Berkshire Hathaway

BERKSHIRE HATHAWAY INC.

2003 ANNUAL REPORT

TABLE OF CONTENTS

Business Activities....................................................

Inside Front Cover

Corporate Performance vs. the S&P 500 ................................................ 2

Chairman’s Letter* ................................................................................. 3

Selected Financial Data For The

Past Five Years .................................................................................. 24

Acquisition Criteria ................................................................................ 25

Independent Auditors’ Report ................................................................ 25

Consolidated Financial Statements ......................................................... 26

Management’s Discussion ...................................................................... 52

Owner’s Manual ..................................................................................... 69

Common Stock Data............................................................................... 75

Operating Companies ............................................................................. 76

Directors and Officers of the Company .........................Inside Back Cover

*Copyright © 2004 By Warren E. Buffett

All Rights Reserved

Business Activities

Berkshire Hathaway Inc. is a holding company owning subsidiaries engaged in
a number of diverse business activities. The most important of these is the property and
casualty  insurance  business  conducted  on  both  a  direct  and  reinsurance  basis  through  a
number of subsidiaries. Included in this group of subsidiaries is GEICO, the fifth largest
auto  insurer  in  the  United  States,  General  Re,  one  of  the  four  largest  reinsurers  in  the
world, and the Berkshire Hathaway Reinsurance Group.

Numerous  business  activities  are  conducted  through  non-insurance  subsidiaries.
Included  in  the  non-insurance  subsidiaries  are  several  large  manufacturing  businesses.
Shaw Industries is the world’s largest manufacturer of tufted broadloom carpet. Benjamin
Moore is a formulator, manufacturer and retailer of architectural and industrial coatings.
Johns  Manville  is  a  leading  manufacturer  of  insulation  and  building  products.  Acme
Building Brands is a manufacturer of face brick and concrete masonry products. MiTek
Inc.  produces  steel  connector  products  and  engineering  software  for  the  building
components market.  Fruit of the Loom, Garan, Fechheimer, H.H. Brown, Lowell, Justin
Brands  and  Dexter  manufacture,  license  and  distribute  apparel  and  footwear  under  a
variety  of  brand  names.    McLane  Company  is  a  wholesale  distributor  of  groceries  and
nonfood items to convenience stores, wholesale clubs, mass merchandisers, quick service
restaurants and others.

FlightSafety  International  provides  training  of  aircraft  and  ship  operators.
NetJets  provides  fractional  ownership  programs  for  general  aviation  aircraft.    Nebraska
Furniture  Mart,  R.C.  Willey  Home  Furnishings,  Star  Furniture  and  Jordan’s  Furniture
are retailers of home furnishings. Borsheim’s, Helzberg Diamond Shops and Ben Bridge
Jeweler  are  retailers  of  fine  jewelry.    Berkshire’s  finance  and  financial  products
businesses primarily engage in proprietary investing strategies (BH Finance), commercial
and  consumer  lending  (Berkshire  Hathaway  Credit  Corporation  and  Clayton  Homes),
transportation equipment and furniture leasing (XTRA and CORT) and risk management
activities (General Re Securities).

In  addition,  Berkshire’s  other  non-insurance  business  activities  include:  Buffalo
News, a publisher of a daily and Sunday newspaper; See’s Candies, a manufacturer and
seller  of  boxed  chocolates  and  other  confectionery  products;  Scott  Fetzer,  a  diversified
manufacturer  and  distributor  of  commercial  and  industrial  products,  the  principal
products  are  sold  under  the  Kirby  and  Campbell  Hausfeld  brand  names;  Albecca,  a
designer,  manufacturer,  and  distributor  of  high-quality  picture  framing  products;  CTB
International, a manufacturer of equipment for the livestock and agricultural industries;
International  Dairy  Queen,  a  licensor  and  service  provider  to  about  6,000  stores  that
offer prepared dairy treats and food; and The Pampered Chef, the premier direct seller of
kitchen tools in the U.S.

Operating decisions for the various Berkshire businesses are made by managers
of the business units. Investment decisions and all other capital allocation decisions are
made  for  Berkshire  and  its  subsidiaries  by  Warren  E.  Buffett,  in  consultation  with
Charles  T.  Munger.  Mr.  Buffett  is  Chairman  and  Mr.  Munger  is  Vice  Chairman  of
Berkshire's Board of Directors.

