Note: The following table appears in the printed Annual Report on the facing page of the Chairman's Letter and is referred to in that letter.
Berkshire's Corporate Performance vs. the S&P 500
| Year | Annual Percentage Change | Relative Results (1)-(2) | ||
| in Per-Share Book Value of Berkshire (1) | in S&P 500 with Dividends Included (2) | |||
| 1965 | ...... | 23.8 | 10.0 | 13.8 |
| 1966 | ...... | 20.3 | (11.7) | 32.0 |
| 1967 | ...... | 11.0 | 30.9 | (19.9) |
| 1968 | ...... | 19.0 | 11.0 | 8.0 |
| 1969 | ...... | 16.2 | (8.4) | 24.6 |
| 1970 | ...... | 12.0 | 3.9 | 8.1 |
| 1971 | ...... | 16.4 | 14.6 | 1.8 |
| 1972 | ...... | 21.7 | 18.9 | 2.8 |
| 1973 | ...... | 4.7 | (14.8) | 19.5 |
| 1974 | ...... | 5.5 | (26.4) | 31.9 |
| 1975 | ...... | 21.9 | 37.2 | (15.3) |
| 1976 | ...... | 59.3 | 23.6 | 35.7 |
| 1977 | ...... | 31.9 | (7.4) | 39.3 |
| 1978 | ...... | 24.0 | 6.4 | 17.6 |
| 1979 | ...... | 35.7 | 18.2 | 17.5 |
| 1980 | ...... | 19.3 | 32.3 | (13.0) |
| 1981 | ...... | 31.4 | (5.0) | 36.4 |
| 1982 | ...... | 40.0 | 21.4 | 18.6 |
| 1983 | ...... | 32.3 | 22.4 | 9.9 |
| 1984 | ...... | 13.6 | 6.1 | 7.5 |
| 1985 | ...... | 48.2 | 31.6 | 16.6 |
| 1986 | ...... | 26.1 | 18.6 | 7.5 |
| 1987 | ...... | 19.5 | 5.1 | 14.4 |
| 1988 | ...... | 20.1 | 16.6 | 3.5 |
| 1989 | ...... | 44.4 | 31.7 | 12.7 |
| 1990 | ...... | 7.4 | (3.1) | 10.5 |
| 1991 | ...... | 39.6 | 30.5 | 9.1 |
| 1992 | ...... | 20.3 | 7.6 | 12.7 |
| 1993 | ...... | 14.3 | 10.1 | 4.2 |
| 1994 | ...... | 13.9 | 1.3 | 12.6 |
| 1995 | ...... | 43.1 | 37.6 | 5.5 |
| 1996 | ...... | 31.8 | 23.0 | 8.8 |
| 1997 | ...... | 34.1 | 33.4 | .7 |
| 1998 | ...... | 48.3 | 28.6 | 19.7 |
| 1999 | ...... | .5 | 21.0 | (20.5) |
| 2000 | ...... | 6.5 | (9.1) | 15.6 |
| 2001 | ...... | (6.2) | (11.9) | 5.7 |
| 2002 | ...... | 10.0 | (22.1) | 32.1 |
| 2003 | ...... | 21.0 | 28.7 | (7.7) |
| Average Annual Gain — 1965-2003 | 22.2 | 10.4 | 11.8 | |
| Overall Gain — 1964-2003 | 259,485 | 4,743 | ||
Notes: Data are for calendar years with these exceptions: 1965 and 1966, year ended 9/30; 1967, 15 months ended 12/31.
Starting in 1979, accounting rules required insurance companies to value the equity securities they hold at market rather than at the lower of cost or market, which was previously the requirement. In this table, Berkshire's results through 1978 have been restated to conform to the changed rules. In all other respects, the results are calculated using the numbers originally reported.
The S&P 500 numbers are pre-tax whereas the Berkshire numbers are after-tax. If a corporation such as Berkshire were simply to have owned the S&P 500 and accrued the appropriate taxes, its results would have lagged the S&P 500 in years when that index showed a positive return, but would have exceeded the S&P in years when the index showed a negative return. Over the years, the tax costs would have caused the aggregate lag to be substantial.
BERKSHIRE HATHAWAY INC.
To the Shareholders of Berkshire Hathaway Inc.:
Our gain in net worth during 2003 was \$13.6 billion, which increased the per-share book value of both our Class A and Class B stock by 21%. Over the last 39 years (that is, since present management took over) per-share book value has grown from \$19 to \$50,498, a rate of 22.2% compounded annually.*
It's per-share intrinsic value that counts, however, not book value. Here, the news is good: Between 1964 and 2003, Berkshire morphed from a struggling northern textile business whose intrinsic value was less than book into a widely diversified enterprise worth far more than book. Our 39-year gain in intrinsic value has therefore somewhat exceeded our $22.2\%$ gain in book. (For a better understanding of intrinsic value and the economic principles that guide Charlie Munger, my partner and Berkshire's vice-chairman, and me in running Berkshire, please read our Owner's Manual, beginning on page 69.)
Despite their shortcomings, book value calculations are useful at Berkshire as a slightly understated gauge for measuring the long-term rate of increase in our intrinsic value. The calculation is less relevant, however, than it once was in rating any single year's performance versus the S&P 500 index (a comparison we display on the facing page). Our equity holdings, including convertible preferreds, have fallen considerably as a percentage of our net worth, from an average of $114\%$ in the 1980s, for example, to an average of $50\%$ in 2000-03. Therefore, yearly movements in the stock market now affect a much smaller portion of our net worth than was once the case.
Nonetheless, Berkshire's long-term performance versus the S&P remains all-important. Our shareholders can buy the S&P through an index fund at very low cost. Unless we achieve gains in per-share intrinsic value in the future that outdo the S&P's performance, Charlie and I will be adding nothing to what you can accomplish on your own.
If we fail, we will have no excuses. Charlie and I operate in an ideal environment. To begin with, we are supported by an incredible group of men and women who run our operating units. If there were a Corporate Cooperstown, its roster would surely include many of our CEOs. Any shortfall in Berkshire's results will not be caused by our managers.
Additionally, we enjoy a rare sort of managerial freedom. Most companies are saddled with institutional constraints. A company's history, for example, may commit it to an industry that now offers limited opportunity. A more common problem is a shareholder constituency that pressures its manager to dance to Wall Street's tune. Many CEOs resist, but others give in and adopt operating and capital-allocation policies far different from those they would choose if left to themselves.
At Berkshire, neither history nor the demands of owners impede intelligent decision-making. When Charlie and I make mistakes, they are – in tennis parlance – unforced errors.
Operating Earnings
When valuations are similar, we strongly prefer owning businesses to owning stocks. During most of our years of operation, however, stocks were much the cheaper choice. We therefore sharply tilted our asset allocation in those years toward equities, as illustrated by the percentages cited earlier.
In recent years, however, we’ve found it hard to find significantly undervalued stocks, a difficulty greatly accentuated by the mushrooming of the funds we must deploy. Today, the number of stocks that can be purchased in large enough quantities to move the performance needle at Berkshire is a small fraction of the number that existed a decade ago. (Investment managers often profit far more from piling up assets than from handling those assets well. So when one tells you that increased funds won’t hurt his investment performance, step back: His nose is about to grow.)
The shortage of attractively-priced stocks in which we can put large sums doesn't bother us, providing we can find companies to purchase that (1) have favorable and enduring economic characteristics; (2) are run by talented and honest managers and (3) are available at a sensible price. We have purchased a number of such businesses in recent years, though not enough to fully employ the gusher of cash that has come our way. In buying businesses, I've made some terrible mistakes, both of commission and omission. Overall, however, our acquisitions have led to decent gains in per-share earnings.
Below is a table that quantifies that point. But first we need to warn you that growth-rate presentations can be significantly distorted by a calculated selection of either initial or terminal dates. For example, if earnings are tiny in a beginning year, a long-term performance that was only mediocre can be made to appear sensational. That kind of distortion can come about because the company at issue was minuscule in the base year – which means that only a handful of insiders actually benefited from the touted performance – or because a larger company was then operating at just above breakeven. Picking a terminal year that is particularly buoyant will also favorably bias a calculation of growth.
The Berkshire Hathaway that present management assumed control of in 1965 had long been sizable. But in 1964, it earned only \$175,586 or 15 cents per share, so close to breakeven that any calculation of earnings growth from that base would be meaningless. At the time, however, even those meager earnings looked good: Over the decade following the 1955 merger of Berkshire Fine Spinning Associates and Hathaway Manufacturing, the combined operation had lost \$10.1 million and many thousands of employees had been let go. It was not a marriage made in heaven.
Against this background, we give you a picture of Berkshire's earnings growth that begins in 1968, but also includes subsequent base years spaced five years apart. A series of calculations is presented so that you can decide for yourself which period is most meaningful. I've started with 1968 because it was the first full year we operated National Indemnity, the initial acquisition we made as we began to expand Berkshire's business.
I don't believe that using 2003 as the terminal year distorts our calculations. It was a terrific year for our insurance business, but the big boost that gave to earnings was largely offset by the pathetically low interest rates we earned on our large holdings of cash equivalents (a condition that will not last). All figures shown below, it should be noted, exclude capital gains.
| Year | Operating Earningsin $ millions | Operating EarningsPer Share in $ | Subsequent CompoundedGrowth Rate of Per-Share Earnings |
| 1964 | .2 | .15 | Not meaningful (1964-2003) |
| 1968 | 2.7 | 2.69 | 22.8% (1968-2003) |
| 1973 | 11.9 | 12.18 | 20.8% (1973-2003) |
| 1978 | 30.0 | 29.15 | 21.1% (1978-2003) |
| 1983 | 48.6 | 45.60 | 24.3% (1983-2003) |
| 1988 | 313.4 | 273.37 | 18.6% (1988-2003) |
| 1993 | 477.8 | 413.19 | 23.9% (1993-2003) |
| 1998 | 1,277.0 | 1,020.49 | 28.2% (1998-2003) |
| 2003 | 5,422.0 | 3,531.32 |
We will continue the capital allocation practices we have used in the past. If stocks become significantly cheaper than entire businesses, we will buy them aggressively. If selected bonds become attractive, as they did in 2002, we will again load up on these securities. Under any market or economic conditions, we will be happy to buy businesses that meet our standards. And, for those that do, the bigger the better. Our capital is underutilized now, but that will happen periodically. It’s a painful condition to be in – but not as painful as doing something stupid. (I speak from experience.)
Overall, we are certain Berkshire's performance in the future will fall far short of what it has been in the past. Nonetheless, Charlie and I remain hopeful that we can deliver results that are modestly above average. That's what we're being paid for.
Acquisitions
As regular readers know, our acquisitions have often come about in strange ways. None, however, had a more unusual genesis than our purchase last year of Clayton Homes.
The unlikely source was a group of finance students from the University of Tennessee, and their teacher, Dr. Al Auxier. For the past five years, Al has brought his class to Omaha, where the group tours Nebraska Furniture Mart and Borsheim's, eats at Gorat's and then comes to Kiewit Plaza for a session with me. Usually about 40 students participate.
After two hours of give-and-take, the group traditionally presents me with a thank-you gift. (The doors stay locked until they do.) In past years it's been items such as a football signed by Phil Fulmer and a basketball from Tennessee's famous women's team.
This past February, the group opted for a book – which, luckily for me, was the recently-published autobiography of Jim Clayton, founder of Clayton Homes. I already knew the company to be the class act of the manufactured housing industry, knowledge I acquired after earlier making the mistake of buying some distressed junk debt of Oakwood Homes, one of the industry’s largest companies. At the time of that purchase, I did not understand how atrocious consumer-financing practices had become throughout most of the manufactured housing industry. But I learned: Oakwood rather promptly went bankrupt.
Manufactured housing, it should be emphasized, can deliver very good value to home purchasers. Indeed, for decades, the industry has accounted for more than 15% of the homes built in the U.S. During those years, moreover, both the quality and variety of manufactured houses consistently improved.
Progress in design and construction was not matched, however, by progress in distribution and financing. Instead, as the years went by, the industry's business model increasingly centered on the ability of both the retailer and manufacturer to unload terrible loans on naive lenders. When “securitization” then became popular in the 1990s, further distancing the supplier of funds from the lending transaction, the industry's conduct went from bad to worse. Much of its volume a few years back came from buyers who shouldn't have bought, financed by lenders who shouldn't have lent. The consequence has been huge numbers of repossessions and pitifully low recoveries on the units repossessed.
Oakwood participated fully in the insanity. But Clayton, though it could not isolate itself from industry practices, behaved considerably better than its major competitors.
Upon receiving Jim Clayton's book, I told the students how much I admired his record and they took that message back to Knoxville, home of both the University of Tennessee and Clayton Homes. Al then suggested that I call Kevin Clayton, Jim's son and the CEO, to express my views directly. As I talked with Kevin, it became clear that he was both able and a straight-shooter.
Soon thereafter, I made an offer for the business based solely on Jim's book, my evaluation of Kevin, the public financials of Clayton and what I had learned from the Oakwood experience. Clayton's board was receptive, since it understood that the large-scale financing Clayton would need in the future might be hard to get. Lenders had fled the industry and securitizations, when possible at all, carried far more expensive and restrictive terms than was previously the case. This tightening was particularly serious for Clayton, whose earnings significantly depended on securitizations.
Today, the manufactured housing industry remains awash in problems. Delinquencies continue high, repossessed units still abound and the number of retailers has been halved. A different business model is required, one that eliminates the ability of the retailer and salesman to pocket substantial money up front by making sales financed by loans that are destined to default. Such transactions cause hardship to both buyer and lender and lead to a flood of repossessions that then undercut the sale of new units. Under a proper model – one requiring significant down payments and shorter-term loans – the industry will likely remain much smaller than it was in the 90s. But it will deliver to home buyers an asset in which they will have equity, rather than disappointment, upon resale.
In the “full circle” department, Clayton has agreed to buy the assets of Oakwood. When the transaction closes, Clayton’s manufacturing capacity, geographical reach and sales outlets will be substantially increased. As a byproduct, the debt of Oakwood that we own, which we bought at a deep discount, will probably return a small profit to us.
And the students? In October, we had a surprise “graduation” ceremony in Knoxville for the 40 who sparked my interest in Clayton. I donned a mortarboard and presented each student with both a PhD (for phenomenal, hard-working dealmaker) from Berkshire and a B share. Al got an A share. If you meet some of the new Tennessee shareholders at our annual meeting, give them your thanks. And ask them if they’ve read any good books lately.
* * * * * * * * * * * *
In early spring, Byron Trott, a Managing Director of Goldman Sachs, told me that Wal-Mart wished to sell its McLane subsidiary. McLane distributes groceries and nonfood items to convenience stores, drug stores, wholesale clubs, mass merchandisers, quick service restaurants, theaters and others. It’s a good business, but one not in the mainstream of Wal-Mart’s future. It’s made to order, however, for us.
McLane has sales of about \$23 billion, but operates on paper-thin margins – about 1% pre-tax – and will swell Berkshire’s sales figures far more than our income. In the past, some retailers had shunned McLane because it was owned by their major competitor. Grady Rosier, McLane’s superb CEO, has already landed some of these accounts – he was in full stride the day the deal closed – and more will come.
For several years, I have given my vote to Wal-Mart in the balloting for Fortune Magazine's “Most Admired” list. Our McLane transaction reinforced my opinion. To make the McLane deal, I had a single meeting of about two hours with Tom Schoewe, Wal-Mart’s CFO, and we then shook hands. (He did, however, first call Bentonville). Twenty-nine days later Wal-Mart had its money. We did no “due diligence.” We knew everything would be exactly as Wal-Mart said it would be – and it was.
I should add that Byron has now been instrumental in three Berkshire acquisitions. He understands Berkshire far better than any investment banker with whom we have talked and – it hurts me to say this – earns his fee. I’m looking forward to deal number four (as, I am sure, is he).
Taxes
On May 20, 2003, The Washington Post ran an op-ed piece by me that was critical of the Bush tax proposals. Thirteen days later, Pamela Olson, Assistant Secretary for Tax Policy at the U.S. Treasury, delivered a speech about the new tax legislation saying, “That means a certain midwestern oracle, who, it must be noted, has played the tax code like a fiddle, is still safe retaining all his earnings.” I think she was talking about me.
Alas, my “fiddle playing” will not get me to Carnegie Hall – or even to a high school recital. Berkshire, on your behalf and mine, will send the Treasury \$3.3 billion for tax on its 2003 income, a sum equaling 2½% of the total income tax paid by all U.S. corporations in fiscal 2003. (In contrast, Berkshire’s market valuation is about 1% of the value of all American corporations.) Our payment will almost certainly place us among our country's top ten taxpayers. Indeed, if only 540 taxpayers paid the amount Berkshire will pay, no other individual or corporation would have to pay anything to Uncle Sam. That's right: 290 million Americans and all other businesses would not have to pay a dime in income, social security, excise or estate taxes to the federal government. (Here's the math: Federal tax receipts, including social security receipts, in fiscal 2003 totaled \$1.782 trillion and 540 "Berkshires," each paying \$3.3 billion, would deliver the same \$1.782 trillion.)
Our federal tax return for 2002 (2003 is not finalized), when we paid \$1.75 billion, covered a mere 8,905 pages. As is required, we dutifully filed two copies of this return, creating a pile of paper seven feet tall. At World Headquarters, our small band of 15.8, though exhausted, momentarily flushed with pride: Berkshire, we felt, was surely pulling its share of our country's fiscal load.
But Ms. Olson sees things otherwise. And if that means Charlie and I need to try harder, we are ready to do so.
