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 vicechairman, 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.

雖然並非完美,但計算帳面價值仍不失為於衡量實質價值長期成長率的有效工具,只是單一年度淨值的表現與S&P 500指數的比較(相關比較參閱首頁),其意義已不若以往,主要原因在於我們股票投資部位,包含可轉換特別股在內,佔我們淨值的比重已經大幅下降,從1980年代早期的114%,到2000-03年的50%,也因此股市波動對於我們淨值影響的程度已經大不如前。

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.


*All figures used in this report apply to Berkshire’s A shares, the successor to the only stock that the company had outstanding before 1996. The B shares have an economic interest equal to 1/30th that of the A.



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.


Operating Earnings Operating Earnings Subsequent Compounded

in $ millions Per Share in$ Growth 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.




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.

這件購併案的構想係出自於田納西大學一群財經系的學生以及老師Al Auxier博士,過去五年來,Al 每年都會帶他的學生到Omaha進行參訪,參觀NFM傢具店及波仙珠寶店、到Gorat’s吃牛排,之後再到Kiewit大樓與我一敘,通常學生人數在40位左右。

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.

在經過二小時的你來我往之後,參訪團按例都會贈送一份紀念品給我,(不拿上來,門是不會開的),往年的禮物,不是Phil Fulmer親自簽名的足球,不然就是田納西州著名女子籃球隊的籃球。

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.

不過今年二月,參訪團卻選擇贈送給我一本書- 那是Clayton房屋創辦人-Jim Clayton當時剛出版的自傳,我很久以前就知道該公司是組合房屋建築業的金字招牌,這源於過去我投資另一家同業Oakwood房屋垃圾債券的慘痛教訓,剛開始在我買進的當頭,我本來不清楚這行業的消費貸款競爭情況是如此的慘烈,不過不用多久,當Oakwood破產後,我就曉得了。

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.

在收到Jim Clayton的自傳後,我向在場的學生們表示個人相當崇拜他的事蹟,於是他們將這項訊息帶回家鄉Knoxville,那也是田納西大學與Clayton房屋的所在地,隨後Al更建議我打通電話給Jim Clayton的兒子,Clayton房屋現任總裁-Kevin,直接表達我個人的看法,在我跟Kevin一聊之後,馬上就了解他是一個能幹且有話直說的人。

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.

至於那40位有功的學生,我們十月在Knoxville舉辦了一次特別的畢業典禮,我身著學士帽,親自頒發每位學生一張Berkshire PhD(專門用以表彰對於Berkshire購併有功人員)外加每人一股Berkshire B股,至於Al教授則獲贈一股A股,所以如果各位在今年的股東大會上遇到來自田納西州的新股東,請向他們表示感謝,並記得順便問問他們最近讀了什麼新書。

* * * * * * * * * * * *

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.

今年初春,高盛證券一位執行董事-Byron Trott告訴我,威名百貨有意出售其子公司-McLane,該公司專門為便利商店、藥妝店、量販店、速食店、戲院等通路,提供配送雜貨以及非食品等物流服務,這是一家好公司,可惜卻不是威名百貨未來發展的核心事業,然而對我們來說,她卻有如量身訂做。

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.

McLane的年營業額高達230億美元,但利潤卻相當微薄,稅前利潤率約當1%,所以其對Berkshire營收的膨脹將遠大於盈餘的貢獻,在過去,某些通路商礙於McLane為主要對手的子公司而放棄她的服務,然而在該公司傑出經理人Grady Rosier的帶領下,已經成功攻下部份市場,即便是交易完成當頭,他依然在大步邁進當中。

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).

多年來,個人一直將財富雜誌每年固定舉辦的年度最佳企業獎投給威名百貨,在McLane的交易完成後,更加加深我的看法,在交易過程中,我只跟威名百貨的財務長Tom Schoewe有過一次二小時的單獨會面,之後雙方就握手達成共識,(那也是他第一次造訪Bentonville),29天之後,威名百貨就拿到錢,我們沒有執行任何實地查核程序,我們確信所有情況都會像威名所說的那樣,事後證明確實如此,有一點我要特別強調的是,截至目前為止,Byron累計已對三件Berkshire購併案有所啟發,他比過去任何一位與我們有過接觸的投資銀行家都了解Berkshire,而且我也不得不承認,他已賺了我們不少顧問費,不過我還是深深期待第四件案子發生,(而我相信他也還期待!)。



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.

