don’t produce the result hoped for, these CEOs resort to unadmirable accounting stratagems. These either manufacture the desired “earnings” or set the stage for them in the future.
Rationalizing this behavior, these managers often say that their shareholders will be hurt if their currency for doing deals — that is, their stock — is not fully-priced, and they also argue that in using accounting shenanigans to get the figures they want, they are only doing what everybody else does. Once such an everybody’s-doing-it attitude takes hold, ethical misgivings vanish. Call this behavior Son of Gresham: Bad accounting drives out good.
The distortion du jour is the “restructuring charge,” an accounting entry that can, of course, be legitimate but that too often is a device for manipulating earnings. In this bit of legerdemain, a large chunk of costs that should properly be attributed to a number of years is dumped into a single quarter, typically one already fated to disappoint investors. In some cases, the purpose of the charge is to clean up earnings misrepresentations of the past, and in others it is to prepare the ground for future misrepresentations. In either case, the size and timing of these charges is dictated by the cynical proposition that Wall Street will not mind if earnings fall short by \$5 per share in a given quarter, just as long as this deficiency ensures that quarterly earnings in the future will consistently exceed expectations by five cents per share.
This dump-everything-into-one-quarter behavior suggests a corresponding “bold, imaginative” approach to — golf scores. In his first round of the season, a golfer should ignore his actual performance and simply fill his card with atrocious numbers — double, triple, quadruple bogeys — and then turn in a score of, say, 140. Having established this “reserve,” he should go to the golf shop and tell his pro that he wishes to “restructure” his imperfect swing. Next, as he takes his new swing onto the course, he should count his good holes, but not the bad ones. These remnants from his old swing should be charged instead to the reserve established earlier. At the end of five rounds, then, his record will be 140, 80, 80, 80, 80 rather than 91, 94, 89, 94, 92. On Wall Street, they will ignore the 140 — which, after all, came from a “discontinued” swing — and will classify our hero as an 80 shooter (and one who never disappoints).
For those who prefer to cheat up front, there would be a variant of this strategy. The golfer, playing alone with a cooperative caddy-auditor, should defer the recording of bad holes, take four 80s, accept the plaudits he gets for such athleticism and consistency, and then turn in a fifth card carrying a 140 score. After rectifying his earlier scorekeeping sins with this “big bath,” he may mumble a few apologies but will refrain from returning the sums he has previously collected from comparing scorecards in the clubhouse. (The caddy, need we add, will have acquired a loyal patron.)
Unfortunately, CEOs who use variations of these scoring schemes in real life tend to become addicted to the games they’re playing — after all, it’s easier to fiddle with the scorecard than to spend hours on the practice tee and never muster the will to give them up. Their behavior brings to mind Voltaire’s comment on sexual experimentation: “Once a philosopher, twice a pervert.”
In the acquisition arena, restructuring has been raised to an art form: Managements now frequently use mergers to dishonestly rearrange the value of assets and liabilities in ways that will allow them to both smooth and swell future earnings. Indeed, at deal time, major auditing firms sometimes point out the possibilities for a little accounting magic (or for a lot). Getting this push from the pulpit, first-class people will frequently stoop to third-class tactics. CEOs understandably do not find it easy to reject auditor-blessed strategies that lead to increased future “earnings.”
An example from the property-casualty insurance industry will illuminate the possibilities. When a p-c company is acquired, the buyer sometimes simultaneously increases its loss reserves, often substantially. This boost may merely reflect the previous inadequacy of reserves — though it is uncanny how often an actuarial “revelation” of this kind coincides with the inking of a deal. In any case, the move sets up the possibility of ‘earnings” flowing into income at some later date, as reserves are released.
Berkshire has kept entirely clear of these practices: If we are to disappoint you, we would rather it be with our earnings than with our accounting. In all of our acquisitions, we have left the loss reserve figures exactly as we found them. After all, we have consistently joined with insurance managers knowledgeable about their business and honest in their financial reporting. When deals occur in which liabilities are increased immediately and substantially, simple logic says that at least one of those virtues must have been lacking — or, alternatively, that the acquirer is laying the groundwork for future infusions of “earnings.”
Here’s a true story that illustrates an all-too-common view in corporate America. The CEOs of two large banks, one of them a man who’d made many acquisitions, were involved not long ago in a friendly merger discussion (which in the end didn’t produce a deal). The veteran acquirer was expounding on the merits of the possible combination, only to be skeptically interrupted by the other CEO: “But won’t that mean a huge charge,” he asked, “perhaps as much as \$1 billion?” The “sophisticate” wasted no words: “We’ll make it bigger than that — that’s why we’re doing the deal.”
A preliminary tally by R. G. Associates, of Baltimore, of special charges taken or announced during 1998 that is, charges for restructuring, in-process R&D, merger-related items, and write-downs — identified no less than 1,369 of these, totaling \$72.1 billion. That is a staggering amount as evidenced by this bit of perspective: The 1997 earnings of the 500 companies in Fortune’s famous list totaled \$324 billion.
Clearly the attitude of disrespect that many executives have today for accurate reporting is a business disgrace. And auditors, as we have already suggested, have done little on the positive side. Though auditors should regard the investing public as their client, they tend to kowtow instead to the managers who choose them and dole out their pay. (“Whose bread I eat, his song I sing.”)
A big piece of news, however, is that the SEC, led by its chairman, Arthur Levitt, seems determined to get corporate America to clean up its act. In a landmark speech last September, Levitt called for an end to “earnings management.” He correctly observed, “Too many corporate managers, auditors and analysts are participants in a game of nods and winks.” And then he laid on a real indictment: “Managing may be giving way to manipulating; integrity may be losing out to illusion.”
I urge you to read the Chairman’s speech (you can find it on the Internet at www.sec.gov) and to support him in his efforts to get corporate America to deliver a straight story to its owners. Levitt’s job will be Herculean, but it is hard to think of another more important for him to take on.
Reports to Shareholders
Berkshire’s Internet site, www.berkshirehathaway.com, has become a prime source for information about the company. While we continue to send an annual report to all shareholders, we now send quarterlies only to those who request them, letting others read these at our site. In this report, we again enclose a card that can be returned by those wanting to get printed quarterlies in 1999.
Charlie and I have two simple goals in reporting: 1) We want to give you the information that we would wish you to give us if our positions were reversed; and 2) We want to make Berkshire’s information accessible to all of you simultaneously. Our ability to reach that second goal is greatly helped by the Internet.
In another portion of his September speech, Arthur Levitt deplored what he called “selective disclosure.” His remarks were timely: Today, many companies matter-of-factly favor Wall Street analysts and institutional investors in a variety of ways that often skirt or cross the line of unfairness. These practices leave the great bulk of shareholders at a distinct disadvantage to a favored class.
At Berkshire, we regard the holder of one share of B stock as the equal of our large institutional investors. We, of course, warmly welcome institutions as owners and have gained a number of them through the General Re merger. We hope also that these new holders find that our owner’s manual and annual reports offer them more insights and information about Berkshire than they garner about other companies from the investor relations departments that these corporations typically maintain. But if it is “earnings guidance” or the like that shareholders or analysts seek, we will simply guide them to our public documents.
This year we plan to post our quarterly reports on the Internet after the close of the market on May 14, August 13, and November 12. We also expect to put the 1999 annual report on our website on Saturday, March 11, 2000, and to mail the print version at roughly the same time.
We promptly post press releases on our website. This means that you do not need to rely on the versions of these reported by the media but can instead read the full text on your computer.
Despite the pathetic technical skills of your Chairman, I’m delighted to report that GEICO, Borsheim’s, See’s, and The Buffalo News are now doing substantial business via the Internet. We’ve also recently begun to offer annuity products on our website. This business was developed by Ajit Jain, who over the last decade has personally accounted for a significant portion of Berkshire’s operating earnings. While Charlie and I sleep, Ajit keeps thinking of new ways to add value to Berkshire.
Shareholder-Designated Contributions
About 97.5% of all eligible shares participated in Berkshire's 1998 shareholder-designated contributions program, with contributions totaling \$16.9 million. A full description of the program appears on pages 54-55.
Cumulatively, over the 18 years of the program, Berkshire has made contributions of \$130 million pursuant to the instructions of our shareholders. The rest of Berkshire's giving is done by our subsidiaries, which stick to the philanthropic patterns that prevailed before they were acquired (except that their former owners themselves take on the responsibility for their personal charities). In aggregate, our subsidiaries made contributions of \$12.5 million in 1998, including in-kind donations of \$2.0 million.
To participate in future programs, you must own Class A shares that are registered in the name of the actual owner, not the nominee name of a broker, bank or depository. Shares not so registered on August 31, 1999, will be ineligible for the 1999 program. When you get the contributions form from us, return it promptly so that it does not get put aside or forgotten. Designations received after the due date will not be honored.
The Annual Meeting
This year’s Woodstock for Capitalists will be held May 1-3, and we may face a problem. Last year more than 10,000 people attended our annual meeting, and our shareholders list has since doubled. So we don’t quite know what attendance to expect this year. To be safe, we have booked both Aksarben Coliseum, which holds about 14,000 and the Holiday Convention Centre, which can seat an additional 5,000. Because we know that our Omaha shareholders will want to be good hosts to the out-of-towners (many of them come from outside the U.S), we plan to give those visitors first crack at the Aksarben tickets and to subsequently allocate these to greater Omaha residents on a first-come, first-served basis. If we exhaust the Aksarben tickets, we will begin distributing Holiday tickets to Omaha shareholders.