I do wish, however, that Ms. Olson would give me some credit for the progress I’ve already made. In 1944, I filed my first 1040, reporting my income as a thirteen-year-old newspaper carrier. The return covered three pages. After I claimed the appropriate business deductions, such as \$35 for a bicycle, my tax bill was \$7. I sent my check to the Treasury and it – without comment – promptly cashed it. We lived in peace.
* * * * * * * * * * * *
I can understand why the Treasury is now frustrated with Corporate America and prone to outbursts. But it should look to Congress and the Administration for redress, not to Berkshire.
Corporate income taxes in fiscal 2003 accounted for $7.4\%$ of all federal tax receipts, down from a post-war peak of $32\%$ in 1952. With one exception (1983), last year's percentage is the lowest recorded since data was first published in 1934.
Even so, tax breaks for corporations (and their investors, particularly large ones) were a major part of the Administration's 2002 and 2003 initiatives. If class warfare is being waged in America, my class is clearly winning. Today, many large corporations – run by CEOs whose fiddle-playing talents make your Chairman look like he is all thumbs – pay nothing close to the stated federal tax rate of 35%.
In 1985, Berkshire paid \$132 million in federal income taxes, and all corporations paid \$61 billion. The comparable amounts in 1995 were \$286 million and \$157 billion respectively. And, as mentioned, we will pay about \$3.3 billion for 2003, a year when all corporations paid \$132 billion. We hope our taxes continue to rise in the future – it will mean we are prospering – but we also hope that the rest of Corporate America antes up along with us. This might be a project for Ms. Olson to work on.
Corporate Governance
In judging whether Corporate America is serious about reforming itself, CEO pay remains the acid test. To date, the results aren't encouraging. A few CEOs, such as Jeff Immelt of General Electric, have led the way in initiating programs that are fair to managers and shareholders alike. Generally, however, his example has been more admired than followed.
It's understandable how pay got out of hand. When management hires employees, or when companies bargain with a vendor, the intensity of interest is equal on both sides of the table. One party's gain is the other party's loss, and the money involved has real meaning to both. The result is an honest-to-God negotiation.
But when CEOs (or their representatives) have met with compensation committees, too often one side – the CEO’s – has cared far more than the other about what bargain is struck. A CEO, for example, will always regard the difference between receiving options for 100,000 shares or for 500,000 as monumental. To a comp committee, however, the difference may seem unimportant – particularly if, as has been the case at most companies, neither grant will have any effect on reported earnings. Under these conditions, the negotiation often has a “play-money” quality.
Overreaching by CEOs greatly accelerated in the 1990s as compensation packages gained by the most avaricious– a title for which there was vigorous competition – were promptly replicated elsewhere. The couriers for this epidemic of greed were usually consultants and human relations departments, which had no trouble perceiving who buttered their bread. As one compensation consultant commented: “There are two classes of clients you don’t want to offend – actual and potential.”
In proposals for reforming this malfunctioning system, the cry has been for “independent” directors. But the question of what truly motivates independence has largely been neglected.
In last year's report, I took a look at how “independent” directors – as defined by statute – had performed in the mutual fund field. The Investment Company Act of 1940 mandated such directors, and that means we’ve had an extended test of what statutory standards produce. In our examination last year, we looked at the record of fund directors in respect to the two key tasks board members should perform – whether at a mutual fund business or any other. These two all-important functions are, first, to obtain (or retain) an able and honest manager and then to compensate that manager fairly.
Our survey was not encouraging. Year after year, at literally thousands of funds, directors had routinely rehired the incumbent management company, however pathetic its performance had been. Just as routinely, the directors had mindlessly approved fees that in many cases far exceeded those that could have been negotiated. Then, when a management company was sold – invariably at a huge price relative to tangible assets – the directors experienced a “counter-revelation” and immediately signed on with the new manager and accepted its fee schedule. In effect, the directors decided that whoever would pay the most for the old management company was the party that should manage the shareholders’ money in the future.
Despite the lapdog behavior of independent fund directors, we did not conclude that they are bad people. They're not. But sadly, "boardroom atmosphere" almost invariably sedates their fiduciary genes.
On May 22, 2003, not long after Berkshire's report appeared, the Chairman of the Investment Company Institute addressed its membership about “The State of our Industry.” Responding to those who have “weighed in about our perceived failings,” he mused, “It makes me wonder what life would be like if we’d actually done something wrong.”
Be careful what you wish for.
Within a few months, the world began to learn that many fund-management companies had followed policies that hurt the owners of the funds they managed, while simultaneously boosting the fees of the managers. Prior to their transgressions, it should be noted, these management companies were earning profit margins and returns on tangible equity that were the envy of Corporate America. Yet to swell profits further, they trampled on the interests of fund shareholders in an appalling manner.
So what are the directors of these looted funds doing? As I write this, I have seen none that have terminated the contract of the offending management company (though naturally that entity has often fired some of its employees). Can you imagine directors who had been personally defrauded taking such a boys-will-be-boys attitude?
To top it all off, at least one miscreant management company has put itself up for sale, undoubtedly hoping to receive a huge sum for “delivering” the mutual funds it has managed to the highest bidder among other managers. This is a travesty. Why in the world don’t the directors of those funds simply select whomever they think is best among the bidding organizations and sign up with that party directly? The winner would consequently be spared a huge “payoff” to the former manager who, having flouted the principles of stewardship, deserves not a dime. Not having to bear that acquisition cost, the winner could surely manage the funds in question for a far lower ongoing fee than would otherwise have been the case. Any truly independent director should insist on this approach to obtaining a new manager.
The reality is that neither the decades-old rules regulating investment company directors nor the new rules bearing down on Corporate America foster the election of truly independent directors. In both instances, an individual who is receiving 100% of his income from director fees – and who may wish to enhance his income through election to other boards – is deemed independent. That is nonsense. The same rules say that Berkshire director and lawyer Ron Olson, who receives from us perhaps 3% of his very large income, does not qualify as independent because that 3% comes from legal fees Berkshire pays his firm rather than from fees he earns as a Berkshire director. Rest assured, 3% from any source would not torpedo Ron’s independence. But getting 20%, 30% or 50% of their income from director fees might well temper the independence of many individuals, particularly if their overall income is not large. Indeed, I think it’s clear that at mutual funds, it has.
* * * * * * * * * * *
Let me make a small suggestion to “independent” mutual fund directors. Why not simply affirm in each annual report that “(1) We have looked at other management companies and believe the one we have retained for the upcoming year is among the better operations in the field; and (2) we have negotiated a fee with our managers comparable to what other clients with equivalent funds would negotiate.”
It does not seem unreasonable for shareholders to expect fund directors – who are often receiving fees that exceed \$100,000 annually – to declare themselves on these points. Certainly these directors would satisfy themselves on both matters were they handing over a large chunk of their own money to the manager. If directors are unwilling to make these two declarations, shareholders should heed the maxim “If you don’t know whose side someone is on, he’s probably not on yours.”
Finally, a disclaimer. A great many funds have been run well and conscientiously despite the opportunities for malfeasance that exist. The shareholders of these funds have benefited, and their managers have earned their pay. Indeed, if I were a director of certain funds, including some that charge above-average fees, I would enthusiastically make the two declarations I have suggested. Additionally, those index funds that are very low-cost (such as Vanguard's) are investor-friendly by definition and are the best selection for most of those who wish to own equities.
I am on my soapbox now only because the blatant wrongdoing that has occurred has betrayed the trust of so many millions of shareholders. Hundreds of industry insiders had to know what was going on, yet none publicly said a word. It took Eliot Spitzer, and the whistleblowers who aided him, to initiate a housecleaning. We urge fund directors to continue the job. Like directors throughout Corporate America, these fiduciaries must now decide whether their job is to work for owners or for managers.
Berkshire Governance
True independence – meaning the willingness to challenge a forceful CEO when something is wrong or foolish – is an enormously valuable trait in a director. It is also rare. The place to look for it is among high-grade people whose interests are in line with those of rank-and-file shareholders – and are in line in a very big way.
We’ve made that search at Berkshire. We now have eleven directors and each of them, combined with members of their families, owns more than \$4 million of Berkshire stock. Moreover, all have held major stakes in Berkshire for many years. In the case of six of the eleven, family ownership amounts to at least hundreds of millions and dates back at least three decades. All eleven directors purchased their holdings in the market just as you did; we’ve never passed out options or restricted shares. Charlie and I love such honest-to-God ownership. After all, who ever washes a rental car?
In addition, director fees at Berkshire are nominal (as my son, Howard, periodically reminds me). Thus, the upside from Berkshire for all eleven is proportionately the same as the upside for any Berkshire shareholder. And it always will be.
The downside for Berkshire directors is actually worse than yours because we carry no directors and officers liability insurance. Therefore, if something really catastrophic happens on our directors' watch, they are exposed to losses that will far exceed yours.
The bottom line for our directors: You win, they win big; you lose, they lose big. Our approach might be called owner-capitalism. We know of no better way to engender true independence. (This structure does not guarantee perfect behavior, however: I’ve sat on boards of companies in which Berkshire had huge stakes and remained silent as questionable proposals were rubber-stamped.)
In addition to being independent, directors should have business savvy, a shareholder orientation and a genuine interest in the company. The rarest of these qualities is business savvy – and if it is lacking, the other two are of little help. Many people who are smart, articulate and admired have no real understanding of business. That’s no sin; they may shine elsewhere. But they don’t belong on corporate boards. Similarly, I would be useless on a medical or scientific board (though I would likely be welcomed by a chairman who wanted to run things his way). My name would dress up the list of directors, but I wouldn’t know enough to critically evaluate proposals. Moreover, to cloak my ignorance, I would keep my mouth shut (if you can imagine that). In effect, I could be replaced, without loss, by a potted plant.
Last year, as we moved to change our board, I asked for self-nominations from shareholders who believed they had the requisite qualities to be a Berkshire director. Despite the lack of either liability insurance or meaningful compensation, we received more than twenty applications. Most were good, coming from owner-oriented individuals having family holdings of Berkshire worth well over \$1 million. After considering them, Charlie and I – with the concurrence of our incumbent directors – asked four shareholders who did not nominate themselves to join the board: David Gottesman, Charlotte Guyman, Don Keough and Tom Murphy. These four people are all friends of mine, and I know their strengths well. They bring an extraordinary amount of business talent to Berkshire’s board.
The primary job of our directors is to select my successor, either upon my death or disability, or when I begin to lose my marbles. (David Ogilvy had it right when he said: “Develop your eccentricities when young. That way, when you get older, people won’t think you are going gaga.” Charlie’s family and mine feel that we overreacted to David’s advice.)
At our directors' meetings we cover the usual run of housekeeping matters. But the real discussion – both with me in the room and absent – centers on the strengths and weaknesses of the four internal candidates to replace me.
Our board knows that the ultimate scorecard on its performance will be determined by the record of my successor. He or she will need to maintain Berkshire's culture, allocate capital and keep a group of America's best managers happy in their jobs. This isn't the toughest task in the world – the train is already moving at a good clip down the track – and I'm totally comfortable about it being done well by any of the four candidates we have identified. I have more than 99% of my net worth in Berkshire and will be happy to have my wife or foundation (depending on the order in which she and I die) continue this concentration.
Sector Results
As managers, Charlie and I want to give our owners the financial information and commentary we would wish to receive if our roles were reversed. To do this with both clarity and reasonable brevity becomes more difficult as Berkshire's scope widens. Some of our businesses have vastly different economic characteristics from others, which means that our consolidated statements, with their jumble of figures, make useful analysis almost impossible.
On the following pages, therefore, we will present some balance sheet and earnings figures from our four major categories of businesses along with commentary about each. We particularly want you to understand the limited circumstances under which we will use debt, since typically we shun it. We will not, however, inundate you with data that has no real value in calculating Berkshire's intrinsic value. Doing so would likely obfuscate the most important facts. One warning: When analyzing Berkshire, be sure to remember that the company should be viewed as an unfolding movie, not as a still photograph. Those who focused in the past on only the snapshot of the day sometimes reached erroneous conclusions.
Insurance
Let's start with insurance – since that's where the money is.
The fountain of funds we enjoy in our insurance operations comes from “float,” which is money that doesn’t belong to us but that we temporarily hold. Most of our float arises because (1) premiums are paid upfront though the service we provide – insurance protection – is delivered over a period that usually covers a year and; (2) loss events that occur today do not always result in our immediately paying claims, since it sometimes takes years for losses to be reported (think asbestos), negotiated and settled.
Float is wonderful - if it doesn't come at a high price. The cost of float is determined by underwriting results, meaning how losses and expenses paid compare with premiums received. The property-casualty industry as a whole regularly operates at a substantial underwriting loss, and therefore often has a cost of float that is unattractive.
Overall, our results have been good. True, we've had five terrible years in which float cost us more than $10\%$ . But in 18 of the 37 years Berkshire has been in the insurance business, we have operated at an underwriting profit, meaning we were actually paid for holding money. And the quantity of this cheap money has grown far beyond what I dreamed it could when we entered the business in 1967.
Yearend Float (in \$ millions)
| Year | GEICO | General Re | OtherReinsurance | OtherPrimary | Total |
| 1967 | 20 | 20 | |||
| 1977 | 40 | 131 | 171 | ||
| 1987 | 701 | 807 | 1,508 | ||
| 1997 | 2,917 | 4,014 | 455 | 7,386 | |
| 1998 | 3,125 | 14,909 | 4,305 | 415 | 22,754 |
| 1999 | 3,444 | 15,166 | 6,285 | 403 | 25,298 |
| 2000 | 3,943 | 15,525 | 7,805 | 598 | 27,871 |
| 2001 | 4,251 | 19,310 | 11,262 | 685 | 35,508 |
| 2002 | 4,678 | 22,207 | 13,396 | 943 | 41,224 |
| 2003 | 5,287 | 23,654 | 13,948 | 1,331 | 44,220 |
Last year was a standout. Float reached record levels and it came without cost as all major segments contributed to Berkshire's \$1.7 billion pre-tax underwriting profit.
Our results have been exceptional for one reason: We have truly exceptional managers. Insurers sell a non-proprietary piece of paper containing a non-proprietary promise. Anyone can copy anyone else's product. No installed base, key patents, critical real estate or natural resource position protects an insurer's competitive position. Typically, brands do not mean much either.
The critical variables, therefore, are managerial brains, discipline and integrity. Our managers have all of these attributes – in spades. Let's take a look at these all-stars and their operations.
- General Re had been Berkshire's problem child in the years following our acquisition of it in 1998. Unfortunately, it was a 400-pound child, and its negative impact on our overall performance was large.
That's behind us: Gen Re is fixed. Thank Joe Brandon, its CEO, and his partner, Tad Montross, for that. When I wrote you last year, I thought that discipline had been restored to both underwriting and reserving, and events during 2003 solidified my view.
That does not mean we will never have setbacks. Reinsurance is a business that is certain to deliver blows from time to time. But, under Joe and Tad, this operation will be a powerful engine driving Berkshire's future profitability.
Gen Re's financial strength, unmatched among reinsurers even as we started 2003, further improved during the year. Many of the company's competitors suffered credit downgrades last year, leaving Gen Re, and its sister operation at National Indemnity, as the only AAA-rated companies among the world's major reinsurers.
When insurers purchase reinsurance, they buy only a promise – one whose validity may not be tested for decades – and there are no promises in the reinsurance world equaling those offered by Gen Re and National Indemnity. Furthermore, unlike most reinsurers, we retain virtually all of the risks we assume. Therefore, our ability to pay is not dependent on the ability or willingness of others to reimburse us. This independent financial strength could be enormously important when the industry experiences the mega-catastrophe it surely will.
- Regular readers of our annual reports know of Ajit Jain's incredible contributions to Berkshire's prosperity over the past 18 years. He continued to pour it on in 2003. With a staff of only 23, Ajit runs one of the world's largest reinsurance operations, specializing in mammoth and unusual risks.
Often, these involve assuming catastrophe risks – say, the threat of a large California earthquake – of a size far greater than any other reinsurer will accept. This means Ajit's results (and Berkshire's) will be lumpy. You should, therefore, expect his operation to have an occasional horrible year. Over time, however, you can be confident of a terrific result from this one-of-a-kind manager.
Ajit writes some very unusual policies. Last year, for example, PepsiCo promoted a drawing that offered participants a chance to win a \$1 billion prize. Understandably, Pepsi wished to lay off this risk, and we were the logical party to assume it. So we wrote a \$1 billion policy, retaining the risk entirely for our own account. Because the prize, if won, was payable over time, our exposure in present-value terms was \$250 million. (I helpfully suggested that any winner be paid \$1 a year for a billion years, but that proposal didn't fly.) The drawing was held on September 14. Ajit and I held our breath, as did the finalist in the contest, and we left happier than he. PepsiCo has renewed for a repeat contest in 2004.
- GEICO was a fine insurance company when Tony Nicely took over as CEO in 1992. Now it is a great one. During his tenure, premium volume has increased from \$2.2 billion to \$8.1 billion, and our share of the personal-auto market has grown from 2.1% to 5.0%. More important, GEICO has paired these gains with outstanding underwriting performance.
(We now pause for a commercial)
It's been 67 years since Leo Goodwin created a great business idea at GEICO, one designed to save policyholders significant money. Go to Geico.com or call 1-800-847-7536 to see what we can do for you.
(End of commercial)
In 2003, both the number of inquiries coming into GEICO and its closure rate on these increased significantly. As a result our preferred policyholder count grew 8.2%, and our standard and non-standard policies grew 21.4%.
GEICO's business growth creates a never-ending need for more employees and facilities. Our most recent expansion, announced in December, is a customer service center in – I'm delighted to say – Buffalo. Stan Lipsey, the publisher of our Buffalo News, was instrumental in bringing the city and GEICO together.