2003年5月20號,華盛頓郵報的社論版面刊登了本人關於布希減稅政策的評論,13天後,美國財政部主管稅務政策的助理秘書Pamela Olson,在一場租稅新法令的演講中提到,「這代表,我必須這樣說,某位擅長玩弄稅法的中西部聖人,將可以放心地留住他賺到的所有錢」,我想她講的正是我本人!

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.)

可惜的是,我的琴技不要說無法讓我進入卡內基音樂廳,甚至可能連高中音樂會都派不上用場,Berkshire 2003年總計繳交了33億美元的所得稅,約佔全美所有企業繳交國庫的2.5%,(相對之下,Berkshire的市值僅佔全美企業總值的1%),這金額肯定可以讓我們名列全美納稅大戶前十名,沒錯,假使全只要有540個像Berkshire這樣的納稅人,不論是企業或是個人,其他所有人都可以不必再繳一毛的稅給美國政府,讓我再說一次,全美其餘2.9億的人民以及其他公司不必再支付一毛的所得稅、社會保險費、不動產契稅給聯邦政府,(這裡有一個簡單的數學算式,2003年聯邦政府稅收,包含社會保險費在內,金額為1.782兆美元,只要有540個像Berkshire,每位繳納33億美元就足矣!)。

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%.

即便如此,企業以及其投資人 (尤其是大股東)享有更多的租稅優惠,是2002年及2003年布希政府減稅法案的主軸,如果今天美國發生階級戰爭,則屬於我們這一階級顯然將獲得大勝,相較於其他美國大企業總裁所玩弄的技巧,本人的程度顯然只能算是個三歲小孩,支付的所得稅與法定聯邦所得稅率35%相差無幾。

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.

在判斷美國企業是否真的有心進行改革,CEO的薪資報酬絕對是最關鍵的指標之一,然而直到現在,其結果顯然令人感到相當失望,少數的CEO包含GE的Jeff Immelt帶頭推動公平對待經理人與股東雙方的方案,然而總的來說,他的示範所獲得表面的讚許顯然遠多於實際的跟進動作。

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.

為此我特定檢視了一下去年發佈的一些年報,看看目前共同基金依照法令設置的獨立董事是如何行使其職權的,獨立董事設置的法源 係根據1940年就訂定的投資公司法,這也意味我們可以有一段很長的時間來檢視法令訂定後的成果,身為董事,不論是共同基金或是其他行業,有兩項最重要的任務,分別是找到或留住才幹品行兼備的經理人,以及給予其適當合理的報酬,因此我們乃針對基金董事有關這兩項任務的表現記錄進行檢討。

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 boyswill- 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.

更慘的是,至少有一家為非作歹的管理公司公開對外標售,明目張膽的意圖將自己掌管的資金出賣給出價最高的競標者,這完全是一場拙劣的鬧劇,為何這些董事就不能選出一個真心替投資人著想的管理公司,同時直接跟對方簽約? 如此得標者就可以省下一筆原本必須給前任經理人的鉅額補償金,因為這位奢言治理原則的經理人根本就不配拿到任何一毛錢,而由於不必承擔這筆購併的成本,接任者肯定會接受以遠比通常管理費率還低的收費來管理公司,我相信任何一位真正獨立的董事都應該堅持採用這種方式選任新的基金經理人。

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.

現實的情況是幾十年規範投資公司董事的老規矩或者是壓倒美國企業的新規定都無法選任出真正具獨立性的董事,在兩種情況下,一旦有人可以百分之百靠收取董事酬勞過活,那麼他一定會想法子再去爭取擔任其他公司的董事,而離譜的是,這樣的做法竟然還可以被視為獨立,這實在完全沒有道理,另一方面,根據相同的規定,在Berkshire董事之一的Ron Olson律師反而變得不獨立,雖然他從Berkshire所得的收入僅佔其整體收入的3%,但他不被視為獨立的理由,竟然是因為他領的是法律顧問費而非董事的酬勞,我想大家可以確定的是,不論這3%的來源為何,都不會妨礙到Ron的獨立性,反之我認為不論名目為何,只要你從任何一個地方拿到20%、30%或50%,那肯定就會影響到獨立性,尤其考量到其他收入相對微薄之時,而我可以相當肯定的是在共同基金界的情況就是如此。

* * * * * * * * * * *

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.