If we end up using both locations, Charlie and I will split our pre-meeting time between the two. Additionally, we will have exhibits and also the Berkshire movie, large television screens and microphones at both sites. When we break for lunch, many attendees will leave Aksarben, which means that those at Holiday can, if they wish, make the five-minute trip to Aksarben and finish out the day there. Buses will be available to transport people who don’t have cars.
The doors will open at both locations at 7 a.m. on Monday, and at 8:30 we will premier the 1999 Berkshire movie epic, produced by Marc Hamburg, our CFO. The meeting will last from 9:30 until 3:30, interrupted only by the short lunch break.
An attachment to the proxy material that is enclosed with this report explains how you can obtain the badge you will need for admission to the meeting and other events. As for plane, hotel and car reservations, we have again signed up American Express (800-799-6634) to give you special help. In our normal fashion, we will run buses from the larger hotels to the meeting. After the meeting, these will make trips back to the hotels and to Nebraska Furniture Mart, Borsheim’s and the airport. Even so, you are likely to find a car useful.
The full line of Berkshire products will be available at Aksarben, and the more popular items will also be at Holiday. Last year we set sales records across-the-board, moving 3,700 pounds of See’s candy, 1,635 pairs of Dexter shoes, 1,150 sets of Quikut knives and 3,104 Berkshire shirts and hats. Additionally, \$26,944 of World Book products were purchased as well as more than 2,000 golf balls with the Berkshire Hathaway logo. Charlie and I are pleased but not satisfied with these numbers and confidently predict new records in all categories this year. Our 1999 apparel line will be unveiled at the meeting, so please defer your designer purchases until you view our collection.
Dairy Queen will also be on hand and will again donate all proceeds to the Children’s Miracle Network. Last year we sold about 4,000 Dilly bars, fudge bars and vanilla/orange bars. Additionally, GEICO will have ® a booth that will be manned by a number of our top counselors from around the country, all of them ready to supply you with auto insurance quotes. In almost all cases, GEICO will be able to offer you a special shareholder’s discount. Check out whether we can save you some money.
The piece de resistance of our one-company trade show will be a 79-foot-long, nearly 12-foot-wide, fullyoutfitted cabin of a 737 Boeing Business Jet (“BBJ”), which is NetJets’ newest product. This plane has a 14-hour range; is designed to carry 19 passengers; and offers a bedroom, an office, and two showers. Deliveries to fractional owners will begin in the first quarter of 2000.
The BBJ will be available for your inspection on May 1-3 near the entrance to the Aksarben hall. You should be able to minimize your wait by making your visit on Saturday or Sunday. Bring along your checkbook in case you decide to make an impulse purchase.
NFM's multi-stored complex, located on a 75-acre site about a mile from Aksarben, is open from 10 a.m. to 9 p.m. on weekdays, and 10 a.m. to 6 p.m. on Saturdays and Sundays. This operation did \$300 million in business during 1998 and offers an unrivaled breadth of merchandise — furniture, electronics, appliances, carpets and computers — all at can’t-be-beat prices. During the April 30th to May 4th period, shareholders presenting their meeting badge will receive a discount that is customarily given only to its employees.
Borsheim's normally is closed on Sunday but will be open for shareholders from 10 a.m. to 6 p.m. on May 2nd. On annual meeting weekend last year, the store did an incredible amount of business. Sales were double those of the previous year, and the store’s volume on Sunday greatly exceeded volume for any day in Borsheim’s history. Charlie attributes this record to the fact that he autographed sales tickets that day and, while I have my doubts about this proposition, we are not about to mess with a winning formula. Please give him writer’s cramp. On last year’s Sunday, Borsheim’s wrote 2,501 tickets during the eight hours it was open. For those of you who are mathematically challenged, that is one ticket every 11½ seconds.
Shareholders who wish to avoid Sunday’s crowd can visit Borsheim’s on Saturday (10 a.m.-5:30 p.m.) or on Monday (10 a.m.-8 p.m.). Be sure to identify yourself as a Berkshire owner so that Susan Jacques, Borsheim’s CEO, can quote you a ”shareholder-weekend” price. Susan joined us in 1983 as a \$4-per-hour salesperson and was made CEO in 1994. This move ranks as one of my best managerial decisions.
Bridge players can look forward to a thrill on Sunday, when Bob Hamman — the best the game has ever seen — will turn up to play with our shareholders in the mall outside of Borsheim’s. Bob plays without sorting his cards — hey, maybe that’s what’s wrong with my game. We will also have a couple of other tables at which another expert or two will be playing.
Gorat’s — my favorite steakhouse — will again be open especially for Berkshire shareholders on the Sunday night before the meeting. Though Gorat’s served from 4 p.m. until about 1 a.m. last year, its crew was swamped, and some of our shareholders had an uncomfortable wait. This year fewer reservations will be accepted, and we ask that you don’t come on Sunday without a reservation. In other years, many of our shareholders have chosen to visit Gorat’s on Friday, Saturday or Monday. You can make reservations beginning on April 1 (but not before) by calling 402-551-3733. The cognoscenti will continue to order rare T-bones with double orders of hash browns.
The Omaha Golden Spikes (neé the Omaha Royals) will meet the Iowa Cubs on Saturday evening, May 1st, at Rosenblatt Stadium. Your Chairman, whose breaking ball had the crowd buzzing last year, will again take the mound. This year I plan to introduce my “flutterball.” It’s a real source of irritation to me that many view our annual meeting as a financial event rather than the sports classic I consider it to be. Once the world sees my flutterball, that misperception will be erased.
Our proxy statement includes instructions about obtaining tickets to the game and also a large quantity of other information that should help you to enjoy your visit. I particularly urge the 60,000 shareholders that we gained through the Gen Re merger to join us. Come and meet your fellow capitalists.
************
It wouldn’t be right to close without a word about the 11.8 people who work with me in Berkshire’s corporate office. In addition to handling the myriad of tax, regulatory and administrative matters that come with owning dozens of businesses, this group efficiently and cheerfully manages various special projects, some of which generate hundreds of inquiries. Here’s a sample of what went on in 1998:
6,106 shareholders designated 3,880 charities to receive contributions.
Kelly Muchemore processed about 17,500 admission tickets for the annual meeting, along with orders and checks for 3,200 baseball tickets.
Kelly and Marc Hamburg produced and directed the Aksarben extravaganza, a job that required them to arrange the presentations made by our subsidiaries, prepare our movie, and sometimes lend people a hand with travel and lodging.
Debbie Bosanek satisfied the varying needs of the 46 media organizations (13 of them non-U.S.) that covered the meeting, and meanwhile, as always, skillfully assisted me in every aspect of my job.
Debbie and Marc assembled the data for our annual report and oversaw the production and distribution of 165,000 copies. (This year the number will be 325,000.)
Marc handled 95% of the details — and much of the substance — connected with our completing two major mergers.
Kelly, Debbie and Deb Ray dealt efficiently with tens of thousands of requests for annual reports and financial information that came through the office.
You and I are paying for only 11.8 people, but we are getting what would at most places be the output of 100. To all of the 11.8, my thanks.