The key figure in this matter, however, was Governor George Pataki. His leadership and tenacity are why Buffalo will have 2,500 new jobs when our expansion is fully rolled out. Stan, Tony, and I – along with Buffalo – thank him for his help.
- Berkshire's smaller insurers had another terrific year. This group, run by Rod Eldred, John Kizer, Tom Nerney, Don Towle and Don Wurster, increased its float by $41\%$ , while delivering an excellent underwriting profit. These men, though operating in unexciting ways, produce truly exciting results.
* * * * * * * * * * * *
We should point out again that in any given year a company writing long-tail insurance (coverages giving rise to claims that are often settled many years after the loss-causing event takes place) can report almost any earnings that the CEO desires. Too often the industry has reported wildly inaccurate figures by misstating liabilities. Most of the mistakes have been innocent. Sometimes, however, they have been intentional, their object being to fool investors and regulators. Auditors and actuaries have usually failed to prevent both varieties of misstatement.
I have failed on occasion too, particularly in not spotting Gen Re's unwitting underreserving a few years back. Not only did that mean we reported inaccurate figures to you, but the error also resulted in our paying very substantial taxes earlier than was necessary. Aaarrggghh. I told you last year, however, that I thought our current reserving was at appropriate levels. So far, that judgment is holding up.
Here are Berkshire's pre-tax underwriting results by segment:
| Gain (Loss) in $ millions | ||
| 2003 | 2002 | |
| Gen Re | $145 | $(1,393) |
| Ajit’s business excluding retroactive contracts | 1,434 | 980 |
| Ajit’s retroactive contracts* | (387) | (433) |
| GEICO | 452 | 416 |
| Other Primary | 74 | 32 |
| Total | $1,718 | $(398) |
*These contracts were explained on page 10 of the 2002 annual report, available on the Internet at www.berkshirehathaway.com. In brief, this segment consists of a few jumbo policies that are likely to produce underwriting losses (which are capped) but also provide unusually large amounts of float.
Regulated Utility Businesses
Through MidAmerican Energy Holdings, we own an 80.5% (fully diluted) interest in a wide variety of utility operations. The largest are (1) Yorkshire Electricity and Northern Electric, whose 3.7 million electric customers make it the third largest distributor of electricity in the U.K.; (2) MidAmerican Energy, which serves 689,000 electric customers in Iowa and; (3) Kern River and Northern Natural pipelines, which carry 7.8% of the natural gas transported in the United States.
Berkshire has three partners, who own the remaining 19.5%: Dave Sokol and Greg Abel, the brilliant managers of the business, and Walter Scott, a long-time friend of mine who introduced me to the company. Because MidAmerican is subject to the Public Utility Holding Company Act (“PUHCA”), Berkshire’s voting interest is limited to 9.9%. Walter has the controlling vote.
Our limited voting interest forces us to account for MidAmerican in our financial statements in an abbreviated manner. Instead of our fully including its assets, liabilities, revenues and expenses in our statements, we record only a one-line entry in both our balance sheet and income account. It’s likely that some day, perhaps soon, either PUHCA will be repealed or accounting rules will change. Berkshire's consolidated figures would then take in all of MidAmerican, including the substantial debt it utilizes.
The size of this debt (which is not now, nor will it be, an obligation of Berkshire) is entirely appropriate. MidAmerican's diverse and stable utility operations assure that, even under harsh economic conditions, aggregate earnings will be ample to very comfortably service all debt.
At yearend, \$1.578 billion of MidAmerican's most junior debt was payable to Berkshire. This debt has allowed acquisitions to be financed without our three partners needing to increase their already substantial investments in MidAmerican. By charging 11% interest, Berkshire is compensated fairly for putting up the funds needed for purchases, while our partners are spared dilution of their equity interests.
MidAmerican also owns a significant non-utility business, Home Services of America, the second largest real estate broker in the country. Unlike our utility operations, this business is highly cyclical, but nevertheless one we view enthusiastically. We have an exceptional manager, Ron Peltier, who, through both his acquisition and operational skills, is building a brokerage powerhouse.
Last year, Home Services participated in \$48.6 billion of transactions, a gain of \$11.7 billion from 2002. About 23% of the increase came from four acquisitions made during the year. Through our 16 brokerage firms – all of which retain their local identities – we employ 16,343 brokers in 16 states. Home Services is almost certain to grow substantially in the next decade as we continue to acquire leading localized operations.
* * * * * * * * * * * *
Here's a tidbit for fans of free enterprise. On March 31, 1990, the day electric utilities in the U.K. were denationalized, Northern and Yorkshire had 6,800 employees in functions these companies continue today to perform. Now they employ 2,539. Yet the companies are serving about the same number of customers as when they were government owned and are distributing more electricity.
This is not, it should be noted, a triumph of deregulation. Prices and earnings continue to be regulated in a fair manner by the government, just as they should be. It is a victory, however, for those who believe that profit-motivated managers, even though they recognize that the benefits will largely flow to customers, will find efficiencies that government never will.
Here are some key figures on MidAmerican's operations:
| Earnings (in $ millions) | ||
| 2003 | 2002 | |
| U.K. Utilities | $289 | $267 |
| Iowa | 269 | 241 |
| Pipelines | 261 | 104 |
| Home Services | 113 | 70 |
| Other (Net) | 144 | 108 |
| Earnings before corporate interest and tax | 1,076 | 790 |
| Corporate Interest, other than to Berkshire | (225) | (192) |
| Interest Payments to Berkshire | (184) | (118) |
| Tax | (251) | (100) |
| Net Earnings | $416 | $380 |
| Earnings Applicable to Berkshire* | $429 | $359 |
| Debt Owed to Others | 10,296 | 10,286 |
| Debt Owed to Berkshire | 1,578 | 1,728 |
*Includes interest paid to Berkshire (net of related income taxes) of \$118 in 2003 and \$75 in 2002.
Finance and Financial Products
This sector includes a wide-ranging group of activities. Here's some commentary on the most important.
- I manage a few opportunistic strategies in AAA fixed-income securities that have been quite profitable in the last few years. These opportunities come and go – and at present, they are going. We sped their departure somewhat last year, thereby realizing 24% of the capital gains we show in the table that follows.
Though far from foolproof, these transactions involve no credit risk and are conducted in exceptionally liquid securities. We therefore finance the positions almost entirely with borrowed money. As the assets are reduced, so also are the borrowings. The smaller portfolio we now have means that in the near future our earnings in this category will decline significantly. It was fun while it lasted, and at some point we'll get another turn at bat.
- A far less pleasant unwinding operation is taking place at Gen Re Securities, the trading and derivatives operation we inherited when we purchased General Reinsurance.
When we began to liquidate Gen Re Securities in early 2002, it had 23,218 outstanding tickets with 884 counterparties (some having names I couldn't pronounce, much less creditworthiness I could evaluate). Since then, the unit's managers have been skillful and diligent in unwinding positions. Yet, at yearend – nearly two years later – we still had 7,580 tickets outstanding with 453 counterparties. (As the country song laments, “How can I miss you if you won’t go away?”)
The shrinking of this business has been costly. We’ve had pre-tax losses of \$173 million in 2002 and \$99 million in 2003. These losses, it should be noted, came from a portfolio of contracts that – in full compliance with GAAP – had been regularly marked-to-market with standard allowances for future credit-loss and administrative costs. Moreover, our liquidation has taken place both in a benign market – we’ve had no credit losses of significance – and in an orderly manner. This is just the opposite of what might be expected if a financial crisis forced a number of derivatives dealers to cease operations simultaneously.
If our derivatives experience – and the Freddie Mac shenanigans of mind-blowing size and audacity that were revealed last year – makes you suspicious of accounting in this arena, consider yourself wised up. No matter how financially sophisticated you are, you can’t possibly learn from reading the disclosure documents of a derivatives-intensive company what risks lurk in its positions. Indeed, the more you know about derivatives, the less you will feel you can learn from the disclosures normally proffered you. In Darwin’s words, “Ignorance more frequently begets confidence than does knowledge.”
* * * * * * * * * * * *
And now it's confession time: I'm sure I could have saved you \$100 million or so, pre-tax, if I had acted more promptly to shut down Gen Re Securities. Both Charlie and I knew at the time of the General Reinsurance merger that its derivatives business was unattractive. Reported profits struck us as illusory, and we felt that the business carried sizable risks that could not effectively be measured or limited. Moreover, we knew that any major problems the operation might experience would likely correlate with troubles in the financial or insurance world that would affect Berkshire elsewhere. In other words, if the derivatives business were ever to need shoring up, it would commandeer the capital and credit of Berkshire at just the time we could otherwise deploy those resources to huge advantage. (A historical note: We had just such an experience in 1974 when we were the victim of a major insurance fraud. We could not determine for some time how much the fraud would ultimately cost us and therefore kept more funds in cash-equivalents than we normally would have.
Absent this precaution, we would have made larger purchases of stocks that were then extraordinarily cheap.)
Charlie would have moved swiftly to close down Gen Re Securities – no question about that. I, however, dithered. As a consequence, our shareholders are paying a far higher price than was necessary to exit this business.
- Though we include Gen Re's sizable life and health reinsurance business in the “insurance” sector, we show the results for Ajit Jain's life and annuity business in this section. That's because this business, in large part, involves arbitraging money. Our annuities range from a retail product sold directly on the Internet to structured settlements that require us to make payments for 70 years or more to people severely injured in accidents.
We've realized some extra income in this business because of accelerated principal payments we received from certain fixed-income securities we had purchased at discounts. This phenomenon has ended, and earnings are therefore likely to be lower in this segment during the next few years.
- We have a \$604 million investment in Value Capital, a partnership run by Mark Byrne, a member of a family that has helped Berkshire over the years in many ways. Berkshire is a limited partner in, and has no say in the management of, Mark's enterprise, which specializes in highly-hedged fixed-income opportunities. Mark is smart and honest and, along with his family, has a significant investment in Value.
Because of accounting abuses at Enron and elsewhere, rules will soon be instituted that are likely to require that Value's assets and liabilities be consolidated on Berkshire's balance sheet. We regard this requirement as inappropriate, given that Value's liabilities – which usually are above \$20 billion – are in no way ours. Over time, other investors will join us as partners in Value. When enough do, the need for us to consolidate Value will disappear.
- We have told you in the past about Berkadia, the partnership we formed three years ago with Leucadia to finance and manage the wind-down of Finova, a bankrupt lending operation. The plan was that we would supply most of the capital and Leucadia would supply most of the brains. And that's the way it has worked. Indeed, Joe Steinberg and Ian Cumming, who together run Leucadia, have done such a fine job in liquidating Finova's portfolio that the \$5.6 billion guarantee we took on in connection with the transaction has been extinguished. The unfortunate byproduct of this fast payoff is that our future income will be much reduced. Overall, Berkadia has made excellent money for us, and Joe and Ian have been terrific partners.
- Our leasing businesses are XTRA (transportation equipment) and CORT (office furniture). Both operations have had poor earnings during the past two years as the recession caused demand to drop considerably more than was anticipated. They remain leaders in their fields, and I expect at least a modest improvement in their earnings this year.
- Through our Clayton purchase, we acquired a significant manufactured-housing finance operation. Clayton, like others in this business, had traditionally securitized the loans it originated. The practice relieved stress on Clayton's balance sheet, but a by-product was the “front-ending” of income (a result dictated by GAAP).
We are in no hurry to record income, have enormous balance-sheet strength, and believe that over the long-term the economics of holding our consumer paper are superior to what we can now realize through securitization. So Clayton has begun to retain its loans.
We believe it's appropriate to finance a soundly-selected book of interest-bearing receivables almost entirely with debt (just as a bank would). Therefore, Berkshire will borrow money to finance Clayton's portfolio and re-lend these funds to Clayton at our cost plus one percentage point. This markup fairly compensates Berkshire for putting its exceptional creditworthiness to work, but it still delivers money to Clayton at an attractive price.
In 2003, Berkshire did \$2 billion of such borrowing and re-lending, with Clayton using much of this money to fund several large purchases of portfolios from lenders exiting the business. A portion of our loans to Clayton also provided “catch-up” funding for paper it had generated earlier in the year from its own operation and had found difficult to securitize.
You may wonder why we borrow money while sitting on a mountain of cash. It's because of our “every tub on its own bottom” philosophy. We believe that any subsidiary lending money should pay an appropriate rate for the funds needed to carry its receivables and should not be subsidized by its parent. Otherwise, having a rich daddy can lead to sloppy decisions. Meanwhile, the cash we accumulate at Berkshire is destined for business acquisitions or for the purchase of securities that offer opportunities for significant profit. Clayton's loan portfolio will likely grow to at least \$5 billion in not too many years and, with sensible credit standards in place, should deliver significant earnings.
For simplicity's sake, we include all of Clayton's earnings in this sector, though a sizable portion is derived from areas other than consumer finance.
| (in $ millions) | ||||
| Pre-Tax Earnings | Interest-bearing Liabilities | |||
| 2003 | 2002 | 2003 | 2002 | |
| Trading – Ordinary Income | $ 379 | $ 553 | $7,826 | $13,762 |
| Gen Re Securities | (99) | (173) | 8,041* | 10,631* |
| Life and annuity operation | 99 | 83 | 2,331 | 1,568 |
| Value Capital | 31 | 61 | 18,238* | 20,359* |
| Berkadia | 101 | 115 | 525 | 2,175 |
| Leasing operations | 34 | 34 | 482 | 503 |
| Manufactured housing finance (Clayton) | 37** | — | 2,032 | — |
| Other | 84 | 102 | 618 | 630 |
| Income before capital gains | 666 | 775 | ||
| Trading – Capital Gains | 1,215 | 578 | N.A. | N.A. |
| Total | $1,881 | $1,353 | ||
* Includes all liabilities
** From date of acquisition, August 7, 2003
Manufacturing, Service and Retailing Operations
Our activities in this category cover the waterfront. But let's look at a simplified balance sheet and earnings statement consolidating the entire group.
Balance Sheet 12/31/03 (in \$ millions)
| Assets | Liabilities and Equity | ||
| Cash and equivalents | $1,250 | Notes payable | $1,593 |
| Accounts and notes receivable | 2,796 | Other current liabilities | 4,300 |
| Inventory | 3,656 | Total current liabilities | 5,893 |
| Other current assets | 262 | ||
| Total current assets | 7,964 | ||
| Goodwill and other intangibles | 8,351 | Deferred taxes | 105 |
| Fixed assets | 5,898 | Term debt and other liabilities | 1,890 |
| Other assets | 1,054 | Equity | 15,379 |
| $23,267 | $23,267 |
Earnings Statement (in \$ millions)
| 2003 | 2002 | |
| Revenues | $32,106 | $16,970 |
| Operating expenses (including depreciation of $605 in 2003 and $477 in 2002) | 29,885 | 14,921 |
| Interest expense (net) | 64 | 108 |
| Pre-tax income | 2,157 | 1,941 |
| Income taxes | 813 | 743 |
| Net income | $1,344 | $1,198 |
This eclectic group, which sells products ranging from Dilly Bars to B-737s, earned a hefty 20.7% on average tangible net worth last year. However, we purchased these businesses at substantial premiums to net worth – that fact is reflected in the goodwill item shown on the balance sheet – and that reduces the earnings on our average carrying value to 9.2%.
Here are the pre-tax earnings for the larger categories or units.
| Pre-Tax Earnings(in $ millions) | ||
| 2003 | 2002 | |
| Building Products | $559 | $516 |
| Shaw Industries | 436 | 424 |
| Apparel | 289 | 229 |
| Retail Operations | 224 | 219 |
| Flight Services | 72 | 225 |
| McLane * | 150 | — |
| Other businesses | 427 | 328 |
| $2,157 | $1,941 | |
* From date of acquisition, May 23, 2003.
- Three of our building-materials businesses – Acme Brick, Benjamin Moore and MiTek – had record operating earnings last year. And earnings at Johns Manville, the fourth, were trending upward at yearend. Collectively, these companies earned 21.0% on tangible net worth.
- Shaw Industries, the world's largest manufacturer of broadloom carpet, also had a record year. Led by Bob Shaw, who built this huge enterprise from a standing start, the company will likely set another earnings record in 2004. In November, Shaw acquired various carpet operations from Dixie Group, which should add about \$240 million to sales this year, boosting Shaw's volume to nearly \$5 billion.
- Within the apparel group, Fruit of the Loom is our largest operation. Fruit has three major assets: a 148-year-old universally-recognized brand, a low-cost manufacturing operation, and John Holland, its CEO. In 2003, Fruit accounted for 42.3% of the men's and boys' underwear that was sold by mass marketers (Wal-Mart, Target, K-Mart, etc.) and increased its share of the women's and girls' business in that channel to 13.9%, up from 11.3% in 2002.
- In retailing, our furniture group earned \$106 million pre-tax, our jewelers \$59 million and See's, which is both a manufacturer and retailer, \$59 million.
Both R.C. Willey and Nebraska Furniture Mart (“NFM”) opened hugely successful stores last year, Willey in Las Vegas and NFM in Kansas City, Kansas. Indeed, we believe the Kansas City store is the country’s largest-volume home-furnishings store. (Our Omaha operation, while located on a single plot of land, consists of three units.)
NFM was founded by Rose Blumkin (“Mrs. B”) in 1937 with \$500. She worked until she was 103 (hmmm . . . not a bad idea). One piece of wisdom she imparted to the generations following her was, “If you have the lowest price, customers will find you at the bottom of a river.” Our store serving greater Kansas City, which is located in one of the area’s more sparsely populated parts, has proved Mrs. B’s point. Though we have more than 25 acres of parking, the lot has at times overflowed.