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

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
1965
1966
1967
1968 
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003

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       Annual Percentage Change       

in Per-Share
Book Value of
Berkshire
           (1)           
23.8
20.3
11.0
19.0
16.2
12.0
16.4
21.7
4.7
5.5
21.9
59.3
31.9
24.0
35.7
19.3
31.4
40.0
32.3
13.6
48.2
26.1
19.5
20.1
44.4
7.4
39.6
20.3
14.3
13.9
43.1
31.8
34.1
48.3
.5
6.5
(6.2)
10.0
21.0

in S&P 500
with Dividends
Included
           (2)           
10.0
(11.7)
30.9
11.0
(8.4)
3.9
14.6
18.9
(14.8)
(26.4)
37.2
23.6
(7.4)
6.4
18.2
32.3
(5.0)
21.4
22.4
6.1
31.6
18.6
5.1
16.6
31.7
(3.1)
30.5
7.6
10.1
1.3
37.6
23.0
33.4
28.6
21.0
(9.1)
(11.9)
(22.1)
28.7

Average Annual Gain — 1965-2003
Overall Gain — 1964-2003

22.2
259,485

10.4
4,743

Relative
Results
   (1)-(2)  
13.8
32.0
(19.9)
8.0
24.6
8.1
1.8
2.8
19.5
31.9
(15.3)
35.7
39.3
17.6
17.5
(13.0)
36.4
18.6
9.9
7.5
16.6
7.5
14.4
3.5
12.7
10.5
9.1
12.7
4.2
12.6
5.5
8.8
.7
19.7
(20.5)
15.6
5.7
32.1
(7.7)

11.8

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.

2

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.

*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.

3

                                                                 
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  charac-
teristics;  (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
1964
1968
1973
1978
1983
1988
1993
1998
2003

Operating Earnings
in $ millions

Operating Earnings
Per Share in $

.2
2.7
11.9
30.0
48.6
313.4
477.8
1,277.0
5,422.0

.15
2.69
12.18
29.15
45.60
273.37
413.19
1,020.49
3,531.32

4

Subsequent Compounded
Growth Rate of Per-Share Earnings
Not meaningful  (1964-2003)
22.8%  (1968-2003)
20.8%  (1973-2003)
21.1%  (1978-2003)
24.3%  (1983-2003)
18.6%  (1988-2003)
23.9%  (1993-2003)
28.2%  (1998-2003)

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

5

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

6

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

7

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.

8

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.

9

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

10

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)
Other
Reinsurance

General Re

GEICO

2,917
3,125
3,444
3,943
4,251
4,678
5,287

14,909
15,166
15,525
19,310
22,207
23,654

40
701
4,014
4,305
6,285
7,805
11,262
13,396
13,948

Other
Primary
20
131
807
455
415
403
598
685
943
1,331

Total

20
171
1,508
7,386
22,754
25,298
27,871
35,508
41,224
44,220

Year
1967
1977
1987
1997
1998
1999
2000
2001
2002
2003

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.

11

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.

12

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.  Aaarrrggghh.  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:

Gen Re......................................................................................................
Ajit’s business excluding retroactive contracts ........................................
Ajit’s retroactive contracts* .....................................................................
GEICO......................................................................................................
Other Primary ...........................................................................................
Total .........................................................................................................

Gain (Loss) in $ millions
2002
$(1,393)
980
(433)
416
         32
$   (398)

2003
$   145
1,434
(387)
452
       74
$1,718

*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

13

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:

U.K. Utilities ......................................................................................................
Iowa....................................................................................................................
Pipelines .............................................................................................................
Home Services....................................................................................................
Other (Net) .........................................................................................................
Earnings before corporate interest and tax .........................................................
Corporate Interest, other than to Berkshire.........................................................
Interest Payments to Berkshire ...........................................................................
Tax......................................................................................................................
Net Earnings .......................................................................................................

Earnings Applicable to Berkshire*.....................................................................
Debt Owed to Others ..........................................................................................
Debt Owed to Berkshire .....................................................................................

Earnings (in $ millions)

2003
$     289
269
261
113
       144
1,076
(225)
(184)
       (251)
$     416

$     429
10,296
1,578

2002
$     267
241
104
70
       108
790
(192)
(118)
       (100)
$     380

$     359
10,286
1,728

*Includes interest paid to Berkshire (net of related income taxes) of $118 in 2003 and $75 in 2002.

14

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 
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?”)

I  couldn’t  pronounce,  much 

(some  having  names 

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. 

15

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

16

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.

Trading  – Ordinary Income ...........................
Gen Re Securities ...........................................
Life and annuity operation..............................
Value Capital..................................................
Berkadia .........................................................
Leasing operations..........................................
Manufactured housing finance (Clayton) .......
Other...............................................................
Income before capital gains............................
Trading – Capital Gains..................................
Total ...............................................................