March 1, 1999
Warren E. Buffett
Chairman of the Board
致伯克希尔·哈撒韦公司的股东：
1998年，我们的净值增加了259亿美元，使得A类股和B类股的每股账面价值增长了48.3%。在过去的34年里（即自现任管理层接手以来），每股账面价值从19美元增至37,801美元，年复合增长率为24.7%。*
通常情况下，48.3%的涨幅足以让人翻跟头庆祝——但今年不行。记得瓦格纳吗？有人形容他的音乐“听起来比实际更好”。嗯，伯克希尔1998年的进展——虽然令人相当满意——但没有看上去那么好。因为那48.3%的涨幅中，大部分来自我们在并购中发行股份所致。
解释一下：我们的股票相对于账面价值有大幅溢价，这意味着我们每次发行股份——无论是为了现金还是作为并购对价——都会立即提高每股账面价值，哪怕我们一分钱都没赚。实际情况是，在这些交易中，我们获得的每股账面价值比我们放弃的要多。然而，这些交易并不会让我们在每股内在价值上立即获益，因为在这方面，我们给出和得到的大致相当。而且，正如查理·芒格（伯克希尔副董事长，我的合伙人）和我再怎么强调也不为过（尽管你可能觉得我们在反复唠叨），真正重要的是每股内在价值的增长，而非每股账面价值的增长。虽然伯克希尔的内在价值在1998年大幅增长，但远未达到账面价值48.3%的增幅。尽管如此，内在价值仍然远超账面价值。（关于这些术语以及其他投资和会计概念的更详细讨论，请参见第56-64页的《所有者手册》，其中我们阐述了自己与所有者相关的经营原则。内在价值在第61-62页有讨论。）
我们进入1999年时，拥有历史上最好的企业和经理人组合。我们在1998年收购的两家公司——通用再保险和捷鹰——在各方面都是一流的（稍后详述），我们的经营业务去年的表现也超出了我的预期。GEICO再次大放异彩。不利的一面是，我们持有大额投资的多家上市公司都出现了显著的经营亏损，这些亏损无论是它们还是我本人都没有在年初预料到。因此，我们的股票投资组合表现远不如标普500。这些公司的问题几乎肯定是暂时的，查理和我都认为它们的长期前景非常优秀。
在最近三年的年报中，我们给你们提供了一张表格，我们认为它是估算伯克希尔内在价值的关键。在这张表格的更新版中（见下文），我们追踪了价值的两个关键组成部分，并假设通用再保险全年都归我们所有，按备考基础列示。第一列是我们的每股投资头寸（包括现金及等价物，但不包括我们的金融产品业务持有的证券），第二列是伯克希尔经营业务在扣除利息和公司费用之后、但在税前和购买会计调整之前（详见第62-63页）的每股收益。第二列排除了我们从第一列所示投资中获得的所有股息、利息和资本利得。实际上，这两列展示了伯克希尔如果被拆成两部分会是什么样子：一个实体持有我们的投资，另一个实体经营我们所有的业务并承担所有公司成本。
| 年份 | 每股投资额 | 每股税前收益（不含所有投资收入） |
|---|---|---|
| 1968 | $53 | $2.87 |
| 1978 | $465 | $12.85 |
| 1988 | $4,876 | $145.77 |
| 1998 | $47,647 | $474.45 |
| 以下是两个板块按十年计的增长率： |
| 截至十年期 | 每股投资额 | 剔除所有投资收益后的每股税前收益 |
| 1978年 | 24.2% | 16.2% |
| 1988年 | 26.5% | 27.5% |
| 1998年 | 25.6% | 12.5% |
| 1968-1998年年增长率 | 25.4% | 18.6% |
1998年，我们的投资每股增加9,604美元，增幅25.2%，但每股经营利润下降了33.9%。通用再保险（如前所述，按备考基础纳入）解释了这两组数据。这家公司拥有巨额投资，大大提高了我们的每股投资额。但通用再保险在1998年出现了承销亏损，拖累了经营利润。假如我们没有收购通用再保险，每股经营利润本应小幅增长。
尽管我们的某些收购和经营策略可能会时不时地更多影响到其中一栏而非另一栏，但我们始终致力于让两栏数字都增长。但有一点是确定的：我们未来的增长率将远低于过去。伯克希尔的资本规模如今实在太大，已经无法让我们获得真正超额的回报。如果你不这么认为，那不妨考虑去做销售，但别碰数学（记住，世界上其实只有三种人：会数数的和不会数数的）。
目前，我们正努力让574亿美元的净资产实现复利增长——这是美国所有公司中最高的（不过，如果埃克森与美孚合并，我们的数字就会被超越）。当然，我们在净资产上的领先并不意味着伯克希尔在所有企业中价值最高：对所有者来说，市值才是关键，例如通用电气和微软的估值是伯克希尔的三倍多。但净资产衡量的是管理者必须配置的资本，而伯克希尔的这个数字确实已经变得非常庞大。
尽管如此，查理和我仍将尽力让未来的内在价值以平均15%的速率增长——我们认为这是可能达到的顶峰。有些年份我们可能会超过15%，但也必然会有其他年份远低于这个数字——甚至包括回报为负的年份——那些年份会把平均值拉下来。同时，你应当理解，未来五年平均增长15%意味着什么：这意味着我们需要将净资产增加580亿美元。要达成这个令人生畏的15%增长率，我们需要拿出大主意：摆个爆米花摊可不行。如今的市场对我们寻找"大象"并不友好，但你可以放心，我们会专注于狩猎。
无论未来如何，我向你许下一个承诺：只要我还在，我至少会把99%的净资产留在伯克希尔。我会待多久？我的榜样是韦恩堡那位忠诚的民主党人，他要求把自己埋在芝加哥，这样他就能继续活跃在党内。为此，我已经在办公室里为我的骨灰瓮选好了一个"风水宝地"。
************
我们的财务增长也伴随着员工人数的增长：现在我们有47,566名员工，1998年的收购带来了7,074人，内部增长又增加了2,500人。为了平衡这9,500名一线员工的增加，我们把总部员工从12人扩大到了12.8人。（那0.8个指的不是我或查理：我们会计部新来了一个人，每周工作四天。）尽管公司臃肿的趋势令人担忧，但我们去年的税后管理费用约为350万美元，远低于我们管理资产价值的万分之一（0.01%）。
税收
规模扩大后的一个受益者是美国财政部。伯克希尔（Berkshire Hathaway）和通用再保险（General Re）就1998年收益已缴纳或即将缴纳的联邦所得税合计27亿美元——这意味着我们一家公司就承担了美国联邦政府超过半天的全部开支。
再延伸想想：如果去年只有另外625个美国纳税人向财政部缴纳了与我们和通用再保险同样多的税款，那么其他所有人——无论是企业还是2.7亿公民——都不必再缴纳联邦所得税或任何其他联邦税（如社会保障税或遗产税）。我们的股东可以真诚地说，他们"在办公室就捐了"。
给国税局开出一串零的支票，对查理和我来说并无困扰。伯克希尔作为一家企业，我们作为个人，在美国取得的成功是任何其他国家都无法给予的。事实上，如果我们生活在世界其他某个地方、完全不用交税，我肯定我们的财务状况会差很多（其他许多方面也一样）。总体而言，我们感到无比幸运——命运赋予我们的人生，让我们有能力给政府开出大额支票，而不是需要政府定期给我们开支票——比如因为残疾或失业。
伯克希尔的税务状况有时会被误解。首先，资本利得对我们并无特殊吸引力：一家公司无论其应税收入来自资本利得还是日常经营，都需缴纳35%的税率。这意味着伯克希尔对长期资本利得缴纳的税款，比个人对同等金额的利得所缴税款整整高出75%。
还有人持有另一种误解，认为我们可以将所获股息的70%从应税收入中剔除。确实，70%的扣除率适用于大多数公司，也适用于伯克希尔持有的非保险子公司的股票。但我们的股权投资几乎全部由保险公司持有，在这种情况下扣除率是59.5%。这仍然意味着每一美元股息对我们而言比一美元普通收入更有价值，但并没有人们通常认为的那么高。
去年伯克希尔对财政部真是倾尽全力。在通用再保险的并购中，我们向政府开出了一张3000万美元的支票，用于支付与交易相关的新股发行所涉及的SEC费用。据我们所知，这一付款创下了SEC的记录。查理和我对证交会为美国投资者所取得的成就极为钦佩。不过，我们更希望换一种方式来表达这份敬意。
GEICO（1-800-847-7536）
把伟大的创意和杰出的经理人结合在一起，你一定能得到伟大的结果。这种组合在GEICO（政府雇员保险公司）身上生机勃勃。创意是低成本汽车保险——通过直接面向客户的营销实现——经理人是Tony Nicely。简单说，商界没有谁能比Tony把GEICO经营得更好。他的直觉从不出错，精力无穷无尽，执行完美无瑕。在保持承销纪律的同时，Tony正在打造一个以加速节奏获取市场份额的组织。
这一节奏得益于我们的薪酬政策。保险的直接承保——即保险公司与保单持有人之间没有代理人或经纪人——涉及大量前期投入。因此，首年业务会严重亏损。在GEICO，我们不希望这一成本阻碍员工积极开拓新业务——这些业务一旦续保，将带来可观的利润——所以我们将其排除在薪酬计算公式之外。那实际包含什么呢？我们将员工奖金和利润分成的50%基于“成熟”保单的盈利（即已承保一年以上的保单），另外50%与保单持有人的增长挂钩——而在这个方面，我们踩足了油门。