“Victory,” President Kennedy told us after the Bay of Pigs disaster, “has a thousand fathers, but defeat is an orphan.” At NFM, we knew we had a winner a month after the boffo opening in Kansas City, when our new store attracted an unexpected paternity claim. A speaker there, referring to the Blumkin family, asserted, “They had enough confidence and the policies of the Administration were working such that they were able to provide work for 1,000 of our fellow citizens.” The proud papa at the podium? President George W. Bush.
- In flight services, FlightSafety, our training operation, experienced a drop in “normal” operating earnings from \$183 million to \$150 million. (The abnormals: In 2002 we had a \$60 million pre-tax gain from the sale of a partnership interest to Boeing, and in 2003 we recognized a \$37 million loss stemming from the premature obsolescence of simulators.) The corporate aviation business has slowed significantly in the past few years, and this fact has hurt FlightSafety’s results. The company continues, however, to be far and away the leader in its field. Its simulators have an original cost of \$1.2 billion, which is more than triple the cost of those operated by our closest competitor.
NetJets, our fractional-ownership operation lost \$41 million pre-tax in 2003. The company had a modest operating profit in the U.S., but this was more than offset by a \$32 million loss on aircraft inventory and by continued losses in Europe.
NetJets continues to dominate the fractional-ownership field, and its lead is increasing: Prospects overwhelmingly turn to us rather than to our three major competitors. Last year, among the four of us, we accounted for 70% of net sales (measured by value).
An example of what sets NetJets apart from competitors is our Mayo Clinic Executive Travel Response program, a free benefit enjoyed by all of our owners. On land or in the air, anywhere in the world and at any hour of any day, our owners and their families have an immediate link to Mayo. Should an emergency occur while they are traveling here or abroad, Mayo will instantly direct them to an appropriate doctor or hospital. Any baseline data about the patient that Mayo possesses is simultaneously made available to the treating physician. Many owners have already found this service invaluable, including one who needed emergency brain surgery in Eastern Europe.
The \$32 million inventory write-down we took in 2003 occurred because of falling prices for used aircraft early in the year. Specifically, we bought back fractions from withdrawing owners at prevailing prices, and these fell in value before we were able to remarket them. Prices are now stable.
The European loss is painful. But any company that forsakes Europe, as all of our competitors have done, is destined for second-tier status. Many of our U.S. owners fly extensively in Europe and want the safety and security assured by a NetJets plane and pilots. Despite a slow start, furthermore, we are now adding European customers at a good pace. During the years 2001 through 2003, we had gains of 88%, 61% and 77% in European management-and-flying revenues. We have not, however, yet succeeded in stemming the flow of red ink.
Rich Santulli, NetJets' extraordinary CEO, and I expect our European loss to diminish in 2004 and also anticipate that it will be more than offset by U.S. profits. Overwhelmingly, our owners love the NetJets experience. Once a customer has tried us, going back to commercial aviation is like going back to holding hands. NetJets will become a very big business over time and will be one in which we are preeminent in both customer satisfaction and profits. Rich will see to that.
Investments
The table that follows shows our common stock investments. Those that had a market value of more than \$500 million at the end of 2003 are itemized.
| Shares | Company | Percentage of Company Owned | 12/31/03 | |
| Cost(in $ millions) | Market | |||
| 151,610,700 | American Express Company | 11.8 | $ 1,470 | $ 7,312 |
| 200,000,000 | The Coca-Cola Company | 8.2 | 1,299 | 10,150 |
| 96,000,000 | The Gillette Company | 9.5 | 600 | 3,526 |
| 14,610,900 | H&R Block, Inc | 8.2 | 227 | 809 |
| 15,476,500 | HCA Inc. | 3.1 | 492 | 665 |
| 6,708,760 | M&T Bank Corporation | 5.6 | 103 | 659 |
| 24,000,000 | Moody’s Corporation | 16.1 | 499 | 1,453 |
| 2,338,961,000 | PetroChina Company Limited | 1.3 | 488 | 1,340 |
| 1,727,765 | The Washington Post Company | 18.1 | 11 | 1,367 |
| 56,448,380 | Wells Fargo & Company | 3.3 | 463 | 3,324 |
| Others | 2,863 | 4,682 | ||
| Total Common Stocks | $ 8,515 | $35,287 | ||
We bought some Wells Fargo shares last year. Otherwise, among our six largest holdings, we last changed our position in Coca-Cola in 1994, American Express in 1998, Gillette in 1989, Washington Post in 1973, and Moody's in 2000. Brokers don't love us.
We are neither enthusiastic nor negative about the portfolio we hold. We own pieces of excellent businesses – all of which had good gains in intrinsic value last year – but their current prices reflect their excellence. The unpleasant corollary to this conclusion is that I made a big mistake in not selling several of our larger holdings during The Great Bubble. If these stocks are fully priced now, you may wonder what I was thinking four years ago when their intrinsic value was lower and their prices far higher. So do I.
In 2002, junk bonds became very cheap, and we purchased about \$8 billion of these. The pendulum swung quickly though, and this sector now looks decidedly unattractive to us. Yesterday's weeds are today being priced as flowers.
We've repeatedly emphasized that realized gains at Berkshire are meaningless for analytical purposes. We have a huge amount of unrealized gains on our books, and our thinking about when, and if, to cash them depends not at all on a desire to report earnings at one specific time or another. Nevertheless, to see the diversity of our investment activities, you may be interested in the following table, categorizing the gains we reported during 2003:
| Category | Pre-Tax Gain(in $ million) |
| Common Stocks | $448 |
| U.S. Government Bonds | 1,485 |
| Junk Bonds | 1,138 |
| Foreign Exchange Contracts | 825 |
| Other | 233 |
| $4,129 |
The common stock profits occurred around the edges of our portfolio – not, as we already mentioned, from our selling down our major positions. The profits in governments arose from our liquidation of long-term strips (the most volatile of government securities) and from certain strategies I follow within our finance and financial products division. We retained most of our junk portfolio, selling only a few issues. Calls and maturing bonds accounted for the rest of the gains in the junk category.
During 2002 we entered the foreign currency market for the first time in my life, and in 2003 we enlarged our position, as I became increasingly bearish on the dollar. I should note that the cemetery for seers has a huge section set aside for macro forecasters. We have in fact made few macro forecasts at Berkshire, and we have seldom seen others make them with sustained success.
We have – and will continue to have – the bulk of Berkshire’s net worth in U.S. assets. But in recent years our country’s trade deficit has been force-feeding huge amounts of claims on, and ownership in, America to the rest of the world. For a time, foreign appetite for these assets readily absorbed the supply. Late in 2002, however, the world started choking on this diet, and the dollar’s value began to slide against major currencies. Even so, prevailing exchange rates will not lead to a material letup in our trade deficit. So whether foreign investors like it or not, they will continue to be flooded with dollars. The consequences of this are anybody’s guess. They could, however, be troublesome – and reach, in fact, well beyond currency markets.
As an American, I hope there is a benign ending to this problem. I myself suggested one possible solution – which, incidentally, leaves Charlie cold – in a November 10, 2003 article in Fortune Magazine. Then again, perhaps the alarms I have raised will prove needless: Our country’s dynamism and resiliency have repeatedly made fools of naysayers. But Berkshire holds many billions of cash-equivalents denominated in dollars. So I feel more comfortable owning foreign-exchange contracts that are at least a partial offset to that position.
These contracts are subject to accounting rules that require changes in their value to be contemporaneously included in capital gains or losses, even though the contracts have not been closed. We show these changes each quarter in the Finance and Financial Products segment of our earnings statement. At yearend, our open foreign exchange contracts totaled about \$12 billion at market values and were spread among five currencies. Also, when we were purchasing junk bonds in 2002, we tried when possible to buy issues denominated in Euros. Today, we own about \$1 billion of these.
When we can't find anything exciting in which to invest, our “default” position is U.S. Treasuries, both bills and repos. No matter how low the yields on these instruments go, we never “reach” for a little more income by dropping our credit standards or by extending maturities. Charlie and I detest taking even small risks unless we feel we are being adequately compensated for doing so. About as far as we will go down that path is to occasionally eat cottage cheese a day after the expiration date on the carton.
* * * * * * * * * * *
A 2003 book that investors can learn much from is Bull! by Maggie Mahar. Two other books I'd recommend are The Smartest Guys in the Room by Bethany McLean and Peter Elkind, and In an Uncertain World by Bob Rubin. All three are well-reported and well-written. Additionally, Jason Zweig last year did a first-class job in revising The Intelligent Investor, my favorite book on investing.
Designated Gifts Program
From 1981 through 2002, Berkshire administered a program whereby shareholders could direct Berkshire to make gifts to their favorite charitable organizations. Over the years we disbursed \$197 million pursuant to this program. Churches were the most frequently named designees, and many thousands of other organizations benefited as well. We were the only major public company that offered such a program to shareholders, and Charlie and I were proud of it.
We reluctantly terminated the program in 2003 because of controversy over the abortion issue. Over the years numerous organizations on both sides of this issue had been designated by our shareholders to receive contributions. As a result, we regularly received some objections to the gifts designated for pro-choice operations. A few of these came from people and organizations that proceeded to boycott products of our subsidiaries. That did not concern us. We refused all requests to limit the right of our owners to make whatever gifts they chose (as long as the recipients had 501(c)(3) status).
In 2003, however, many independent associates of The Pampered Chef began to feel the boycotts. This development meant that people who trusted us – but who were neither employees of ours nor had a voice in Berkshire decision-making – suffered serious losses of income.
For our shareholders, there was some modest tax efficiency in Berkshire doing the giving rather than their making their gifts directly. Additionally, the program was consistent with our “partnership” approach, the first principle set forth in our Owner’s Manual. But these advantages paled when they were measured against damage done loyal associates who had with great personal effort built businesses of their own. Indeed, Charlie and I see nothing charitable in harming decent, hard-working people just so we and other shareholders can gain some minor tax efficiencies.
Berkshire now makes no contributions at the parent company level. Our various subsidiaries follow philanthropic policies consistent with their practices prior to their acquisition by Berkshire, except that any personal contributions that former owners had earlier made from their corporate pocketbook are now funded by them personally.
The Annual Meeting
Last year, I asked you to vote as to whether you wished our annual meeting to be held on Saturday or Monday. I was hoping for Monday. Saturday won by 2 to 1. It will be a while before shareholder democracy resurfaces at Berkshire.
But you have spoken, and we will hold this year's annual meeting on Saturday, May 1 at the new Qwest Center in downtown Omaha. The Qwest offers us 194,000 square feet for exhibition by our subsidiaries (up from 65,000 square feet last year) and much more seating capacity as well. The Qwest's doors will open at 7 a.m., the movie will begin at 8:30, and the meeting itself will commence at 9:30. There will be a short break at noon for food. (Sandwiches will be available at the Qwest's concession stands.) That interlude aside, Charlie and I will answer questions until 3:30. We will tell you everything we know . . . and, at least in my case, more.
An attachment to the proxy material that is enclosed with this report explains how you can obtain the credential 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. They do a terrific job for us each year, and I thank them for it.
In our usual fashion, we will run vans from the larger hotels to the meeting. Afterwards, the vans 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.
Our exhibition of Berkshire goods and services will blow you away this year. On the floor, for example, will be a 1,600 square foot Clayton home (featuring Acme brick, Shaw carpet, Johns-Manville insulation, MiTek fasteners, Carefree awnings, and outfitted with NFM furniture). You'll find it a far cry from the mobile-home stereotype of a few decades ago.
GEICO will have a booth staffed by a number of its top counselors from around the country, all of them ready to supply you with auto insurance quotes. In most cases, GEICO will be able to give you a special shareholder discount (usually 8%). This special offer is permitted by 41 of the 49 jurisdictions in which we operate. Bring the details of your existing insurance and check out whether we can save you money.
On Saturday, at the Omaha airport, we will have the usual array of aircraft from NetJets® available for your inspection. Stop by the NetJets booth at the Qwest to learn about viewing these planes. If you buy what we consider an appropriate number of items during the weekend, you may well need your own plane to take them home.
At Nebraska Furniture Mart, located on a 77-acre site on 72 $^{nd}$ Street between Dodge and Pacific, we will again be having “Berkshire Weekend” pricing, which means we will be offering our shareholders a discount that is customarily given only to employees. We initiated this special pricing at NFM seven years ago, and sales during the “Weekend” grew from \$5.3 million in 1997 to \$17.3 million in 2003. Every year has set a new record.
To get the discount, you must make your purchases between Thursday, April 29 and Monday, May 3 inclusive, and also present your meeting credential. The period's special pricing will even apply to the products of several prestigious manufacturers that normally have ironclad rules against discounting but that, in the spirit of our shareholder weekend, have made an exception for you. We appreciate their cooperation. NFM is open from 10 a.m. to 9 p.m. Monday through Saturday, and 10 a.m. to 6 p.m. on Sunday. On Saturday this year, from 5:30 p.m. to 8 p.m., we are having a special affair for shareholders only. I'll be there, eating barbeque and drinking Coke.
Borsheim's — the largest jewelry store in the country except for Tiffany's Manhattan store — will have two shareholder-only events. The first will be a cocktail reception from 6 p.m. to 10 p.m. on Friday, April 30. The second, the main gala, will be from 9 a.m. to 4 p.m. on Sunday, May 2. Ask Charlie to autograph your sales ticket.
Shareholder prices will be available Thursday through Monday, so if you wish to avoid the large crowds that will assemble on Friday evening and Sunday, come at other times and identify yourself as a shareholder. On Saturday, we will be open until 6 p.m. Borsheim's operates on a gross margin that is fully twenty percentage points below that of its major rivals, so the more you buy, the more you save – at least that's what my wife and daughter tell me. (Both were impressed early in life by the story of the boy who, after missing a street car, walked home and proudly announced that he had saved 5¢ by doing so. His father was irate: "Why didn't you miss a cab and save 85¢?")
In the mall outside of Borsheim's, we will have Bob Hamman and Sharon Osberg, two of the world's top bridge experts, available to play with our shareholders on Sunday afternoon. Additionally, Patrick Wolff, twice U.S. chess champion, will be in the mall, taking on all comers — blindfolded! I've watched, and he doesn't peek.
Gorat's — my favorite steakhouse — will again be open exclusively for Berkshire shareholders on Sunday, May 2, and will be serving from 4 p.m. until 10 p.m. Please remember that to come to Gorat's on Sunday, you must have a reservation. To make one, call 402-551-3733 on April 1 (but not before). If Sunday is sold out, try Gorat's on one of the other evenings you will be in town. Flaunt your mastery of fine dining by ordering, as I do, a rare T-bone with a double order of hash browns.
We will have a special reception on Saturday afternoon from 4:00 to 5:00 for shareholders who come from outside of North America. Every year our meeting draws many people from around the globe, and Charlie and I want to be sure we personally meet those who have come so far. Any shareholder who comes from other than the U.S. or Canada will be given special credentials and instructions for attending this function.
Charlie and I have a great time at the annual meeting. And you will, too. So join us at the Qwest for our annual Woodstock for Capitalists.