去年,我們著手調整董事會組織,我公開徵求自認符合各項條件的股東自告奮勇擔任Berkshire董事,盡管沒有董事責任險或者高額的董事報酬,我們還是接到超過20件以上的申請,大部分申請者的條件都相當不錯,許多以股東利益為導向的個人連同家族持股都超過百萬美元,但在考量這些報名者後,查理跟我,在其他現任董事們的同意之下,我們還是邀請其他四位未提名自己擔任董事的人士加入董事會,他們分別是David Gottesman、Charlotte Guyman、Don Keough以及Tom Murphy,這四位都是我個人的好朋友,我很了解他們的能力,他們也會為Berkshire董事會增添了不少商業色彩。

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.)

董事會的主要責任就是選任未來接替我的人選,不管是在我死亡、失去能力或理智之後,(奧美廣告創辦人David Ogilvy曾說,在年輕時應該培養怪僻,這樣等你老了之後,就沒有人會認為你是阿達怪腳),查理跟我本人的家族都覺得我們倆對於Ogilvy的建議反應過度。

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.




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)

Other Other

Year GEICO General Re Reinsurance Primary 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.

不過這已經是過去式,通用再保已經完全恢復,這要感謝Joe Brandon總裁以及他的夥伴Tad Montross為我們所作的一切,當我去年在寫年報的時候,我以為所有核保的紀律以及損失準備的提列都已完全改進,2003年所發生的事件更加加深我這樣的看法。

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 AAArated 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.

經常閱讀本公司年報的讀者都知道Ajit Jain過去18年對於Berkshire的貢獻是如此之大,2003年他依然繼續付出,在只有23位同仁的協助之下,Ajit管理全世界最大的再保險業務,專門處理超大型非尋常的風險。

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.

在1992年Tony Nicely接手時,GEICO就已經是一家相當優秀的保險公司,現在它則蛻變成一家偉大的公司,在他任職期間,保費收入從原先的22億美元成長到目前的81億美元,而我們在小客車保險的市場佔有率從2.1%成長為5.0%,更重要的是,GEICO更還擁有優異的核保成績。

(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 or call 1-800-847-7536 to see what we can do for you.

自從67年前,在Leo Goodwin的創意下建立了GEICO保險公司後,這家公司已為成千上萬的保戶節省了無數的金錢,請上Geico.com網站或是打電話到1-800-847-7536,看看我們能為你做些什麼。

(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.

GEICO的業務不斷地成長使得我們必須一再擴充人員編制與配備,我很高興向大家報告,最近的一次擴編是在去年12月,我們在水牛城設立一個客戶服務中心,水牛城日報的發行人-Stan Lipsey對於引導GEICO進入水牛城有重大貢獻。

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.

這整起事件的主角,當屬州長George Pataki,在他的領導與堅持之下,我們的擴編計畫得以完全實現,水牛城也因此增加了2,500個就業機會,Stan、Tony以及我個人也包含水牛城都衷心感謝他的大力協助。

‧ 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.

Berkshire幾個規模較小的保險事業同樣也締造了驚人的成績,這個由Rod Eldred、John Kizer、Tom Nerney、Don Towle及Don Wurster領導的團體,浮存金成長了41%,同時也維持優良的核保績效,這些人的工作內容或許平淡無奇,但所創造的獲利卻極其驚人。

* * * * * * * * * * * *

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. Aaarrrggghh. I told you last year, however, that I thought our current reserving was at appropriate levels. So far, that judgment is holding up.

我自己也曾發生過失誤,其中尤以未能發現通用再保幾年前損失準備提列不當的過失,這不但代表我們提供不正確的報表數字給各位,同時也意味我們多支付大量稅金了給政府,啊!(慘叫一聲),去年我不是才告訴各位我們目前提列的準備還是適當嗎?? 目前這樣的判斷可能要暫時候住。

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 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.

剩下的19.5%權益則由Berkshire三位合作夥伴所持有,分別是Dave Sokol及Greg Abel,他們是美中能源傑出的專業經理人,另外一位是Walter Scott,他是我個人長期的好友,也是他引薦我投資這家公司的,由於美中能源公司受限於公用事業控股公司法(PUHCA)的規定,限制Berkshire的投票權最高只能達到9.9%,所以Walter他擁有絕對的控制權。

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.