1995年，即伯克希尔收购GEICO的前一年，该公司在营销上花费了3300万美元，拥有652名电话客服。去年，该公司花费了1.43亿美元，客服人数增至2162人。这些努力在公司的新业务和有效保单数据中体现如下：
| 年份 | 新车险保单* | 车险有效保单* |
| 1993 | 354,882 | 2,011,055 |
| 1994 | 396,217 | 2,147,549 |
| 1995 | 461,608 | 2,310,037 |
| 1996 | 617,669 | 2,543,699 |
| 1997 | 913,176 | 2,949,439 |
| 1998 | 1,317,761 | 3,562,644 |
* 仅“自愿”保单；不包括指定风险保单等。
1999年，我们将再次增加营销预算，至少投入1.9亿美元。事实上，只要我们能同时建设好必要的基础设施来妥善服务保单持有人，伯克希尔对GEICO新业务活动的投入没有上限。
由于首年成本的存在，那些关注季度或年度盈利的公司会回避类似的投资，无论这些投资在构建长期价值方面多么明智。我们的算法不同：我们只衡量每花一美元能否创造超过一美元的价值——如果计算结果是肯定的，那么花得越多，我越开心。
当然，GEICO的成功远不止于低价和铺天盖地的广告。理赔处理也必须公平、快速、友好——而我们都做到了。以下是一份客观的评分卡：在业务量最大的纽约州，保险局最近报告称，GEICO 1997年的投诉率不仅是五大车险公司中最低的，还不到其他四家公司平均值的一半。
GEICO 1998年的利润率达到6.7%，比我们预期的要好——说实在的，甚至超过了我们的期望。这一结果反映了一个全行业现象：近几年来，汽车事故的发生频率和严重程度都意外下降了。我们的应对是：1998年将保费下调3.3%，1999年还将进一步下调。这些举措很快会拉低利润率——至少降至4%的目标水平，也可能低得多。无论如何，我们相信我们的利润率将继续远超行业平均水平。
1998年GEICO的增长和盈利能力同样出色，其利润分成和奖金发放也非常可观。事实上，1.03亿美元的利润分成——相当于工资的32.3%，所有在岗超过一年的9313名员工都获得了——很可能是全国任何大型企业中比例最高的一次。（此外，员工还受益于公司资助的养老金计划。）
32.3%可能成为历史最高水位，因为我们利润分成计算中的盈利能力部分未来几乎肯定会下降。但增长部分很可能上升。总体而言，我们预期这两个基准将共同决定未来几十年非常可观的利润分成支付。对于我们的员工而言，增长也在其他方面带来回报：去年我们提拔了4,612人。
尽管GEICO的数据令人印象深刻，但我们还有很多工作要做。1998年我们的市场份额显著提升，但也只是从3%提高到3.5%。我们现在每拥有一个保单持有人，就有另外十个应该成为我们的客户。
你们中有些正在读这封信的人可能就属于这类人。约40%来查询我们费率的人发现，与我们合作可以省钱。这个比例不是100%，因为保险公司的承销判断不同，有些保险公司给居住在某些地区或从事某些职业的驾驶员更多折扣。但我们相信，与任何向所有投保人销售保险的全国性保险公司相比，我们更频繁地提供低价。此外，在40个州我们可以向股东提供特别折扣——通常为8%。所以给我们打个电话，来查查我们的价格。
************
你可能觉得这一部分写一个广告就够了。但我还有另一个要说，这次是针对上市公司经理人的。
在伯克希尔，我们觉得告诉像Tony这样杰出的CEO如何经营他们的公司，简直是愚蠢至极。如果我们过多地指手画脚，我们大多数经理人是不会为我们工作的。（通常，他们不必为任何人工作，因为大约75%的人已经财务独立。）此外，他们是商界的Mark McGwires，不需要我们教他们如何握棒或何时挥棒。
尽管如此，伯克希尔的持股甚至能让最优秀的经理人更高效。首先，我们消除了CEO工作中所有仪式性的、非生产性的活动。我们的经理人完全掌控自己的日程安排。其次，我们给每人一个简单的使命：只管经营你的企业，就好像：1）你100%拥有它；2）它是你和你家人在这个世界上拥有或将要拥有的唯一资产；3）至少一百年内你不能出售或并购它。作为推论，我们告诉他们，不要让任何决策受到会计考虑哪怕一丝一毫的影响。我们希望我们的经理人思考什么最重要，而不是如何被计算。
上市公司中很少有CEO在类似指令下工作，主要是因为他们的所有者关注短期前景和报告利润。但伯克希尔拥有一个股东基础——并且未来几十年都会如此——这个基础在上市公司领域中拥有最长的投资期限。事实上，我们大部分股份由那些打算一直持有到去世的投资者持有。因此，我们可以要求我们的CEO追求最大的长期价值，而不是下个季度的盈利。我们当然不忽视我们业务的当前结果——在大多数情况下，它们非常重要——但我们绝不想以牺牲建立更强竞争力为代价来获取它们。
我相信GEICO的故事展示了伯克希尔方法的益处。查理和我没有教托尼任何东西——以后也不会——但我们创造了一个环境，让他能够将所有才能用于重要的事情。他不必把时间或精力花在董事会会议、媒体采访、投资银行家的演示或与金融分析师的谈话上。此外，他从来不需要花一秒钟思考融资、信用评级或"华尔街"对每股收益的预期。由于我们的所有权结构，他也知道这个运营框架将持续数十年。在这个自由的环境中，托尼和他的公司都能将近乎无限的潜力转化为相应的成就。
如果你经营着一家大型盈利企业，且能在类似GEICO的环境中蓬勃发展，请查看第21页的收购标准，然后给我打电话。我保证快速答复，并且除了查理之外不会对任何人提及你的咨询。
Executive Jet Aviation (1-800-848-6436)
要理解Executive Jet Aviation（EJA）的巨大潜力，你需要了解它的业务：销售飞机的部分所有权并为众多所有者运营机队。EJA的首席执行官Rich Santulli在1986年创造了部分所有权行业，他构想出了一种使用飞机的重要新方式。然后他结合胆识和才华，将他的想法变成了一项大生意。
在部分所有权计划中，你购买EJA提供的多种飞机中的一部分——比如1/8——由此获得每年100小时的飞行时间。（"空载"小时不计入你的配额，而且你还可以将小时数在五年内平均使用。）此外，你需支付月度管理费和实际飞行时长的费用。
然后，只需提前几小时通知，EJA就会在你选择的美国5500个机场之一提供你的飞机，或者至少同等规格的飞机。实际上，召唤你的飞机就像打电话叫出租车一样。
我大约四年前从H.H. Brown的经理Frank Rooney那里第一次听说NetJets®计划。Frank使用过这项服务并非常满意，建议我和Rich见面，探讨为我家签约。Rich大约用了15分钟就说服我购买了霍克1000的四分之一（每年200小时）。从那以后，我的家人通过300次飞行900小时亲身体验了EJA的友好、高效和安全运营。简单来说，他们爱上了这项服务。事实上，他们很快变得如此热情，以至于我在知道我们有可能收购这家公司之前很久就为EJA做了推荐广告。不过，我确实要求Rich如果他对出售感兴趣就给我打电话。幸运的是，他去年5月给我打了电话，我们迅速达成了7.25亿美元的交易，以现金和股票各半支付。
EJA是迄今为止其行业中最大的运营商，拥有超过1000名客户和163架飞机（包括23架"核心"飞机，由EJA自有或租赁，以确保即使在需求最旺盛的时期也能提供一流的服务）。当然，安全是任何飞行运营中最重要的问题，Rich的飞行员目前约有650名——他们每年至少两次接受FlightSafety International（飞行安全国际）的广泛培训，FlightSafety International是伯克希尔的另一家子公司，也是全球飞行员培训的领导者。关于我们飞行员的最关键一点：我已经卖掉了伯克希尔的飞机，现在所有的商务飞行以及个人飞行都将使用NetJets的机组人员。
在业内保持领先地位对所有相关方都是重大优势。我们的客户受益，因为我们拥有一支随时部署在全国各地的飞机舰队——这种全面覆盖让我们能够提供无与伦比的服务。与此同时，我们也从覆盖中获益，因为它降低了空飞成本。另一个吸引客户的强大因素是，我们提供波音、湾流、达索、塞斯纳和雷神的产品，而我们的两家竞争对手则由制造商拥有，只提供自家飞机。实际上，NetJets就像一位医生，可以为每位患者推荐最合适的药品；而我们的竞争对手则是"自营品牌"的生产商，必须对所有人开同一种处方。
在许多情况下，我们的客户——无论是企业还是个人——拥有多架不同飞机的分时所有权，因此能够将特定飞机匹配到特定任务。例如，一位客户可能拥有三架不同喷气式飞机的1/16所有权（每架飞机提供150小时飞行时间），这加起来就相当于一个虚拟机队，而成本仅为单架飞机的一小部分。
重要的是，受益于分时所有权的不仅仅是小企业。一些美国最大的公司已经使用NetJets作为自家机队的补充。这既满足了高峰需求，又避免了让自有飞机在飞行任务中产生不成比例的空飞小时，从而节省了大量资金。