February 27, 2004
Warren E. Buffett
Chairman of the Board
说明：下表出现在印刷版年报的董事长信函对面页，并在该信函中被引用。
伯克希尔公司业绩 vs. 标普500
| 年份 | 伯克希尔每股账面价值年度百分比变化 (1) | 标普500含股息年度百分比变化 (2) | 相对业绩 (1)-(2) | |
|---|---|---|---|---|
| 1965 | ...... | 23.8 | 10.0 | 13.8 |
| 1966 | ...... | 20.3 | (11.7) | 32.0 |
| 1967 | ...... | 11.0 | 30.9 | (19.9) |
| 1968 | ...... | 19.0 | 11.0 | 8.0 |
| 1969 | ...... | 16.2 | (8.4) | 24.6 |
| 1970 | ...... | 12.0 | 3.9 | 8.1 |
| 1971 | ...... | 16.4 | 14.6 | 1.8 |
| 1972 | ...... | 21.7 | 18.9 | 2.8 |
| 1973 | ...... | 4.7 | (14.8) | 19.5 |
| 1974 | ...... | 5.5 | (26.4) | 31.9 |
| 1975 | ...... | 21.9 | 37.2 | (15.3) |
| 1976 | ...... | 59.3 | 23.6 | 35.7 |
| 1977 | ...... | 31.9 | (7.4) | 39.3 |
| 1978 | ...... | 24.0 | 6.4 | 17.6 |
| 1979 | ...... | 35.7 | 18.2 | 17.5 |
| 1980 | ...... | 19.3 | 32.3 | (13.0) |
| 1981 | ...... | 31.4 | (5.0) | 36.4 |
| 1982 | ...... | 40.0 | 21.4 | 18.6 |
| 1983 | ...... | 32.3 | 22.4 | 9.9 |
| 1984 | ...... | 13.6 | 6.1 | 7.5 |
| 1985 | ...... | 48.2 | 31.6 | 16.6 |
| 1986 | ...... | 26.1 | 18.6 | 7.5 |
| 1987 | ...... | 19.5 | 5.1 | 14.4 |
| 1988 | ...... | 20.1 | 16.6 | 3.5 |
| 1989 | ...... | 44.4 | 31.7 | 12.7 |
| 1990 | ...... | 7.4 | (3.1) | 10.5 |
| 1991 | ...... | 39.6 | 30.5 | 9.1 |
| 1992 | ...... | 20.3 | 7.6 | 12.7 |
| 1993 | ...... | 14.3 | 10.1 | 4.2 |
| 1994 | ...... | 13.9 | 1.3 | 12.6 |
| 1995 | ...... | 43.1 | 37.6 | 5.5 |
| 1996 | ...... | 31.8 | 23.0 | 8.8 |
| 1997 | ...... | 34.1 | 33.4 | .7 |
| 1998 | ...... | 48.3 | 28.6 | 19.7 |
| 1999 | ...... | .5 | 21.0 | (20.5) |
| 2000 | ...... | 6.5 | (9.1) | 15.6 |
| 2001 | ...... | (6.2) | (11.9) | 5.7 |
| 2002 | ...... | 10.0 | (22.1) | 32.1 |
| 2003 | ...... | 21.0 | 28.7 | (7.7) |
| 平均年化收益率 — 1965-2003 | 22.2 | 10.4 | 11.8 | |
| 总收益率 — 1964-2003 | 259,485 | 4,743 |
注：数据按日历年度计算，但1965和1966年为截至9月30日的财年；1967年为截至12月31日的15个月。
自1979年起，会计准则要求保险公司按市值而非原先的成本与市价孰低法来评估其持有的权益证券。在本表中，伯克希尔1978年之前的业绩已重新表述以符合变更后的规则。其他方面，所有业绩均按最初报告的数据计算。
标普500的回报率为税前数据，而伯克希尔的回报率为税后数据。如果像伯克希尔这样的公司简单持有标普500指数并计提相应税款，其业绩在指数上涨年份将落后于标普500，但在指数下跌年份则会超过标普500。长期来看，税收成本将使累计落后幅度相当可观。
伯克希尔·哈撒韦公司
致伯克希尔·哈撒韦公司股东：
2003年，我们的净资产增加了136亿美元，这使得我们的A类股和B类股的每股账面价值均增长了21%。在过去39年中（即自现任管理层接管以来），每股账面价值已从19美元增长至50,498美元，年复合增长率为22.2%。*
然而，重要的是每股内在价值，而非账面价值。好消息是：在1964年至2003年间，伯克希尔从一家内在价值低于账面价值的苦苦挣扎的北方纺织企业，蜕变为一家内在价值远超账面价值的多元化企业集团。因此，我们这39年内在价值的增长幅度略高于账面价值22.2%的增长。（欲更深入了解内在价值，以及指导查理·芒格——我的合伙人兼伯克希尔副董事长——和我在经营伯克希尔时的经济原则，请阅读我们第69页开始的《所有者手册》。）
尽管存在缺陷，但在伯克希尔，账面价值计算作为一个稍微保守的指标，在衡量我们内在价值的长期增长率方面依然有用。不过，用它来评估单一年度相对于标普500指数的表现（我们在对面一页展示了这一对比），其相关性已不如从前。我们的权益证券持仓（包括可转换优先股）占净资产的比例已大幅下降，例如，从1980年代平均114%降至2000-03年间的平均50%。因此，股市的年度波动如今对我们净资产的影响比过去小得多。
尽管如此，伯克希尔相对于标普500指数的长期表现依然至关重要。我们的股东可以通过指数基金以极低的成本投资标普500。除非我们未来在每股内在价值上的增长能够超越标普500的表现，否则查理和我将无法为您自行实现的目标增添任何价值。
如果我们失败了，我们不会有任何借口。查理和我在一个理想的环境中运作。首先，我们得到了一个由卓越人才组成的团队的支持，他们管理着我们的运营子公司。如果有一个企业界的库珀斯敦名人堂，其名单上肯定会有我们许多CEO的名字。伯克希尔的任何业绩不足都不会是经理人的过错。
此外，我们享有罕见的管理自由。大多数公司都背负着制度性约束。例如，公司的历史可能将其局限于一个机会有限的行业。更常见的问题是，股东群体向其经理施压，要求其顺应华尔街的节拍起舞。许多CEO会抵制，但另一些则屈服了，并采取与他们独自决策时大相径庭的经营和资本配置政策。
在伯克希尔，无论是历史还是所有者的要求，都不会妨碍我们做出明智的决策。当查理和我犯错时——用网球术语来说——那是非受迫性失误。
经营利润
当估值相近时，我们强烈倾向于拥有企业而非持有股票。但在我们经营的大部分年份里，股票一直是便宜得多的选择。因此，那些年份我们大幅将资产配置向股票倾斜，正如前面提到的百分比所显示的那样。
然而近年来，我们很难找到明显低估的股票，而我们必须部署的资金规模急剧膨胀，更是让这一难度雪上加霜。如今，能够以足够大的体量买入、从而在伯克希尔业绩上引起变化的股票数量，仅为十年前存在数量的一个零头。（投资经理们从堆积资产中获得的收益，往往远高于从妥善管理这些资产中获得的收益。所以，当有人告诉你增加资金不会损害他的投资业绩时，请后退一步：他的鼻子快要变长了。）
我们找不到足够多定价诱人、可以投入大资金量的股票，这一点并不会困扰我们，只要我们能找到可以收购的企业，且这些企业（1）拥有有利且持久的经济特征；（2）由才华横溢且诚实正直的管理者经营；（3）价格合理。近年来我们收购了不少这样的企业，尽管还不足以完全吸纳涌向我们的现金喷涌。在购买企业的过程中，我犯过一些可怕的错误，既有作为的错，也有不作为的错。但总体而言，我们的收购带来了每股收益的可观增长。
下面这张表量化了这一观点。但首先我们得提醒你，增长率展示可能会因刻意选择起始年份或终止年份而严重失真。例如，如果起始年份的收益微不足道，那么一个平庸的长期业绩也能被包装得令人瞩目。这种失真可能源于公司在基年规模极小——这意味着只有少数内部人士事实上受益于所吹嘘的业绩——或者源于一家较大的公司当时仅勉强盈亏平衡。选择一个特别繁荣的终止年份也会让增长率的计算结果偏向有利。
伯克希尔·哈撒韦现任管理层于1965年接管时，它早已是一家规模可观的公司。但1964年，公司仅盈利175,586美元，合每股15美分，接近盈亏平衡点，因此以那个基数为起点计算任何增长率都毫无意义。不过在那个年代，就连这点微薄的收益看起来也算不错：自1955年伯克希尔精纺联合公司和哈撒韦制造公司合并后的十年里，合并后的企业累计亏损1,010万美元，数千名员工被解雇。这并非天作之合。
在此背景下，我们向您展示一张从1968年开始的伯克希尔每股收益增长图，但也包含了此后每隔五年的后续基年数据。我们提供了一系列计算结果，以便您自行判断哪个时间段最有意义。我从1968年开始，因为那是我们运营国民保险公司的第一个完整年度，也是我们开始扩张伯克希尔业务时所进行的第一笔收购。
我不认为以2003年作为终止年份会扭曲我们的计算。那一年我们的保险业务表现出色，但由此带来的收益大幅增长，在很大程度上被我们持有的大量现金等价物所赚取的可怜低利率所抵消（这种情况不会持续）。需要注意的是，下面列出的所有数字均不包括资本利得。
| 年份 | 经营利润（百万美元） | 每股经营利润（美元） | 后续每股收益复合增长率 |
|------|-------------------|-------------------|-------------------|
| 1964 | 0.2 | 0.15 | 无意义（1964-2003） |
| 1968 | 2.7 | 2.69 | 22.8%（1968-2003） |
| 1973 | 11.9 | 12.18 | 20.8%（1973-2003） |
| 1978 | 30.0 | 29.15 | 21.1%（1978-2003） |
| 1983 | 48.6 | 45.60 | 24.3%（1983-2003） |
| 1988 | 313.4 | 273.37 | 18.6%（1988-2003） |
| 1993 | 477.8 | 413.19 | 23.9%（1993-2003） |
| 1998 | 1,277.0 | 1,020.49 | 28.2%（1998-2003） |
| 2003 | 5,422.0 | 3,531.32 | |
我们将继续沿用过去的资本配置做法。如果股票变得比整个企业便宜得多，我们就会大举买入。如果特定债券变得有吸引力——就像2002年那样——我们又会重仓这些证券。无论市场或经济形势如何，只要符合我们标准的企业，我们都乐意买下。而那些符合标准的，越大越好。目前我们的资本利用不足，但这种情况隔段时间就会出现。这种处境很痛苦——但总比干蠢事好受些。（我是有切身体会的。）
总体而言，我们确信伯克希尔未来的业绩将远不及过去。不过，查理和我仍然抱有希望，相信我们能交出略高于平均水平的成绩单。这就是我们拿薪酬的理由。
收购
老读者都知道，我们的收购常常以奇怪的方式促成。不过，去年我们对Clayton Homes（克莱顿住宅）的收购，其起源之非同寻常，无出其右。
这个不可思议的来源，是田纳西大学的一群金融系学生，以及他们的老师Al Auxier（阿尔·奥西尔）博士。过去五年，Al都会带他的班级来奥马哈，参观Nebraska Furniture Mart（内布拉斯加家具城）和Borsheim's（波仙珠宝店），在Gorat's（戈拉特牛排馆）吃顿饭，然后到Kiewit Plaza（基威特广场）和我座谈。通常有40名学生参加。
两小时的问答互动后，按惯例学生会送我一份答谢礼物。（门会一直锁着，直到他们拿出来。）往年送过Phil Fulmer（菲尔·富尔默）签名的橄榄球，还有田纳西大学著名女子篮球队的篮球。
今年二月，他们选择了一本书——幸运的是我——最近刚出版的Jim Clayton（吉姆·克莱顿）自传，他是Clayton Homes（克莱顿住宅）的创始人。我早已知晓这家公司是预制住宅行业的翘楚，这个认知源于我之前犯的一个错误：我买入了该行业最大公司之一Oakwood Homes（奥克伍德住宅）的不良垃圾债。买入时，我并不了解整个预制住宅行业中消费信贷做法变得多么恶劣。但我学到了教训：奥克伍德很快就破产了。
需要强调一点：预制住宅能为购房者提供很好的价值。事实上，几十年来，该行业在美国新建住宅中占比超过15%。而且，这些年间，预制住宅的品质和种类都在不断提高。
然而，设计与建造方面的进步，并没能带来分销与融资上的同步改善。相反，随着时间推移，这个行业的商业模式越来越依赖于零售商和制造商将糟糕的贷款甩给天真的放贷人。上世纪90年代，“证券化”开始流行，进一步拉大了资金提供者与贷款交易之间的距离，行业行为也从此每况愈下。几年前，行业中的大量交易都来自不该买房的买家，由不该放贷的放贷人提供融资。结果就是大量的房屋被收回，以及被收回资产极低的回收率。
Oakwood 完全参与了这场疯狂。但 Clayton，尽管无法完全脱离行业惯例，其表现却比主要竞争对手好得多。
收到 Jim Clayton 的书后，我向那些学生表达了我对他业绩的钦佩之情，他们把这个消息带回了诺克斯维尔——田纳西大学和 Clayton Homes 的所在地。Al 随后建议我直接给 Jim 的儿子、Clayton 的 CEO Kevin Clayton 打电话，表达我的看法。在与 Kevin 交谈时，我很快就发现他既有能力，又是个直来直去的人。
此后不久，我仅仅根据 Jim 的书、我对 Kevin 的判断、Clayton 的公开财报以及我从 Oakwood 经历中学到的东西，就向这家企业发出了收购要约。Clayton 的董事会对此表示欢迎，因为他们明白，Clayton 未来所需的大规模融资可能很难获得。放贷人已经逃离了这个行业，而证券化即使可行，其条款也比以前昂贵和严苛得多。这种收紧对 Clayton 尤其严重，因为它的盈利在很大程度上依赖于证券化。
如今，移动房屋行业依然问题重重。拖欠率居高不下，被收回的房屋依然大量存在，零售商的数目已经减半。我们需要一种不同的商业模式，一种能够消除零售商和销售员通过促成注定违约的贷款销售来预先赚取大笔金钱能力的模式。这样的交易会给买家和放贷人都带来困难，并导致大量房屋被收回，进而压低新房屋的销售。在合理的模式下——一种要求大额首付和较短贷款期限的模式——这个行业的规模很可能仍将远小于上世纪90年代的水平。但它将为购房者提供一项在转售时能拥有权益、而非失望的资产。
兜了一圈之后，Clayton 已同意收购 Oakwood 的资产。交易完成后，Clayton 的制造能力、地理覆盖范围和销售渠道将大幅提升。作为副产品，我们以大幅折价买入的 Oakwood 债务，很可能也会为我们带来微薄利润。
至于那些学生？10月份，我们在诺克斯维尔为那40名引发我对 Clayton 兴趣的学生举办了一场意外的“毕业典礼”。我戴上学位帽，向每位学生颁发了伯克希尔的“博士”（杰出勤奋的交易撮合者）学位，以及一股 B 类股。Al 得到了一股 A 类股。如果在年会上遇到这些田纳西州的新股东，请代我向他们致谢。顺便问问他们最近有没有读什么好书。
早春时节，高盛的董事总经理 Byron Trott 告诉我，沃尔玛想出售其 McLane 子公司。McLane 向便利店、药店、会员制批发俱乐部、大型超市、快餐店、影院等机构分销食品杂货和非食品类商品。这是一门好生意，但不符合沃尔玛未来的主流方向。不过，它对我们来说却是量身定做的。
麦克莱恩（McLane）的年销售额约为230亿美元，但利润率极薄——税前利润率仅1%左右——它将使伯克希尔的销售额数据大幅膨胀，远超对我们利润的贡献。过去，有些零售商曾回避麦克莱恩，因为它曾被其主要竞争对手所拥有。麦克莱恩的杰出CEO Grady Rosier已经拿下了其中一部分客户——他在交易完成当天就全力以赴——而且后续还将有更多客户。
几年来，在《财富》杂志的“最受尊敬”公司评选中，我一直投票给沃尔玛。我们的麦克莱恩交易更加坚定了我的看法。为了完成这笔交易，我与沃尔玛CFO Tom Schoewe单独会面了大约两小时，然后我们握手成交。（不过，他确实先给本顿维尔打了电话。）29天后，沃尔玛就收到了钱。我们没有做任何“尽职调查”。我们知道一切都会和沃尔玛所说的一模一样——事实也确实如此。
我还应该补充一点，Byron在伯克希尔的三次收购中都发挥了重要作用。他对伯克希尔的理解远胜于我们谈过的任何投资银行家——虽然这么说让我心痛——但他确实挣到了他的佣金。我期待着第四笔交易（我确信他也一样）。
税收
2003年5月20日，我在《华盛顿邮报》发表了一篇专栏文章，批评布什的税收提案。13天后，美国财政部负责税收政策的助理部长Pamela Olson就新税法发表演讲时说：“这意味着，那位中西部智者——必须指出，他像拉小提琴一样玩弄税法——仍然可以安全地保留他所有的收入。”我想她指的是我。
唉，我的“小提琴演奏”并不能让我登上卡内基音乐厅——甚至不能让我参加高中演奏会。伯克希尔，代表你和我，将为2003年的利润向财政部缴纳33亿美元税款，这一金额相当于2003财年所有美国公司缴纳的所得税总额的2.5%。（相比之下，伯克希尔的市场估值大约只占所有美国公司市值的1%。）我们的纳税额几乎肯定会使我们跻身美国纳税额最高的前十名。事实上，如果只有540个纳税人缴纳伯克希尔将缴纳的税额，那么其他任何个人或公司就无需向山姆大叔缴纳一分钱。没错：2.9亿美国人和所有其他企业都不必向联邦政府缴纳一分钱的所得税、社保税、消费税或遗产税。（算一下：2003财年联邦税收收入，包括社保收入，总计1.782万亿美元；540个“伯克希尔”，每个缴纳33亿美元，正好凑齐1.782万亿美元。）