美中能源另外還擁有一些非公用事業,那就是全美第二大不動產仲介商-美國居家服務,不同於公用事業,這行業的景氣波動相當的大,但我們仍然對其抱予熱烈的期望,我們擁有一位優異的經理人-Ron Peltier,透過其經營及購併長才,正逐漸建立起一個房屋仲介王國。

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.”
如果在看到我們處理衍生性金融商品的經驗,加上Freddie Mac去年被揭發大規模的舞弊行為後,讓你開始懷疑這方面的會計原則,這就表示你變聰明了,不管你具備有多豐富的金融知識,你都無法經由閱讀這些從事衍生性金融商品公司的相關揭露文件來了解它到底背負了多少潛藏的風險,事實上,你越了解這些衍生性金融商品,你就越知道這些制式文件能夠給你的訊息多麼地有限,套句達爾文的話,初生之犢不畏虎,越無知膽子越大,越有經驗就越怕死。

* * * * * * * * * * * *

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.)

接下來是懺悔時間,如果當初我當機立斷關掉通用再保證券部門,我確信可以為大夥省下稅前1億美元的損失,查理跟我當初在購併通用再保時,就知道其證券部門很令人討厭,只是當時帳面上的盈餘數字誤導了我們,雖然我們總是覺得這部門有極高的風險且無法有效的衡量或限制,更有甚者,我們知道這部份所可能產生的任何重大問題,無論是金融或是保險方面,再再皆與Berkshire其他營運隱含某些關連,換個角度說明,如果說我們打算繼續支撐衍生性金融商品部門,這代表我們必須放棄Berkshire本身原來可以運用的資金與信用所創造出潛在的更大利益,(歷史的經驗告訴我們, 1974年我們在保險舞弊案所經歷的慘痛教訓殷鑑不遠,我們無法判斷當時的舞弊事件將會引發多少的成本,這使得我們必須被迫將眾多的資金擺在流動性最高的約當現金之上,若非如此,當時我們大可以趁股市低檔大舉買進更多物廉價美的好股票)。

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.
雖然我們把通用再保龐大的人壽及健康再保險業務歸類在保險事業之下,另外我們則把Ajit Jain負責的人壽及年金業務歸類在財務及金融商品業務項下,這是因為他的業務大部分都牽涉到套利資金,我們的年金保險的種類,從網路直接零售到因重大職業傷害而要求我們在70年後付款的協議清償都有。

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.
目前我們投資了6.04億美元在Value Capital之上,這是由Mark Byrne所領導的合夥企業,他的家族一直以來都是Berkshire重要的支柱,Berkshire僅為Value Capital的有限責任合夥人,並未參與實際的營運管理,這家企業主要專精於高度避險的固定收益投資,Mark相當聰明且誠實,他和他的家人在Value Capital同樣有大筆的投資。

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.

由於安隆等公司濫用會計原則的關係,相關規定在近日將會修改,要求我們將Value Capital所有的資產與負債併入Berkshire合併報表之中,我們認為這樣的要求並不合理,由於Value Capital的負債經常維持在200億美元的高檔,而這顯然不是屬於我們的負債,不過不用過多久,等到其他投資人加入Value Capital後,我們在該公司的權益比例將逐漸下降,合併的條件也就跟著消失。

‧ 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.

過去我已跟各位提過Berkadia,這是我們在三年前與Leucadia合資成立的公司,主要目的是用來經營管理並金援一家面臨倒閉的融資公司-Finova,根據當初的計畫,我們將提供大部分的資金而Leucadia則負責出大腦管理,事後證明彼此合作愉快,確實在Leucadia的Joe Steinberg及Ian Cumming的領導之下,Finova順利成功地將原有的資產組合予以清算,這也使得當初我們提供的56億美元的連帶保證隨著取消,如此快速清償唯一的副作用是往後我們可以因此獲得的利益將大幅減少,不過總的來說,Berkadia為我們賺進大把的鈔票,而Joe及Ian實在是不可多得的合夥人。

‧ 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.
我們旗下三個建築材料事業,Acme 磚塊、Benjamin Moore油漆以及MiTek,去年的獲利紛紛創下歷史新高,至於第四個事業-Johns Manville的表現也於年底開始提升,總的來說,這些事業的淨值報酬率高達21%。

‧ 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.
Shaw地毯-全世界最大鋪地地毯製造商,去年同樣也締造了歷史記錄,在Bob Shaw的領導之下,從一家小公司發展成大企業,一般相信2004年該公司的獲利會持續創新高,同年11月Shaw又透過購併的方式買下年營業額2.4億美元的Dixie集團,使得Shaw的年營業額一舉突破50億美元。

‧ 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.