当飞机被留作个人使用时，决定性的理由是：要么客户现在签约，要么他的子女以后也会签约。这是我40年前向我亲爱的爱丽丝姨母解释过的一个等式，当时她问我是否买得起一件裘皮大衣。我的回答一锤定音："爱丽丝，你不是在买它；你的继承人在买。"
EJA的增长是爆炸性的：1997年，它占全球企业喷气机订单的31%。尽管如此，Rich和我认为分时所有权的潜力才刚刚被触及。如果成千上万的飞机主人认为100%拥有一架飞机是合理的——而要经济上合理，这架飞机每年必须使用350-400小时——那么适合分时所有权的潜在客户数量必然是前者的许多倍。
除了是一位出色的高管，Rich也很有意思。像我们大多数经理人一样，他完全没有经济上的必要去工作。Rich在EJA投入时间，是因为这是他的心血之作——他想看看自己能把它带到多远。我们俩都已经知道答案，无论是字面意义上还是比喻意义上：直到天涯海角。
************
现在给伯克希尔董事们一个小提示：去年，我在Borsheim's和EJA的消费是我年薪的九倍以上。想想看，如果你们肯给我涨工资，伯克希尔的生意会多么红火。
General Re
12月21日，我们完成了对General Re Corp.的220亿美元收购。除了拥有全美最大的财产险/意外险再保险公司——General Reinsurance Corporation的100%股权外，公司还拥有（包括通过协议将购入的股票）世界上最古老的再保险公司——科隆再保险（Cologne Re）82%的股权。这两家公司共同再保险所有险种，业务遍及124个国家。
几十年来，General Re的名字在再保险领域一直是品质、诚信和专业精神的代名词——在Ron Ferguson的领导下，这一声誉更是锦上添花。伯克希尔对General Re和科隆再保险管理层的技能绝对无法增添任何东西。相反，他们有很多可以教我们的。
尽管如此，我们相信伯克希尔的所有权将从重要方面惠益General Re，并且十年后的收益将大幅超过未并购情况下所能实现的水平。我们之所以乐观，是因为我们可以给予General Re管理层自由，让他们以最能发挥公司优势的方式运营。
让我们先审视一下再保险业务，理解为何通用再保险（General Re）在伯克希尔旗下能做、而单打独斗做不成的事。再保险的需求大多来自原保险公司，它们希望摆脱因大额异常损失而导致的盈利大幅波动。实际上，再保险公司就是靠吸收客户保险公司想甩掉的波动性来赚钱的。
不过，讽刺的是，一家上市再保险公司的业绩，无论是其所有者还是信用评估方，都会根据它自身业绩的平滑程度来给分。即便产生这种波动的业务长期预期能实现令人满意的利润，盈利大幅波动仍会损害信用评级和市盈率。这种市场现实有时会让再保险公司做出代价高昂的举动，比如将所承保业务的很大一部分转分保出去（这类交易称为"转分保"），或者仅仅因为某优质业务可能带来过大波动而拒绝承保。
相比之下，伯克希尔乐于接受波动，只要长期能带来更高的利润预期。而且，我们是一座资本的金库，这意味着波动的盈利不会损害我们顶级的信用评级。因此，我们拥有完美的结构来承保——并自留——几乎任何规模的再保险。事实上，过去十年我们正是利用这一优势，打造了一个强大的超级巨灾业务。
而通用再保险带给我们的是销售渠道、技术设施和管理团队，让我们能在行业的方方面面发挥结构性优势。特别是，通用再保险和科隆再保险（Cologne Re）如今可以加速进军国际市场——该行业未来的增长绝大部分无疑会来自那里。正如合并委托书中所详细说明的，伯克希尔还给通用再保险带来了税收和投资方面的好处。但合并最根本的原因很简单：通用再保险杰出的管理层现在可以不受以往增长限制的束缚，专心做他们最擅长的事。
伯克希尔将承担通用再保险（不包括科隆再保险）的投资组合管理责任。不过，我们不会介入通用再保险的承销业务。我们只是要求公司在保持过去纪律的同时，提高自留业务的比例，扩大产品线，拓宽地域覆盖——采取这些举措，是基于伯克希尔的财务实力和对盈利大幅波动的容忍度。正如我们常说的，我们宁愿要起伏不定的15%回报，也不要平滑的12%回报。
随着时间的推移，Ron和他的团队将把通用再保险的新潜力发挥到极致。他和我是多年老友，我们两家公司此前都曾向对方分出过大量再保险业务。事实上，通用再保险在1976年GEICO濒临绝境时，对它的起死回生发挥了关键作用。
Ron和Rich Santulli都计划出席股东大会，希望你们有机会和他们打个招呼。
财产险业务的经济学
随着通用再保险的收购——以及GEICO业务的迅猛增长——你们比以往任何时候都更需要了解如何评估一家保险公司。关键的决定因素是：(1) 业务产生的浮存金规模；(2) 浮存金的成本；(3) 最重要的——这两个因素的长期前景。
首先，浮存金是我们持有但不拥有的钱。在保险业务中，浮存金产生于保费在赔付之前收取，这个间隔有时长达多年。在此期间，保险公司投资这笔钱。通常，这种愉快的活动伴随着一个缺点：保险公司收取的保费往往无法覆盖其最终必须支付的损失和费用。这就造成了承销亏损，即浮存金的成本。如果一家保险公司长期以来的浮存金成本低于其另寻资金的成本，那么这项业务就有价值。但如果浮存金成本高于市场利率，那这家公司就是一只柠檬（劣质资产）。
这里需要提醒一点：由于损失成本需要估算，保险公司在计算承销结果时拥有巨大的自由度，这使得投资者很难计算一家公司真正的浮存金成本。估算误差——通常是无心的，但也不尽然——可能非常巨大。这些误算的后果直接体现在利润中。经验丰富的观察者通常能发现准备金方面的大规模错误，但普通大众通常只能接受所呈现的数据，有时我甚至对知名审计师默认支持的数额感到惊讶。至于Berkshire Hathaway（伯克希尔·哈撒韦），查理和我试图在向你们呈现承销结果时保持保守，因为我们发现保险行业的几乎每一次意外都是令人不快的。
下表显示了我们自32年前进入保险业务以来，伯克希尔保险业务所产生的浮存金。数据每隔五年列出一次，最近一次包括General Re（通用再保险）的巨额浮存金。对于该表，我们通过如下计算得出浮存金（相对于我们的保费规模，这一数字非常庞大）：加总净损失准备金、损失调整准备金、承担再保险项下持有的资金和未赚保费准备金，然后减去代理人余额、预付购置成本、预付税款以及适用于承担再保险的递延费用。（明白了吗？）
| 年份 | 平均浮存金（百万美元） |
| 1967 | 17 |
| 1972 | 70 |
| 1977 | 139 |
| 1982 | 221 |
| 1987 | 1,267 |
| 1992 | 2,290 |
| 1997 | 7,093 |
| 1998 | 22,762（年末） |
尽管我们的浮存金增长令人印象深刻——年均复合增长率25.4%——但真正重要的是这项成本。如果成本过高，浮存金的增长就变成了诅咒而非福音。
在伯克希尔，消息全是好消息：我们32年来的平均成本远低于零。总的来说，我们获得了可观的承销利润，这意味着我们持有大量且不断增长的资金反而得到了报酬。这是最好的情况。实际上，尽管我们的净浮存金在资产负债表上记作负债，但它对我们的经济价值比同等金额的净资产还要高。只要我们能够持续实现承销利润，浮存金的价值就会继续超过净资产。
在未来几年，伯克希尔的浮存金增长可能会比较温和。再保险市场疲软，在这个行业，关系变化缓慢。因此，General Re（通用再保险）的浮存金——占我们总额的三分之二——短期内不太可能大幅增长。不过，我们确实预计，与其他保险公司相比，我们的浮存金成本将继续保持非常有吸引力。
报告利润的来源
下表展示了伯克希尔报告收益的主要来源。在此列示中，购买会计调整未分配到其对应的具体业务，而是汇总后单独列示。这样做可以让你看到，如果我们没有收购这些业务，它们的收益本应如何报告。基于第62至63页讨论的原因，我们认为这种列示方式对投资者和管理者比采用美国通用会计准则（GAAP）更有用——后者要求逐项业务摊销收购溢价。当然，表中显示的收益总额与审计财务报表中的GAAP总额一致。
| （单位：百万美元） | ||||
| 税前利润 | 伯克希尔应占净利润（扣除税项和少数股东权益后） | |||
| 1998年 | 1997年 | 1998年 | 1997年 | |
| 经营利润： | ||||
| 保险集团： | ||||
| 承销——超级巨灾 | 154 | 283 | 100 | 183 |
| 承销——其他再保险 | (175) | (155) | (114) | (100) |
| 承销——GEICO | 269 | 281 | 175 | 181 |
| 承销——其他主险 | 17 | 53 | 10 | 34 |
| 净投资收益 | 974 | 882 | 731 | 704 |
| 布法罗新闻报 | 53 | 56 | 32 | 33 |
| 金融与金融产品业务 | 205(1) | 28 | 133(1) | 18 |
| 航空服务 | 181 | 140(2) | 110 | 84 |