我们2002年的联邦纳税申报表（2003年的尚未最终确定），当时我们缴纳了17.5亿美元，仅用了8,905页纸。按要求，我们尽职尽责地提交了两份副本，堆起来有七英尺高。总部这边，我们15.8人的小团队虽然筋疲力尽，但一时间自豪感油然而生：我们觉得，伯克希尔毫无疑问为国家财政分担了自己的一份。
但Olson女士不这么看。如果这意味着查理和我需要更加努力，我们已做好准备。
不过，我真心希望Olson女士能对我已经取得的进步给予一些肯定。1944年，我提交了第一份1040税表，报告我作为13岁送报员的收入。那份申报表只有三页。在扣除了相应的业务支出（比如35美元的自行车）后，我的税单是7美元。我把支票寄给了财政部，对方——二话不说——立刻兑了现。我们相安无事。
我能理解为什么财政部现在对美国企业界感到失望且容易发火。但它应该向国会和行政部门寻求补救，而不是针对伯克希尔。
2003财年，公司所得税占联邦税收总额的7.4%，远低于1952年32%的战后峰值。除1983年外，去年的这一比例是自1934年有数据记录以来的最低水平。
即便如此，政府对公司（及其投资者，尤其是大投资者）的税收减免，仍是2002年和2003年政府经济刺激计划的重要组成部分。如果说美国正在打一场阶级斗争，那我的阶级显然赢了。如今，许多大公司的CEO——他们拉琴的本事会让你觉得你们的董事长简直笨手笨脚——实际缴纳的税款远低于35%的法定联邦税率。
1985年，伯克希尔缴纳了1.32亿美元的联邦所得税，而所有公司共缴纳了610亿美元。1995年，这两个数字分别为2.86亿美元和1570亿美元。而如前所述，我们2003年将缴纳约33亿美元，当年所有公司共缴纳1320亿美元。我们希望未来我们的税款继续增加——这意味着我们生意兴隆——但我们也希望美国其他公司能和我们一起加注。这或许值得Olson女士研究研究。
公司治理
要判断美国企业界是否真心改革，CEO薪酬仍然是试金石。到目前为止，结果并不令人鼓舞。少数CEO，比如通用电气的Jeff Immelt，率先推出了对管理层和股东都公平的薪酬方案。但总的来说，他的榜样被钦佩的多，效仿的少。
薪酬失控的原因不难理解。当管理层雇佣员工，或公司与供应商谈判时，谈判桌双方的利益关切是对等的。一方的所得就是另一方的损失，金钱对双方都有实际意义。结果是货真价实的谈判。
但当CEO（或他们的代表）与薪酬委员会会面时，常常是一方——CEO一方——对达成什么样的交易远比其他方更在乎。例如，一位CEO永远认为获得10万股期权和50万股期权的差别是巨大的。但对薪酬委员会来说，这种差别可能无关紧要——尤其是在大部分公司里，这两笔授予都不会影响报告利润的情况下。在这种条件下，谈判常常带着一种"玩钱"的味道。
CEO的过度索取在1990年代急剧加速，当时最贪婪者（这个称号竞争激烈）获得的薪酬包迅速在其他公司被复制。这场贪婪传染病的搬运工通常是顾问和人力资源部门，他们不难看出谁在给自己发面包。正如一位薪酬顾问所言："有两类客户你不想得罪——现有的和潜在的。"
在改革这套失灵体系的提议中，呼声最高的是"独立"董事。但究竟是什么真正激励了独立性，这个问题在很大程度上被忽视了。
在去年的年报中，我考察了法定意义上的"独立"董事在共同基金领域表现如何。1940年《投资公司法》规定了此类董事，这意味着我们已有长期测试来看法定标准能产生什么结果。在去年我们的考察中，我们审视了基金董事在董事会应履行的两项关键任务上的表现——无论是在共同基金业务还是其他任何业务。这两项至关重要的职能是：第一，找到（或留住）一位能干且诚实的经理；第二，给予他公平的薪酬。
我们的调查结果令人沮丧。年复一年，在成千上万的基金中，董事们照例重新聘用原管理公司，无论其业绩多么糟糕。同样照例，董事们不加思考地批准了费用——这些费用在许多情况下远高于本可通过协商达成的水平。而当管理公司被出售时——通常以相对有形资产而言极为高昂的价格——董事们又经历了一场"反启示"，随即与新经理签约并接受其费用方案。实际上，董事们认定：谁愿意为原管理公司出价最高，谁就该在未来管理股东的资金。
尽管独立基金董事表现出了哈巴狗般的行为，我们并未断定他们是坏人。他们不是。但遗憾的是，"董事会氛围"几乎总是会麻痹他们的受托人基因。
2003年5月22日，在伯克希尔的报告发布后不久，投资公司协会主席向其会员发表了关于"我们行业现状"的演讲。针对那些"对我们所谓缺陷指手画脚"的人，他沉思道："这让我不禁好奇，如果我们真的做错了什么，生活又会是什么样子？"
当心你的愿望成真。
几个月内，世界开始知道许多基金管理公司采取了损害其管理基金持有人利益的策略，同时却提高了管理人的费用。需要指出的是，在这些违规行为发生之前，这些管理公司的利润率与有形净资产收益率已令整个美国企业界艳羡。然而，为了进一步膨胀利润，它们以令人发指的方式践踏了基金持有人的利益。
那么，这些被洗劫的基金董事们在做什么？在我写下这些文字时，我尚未见到有任何董事终止了违规管理公司的合同（尽管该实体通常已解雇了自身的一些员工）。你能想象那些曾亲身遭受欺诈的董事，会采取这种"男孩终究是男孩"（boys-will-be-boys）的态度吗？
最糟糕的是，至少有一家违规管理公司已将自己挂牌出售，无疑希望从"交付"其管理的共同基金给其他管理人中出价最高的竞购者那里获得巨额收益。这简直是荒唐之极。这些基金的董事们为何不干脆从竞标组织中挑选他们认为最合适的一家，直接与其签约？这样，获胜者就不必向那位背弃了受托责任、一分钱也不值得的前任管理人支付巨额的"分手费"。无需承担这笔收购成本，获胜者理所当然能以远低于其他情况下的持续费率来管理这些基金。任何真正独立的董事都应坚持采用这种方式来寻找新管理人。
现实是，无论是制约投资公司董事的沿用数十年的旧规则，还是正在冲击美国企业界的新规则，都未能促进真正独立董事的当选。在这两种情况下，一个完全从董事费中获得100%收入的人——并可能希望通过入选其他董事会来增加收入——竟被视为独立。这纯属无稽之谈。同样的规则称，伯克希尔的董事、律师Ron Olson，从他庞大的收入中来自我们的可能只有3%，却被认为不具备独立性，因为这3%来自伯克希尔向其律所支付的法律费用，而非他作为伯克希尔董事获得的费用。请放心，来自任何渠道的3%都不会动摇Ron的独立性。但将收入中的20%、30%甚至50%用于董事费，则很可能削弱许多人的独立性，尤其是当他们的总收入不高时。事实上，我认为显而易见的是，在共同基金领域，这种情况已经发生了。
让我给"独立"的共同基金董事们提个小建议：为什么不在每份年报里直截了当地声明："（1）我们考察过其他管理公司，认为今年我们选聘的这家，在业内属于表现较好的之一；（2）我们与管理层谈定的费率，与其他资金规模相当的客户所能谈到的费率处于同一水平。"
股东们期望基金董事——他们通常每年收取超过10万美元的报酬——能就这两点表明立场，这并不过分。如果这些董事要把自己的一大笔钱交给管理人打理，他们肯定会先确认这两件事。如果董事们不愿做出这两项声明，股东们就该牢记这句箴言："如果你不知道某人在帮谁，那他很可能不是在帮你。"
最后，免责声明：虽然有各种不当行为的可乘之机，但仍有大量基金管理得兢兢业业、卓有成效。这些基金的股东从中获益，其管理者也赚到了应得的报酬。事实上，如果我是某些基金的董事——包括一些收费高于平均水平的基金——我会欣然做出我建议的那两项声明。此外，那些成本极低的指数基金（比如先锋集团旗下的）本质上是投资者友好型的，对于大多数希望持有股票的投资者来说，它们是最佳选择。
我现在之所以站在肥皂盒上大讲特讲，只是因为那些明目张胆的不法行为，已经背叛了数以百万计股东的信任。业内数百名知情人士肯定知道发生了什么，却没有一个人公开吭声。直到 Eliot Spitzer 和帮助他的举报人介入，才掀起了一场大扫除。我们敦促基金董事们继续这项工作。像整个美国企业界的董事一样，这些受托人现在必须做出抉择：他们是要为所有者工作，还是为管理者工作。
伯克希尔的治理
真正的独立性——即在事情出错或愚蠢时敢于挑战强势CEO的意愿——是董事身上一种极其宝贵的品质。这种品质也很罕见。寻找它的地方，应该是在那些利益与普通股东高度一致的、品格高尚的人之中。
在伯克希尔，我们进行了这样的搜寻。目前我们有十一位董事，每位董事连同其家庭成员，持有超过400万美元的伯克希尔股票。而且，所有人持有伯克希尔大额股份都已多年。在十一人中有六位，其家族持股至少已达数亿美元，且可追溯至三十年前。所有十一位董事都和你们一样在市场上买入自己的持股；我们从未发放过期权或限制性股票。查理和我喜欢这种货真价实的所有权。毕竟，租来的车谁会洗？
此外，伯克希尔的董事报酬微不足道（正如我儿子霍华德不时提醒我的那样）。因此，对于所有十一位董事来说，他们在伯克希尔的收益，与任何伯克希尔股东的收益比例是完全一样的。将来也永远如此。
伯克希尔董事要承担的风险实际上比你们更糟，因为我们没有为董事及高管购买责任险。因此，如果在董事任期内发生了真正灾难性的事件，他们将面临远超你们损失的损失。
对我们董事而言，结论就是：你们赚，他们大赚；你们亏，他们大亏。我们的做法可以称为"所有者资本主义"。我们不知道还有没有更好的办法来催生真正的独立性。（不过，这种结构并不能保证完美行为：我曾在伯克希尔持有大额股份的公司的董事会里坐过，当那些有问题的提案被走形式地通过时，我保持了沉默。）
除了独立，董事还应当具备商业头脑、股东导向和对公司的真正兴趣。这些品质中最稀缺的是商业头脑——如果缺乏这一点，其他两项几乎毫无用处。许多聪明、善于表达且受人尊敬的人对商业其实一窍不通。这不是罪过；他们在其他领域可能大放异彩。但他们不适合进入公司董事会。同样，我在医学或科学董事会里也会毫无用处（尽管那些想独揽大权的主席可能很欢迎我）。我的名字能装饰董事名单，但我没有足够的知识去批判性地评估提案。而且，为了掩饰自己的无知，我会闭紧嘴巴（如果你能想象的话）。实际上，把我换成盆栽植物也不会有什么损失。
去年，当我们着手改组董事会时，我向股东们征集自荐，希望那些认为自己具备伯克希尔董事所需素质的人报名。尽管既没有责任保险也没有像样的报酬，我们还是收到了二十多份申请。其中大多数都很优秀，来自以股东为导向的个人，他们家族持有的伯克希尔股票价值远超100万美元。经过考虑，查理和我在征得在任董事同意后，邀请了四位并未自荐的股东加入董事会：David Gottesman、Charlotte Guyman、Don Keough 和 Tom Murphy。这四位都是我的朋友，我很清楚他们的长处。他们为伯克希尔董事会带来了非凡的商业才能。
我们董事的首要任务是选择我的继任者——无论是我去世、丧失能力，还是我开始老糊涂的时候。（David Ogilvy 说得对："年轻时培养你的怪癖。这样等你老了，人们就不会觉得你是疯疯癫癫。"查理的家人和我的家人都觉得我们对 David 的建议反应过度了。）
在我们的董事会议上，我们会处理通常的日常事务。但真正的讨论——无论是当着我的面还是背着我——都围绕着四位潜在内部继任者的优缺点展开。
我们的董事会知道，衡量其表现的最終成绩单将由我继任者的业绩决定。他或她需要维护伯克希尔的文化、配置资本，并让一批美国最优秀的经理人保持工作热情。这并非世界上最难的任务——火车已经在轨道上飞速前行——我对我们已确定的四位候选人中的任何一位都能胜任完全放心。我超过99%的净资产都在伯克希尔，并且很高兴能让我的妻子或基金会（取决于我们俩谁先离世）继续保持这种集中的持股。
各板块业绩
作为管理者，查理和我想向我们的所有者提供我们如果角色互换时希望获得的财务信息和评论。随着伯克希尔业务范围的扩大，要清晰且合理地做到这一点变得越来越困难。我们的一些业务与其他业务有着截然不同的经济特征，这意味着我们的合并报表数字混杂，让有意义的分析几乎不可能。
因此，在接下来的几页中，我们将展示来自我们四大业务类别的一些资产负债表和盈利数据，并附上相关评论。我们特别希望你们理解我们会在何种有限情况下使用债务，因为我们通常会回避它。但我们不会用那些对计算伯克希尔内在价值毫无实际价值的数据来淹没你们。这样做很可能会模糊最重要的事实。一个警告：在分析伯克希尔时，务必记住公司应被视为一部正在展开的电影，而不是一张静态照片。过去那些只关注眼前快照的人，有时会得出错误的结论。
保险
我们先从保险说起——毕竟钱都在这里。
我们保险业务享受的资金源泉来自"浮存金"，也就是不属于我们、但由我们暂时持有的钱。浮存金的产生主要是因为：(1) 保费预先支付，但我们提供的服务——保险保障——通常覆盖一年期的保障周期；(2) 今天发生的损失事件并不总是立即导致我们支付赔款，因为有时需要数年时间才能报告损失（想想石棉案例）、进行谈判和结案。
浮存金是美妙的——只要它成本不高。浮存金的成本由承销结果决定，即支付的损失和费用与收到的保费相比如何。整个财产/意外险行业通常都承受着巨大的承销亏损，因此浮存金成本往往不具吸引力。
总体而言，我们的成绩不错。诚然，我们有五个糟糕的年份，浮存金成本超过10%。但在伯克希尔从事保险业务的37年中，有18年我们实现了承销盈利——也就是说，我们实际上是拿着别人的钱还赚了钱。而且这些廉价资金的数量增长远远超出了我1967年涉足这个行业时的想象。
年末浮存金（单位：百万美元）
| 年份 | GEICO | 通用再保险 | 其他再保险 | 其他直接保险 | 合计 |
| 1967 | 20 | 20 | |||
| 1977 | 40 | 131 | 171 | ||
| 1987 | 701 | 807 | 1,508 | ||
| 1997 | 2,917 | 4,014 | 455 | 7,386 | |
| 1998 | 3,125 | 14,909 | 4,305 | 415 | 22,754 |
| 1999 | 3,444 | 15,166 | 6,285 | 403 | 25,298 |
| 2000 | 3,943 | 15,525 | 7,805 | 598 | 27,871 |
| 2001 | 4,251 | 19,310 | 11,262 | 685 | 35,508 |
| 2002 | 4,678 | 22,207 | 13,396 | 943 | 41,224 |
| 2003 | 5,287 | 23,654 | 13,948 | 1,331 | 44,220 |
去年表现突出。浮存金达到了创纪录水平，而且成本为零——所有主要业务板块都为伯克希尔贡献了17亿美元的税前承销利润。
我们取得如此出色的成绩只有一个原因：我们拥有真正杰出的管理者。保险公司销售的是非专利的纸质承诺，任何人都可以复制别人的产品。没有安装基础、关键专利、重要不动产或自然资源地位来保护保险公司的竞争地位。通常，品牌也没什么意义。
因此，关键变量是管理层的头脑、纪律和诚信。我们的管理者全都具备这些素质——而且绰绰有余。让我们来看看这些全明星及其业务。
- 通用再保险（General Re）自1998年被我们收购后的几年里，一直是伯克希尔的"问题孩子"。不幸的是，这是个400磅重的孩子，对我们整体业绩的负面影响巨大。
这一切已成过去：通用再保险已经走上正轨。这要感谢其CEO Joe Brandon和他的伙伴Tad Montross。去年我写信给你们时，我认为承销和准备金计提都已恢复纪律，而2003年的情况巩固了我的看法。
这并不意味着我们不会再遭遇挫折。再保险是一门注定会时不时遭受打击的生意。但在Joe和Tad的带领下，这项业务将成为驱动伯克希尔未来盈利的强大引擎。
Gen Re 的财务实力，即便在 2003 年我们刚起步时就在再保险业中无出其右，年内更是进一步增强。去年，该公司的许多竞争对手遭遇信用降级，这使得 Gen Re 及其姊妹公司 National Indemnity 成为全球主要再保险公司中仅有的 AAA 级企业。
当保险公司购买再保险时，他们买入的只是一个承诺——其有效性可能要等上几十年才会被检验——而在再保险世界里，没有比 Gen Re 和 National Indemnity 更可靠的承诺了。此外，与大多数再保险公司不同，我们几乎保留了所承担的所有风险。因此，我们的偿付能力不依赖于他人偿还我们的能力或意愿。当行业必然经历的超级巨灾来临时，这种独立的财务实力可能极其重要。
- 我们年报的常客都知道 Ajit Jain 在过去 18 年里对伯克希尔繁荣做出的不可思议的贡献。2003 年，他继续大放异彩。Ajit 仅有 23 名员工，却运营着全球最大的再保险业务之一，专注于巨大且不寻常的风险。
这些风险通常涉及承担巨灾风险——比如加州大地震的威胁——其规模远超任何其他再保险公司愿意接受的程度。这意味着 Ajit 的业绩（以及伯克希尔的业绩）会起伏不定。因此，你们应该预期他的业务偶尔会遭遇糟糕的一年。不过长期来看，对于这位独一无二的管理者，你们可以确信他能带来卓越的结果。
Ajit 承保一些非常不寻常的保单。比如去年，百事公司促销抽奖，为参与者提供了赢得 10 亿美元大奖的机会。可以理解，百事希望转移这一风险，而我们自然是最适合承担的一方。于是我们承保了 10 亿美元的保单，将风险全部自留。因为大奖如果被赢取，是分期支付的，所以我们按现值计算的风险敞口为 2.5 亿美元。（我善意地建议任何赢家每年支付 1 美元，持续十亿年，但那个提议没被采纳。）抽奖于 9 月 14 日举行。Ajit 和我屏住呼吸，就像抽奖的最终入围者一样，而我们比他更开心地离开了。百事公司已续保，2004 年将再次举办类似活动。
- GEICO 在 Tony Nicely 1992 年担任 CEO 时是一家优秀的保险公司，如今它已是一家卓越的公司。在他任期内，保费规模从 22 亿美元增长到 81 亿美元，我们在个人汽车保险市场的份额从 2.1% 增长到 5.0%。更重要的是，GEICO 在实现这些增长的同时，还保持了出色的承保业绩。
（广告时间）
Leo Goodwin 在 GEICO 创立一个伟大商业创意，旨在为保单持有人节省大笔资金，至今已有 67 年。请访问 Geico.com 或致电 1-800-847-7536，看看我们能为您做些什么。