至於我們的服飾事業,規模最大的就屬Fruit of the Loom,該公司主要擁有三項資產,一是148年全世界知名的品牌、一是低製造成本、一是其總裁-John Holland,2003年Fruit囊括威名百貨、Target及K-mart等大賣場42.3%的男性及兒童內衣,而女性及少女內衣的比例也從2002年的11.3%成長到13.9%。

‧ 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.

有個例子足以說明NetJets為何可以拉大與競爭對手的差距,我們所推出與美國著名醫療機構Mayo Clinic合作的主管旅行回應系統,這是NetJets所有客戶都可免費享有的專屬福利,不論是在陸地上或者是在空中,不論是在世界上任何一個角落,不論何時何地,我們的客戶及其家人都可以與Mayo醫院取得直接聯繫,一旦意外發生,不論是在國內或者是海外,Mayo都會立即將他們受到最合適的醫院與醫生那裡接受醫療服務,而Mayo所擁有與病人有關的所有醫療記錄也將立即傳送給負責醫療的醫生,在這項服務開始提供之後,許多客戶立即發現其珍貴之處,包含一位曾在東歐地區接受腦部緊急手術的客戶。

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.

NetJets傑出的總裁-Rich Santulli以及我本人都有信心歐洲地區會在2004年轉虧為盈,也預期美國地區將持續獲利,更重要的是,我們的客戶愛死了NetJets所提供的服務,一旦客戶嚐試過我們的服務,就很難要他們在回到過去所搭乘傳統的航空公司班機,可以肯定的是就長期而言,NetJets一定可以發展成一個大企業,同時在客戶滿意以及企業獲利上,獲得重大成果,我相信Rich一定可以做到這一點。



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.

下表是Berkshire 2003年市價超過5億美元以上的股票投資。


Shares Company

Percentage of

Company Owned Cost Market

(in $ millions)

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.

去年我們增加了一些Wells Fargo股票,除此之外,在我們六大持股當中,可口可樂最後一次調整持股的時間是1994年、美國運通是1998年、吉列是1989年、華盛頓郵報是1973年,而慕迪信用是2000年,股票營業員實在拿我們沒有辦法。

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


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.

2003年投資人可以好好讀的好書,包含Maggie Mahar的「牛市!」,另外兩本推薦好書是Bethany McLean及Peter Elkind合著的「交易室裡最聰明的人」以及Bob Rubin「不確定的年代」,這三本書都寫得相當詳實,文筆也頗佳,此外Jason Zweig去年重編了智慧型投資人,這是我個人最鍾愛的投資工具書。

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 prochoice 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.

然而到了2003年,The Pampered Chef旗下許多獨立的會員卻開始感受到抵制的效應,這樣的演變代表某些信賴我們,但並非我們員工或是在Berkshire決策過程中無法發言的人將面臨收入銳減的困境。

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.

當然既然股東們都已經說話了,我們還是決定於五月一日星期六在奧瑪哈市中心新落成的Qwest中心舉行年度股東大會,Qwest中心這次提供了194,000平方英呎的場地給我們(去年只有65,000平方英呎),同時還增加了許多座位,Qwest中心的大門會在早上七點鐘準時開放、電影短片照例會在八點半播放,正式會議則從九點半開始,扣除中午短暫的休息時間, (會場外有供應三明治等各類點心),除了中午休息時間外,查理跟我本人會在現場一五一十地回答大家各類問題直到下午三點半,我會向各位爆更多的料。

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 72nd 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.

星期天下午,照例會在波仙珠寶店外面大廳為股東們舉辦的一場橋牌大賽,這次我們了邀請兩位世界級橋牌頂尖高手Bob Hamman、Sharon Osberg與大家同樂,此外Patrick Wolff-美國棋兩度冠軍,也會再度在會場矇著眼與所有挑戰者對奕,去年我特定留意了一下,他確實沒有偷看。

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.


Warren E. Buffett

February 27, 2004 Chairman of the Board





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