| 家居 | 72 | 57 | 41 | 32(2) |
| 国际冰雪皇后 | 58 | — | 35 | — |
| 珠宝 | 39 | 32 | 23 | 18 |
| Scott Fetzer（不含金融业务） | 137 | 119 | 85 | 77 |
| 喜诗糖果 | 62 | 59 | 40 | 35 |
| 鞋业集团 | 33 | 49 | 23 | 32 |
| 通用再保险 | 26(3) | — | 16(3) | — |
| 购买会计调整 | (123) | (101) | (118) | (94) |
| 利息费用(4) | (100) | (107) | (63) | (67) |
| 股东指定捐款 | (17) | (15) | (11) | (10) |
| 其他 | 34 | 60 | 29 | 37 |
| 经营利润 | 1,899 | 1,721 | 1,277 | 1,197 |
| 投资资本利得 | 2,415 | 1,106 | 1,553 | 704 |
| 所有实体总盈利 | 4,314 | 2,827 | 2,830 | 1,901 |
包括自1998年8月7日起的Executive Jet。(1)
自收购日1998年12月21日起。(3)
包括自1997年7月1日起的Star Furniture。(2)
不包括金融业务的利息费用。(4)
你们可以为我们各业务线的管理者感到骄傲。他们几乎总能交出让行业条件允许范围内的最高收益，同时还不断增强业务的长期竞争优势。总的来说，他们为你们创造了数十亿美元的价值。
举个例子：在我1994年的信中，我提到了Ralph Schey在Scott Fetzer的杰出表现。当时我完全没意识到，那对他来说只是热身。去年，Scott Fetzer在没有使用任何杠杆的情况下（除了其金融子公司持有保守水平的负债），以1.12亿美元的净资产，创造了税后创纪录的9,650万美元利润。
今天，伯克希尔拥有一批数量异常庞大的个人，比如Ralph，他们堪称各自行业里的传奇。这些人中很多是在我们收购他们公司时加入的，但近年来，我们也在内部发掘了不少优秀的管理者。通过收购通用再保险和EJA，我们还以重要方式进一步扩充了全明星阵容。
查理和我在伯克希尔干的都是轻松活儿：除了配置资本，我们几乎什么都不做。而且就连这事，我们也并不怎么勤快。不过，我们有一个借口：在资本配置这件事上，活跃度和成就并不成正比。事实上，在投资和收购领域，忙乱往往适得其反。因此，查理和我主要就是等着电话铃响。
然而，我们的管理者们工作非常努力——结果也显而易见。他们自然希望自己的付出得到公平回报，但仅靠薪酬，解释不了他们如此非凡的成就。相反，驱动每一个人的首要动力，是看到自己的事业能走多远，以及渴望成为那个把它带到那里的人。查理和我代表你们和他们自己，向他们表示感谢。
关于我们各项业务的更多信息见第39-53页，在那里你还会找到按美国通用会计准则报告的分部利润。此外，在第65-71页，我们按非美国通用会计准则把伯克希尔的财务数据重新编排为四个分部，这种列报方式与查理和我思考公司的方式一致。
通常，我们会在这部分之后紧接着写一节关于"透视盈余"的内容。但由于通用再保险的收购发生在接近年底的时候，无论是对1998年的历史数据还是备考数据进行计算，似乎都不再相关。我们将在明年的报告中恢复透视盈余的计算。
投资
下面列出我们的普通股投资。市值超过7.5亿美元的股票逐项列出。
| 1998年12月31日 | |||
| 持股数 | 公司 | 成本* | 市值 |
| （单位：百万美元） | |||
| 50,536,900 | 美国运通公司 | $1,470 | $5,180 |
| 200,000,000 | 可口可乐公司 | $1,299 | $13,400 |
| 51,202,242 | 华特迪士尼公司 | $281 | $1,536 |
| 60,298,000 | 房地美 | $308 | $3,885 |
| 96,000,000 | 吉列公司 | $600 | $4,590 |
| 1,727,765 | 华盛顿邮报公司 | $11 | $999 |
| 63,595,180 | 富国银行公司 | $392 | $2,540 |
| 其他 | $2,683 | $5,135 | |
| 普通股合计 | $7,044 | $37,265 | |
* 代表基于税基的成本，比美国通用会计准则成本合计少15亿美元。
年内，我们略微增持了美国运通（我们的三大重仓之一），其余两只重仓股保持不变。不过，我们削减或大幅卖出了许多较小的持仓。这里，我需要坦白一件事（唉）：我1998年所做的投资组合操作，实际上降低了当年的收益。尤其是卖出麦当劳的决定，是个非常巨大的错误。总体而言，如果去年我在交易时段里偷偷溜去看电影，你们的收益反而会更好。
年底，我们持有超过150亿美元的现金等价物（包括一年内到期的高等级证券）。现金从来不会让我们开心。但是，让这笔钱在伯克希尔口袋里烧个洞，总比舒舒服服地躺在别人口袋里要好。查理和我会继续寻找大规模股权投资，或者更理想的是，找到一桩真正的大型企业收购，来吸收我们的流动资金。不过，目前我们在视野内还看不到任何东西。
一旦我们确定通用再保险（General Re）的并购案肯定会完成，就请该公司处置了其持有的股票。（如前所述，我们不管理科隆再保险的投资组合，其中包含大量股票。）通用再保险随后清仓了约250只普通股，为此支付了9.35亿美元的税款。这种"清仓式"做法，体现了查理和我在商业和投资中遵循的基本原则：我们不会在决策中瞻前顾后。
去年，我打破了自己不披露投资（除法律要求必须报告的外）的一贯做法，向各位透露了三项我们做出的非常规投资。之所以披露，有几个原因：第一，监管机构就我们的白银头寸提出了问题，这让我们认为他们希望我们公开承认这项投资；第二，我们持有的零息债券规模很大，我们希望所有者了解这项投资对伯克希尔净资产可能产生的影响；第三，我们只是想提醒各位，我们确实有时会做出非常规承诺。
不过，通常情况下，正如第61页《所有者手册》中所讨论的那样，我们认为谈论具体的投资行动并无益处。因此——除非我们再次持有规模特别大的头寸——我们不会向各位通报我们在任何非常规类持仓上的具体操作。但我们可以报告的是，我们已清仓了去年讨论过的某些头寸，并增持了其他一些头寸。
我们对投资采取"即使不实也绝不评论"的政策，这可能会让那些"搭便车"的人失望，但会令所有者受益：如果我们讨论正在进行的操作，各位手中的伯克希尔股票价值反而会更低。顺便提醒各位，媒体对我们投资动作的猜测，多数情况下仍然是不准确的。依赖这些评论的人，风险自负。
会计——第一部分
收购通用再保险，让会计程序中的一个严重缺陷暴露无遗。眼尖的股东在阅读我们的股东委托书时，可能注意到了第60页上有一项不寻常的条目。在备考损益表（该表详细说明了如果合并完成，两家实体1997年的合并收益会受到什么影响）中，有一项说明：薪酬费用将增加6,300万美元。
我们赶紧补充一句，这一条目并不表示查理或我本人的性格发生了什么重大变化。（他仍然坐经济舱，引用本·富兰克林的话。）也不表示通用再保险的会计实践有任何缺陷，它们完全遵循了美国通用会计准则。相反，这一备考调整之所以产生，是因为我们正在用一项现金计划取代通用再保险长期以来的股票期权计划，该计划将通用再保险管理层的激励薪酬与其经营业绩挂钩。以前，这些管理人员的考核标准是通用再保险的股价；现在，他们的回报将取决于他们交付的业务表现。
新计划与被终止的期权安排在经济上是匹配的，这意味着，在给定业绩水平下，它们提供给员工的回报应该相同。但这些员工原本可以从新期权授予中预期获得的收益，现在将以现金形式支付。（过去几年已授予的期权仍然有效。）
尽管这两项计划在经济上并无差别，但我们提出的现金计划会带来完全不同的会计结果。这种爱丽丝梦游仙境式的结局之所以出现，是因为现行会计准则在计算利润时忽略了股票期权的成本——即便在许多公司，期权已成为一项巨大且不断攀升的费用。实际上，会计准则给管理层提供了一个选择：用某种形式支付员工，就把成本入账；用另一种形式支付，则可以忽略成本。难怪期权使用会激增。然而，这种失衡的选择对股东而言有个大问题：期权如果设计得当，可以是合理甚至理想的高管薪酬与激励方式，但更多时候，它们在分配回报上极其任性、作为激励手段效率低下，且对股东而言成本高昂。
无论期权的优点何在，其会计处理方式都令人愤慨。想想今年我们将在GEICO（政府雇员保险公司）花掉的1.9亿美元广告费。假设我们不付现金做广告，而是付给媒体十年期、按市价行权的伯克希尔期权。难道还有人会争辩说伯克希尔没有承担广告成本，或者不应该在账上记入这笔费用吗？
也许贝克莱主教——你可能记得他是那位思考“无人在场时森林里的树是否倒下”的哲学家——会认为会计师看不见的费用就不存在。但查理和我可没法对这种未入账的成本保持哲学上的超然。当我们考虑投资一家发行期权的公司时，会对报告利润进行适当的下调，直接减去该公司若公开出售相同数量与结构期权所能获得的金额。同样，当我们考虑收购时，会在评估中纳入替换任何期权计划的成本。然后，如果达成交易，我们立即将这笔成本从隐藏中揪出来。