（广告结束）
2003 年，GEICO 收到的咨询数量以及成交率都大幅增长。因此，我们的优选保单持有人数增长了 8.2%，标准和非标准保单增长了 21.4%。
GEICO 的业务增长带来了对员工和设施永无止境的需求。我们最近一次扩张于 12 月宣布，将新建一个客户服务中心——我很高兴地说——选址在布法罗。我们《布法罗新闻》的出版人 Stan Lipsey 在促成布法罗市与 GEICO 的合作中发挥了关键作用。
然而，此事的关键人物是州长 George Pataki。正是他的领导力和坚韧不拔，才使得我们的扩张全面完成后，布法罗将获得 2,500 个新工作岗位。Stan、Tony 和我——以及布法罗市——感谢他的帮助。
- 伯克希尔旗下的小型保险公司又度过了一个出色的年头。这个由 Rod Eldred、John Kizer、Tom Nerney、Don Towle 和 Don Wurster 领导的团队，浮存金增长了 41%，同时实现了优秀的承保利润。这些人虽然经营方式平淡无奇，却产生了真正令人兴奋的成果。
我们再次指出，在任何一年里，从事长尾保险（即理赔往往在损失事件发生后多年才结清的保单）的公司，几乎可以报告CEO想要的任何利润。这个行业常常因错误列报负债而报告严重失真的数据。多数错误是无心之过。但有时却是故意的，目的就是为了欺骗投资者和监管机构。审计师和精算师通常未能阻止这两种类型的错误列报。
我本人偶尔也失手过，特别是几年前未能发现通用再保无意识的准备金计提不足。这不仅意味着我们向你们报告了不准确的数据，而且这一错误还导致我们提前支付了相当大一笔不必要的税款。啊啊啊。不过，去年我告诉过你们，我认为我们当时的准备金水平是适当的。到目前为止，这一判断仍然成立。
以下是伯克希尔各板块的税前承销业绩：
| 收益（亏损）（单位：百万美元） | ||
| 2003年 | 2002年 | |
| 通用再保 | 145 | (1,393) |
| 阿吉特的业务（不含追溯合同） | 1,434 | 980 |
| 阿吉特的追溯合同* | (387) | (433) |
| GEICO | 452 | 416 |
| 其他直保业务 | 74 | 32 |
| 合计 | 1,718 | (398) |
*这些合同在2002年年报第10页有说明，可在互联网上查阅www.berkshirehathaway.com。简而言之，该板块包含几笔巨额保单，这些保单可能产生承销亏损（有上限），但同时也会提供异常大量的浮存金。
受监管的公用事业业务
通过中美能源控股公司，我们拥有众多公用事业业务80.5%（完全摊薄后）的权益。其中最大的几家是：(1) 约克郡电力公司和北方电力公司，其370万电力用户使其成为英国第三大电力分销商；(2) 中美能源公司，为爱荷华州68.9万电力用户提供服务；(3) 克恩河管道公司和北方天然气管道公司，其输气量占美国天然气运输总量的7.8%。
伯克希尔有三位合伙人，持有余下的19.5%权益：戴夫·索科尔和格雷格·阿贝尔，他们是该业务的杰出管理者；还有沃尔特·斯科特，他是我的一位老朋友，也是他把我介绍给了这家公司。由于中美能源受《公用事业控股公司法》（"PUHCA"）管辖，伯克希尔的表决权被限制在9.9%。沃尔特拥有控制性表决权。
我们有限的表决权迫使我们以简略的方式在财务报表中核算中美能源。我们不是将其全部资产、负债、收入和费用完全并入报表，而是在资产负债表和利润表中仅记录一行数据。很可能有一天（也许很快），要么PUHCA被废除，要么会计规则发生变化。届时，伯克希尔的合并数据将把中美能源（包括其使用的大量债务）全部纳入。
这些债务的规模（目前不是、将来也不会是伯克希尔的负债）是完全合理的。中美能源多元且稳定的公用事业业务确保，即使在严峻的经济条件下，总收益也足以非常轻松地偿还所有债务。
年末，中美能源的15.78亿美元次级债务应付给伯克希尔。这笔债务使得收购得以融资，而无需我们的三位合伙人增加其在中美能源已经相当可观的投资。通过收取11%的利息，伯克希尔为购买所需资金提供了公平的补偿，同时我们的合伙人避免了其权益被稀释。
中美能源还控股一家重要的非公用事业公司——美国家居服务（Home Services of America），它是全美第二大房地产经纪公司。与我们的公用事业运营不同，这项业务具有高度周期性，但我们仍然满怀热情地看好它。我们有一位出色的经理人Ron Peltier，他凭借并购和运营两方面的才干，正在打造一家强大的经纪公司。
去年，美国家居服务参与了486亿美元的交易，比2002年增加了117亿美元。其中约23%的增长来自当年完成的四笔收购。通过旗下16家经纪公司——它们均保留各自的本地品牌——我们在16个州雇用了16,343名经纪人。随着我们持续收购领先的本地化运营实体，美国家居服务在未来十年几乎注定会大幅增长。
这里有一个自由企业制度爱好者喜欢的小故事。1990年3月31日，英国电力公用事业公司私有化当天，北方和约克郡（Northern and Yorkshire）在如今仍在履行的职能岗位上雇用了6,800名员工。如今，它们只雇用2,539人。然而，这些公司服务的客户数量与国有时期大致相同，输送的电量反而更多了。
需要指出的是，这并不是放松管制的胜利。价格和盈利仍然以公平的方式受到政府监管，这本就该如此。然而，对于那些相信以利润为导向的管理者——即使他们意识到收益将主要流向客户——也能找到政府永远找不到的效率的人来说，这是一场胜利。
以下是中美能源运营的一些关键数据：
| 盈利（单位：百万美元） | ||
| 2003年 | 2002年 | |
| 英国公用事业 | 2.89亿美元 | 2.67亿美元 |
| 爱荷华 | 2.69亿美元 | 2.41亿美元 |
| 管道 | 2.61亿美元 | 1.04亿美元 |
| 美国家居服务 | 1.13亿美元 | 7000万美元 |
| 其他（净额） | 1.44亿美元 | 1.08亿美元 |
| 公司利息和税前盈利 | 10.76亿美元 | 7.90亿美元 |
| 公司利息（不含对伯克希尔的负债） | （2.25亿美元） | （1.92亿美元） |
| 对伯克希尔的利息支付 | （1.84亿美元） | （1.18亿美元） |
| 税费 | （2.51亿美元） | （1.00亿美元） |
| 净利润 | 4.16亿美元 | 3.80亿美元 |
| 归属于伯克希尔的盈利* | 4.29亿美元 | 3.59亿美元 |
| 欠他人的债务 | 102.96亿美元 | 102.86亿美元 |
| 欠伯克希尔的债务 | 15.78亿美元 | 17.28亿美元 |
*包含支付给伯克希尔的利息（扣除相关所得税后）：2003年为1.18亿美元，2002年为7500万美元。
金融及金融产品
该板块涵盖一系列广泛的活动。以下是对其中最重要部分的评述。
- 我管理着一些AAA级固定收益证券的投机性策略，在过去几年里获利颇丰。这类机会来了又走——目前，它们正在离开。去年我们稍微加快了它们的离去速度，从而实现了下表中所列资本利得的24%。
这些交易虽然远非万无一失，但不涉及任何信用风险，且所用证券流动性极高。因此，我们几乎完全用借来的资金进行头寸融资。随着资产减少，借款也随之减少。目前我们持有的投资组合规模更小，这意味着在不久的将来，我们在该类别中的盈利将显著下降。风光一时，但总有一天我们会再次上场击球。
- 一个远不那么令人愉快的清盘过程正在Gen Re证券（Gen Re Securities）进行，这是我们在收购通用再保险（General Reinsurance）时继承下来的交易和衍生品业务。
2002年初，我们开始着手清理通用再保险证券公司时，它共有23,218份未结清合约，涉及884家对手方（有些公司的名字我根本念不出来，更别说评估它们的信用资质了）。自那以后，该部门的经理们在平仓方面一直表现出色且勤勉。然而，到了近两年后的年底，我们仍有7,580份未结清合约，涉及453家对手方。（正如那首乡村歌曲所哀叹的：“如果你不肯走，我又怎能想念你？”）
这项业务的收缩代价高昂。我们在2002年和2003年分别产生了1.73亿美元和9,900万美元的税前亏损。需要指出的是，这些亏损源自一个完全遵循美国通用会计准则的合约组合——这些合约定期按市值计价，并已对未来的信用损失和行政成本计提了标准拨备。而且，我们的清算是在市场环境温和（我们没有出现重大信用损失）且井然有序的情况下进行的。这与金融危机迫使多家衍生品交易商同时停止运作时可能出现的局面恰恰相反。
如果我们在衍生品方面的经历——以及去年曝光的规模惊人、胆大妄为的房地美（Freddie Mac）把戏——让你对这一领域的会计处理心生疑虑，那说明你学聪明了。无论你在金融方面多么老练，你都不可能通过阅读一家高度依赖衍生品的公司的披露文件，来了解其头寸中潜藏着什么风险。事实上，你对衍生品了解得越多，就越会觉得自己从公司通常提供的披露信息中能学到的东西越少。用达尔文的话来说：“无知比知识更常滋生自信。”
* * * * * * * * * * * *
现在是坦白交代的时候了：我确信，如果当时我动作再快一点，关掉通用再保险证券公司，股东们就能省下大约1亿多美元的税前支出。在通用再保险公司（General Reinsurance）并购发生时，查理和我都知道它的衍生品业务毫无吸引力。报告中的利润在我们看来只是幻觉，而且我们觉得这项业务承担着无法有效衡量或限制的巨大风险。此外，我们清楚该业务可能出现的任何重大问题，都很可能伴随着金融或保险领域的同时出现动荡，从而在其他方面拖累伯克希尔。换句话说，如果衍生品业务需要补充资金，它恰好在最糟糕的时刻占用伯克希尔的资本和信用——而这个时候我们本可以将这些资源用于获取巨大优势。（历史注记：1974年我们就遭遇过类似情况，那时我们是一起重大保险欺诈案的受害者。有段时间我们无法确定这起欺诈最终会让我们损失多少，因此我们比平时保留了更多现金等价物。要不是出于谨慎，我们本可以在当时股价异常低廉时买入更多股票。）
查理会果断采取行动关掉通用再保险证券公司——这一点毫无疑问。但我却犹豫不决。结果，我们的股东为退出这项业务支付了远超必要的代价。
——虽然我们将通用再保险规模庞大的人寿和健康再保险业务归入“保险”板块，但我们在这一节中展示的是阿吉特·贾因（Ajit Jain）的人寿和年金业务。这主要是因为该业务很大程度上涉及资金套利。我们的年金产品范围很广，从直接通过互联网销售的零售产品，到要求我们在70年或更长时间内向严重事故受害者定期支付款项的结构化结算赔偿。
由于我们以折扣价购入的某些固定收益证券收到了加速偿还的本金，这项业务因此实现了一些额外收入。这一现象已经结束，因此未来几年该板块的收益可能会下降。
- 我们对Value Capital有6.04亿美元的投资，这家合伙企业由Mark Byrne管理——他的家族多年来以多种方式帮助过伯克希尔。伯克希尔是有限合伙人，对Mark这家专注于高度对冲固定收益机会的企业没有管理话语权。Mark聪明正直，和他家族一起，在Value也投了可观的资金。
由于安然及其他公司爆出的会计丑闻，不久将出台新规，可能要求将Value的资产和负债合并入伯克希尔的资产负债表。我们认为这一要求并不合理，因为Value的负债——通常超过200亿美元——根本与我们无关。随着时间的推移，其他投资者将陆续加入成为Value的合伙人。当合伙人足够多时，我们合并Value的需求就会消失。
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我们过去曾向你们提过Berkadia，这是三年前与Leucadia共同成立的合伙企业，专门为破产贷款机构Finova提供清盘融资和管理。当时的计划是：我们出大部分资金，Leucadia出大部分脑子。事实也确实如此。实际上，共同掌管Leucadia的Joe Steinberg和Ian Cumming在清算Finova资产组合方面干得非常出色，以至于我们当初为此交易承担的56亿美元担保已经化为乌有。这种快速清偿的意外副产品是，我们未来的收入将大幅减少。总体而言，Berkadia为我们赚了可观的利润，Joe和Ian是出色的合伙人。
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我们的租赁业务有XTRA（运输设备）和CORT（办公家具）。过去两年里，由于经济衰退导致需求下降远超预期，两家子公司的盈利都很糟糕。它们仍是各自领域的龙头，我预计今年盈利至少会略有改善。
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通过收购Clayton，我们获得了一笔重要的活动房屋融资业务。Clayton和业内其他公司一样，传统上会将其发放的贷款进行证券化。这种做法减轻了Clayton资产负债表的压力，但副产品是收入的“前置”（这是GAAP要求的结果）。
我们不急于确认收入，资产负债表实力极其雄厚，并且相信，长期来看，持有我们的消费信贷资产在经济上优于当前通过证券化所能实现的结果。因此，Clayton已经开始保留其贷款。
我们认为，用几乎全部是债务的方式为一份筛选得当的有息应收款组合融资是合理的（就像银行的做法）。因此，伯克希尔将借钱为Clayton的投资组合提供融资，然后以我们的资金成本加一个百分点的利率将这些资金转贷给Clayton。这个加点是对伯克希尔将其卓越的信用资质付诸使用的合理补偿，但即便如此，它仍然以有吸引力的价格向Clayton提供了资金。
2003年，伯克希尔进行了20亿美元这样的借入与转贷操作，Clayton用其中大部分资金从退出该业务的贷款机构那里收购了几笔大型投资组合。我们向Clayton提供的部分贷款还为其当年早些时候自身业务产生的、难以证券化的信贷资产提供了“补仓”资金。
您可能会好奇，为什么我们坐拥大量现金却还要借钱。这源于我们的"各负盈亏"理念。我们相信，任何子公司为维持其应收账款而借入资金时，都应该支付合理的利率，而不应接受母公司的补贴。否则，有个富爸爸很容易导致决策失误。与此同时，我们在伯克希尔积累的现金，是为收购企业或购买能带来巨额利润的证券而准备的。Clayton的贷款组合在不太长的时间内很可能会增至至少50亿美元，在合理的信贷标准下，这笔业务将贡献可观的利润。
为简化起见，我们将Clayton的所有盈利都归入这一板块，尽管其中相当一部分来自消费金融以外的领域。
| （单位：百万美元） | ||||
| 税前利润 | 有息负债 | |||
| 2003年 | 2002年 | 2003年 | 2002年 | |
| 交易——普通收益 | $379 | $553 | $7,826 | $13,762 |
| 通用再保险证券 | (99) | (173) | 8,041* | 10,631* |
| 寿险与年金业务 | 99 | 83 | 2,331 | 1,568 |
| 价值资本 | 31 | 61 | 18,238* | 20,359* |
| Berkadia | 101 | 115 | 525 | 2,175 |
| 租赁业务 | 34 | 34 | 482 | 503 |
| 活动房屋融资（Clayton） | 37** | — | 2,032 | — |
| 其他 | 84 | 102 | 618 | 630 |
| 资本利得前利润 | 666 | 775 | ||
| 交易——资本利得 | 1,215 | 578 | 不适用 | 不适用 |
| 合计 | $1,881 | $1,353 | ||
* 包含所有负债
** 自收购日（2003年8月7日）起
制造、服务与零售业务
我们在这一领域内的活动涵盖方方面面。但让我们先看看整个集团合并后的简化资产负债表与利润表。
资产负债表 2003年12月31日（单位：百万美元）
| 资产 | 负债与权益 | ||
| 现金及现金等价物 | $1,250 | 应付票据 | $1,593 |
| 应收款项 | 2,796 | 其他流动负债 | 4,300 |
| 存货 | 3,656 | 流动负债合计 | 5,893 |
| 其他流动资产 | 262 | ||
| 流动资产合计 | 7,964 | ||
| 商誉及其他无形资产 | 8,351 | 递延所得税 | 105 |
| 固定资产 | 5,898 | 长期债务及其他负债 | 1,890 |
| 其他资产 | 1,054 | 权益 | 15,379 |
| $23,267 | $23,267 |
利润表（单位：百万美元）
| 2003年 | 2002年 | |
| 营业收入 | $32,106 | $16,970 |
| 营业支出（含折旧：2003年6.05亿美元，2002年4.77亿美元） | 29,885 | 14,921 |
| 利息费用（净额） | 64 | 108 |
| 税前利润 | 2,157 | 1,941 |
| 所得税 | 813 | 743 |
| 净利润 | $1,344 | $1,198 |
这群五花八门的公司，卖的东西从Dilly Bar（冰雪皇后冰淇淋）到波音B-737客机，去年平均有形净资产收益率高达20.7%。不过，我们收购这些企业时支付了远高于净资产的价格——这一事实反映在资产负债表上的商誉项目中——因此，按我们的平均账面价值计算，收益率降到了9.2%。
以下是各大类或业务单元的税前利润。
| | 税前利润（百万美元） |
| :--- | ---: | ---: |
| | 2003 | 2002 |
| 建筑产品 | $559 | $516 |
| Shaw Industries（肖氏工业） | 436 | 424 |
| 服装 | 289 | 229 |
| 零售业务 | 224 | 219 |
| 飞行服务 | 72 | 225 |
| McLane * | 150 | — |
| 其他业务 | 427 | 328 |
| | $2,157 | $1,941 |
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自收购日（2003年5月23日）起计算。
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我们的三家建材公司——Acme Brick（阿奇砖业）、Benjamin Moore（本杰明·摩尔）和MiTek——去年均创下经营利润纪录。第四家Johns Manville（约翰斯·曼维尔）的盈利在年底也呈上升趋势。整体而言，这些公司的有形净资产收益率为21.0%。
- 全球最大的宽幅地毯制造商Shaw Industries（肖氏工业）也创下了历史最佳业绩。在Bob Shaw的领导下——他从零开始建起了这个庞大的企业——该公司很可能在2004年再创盈利纪录。去年11月，Shaw从Dixie Group收购了若干地毯业务，预计今年将为销售额增加约2.4亿美元，使Shaw的营收规模接近50亿美元。
- 在服装板块中，Fruit of the Loom（鲜果布衣）是我们最大的业务。该公司拥有三大核心资产：一个拥有148年历史、全球公认的品牌；一套低成本制造体系；以及其CEO John Holland。2003年，Fruit在男性及男童内衣市场中占据大众市场零售商（沃尔玛、塔吉特、凯马特等）销售额的42.3%，并在该渠道的女性及女童内衣市场份额从2002年的11.3%提升至13.9%。
- 零售方面，我们的家具集团实现税前利润1.06亿美元，珠宝业务5900万美元，既是制造商又是零售商的See's（喜诗糖果）也贡献了5900万美元。
R.C. Willey和内布拉斯加家具城（NFM）去年分别在新店取得了巨大成功——Willey在拉斯维加斯，NFM在堪萨斯州堪萨斯城。事实上，我们认为堪萨斯城门店是全美营业额最高的家居用品店。（我们在奥马哈的卖场虽然只占一块地皮，但由三个单元组成。）
NFM由Rose Blumkin（"B夫人"）于1937年以500美元创立。她一直工作到103岁（嗯……这主意不错）。她传给后辈的一条经验是："只要价格最低，就算藏在河底，顾客也会找到你。"我们服务大堪萨斯城的门店位于该地区人口较稀少的区域，这恰恰证明了B夫人的观点。尽管我们有超过25英亩的停车场，有时还是会停满。
肯尼迪总统在猪湾惨败后说过："胜利有一千个父亲，但失败是个孤儿。"在NFM，堪萨斯城开业火爆一个月后，我们就知道赢定了——当时冒出一位意想不到的"父亲"来认领功劳。一位演讲者提到布卢姆金家族时说："他们对自己有信心，加上行政当局的政策行之有效，因此能为1000名同胞提供工作机会。"那位在讲台上洋洋得意的"父亲"是谁？乔治·W·布什总统。
- 在航空服务领域，我们的培训业务飞行安全国际（FlightSafety）的"正常"经营利润从1.83亿美元降至1.5亿美元。（非经常性项目：2002年我们向波音出售合伙权益获得6,000万美元税前收益，而2003年因模拟器提前报废确认了3,700万美元亏损。）过去几年公务航空业务显著放缓，这影响了FlightSafety的业绩。不过，该公司仍然是其领域无可争议的领导者。其模拟器原始成本为12亿美元，是距离我们最近的竞争对手运营成本的三倍以上。
我们的部分所有权业务NetJets（耐特捷）在2003年税前亏损4,100万美元。该公司在美国实现了微薄的经营利润，但这被飞机库存3,200万美元的亏损以及欧洲业务的持续亏损所抵消。
NetJets继续主导部分所有权领域，并且领先优势正在扩大：潜在客户压倒性地选择我们，而不是我们的三大竞争对手。去年，在我们四家（主要参与者）中，我们占据了净销售额的70%（按价值计算）。
NetJets区别于竞争对手的一个例子是我们的梅奥诊所高管差旅响应计划，这是一项所有业主均可免费享受的福利。无论是在陆地上还是空中，在世界任何地方、任何时刻，我们的业主及其家人都能立即联系到梅奥诊所。如果他们在国内外旅行时发生紧急情况，梅奥诊所会立刻指引他们前往合适的医生或医院。梅奥诊所掌握的关于患者的任何基线数据也会同步提供给接诊医生。许多业主已经发现这项服务价值连城——包括一位在东欧需要紧急脑部手术的业主。
2003年我们录得3,200万美元的库存减记，原因是年初二手飞机价格下跌。具体来说，我们以现行价格从退出的业主那里回购部分份额，但随后在重新销售之前价值下跌了。现在价格已经稳定。
欧洲的亏损令人痛苦。但任何放弃欧洲的公司——就像我们所有的竞争对手那样——注定只能成为二流角色。许多美国业主在欧洲频繁飞行，他们需要NetJets飞机和飞行员提供的安全保障。此外，尽管起步较慢，我们现在正在以良好的速度增加欧洲客户。2001年至2003年间，我们的欧洲管理和飞行收入分别增长了88%、61%和77%。然而，我们尚未成功阻止亏损的蔓延。
NetJets的卓越CEO Rich Santulli 和我预计2004年欧洲亏损将减少，同时预计它将由美国利润抵消。压倒性地，我们的业主喜爱NetJets的体验。一旦客户尝试过我们，再坐商业航班就像回到牵手阶段一样索然无味。NetJets将随着时间推移成为一家非常庞大的企业，并且在客户满意度和利润方面都将卓尔不群。Rich 会确保这一点。
投资
下表列示了我们的普通股投资。其中2003年底市值超过5亿美元的已单独列出。
| 股份数 | 公司 | 持股比例 | 2003年12月31日 | |
| 成本（百万美元） | 市值 | |||
| 151,610,700 | 美国运通公司（American Express Company） | 11.8% | $ 1,470 | $ 7,312 |
| 200,000,000 | 可口可乐公司（The Coca-Cola Company） | 8.2% | 1,299 | 10,150 |
| 96,000,000 | 吉列公司（The Gillette Company） | 9.5% | 600 | 3,526 |
| 14,610,900 | H&R Block公司（H&R Block, Inc） | 8.2% | 227 | 809 |
| 15,476,500 | HCA公司（HCA Inc.） | 3.1% | 492 | 665 |
| 6,708,760 | M&T银行公司（M&T Bank Corporation） | 5.6% | 103 | 659 |
| 24,000,000 | 穆迪公司（Moody’s Corporation） | 16.1% | 499 | 1,453 |
| 2,338,961,000 | 中国石油天然气股份有限公司（PetroChina Company Limited） | 1.3% | 488 | 1,340 |
| 1,727,765 | 华盛顿邮报公司（The Washington Post Company） | 18.1% | 11 | 1,367 |
| 56,448,380 | 富国银行（Wells Fargo & Company） | 3.3% | 463 | 3,324 |
| 其他 | 2,863 | 4,682 | ||
| 普通股合计 | $ 8,515 | $35,287 | ||
去年我们买了一些富国银行股票。除此之外，在我们六大重仓股中，最后一次调仓分别是：可口可乐在1994年、美国运通在1998年、吉列在1989年、华盛顿邮报在1973年、穆迪在2000年。经纪商可不待见我们。
对于当前持有的投资组合，我们既谈不上热情，也说不上悲观。我们拥有一流企业的部分所有权——去年这些企业的内在价值都有良好增长——但当前的股价已经反映了它们的优秀。这个结论令人不快的推论是：我在大泡沫时代没有卖出几只大重仓股，犯了大错。如果这些股票现在估值已充分，你可能会纳闷四年前我在想什么——那时它们的内在价值更低，股价却高得多。我自己也纳闷。
2002年，垃圾债券变得非常便宜，我们买入了约80亿美元。但钟摆很快摆了回去，这个板块现在对我们而言显然毫无吸引力了。昨天的杂草，今天被当成鲜花来定价。
我们一再强调，伯克希尔的已实现收益在分析上没有意义。账面有大量未实现收益，而我们对于何时（以及是否）兑现这些收益的考虑，完全与想要在某个特定时间报告利润的愿望无关。不过，为了让各位了解我们投资活动的多样性，下表按类别列出了2003年实现的收益，或许能让各位感兴趣：
| 类别 | 税前收益（百万美元） |
| 普通股 | $448 |
| 美国政府债券 | 1,485 |
| 垃圾债券 | 1,138 |
| 外汇合约 | 825 |
| 其他 | 233 |
| $4,129 |
普通股的利润来自我们投资组合的边角料——而不是像我们之前提过的，来自减持主要仓位。政府债券的利润源于我们清算了长期剥离债券（政府债券中波动最大的品种）以及我在金融及金融产品部门内执行的一些策略。我们保留了大部分垃圾债券组合，只卖出了少数几只。赎回和到期债券构成了垃圾债券类别中的其余收益。
2002年，我平生第一次踏入了外汇市场；2003年，由于我对美元日益看空，我们进一步扩大了头寸。我得说明一下：先知先觉者的墓地里，专为宏观预测者预留了一大片区域。事实上，伯克希尔很少做宏观预测，我们也几乎没见过别人能靠这个持续成功。
伯克希尔的净资产绝大多数——现在和将来都会——配置在美国资产上。但近几年来，我国的贸易逆差一直在把大量对美国资产的要求权和所有权硬塞给世界其他国家。一度，外国对这些资产的胃口足以轻松消化供给。然而到2002年底，世界开始对这种"喂食"难以下咽，美元兑主要货币的汇率开始下滑。即便如此，当时的汇率水平并不足以显著缓解我们的贸易逆差。所以，无论外国投资者愿不愿意，他们都将继续被美元淹没。后果如何，谁也说不准。不过，麻烦可能不小——而且影响的远不止汇率市场。
身为美国人，我希望这个问题能有个好结局。我曾在2003年11月10日的《财富》杂志上提出过一个可能的解决方案——顺便说一句，这个方案让查理不以为然。再说，也许我敲响的警钟最后证明是多余的：我们国家的活力和韧性，一再让唱空者灰头土脸。但伯克希尔持有数以百亿计、以美元计价的现金等价物。因此，持有一些外汇合约——至少能部分对冲这个头寸——让我觉得更安心。
这些合约受会计准则约束，要求其价值变动即时计入资本利得或损失——哪怕合约尚未平仓。每个季度，我们都会在利润表的"金融及金融产品"分部中体现这些变动。年末，我们未平仓的外汇合约按市值计算总计约120亿美元，分布在五种货币中。另外，2002年我们买入垃圾债券时，也尽可能选择欧元计价的品种。今天，我们持有约10亿美元的这类债券。
当我们找不到令人兴奋的投资机会时，我们的"默认"仓位是美国国债（包括国库券和回购协议）。无论这些工具的收益率有多低，我们绝不会为了多赚一点点而降级信用标准或拉长久期。查理和我厌恶承担哪怕很小的风险——除非我们觉得为此得到了足够补偿。我们在这条路上走得最远的，大概就是偶尔吃一盒过了保质期一天的白软干酪。
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2003年有一本投资者可以从中获益良多的书：Maggie Mahar 的《Bull!》。另外两本我推荐的书是：Bethany McLean 与 Peter Elkind 合著的《The Smartest Guys in the Room》，以及 Bob Rubin 的《In an Uncertain World》。这三本书调研扎实，文笔出色。此外，Jason Zweig 去年出色地修订了我最爱的投资书——《聪明的投资者》。
指定捐赠计划
从1981年到2002年，伯克希尔一直实行一项计划：股东可以指示伯克希尔向其指定的慈善组织捐款。这些年来，我们根据该计划共支付了1.97亿美元。教堂是最常被指定的对象，此外还有成千上万个其他组织受益。我们是唯一为股东提供这项计划的大型上市公司，查理和我为此感到自豪。
我们于2003年无奈终止了该计划，原因是堕胎议题引发的争议。多年来，我们股东指定的受益机构中，既有支持堕胎权的一方，也有反对堕胎权的一方。结果，我们时常收到针对支持堕胎权捐款的反对意见。其中一些来自个人和组织，他们继而抵制我们子公司的产品。这并未让我们担忧。我们拒绝了一切限制股东捐赠选择权的要求（只要受益机构具有501(c)(3)资质即可）。
然而到了2003年，The Pampered Chef（掌上厨师）的许多独立销售伙伴开始感受到抵制的冲击。这一事态意味着，那些信任我们的人——但他们既非我们的雇员，也对伯克希尔的决策没有发言权——遭受了严重的收入损失。
对于我们的股东而言，由伯克希尔代为捐款比起他们直接捐赠，能获得些许税收上的效率。此外，这项计划也符合我们的"合伙"理念，即《股东手册》中开宗明义的第一条原则。但当这些好处与忠诚的合作伙伴所遭受的伤害相权衡时，就相形见绌了——这些伙伴凭借个人巨大努力建立了自己的事业。事实上，查理和我认为，仅仅为了让我们和其他股东获得一点微小的税收效率，就去伤害正直、勤劳的人们，这毫无慈善可言。
伯克希尔现在在母公司层面不再进行任何捐款。我们各子公司遵循的慈善政策，与其被伯克希尔收购前的做法保持一致，只是原先由前所有者从公司账上支出的个人捐款，现在由他们个人自行出资。
年度股东大会
去年，我请大家投票决定是否希望将年度股东大会安排在周六还是周一。我原本希望是周一。结果周六以2比1胜出。看来伯克希尔的股东民主要再次回归，还得等上一阵子了。
但既然你们已经表态，我们今年的年度股东大会将于5月1日（周六）在奥马哈市中心的新Qwest中心举行。Qwest中心为我们提供了194,000平方英尺的子公司展览面积（去年为65,000平方英尺），同时座位容量也大幅增加。Qwest中心大门将于早上7点开放，电影放映于8:30开始，会议于9:30正式开始。中午将短暂休息以供用餐（Qwest的餐饮摊位会提供三明治）。除此之外，查理和我将一直回答问题到下午3:30。我们会把知道的一切都告诉你们……至少在我这里，还会多说一些。
随本报告附上的股东委托书附件中，说明了如何获取参加会议及其他活动所需的凭证。至于机票、酒店和租车预订，我们再次与美国运通（American Express，电话800-799-6634）签约，为您提供专门协助。他们每年都为我们做得非常出色，我在此表示感谢。
按照惯例，我们会在各大酒店安排面包车接送至会场。会议结束后，面包车将返回各酒店、内布拉斯加家具城、波仙珠宝店以及机场。即便如此，您可能还是会觉得自驾更为方便。
今年伯克希尔商品和服务的展览将让您大开眼界。例如，展区将搭建一座1600平方英尺的Clayton住宅（使用Acme砖、Shaw地毯、Johns-Manville保温材料、MiTek紧固件、Carefree遮阳篷，并配有NFM家具）。您会发现它与几十年前那种移动房屋的刻板印象截然不同。
GEICO 将设立一个展位，由来自全国各地的多位顶尖顾问驻场，随时准备为您提供汽车保险报价。在大多数情况下，GEICO 能给您提供一项特别的股东折扣（通常是 8%）。在我们运营的 49 个司法管辖区中，有 41 个允许这项优惠。请带上您现有保险的详细信息，看看我们能否帮您省钱。
周六，在奥马哈机场，我们将照例展示一批来自 NetJets® 的飞机，供您参观。请到 Qwest 中心的 NetJets 展位了解如何观看这些飞机。如果您在周末买了我们认为“适量”的东西，可能真需要一架自己的飞机才能运回家。
在内布拉斯加家具城（位于 Dodge 街和 Pacific 街之间的 72 号大街上，占地 77 英亩），我们将再次推出“伯克希尔周末”定价，这意味着我们将向股东提供通常只给员工的折扣。我们七年前在家具城推出了这项特价，周末销售额从 1997 年的 530 万美元增长到了 2003 年的 1730 万美元，每年都创下新纪录。
要享受折扣，您必须在 4 月 29 日（周四）至 5 月 3 日（周一）（含首尾两天）期间购物，并出示您的会议凭证。这个时段的特价甚至适用于多个知名制造商的产品，这些制造商通常有铁律禁止打折，但为了我们股东周末的精神，他们破例为您提供了优惠。我们感谢他们的合作。家具城周一至周六营业时间为上午 10 点至晚上 9 点，周日为上午 10 点至下午 6 点。今年周六下午 5:30 至晚上 8 点，我们将举办一场仅限股东参加的特别活动。我会在那里吃烤肉、喝可乐。
博尔希姆（Borsheim's）——全国仅次于蒂芙尼曼哈顿店的最大珠宝店——将举办两场仅限股东的活动。第一场是 4 月 30 日（周五）下午 6 点至 10 点的鸡尾酒招待会。第二场是主要盛会，在 5 月 2 日（周日）上午 9 点至下午 4 点举行。让查理在你的销售小票上签名吧。
股东优惠价从周四到周一都有，因此如果您想避开周五晚上和周日的大批人群，可以在其他时间过来，表明自己是股东即可。周六我们营业到下午 6 点。博尔希姆的毛利率比其主要竞争对手整整低了 20 个百分点，所以你买得越多，省得越多——至少我妻子和女儿是这么告诉我的。（她们俩小时候都被一个故事打动过：一个男孩错过了一辆有轨电车，步行回家，自豪地宣布自己因此省了 5 美分。他父亲勃然大怒：“你为什么不错过一辆出租车，省下 85 美分？”）
在博尔希姆外的商场里，我们将请到 Bob Hamman 和 Sharon Osberg 这两位世界顶级桥牌高手，在周日下午与股东们切磋牌技。此外，两次美国国际象棋冠军 Patrick Wolff 也将出现在商场，迎战所有挑战者——而且是蒙眼下棋！我看过，他真没偷看。
Gorat's——我最爱的牛排馆——将在 5 月 2 日（周日）下午 4 点至 10 点再次专门为伯克希尔股东营业。请记住，周日要去 Gorat's 必须提前预订。预订请于 4 月 1 日（但不要在此之前）拨打 402-551-3733。如果周日订满了，可以试试你在城里其他晚上去 Gorat's。点一份像我要的带骨牛排（三分熟），外加双份土豆煎饼，以此炫耀你的美食鉴赏力吧。
我们将在周六下午4点到5点，为来自北美以外的股东举办一场特别招待会。每年我们的年会都会吸引全球各地的人士参加，查理和我希望确保能亲自会见这些远道而来的股东。任何来自美国或加拿大以外的股东，都将获得参加此次活动的特别凭证和指引。
查理和我在年会上总是非常开心。你也会的。所以请来Qwest中心参加我们的年度“资本家的伍德斯托克”吧。
2004年2月27日
Warren E. Buffett
董事会主席