读到此处不赞成我观点的读者，可能心里已经在反驳我将员工期权成本与理论上可在公开市场出售的期权成本等同起来。确实，有人会争辩说：员工期权有时会被没收——这减轻了对股东的损害——而公开发行的期权则不会。还有，公司会在员工行权时获得税收抵扣；公开交易的期权则没有这种好处。但这些论点有抵消因素：员工期权经常被重新定价，这种变化使其成本远高于公开交易的期权。
有时会有人说，给员工的不可转让期权对他而言价值低于可自由出售的公开交易期权。但这一事实并不能降低不可转让期权的成本：给员工一辆只能用于特定用途的公司用车，会降低它对他的价值，但丝毫不会降低它对雇主的成本。
近年来，查理和我对期权所做的利润调整，经常导致报告的每股数字下调5%，10%也不罕见。有时，下调幅度如此之大，甚至影响了我们的投资组合决策——要么卖出股票，要么放弃本可能买入的股票。
几年前，我们曾在年信中提出三个问题，至今未收到答案：“如果期权不是一种薪酬形式，那它是什么？如果薪酬不是费用，那它是什么？如果费用不该计入利润计算，那它到底该去哪儿？”
会计——第二部分
管理层在股票期权会计中扮演的角色并不光彩：近年来，令人沮丧的是，大量CEO和审计师都激烈反对FASB（美国财务会计准则委员会）试图用真相取代期权虚构的努力，而几乎没有人公开支持FASB。反对者甚至争取国会介入，鼓吹夸大数字符合国家利益。
不过，我认为在重组和并购会计方面，管理层的行为更糟。在这里，许多管理层蓄意操纵数字、欺骗投资者。正如Michael Kinsley对华盛顿的评价："丑闻不在于做了什么违法的事，而在于那些合法的事。"
过去，区分会计中的好人与坏人相对容易：例如，20世纪60年代末，曾掀起一场被某个江湖骗子称为"大胆、有想象力的会计"的狂欢（顺便说一句，这种做法曾让他一度深受华尔街喜爱，因为他从不低于预期）。但那个时期的大多数投资者知道谁在玩游戏。值得称赞的是，当时几乎所有美国最受尊敬的公司都拒绝欺骗。
近年来，正直已被侵蚀。许多大公司仍然规矩行事，但相当数量且日益增多的本来素质优良的管理者——那些你会乐意把女儿嫁给他们或请他们担任遗嘱受托人的CEO——已经开始认为，为了满足他们认为的华尔街欲望而操纵盈利是可以接受的。事实上，许多CEO认为这种操纵不仅没问题，甚至是自己的职责。
这些管理者从一种过于普遍的假设出发，即他们的工作永远是尽可能推高股价（我们坚决反对这个前提）。为了抬高股价，他们令人钦佩地追求运营卓越。但当运营没能产生预期结果时，这些CEO就会诉诸令人不齿的会计策略。这些策略要么凭空制造出想要的"盈利"，要么为未来达成目标铺路。
为这种行为辩解时，这些管理者常说，如果用来做交易的货币——也就是他们的股票——没有被充分定价，他们的股东就会受损；他们还辩称，用会计花招得到想要的数字，只是在做别人都在做的事。一旦这种"人人都这么做"的心态扎根，道德顾虑就消失了。可以把这称为"格雷欣法则之子"：不良会计驱逐良币。
当下流行的扭曲手段是"重组费用"——这一会计科目当然可以合法使用，但往往成为操纵盈利的工具。在这个花招中，本应分摊到若干年的大量成本被一次性计入单个季度，通常这个季度已经注定要让投资者失望。在某些情况下，这笔费用的目的是清理过去盈利的虚假陈述；在其他情况下，则是为未来的虚假陈述铺路。无论哪种情况，这些费用的金额和时点都由一种愤世嫉俗的主张所决定：华尔街不会介意某季度每股盈利少5美元，只要这个缺口能确保未来每个季度的盈利都持续超过预期每股5美分。
这种把所有问题都堆到一个季度里的做法，不禁让人联想到一种“大胆、有想象力”的高尔夫记分法。赛季第一轮，球手可以完全忽略自己的真实表现，只管在记分卡上填满糟糕的数字——双柏忌、三柏忌、四柏忌——然后交上一张比方说140杆的成绩单。有了这个“储备”，他就跑到球具店告诉教练，说自己想“重组”他那不完美的挥杆。接下来，当他带着新挥杆走上球场时，只记好球洞，坏球洞不记——这些旧挥杆留下的残次品应该归到之前建立的“储备”账户上。这样五轮下来，他的成绩单会变成140、80、80、80、80，而不是91、94、89、94、92。在华尔街，他们会对那个140视而不见（毕竟那是“已终止”挥杆的成绩），然后把我们的英雄归类为80杆选手（而且从不让人失望）。
对于更喜欢一开始就作弊的人，还有这种策略的变种：球手独自打球，配上一位配合默契的球童兼审计员，把坏球洞的记分往后拖，先打出四个80杆，接受大家对这种运动能力和稳定性的称赞，然后再交上一张140杆的第五轮成绩单。用这次“大洗澡”来纠正他早先的记分罪过之后，他可能会咕哝几句道歉的话，但绝不会退还之前他在俱乐部会所里跟人比记分卡时赢来的钱。（不用说，这位球童已经赢得了一位忠诚的主顾。）
不幸的是，在现实生活中使用这类记分花样的CEO们，往往会沉迷于他们正在玩的游戏——毕竟，篡改记分卡比花几个小时在练习场上苦练要容易得多，而且他们永远攒不够放弃游戏的意志力。他们的行为让人想起伏尔泰对性实验的评论：“第一次是哲学家，第二次就是变态。”
在收购领域，重组已经被提升为一门艺术：管理层现在经常利用并购来不诚实地调整资产和负债的价值，以便既能平滑又能膨胀未来的收益。事实上，在交易谈判时，大型审计事务所有时会主动指出实现一点（或很多）会计魔法的可能性。得到来自布道坛的这种推动之后，一流的人也常常会屈尊于三流的手段。CEO们当然很难拒绝那些由审计师背书、能带来未来“收益”增长的战略。
财产险/意外险行业的一个例子可以说明这种可能性。当一家财产险公司被收购时，买方有时会同时提高其损失准备金，而且常常是大幅提高。这种提高可能仅仅反映了先前准备金的不足——尽管这种精算“启示”与交易签字在时间上如此巧合，也真是邪门。无论如何，此举为日后准备金释放时“收益”流入利润表创造了条件。
伯克希尔完全避免了这些做法：如果我们让你失望，我们宁愿是因为我们的收益，而不是因为我们的会计。在我们所有的收购中，我们完全保留了被收购方的损失准备金数字，分文未动。毕竟，我们一直只与那些了解自身业务、财务报告诚实的保险经理人合作。在那些负债被立即大幅增加的交易中，简单的逻辑告诉我们，至少上述两种美德中缺了一种——或者换个说法，收购方正在为未来注入“收益”铺路。
以下是一个真实的故事，它反映了美国企业界一种过于普遍的心态。两家大型银行的CEO——其中一位曾主导过多次收购——不久前参与了一场友好的并购讨论（最终并未达成交易）。那位经验丰富的收购者正在大谈合并可能带来的种种好处，却被另一位CEO怀疑地打断："但这不是意味着要计提一大笔费用吗？"他问道，"可能高达10亿美元？"这位"老手"不假思索地答道："我们会让它更大——这正是我们做这笔交易的原因。"
根据巴尔的摩的R.G. Associates公司初步统计，1998年期间已计提或宣布的特别费用——即重组费用、在研研发费用、并购相关项目费用以及资产减值——至少有1,369项，总额达721亿美元。这个数字令人震惊，做个对比就更清楚了：1997年《财富》杂志著名榜单上的500家公司的利润总和为3,240亿美元。
显然，如今许多高管对准确报告的漠视态度是一种商业耻辱。而审计师，正如我们之前指出的，几乎没有起到积极作用。尽管审计师本应将投资大众视为自己的客户，但他们却往往对选择他们并付给他们薪酬的管理者卑躬屈膝。（"吃谁的饭，唱谁的歌。"）
然而，一个重大新闻是，美国证券交易委员会（SEC）在其主席阿瑟·莱维特的领导下，似乎决心让美国企业界改邪归正。在去年9月的一次里程碑式的演讲中，莱维特呼吁结束"盈余管理"。他正确地指出："太多企业管理者、审计师和分析师都参与了一场眉眼传情的游戏。"然后他提出了真正的控诉："管理可能正在让位于操纵；诚信可能正在输给幻象。"
我敦促你们阅读主席的演讲（你可以在互联网上找到它，网址是www.sec.gov），并支持他努力让美国企业界向其所有者提供真实的故事。莱维特的任务将像赫拉克勒斯（希腊神话中的大力神）一样艰巨，但很难想象还有比这更重要的任务需要他承担。
致股东的报告
伯克希尔的网站www.berkshirehathaway.com已成为获取公司信息的主要来源。虽然我们继续向所有股东发送年报，但现在我们只向索取的人发送季报，让其他人可以在我们的网站上阅读。在本报告中，我们再次附上一张卡片，想要在1999年收到纸质季报的人可以寄回这张卡片。
查理和我在报告中有两个简单的目标：1）我们希望给你们提供那些如果我们的位置互换时我们希望你们能给我们的信息；2）我们希望让伯克希尔的信息同时对所有股东开放。互联网极大地帮助我们实现了第二个目标。
在9月演讲的另一部分，阿瑟·莱维特谴责了他所谓的"选择性披露"。他的讲话非常及时：如今，许多公司习以为常地以各种方式偏袒华尔街分析师和机构投资者，这些方式常常绕过或跨越了公平的界限。这些做法使绝大多数的股东明显处于不利地位，而少数特权阶层则享有优势。
在伯克希尔，我们把持有一股B类股的股东与我们的大型机构投资者视为平等。当然，我们热忱欢迎机构成为所有者，并通过通用再保险的并购增加了许多机构股东。我们也希望这些新持有人发现，我们的所有者手册和年报能让他们对伯克希尔的了解和信息，比他们从其他公司通常设立的投资者关系部门获得的信息更多。但如果股东或分析师寻求的是"盈余指引"之类的东西，我们只会指引他们去阅读我们的公开文件。
今年我们计划在5月14日、8月13日和11月12日收盘后，将季度报告发布在互联网上。我们还预计在2000年3月11日（星期六）将1999年年报上传到网站，并大致同时邮寄印刷版本。
我们会及时将新闻稿发布在网站上。这意味着你无需依赖媒体报道的版本，而是可以直接在电脑上阅读全文。
尽管你们的主席技术能力可怜，但我很高兴地报告，GEICO（盖可保险）、Borsheim's（博希姆珠宝）、See's（喜诗糖果）和《布法罗新闻报》目前正在通过互联网开展大量业务。我们最近也开始在网站上提供年金产品。这项业务由Ajit Jain（阿吉特·贾因）开发，过去十年里，他个人贡献了伯克希尔经营利润的很大一部分。当我和查理睡觉时，Ajit仍在思考为伯克希尔增值的新方法。
股东指定捐赠
约97.5%的合格股份参与了伯克希尔1998年的股东指定捐赠计划，捐赠总额为1,690万美元。该计划的完整描述见第54-55页。
在该计划运行的18年里，伯克希尔累计根据股东的指示进行了1.3亿美元的捐赠。伯克希尔其余捐赠由我们的子公司完成，这些子公司坚持在被收购前已有的慈善模式（只是原所有者自己承担个人慈善的责任）。1998年，我们的子公司共计捐赠1,250万美元，其中包括价值200万美元的实物捐赠。
要参与未来的计划，你必须拥有以实际所有者名义注册的A类股，而非以经纪人、银行或存管机构的代名人名义注册。在1999年8月31日之前未如此注册的股份将没有资格参加1999年计划。当你收到我们的捐赠表格时，请及时寄回，以免被搁置或遗忘。逾期收到的指定将不予受理。
年会
今年的“资本家的伍德斯托克”将于5月1日至3日举行，我们可能面临一个问题。去年有超过10,000人参加了我们的年会，而自那以后我们的股东名单翻了一番。所以我们不太清楚今年参会人数会是多少。为了保险起见，我们已经预订了可容纳约14,000人的阿克萨本竞技场，以及可再容纳5,000人的假日会议中心。因为我们知道奥马哈的股东会想当好东道主招待外地来宾（其中许多来自美国以外），我们计划让这些外地来宾优先获得阿克萨本的门票，然后以先到先得的方式分配给奥马哈本地居民。如果阿克萨本的门票发完，我们将开始向奥马哈股东发放假日中心的门票。
如果我们最终同时使用两个场地，查理和我会在会前时间分别前往两处。此外，我们还会在两个场地都安排展品、伯克希尔电影、大屏幕电视和麦克风。午休时，许多参会者会离开阿克萨本，这意味着假日中心的参会者如果愿意，可以花五分钟车程前往阿克萨本，在那里结束当天的议程。我们将提供巴士接送没有车的参会者。
两个场地的门都将在周一早上7点打开，8点30分我们将首映由我们的CFO（首席财务官）Marc Hamburg（马克·汉堡）制作的1999年伯克希尔电影大片。会议将从9点30分持续到3点30分，中间只有短暂的午休。
随本报告附上的股东委托书材料中有一张附件，说明如何获取进入会场及其他活动所需的胸牌。至于飞机、酒店和租车预订，我们再次与美国运通（American Express，800-799-6634）签约，请他们为你提供特别帮助。按惯例，我们会从各大酒店安排巴士前往会场。会后，这些巴士将返回酒店，并途经内布拉斯加家具城（Nebraska Furniture Mart）、波仙珠宝（Borsheim’s）和机场。即便如此，有辆车还是会方便很多。
伯克希尔的全线产品将在阿克萨本（Aksarben）展销，热门商品也会在假日酒店（Holiday）同步销售。去年我们全面刷新了销售纪录：卖掉了3,700磅喜诗糖果（See's candy）、1,635双德克斯特（Dexter）鞋、1,150套Quikut刀具以及3,104件伯克希尔衬衫帽子。此外，还卖出了26,944美元的世界图书（World Book）产品以及超过2,000个带有伯克希尔·哈撒韦标志的高尔夫球。查理和我对此感到满意但绝不满足，并自信地预测今年所有品类都将再创新高。1999年的服饰系列将在会场首发亮相，所以请在你下决心购买设计师款之前，先来瞧瞧我们的系列。
冰雪皇后（Dairy Queen）也会到场，并再次将全部收入捐赠给儿童奇迹网络（Children’s Miracle Network）。去年我们卖掉了大约4,000支Dilly棒、软糖棒和香草/橙子棒。此外，GEICO®也会设立展台，由来自全国各地的顶尖顾问坐镇，随时为你提供汽车保险报价。在绝大多数情况下，GEICO都能为你提供股东专属折扣。来看看我们能不能帮你省点钱。
我们这场单一公司展销会的压轴之作，是一架79英尺长、近12英尺宽、设施齐全的波音公务机737（Boeing Business Jet，“BBJ”）客舱——这是NetJets（奈特杰特）的最新力作。这款飞机续航14小时，可搭载19名乘客，配备一间卧室、一间办公室和两个淋浴间。分时所有者将于2000年第一季度开始收货。
这架BBJ将于5月1日至3日在阿克萨本大厅入口附近供你参观。建议你周六或周日前往，这样可以尽量缩短等候时间。别忘了带上支票簿，万一心血来潮想买一架呢。
内布拉斯加家具城（NFM）的多场馆综合商城占地75英亩，距阿克萨本约一英里，工作日营业时间为上午10点至晚上9点，周六周日为上午10点至下午6点。1998年该商城成交额达3亿美元，商品种类无与伦比——家具、电子产品、电器、地毯、电脑——价格无可匹敌。在4月30日至5月4日期间，凭股东大会胸牌的股东可享受通常只给予员工的特惠折扣。
波仙珠宝通常周日不营业，但5月2日将专门为股东从上午10点开放至下午6点。去年股东大会的那个周末，该店生意火爆得惊人，销售额是前年的两倍，而周日的营业额更是远超波仙历史上任何单日。查理将此归功于他那天在销售小票上签了名；虽然我对此存疑，但我们可不想改掉成功的配方。请让他签到手抽筋。去年周日，波仙在开张的8小时内开出了2,501张小票。对于数学不太好的朋友来说，这意味着平均每11.5秒就开出一单。
希望避开周日人群的股东，可在周六（上午10点至下午5:30）或周一（上午10点至晚上8点）光临波仙珠宝。请务必表明您是伯克希尔股东，这样波仙CEO苏珊·雅克才能为您提供"股东周末"专属价格。苏珊1983年加入我们时，时薪仅4美元，1994年升任CEO——这算得上我最佳管理决策之一。
桥牌爱好者将在周日迎来激动时刻——史上最伟大的牌手鲍勃·哈曼将现身波仙门外商场，与股东们切磋牌技。他从不理牌就开打——嘿，这大概正是我牌技差的原因。我们还会另设几桌，由一两位其他高手坐镇。
我挚爱的牛排馆Gorat's将在股东大会前的周日晚再度为伯克希尔股东特别营业。尽管去年Gorat's从下午4点营业到凌晨1点，但员工仍应接不暇，部分股东被迫久等。今年我们将减少预约名额，恳请各位没有预约切勿在周日前往。往年许多股东会选在周五、周六或周一光顾。您可于4月1日起（但不可提前）致电402-551-3733预约。老饕们会继续点三分熟T骨牛排配双份土豆煎饼。
奥马哈金钉队（原奥马哈皇家队）将于5月1日周六晚在罗森布拉特球场迎战爱荷华小熊队。你们的董事长——去年我的曲线球让全场沸腾——将再次登板投球。今年我计划展示我的"蝴蝶球"。很多人把股东大会当成金融活动而非我心目中的体育盛事，这让我颇为懊恼。等世人见识了我的蝴蝶球，这种误解自会烟消云散。
我们的股东委托书中附有球票获取说明及其他大量信息，助您尽享此行。我尤其邀请通过通用再保险合并新加入的6万名股东共襄盛举。来见见你们的资本家同胞吧。
************
在落笔之前，必须提一提与我并肩工作的11.8位伯克希尔总部员工。除了处理旗下数十家企业带来的无数税务、监管和行政事务，这个团队还高效愉快地管理着各类专项项目——有些项目会引发数百次问询。以下是1998年的部分工作实录：
6,106位股东指定了3,880家慈善机构接收捐款。
Kelly Muchemore处理了约17,500张年会入场券，以及3,200张棒球票的订单与支票。
Kelly与Marc Hamburg策划执导了Aksarben盛会，需安排子公司展示、制作影片，有时还要帮人解决食宿交通。
Debbie Bosanek满足46家媒体机构（其中13家来自海外）报道年会的各种需求，同时一如既往地在我工作的方方面面给予娴熟协助。
Debbie与Marc汇编年报数据，监督16.5万份印制的生产与分发（今年将增至32.5万份）。
Marc处理了我们完成两项重大合并中95%的细节工作——以及大量实质性内容。
Kelly、Debbie与Deb Ray高效处理了通过办公室发来的数万份年报及财务信息索取请求。
你们和我仅需支付11.8人的薪酬，却得到了多数公司需要100人才能完成的产出。谨向这11.8位同事致以谢意。
1999年3月1日
沃伦·E·巴菲特
董事会主席