Pre-Tax Earnings

Interest-bearing Liabilities

(in $ millions)

2003
$  379
   (99)
99
31
101
34
37**

     84
666
  1,215
$1,881

2002
$  553
  (173)
83
61
115
34
—
    102
775
     578
$1,353

2003
$7,826

8,041*
2,331
18,238*
525
482
2,032
    618

2002
$13,762
10,631*
1,568
20,359*
2,175
503
—
    630

N.A.

N.A.

*
**

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
Cash and equivalents .................................
Accounts and notes receivable ..................
Inventory ...................................................
Other current assets ...................................
Total current assets ....................................

Liabilities and Equity
$  1,250 Notes payable ...............................
2,796 Other current liabilities.................
Total current liabilities .................
3,656
       262
7,964

$  1,593
    4,300
5,893

Goodwill and other intangibles..................
Fixed assets ...............................................
Other assets ...............................................

8,351 Deferred taxes...............................
Term debt and other liabilities......
5,898
    1,054
Equity ...........................................
$23,267

105
1,890
  15,379
$23,267

17

Earnings Statement (in $ millions)

Revenues ............................................................................................................
Operating expenses (including depreciation of $605 in 2003

and $477 in 2002)........................................................................................
Interest expense (net)..........................................................................................
Pre-tax income....................................................................................................
Income taxes.......................................................................................................
Net income .........................................................................................................

2003
$32,106

2002
$16,970

29,885
         64
2,157
       813
$  1,344

14,921
       108
1,941
       743
$  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.

Building Products ...................................................................................................
Shaw Industries ......................................................................................................
Apparel ...................................................................................................................
Retail Operations....................................................................................................
Flight Services........................................................................................................
McLane *................................................................................................................
Other businesses .....................................................................................................

Pre-Tax Earnings
(in $ millions)
2002
2003
$   516
$   559
424
436
229
289
219
224
225
72
—
150
     328
     427
$1,941
$2,157

* 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.)

18

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.

19

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              Market
(in $  millions)

American Express Company ................
151,610,700
The Coca-Cola Company .....................
200,000,000
The Gillette Company ..........................
96,000,000
H&R Block, Inc....................................
14,610,900
15,476,500
HCA Inc. ..............................................
6,708,760 M&T Bank Corporation .......................
24,000,000 Moody’s Corporation ...........................
PetroChina Company Limited ..............
2,338,961,000
1,727,765
The Washington Post Company ...........
56,448,380 Wells Fargo & Company......................
Others ...................................................
Total Common Stocks ..........................

11.8
8.2
9.5
8.2
3.1
5.6
16.1
1.3
18.1
3.3

$  1,470
1,299
600
227
492
103
499
488
11
463
    2,863
$  8,515

$  7,312
10,150
3,526
809
665
659
1,453
1,340
1,367
3,324
    4,682
$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

Common Stocks ..............................................................................................................
U.S. Government Bonds..................................................................................................
Junk Bonds ......................................................................................................................
Foreign Exchange Contracts ...........................................................................................
Other................................................................................................................................

Pre-Tax Gain
(in $ million)
$   448
1,485
1,138
825
     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

20

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

21

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.

22

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.

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

23

BERKSHIRE HATHAWAY INC.
and Subsidiaries

Selected Financial Data for the Past Five Years
(dollars in millions except per share data)

Revenues:

Insurance premiums earned ..........................................
Sales and service revenues............................................
Interest, dividend and other investment income ...........
Interest and other revenues of finance and financial

2003

2002

2001

2000

1999

$21,493
32,098
3,098

$19,182
16,958
2,943

$17,905
14,507
2,765

$19,343
7,000
2,685

$14,306
5,918
2,314

products businesses....................................................
Realized investment gains (1) ........................................

3,041
    4,129

2,234
       918

1,928
    1,488

1,322
    4,499

1,105
    1,247

Total revenues...............................................................

$63,859

$42,235

$38,593

$34,849

$24,890

Earnings:

Net earnings (1) (2) (3).......................................................

$  8,151

$  4,286

$     795

$  3,328

$  1,557

Net earnings per share (3) ..............................................

$  5,309

$  2,795

$     521

$  2,185

$  1,025

Year-end data:

Total assets ................................................................... $180,559
Notes payable and other borrowings

$169,544

$162,752

$135,792

$131,416

of insurance and other non-finance businesses..........

4,182

4,775

3,455

2,611

2,465

Notes payable and other borrowings of 

finance businesses .....................................................
Shareholders’ equity .....................................................
Class A equivalent common shares

4,937
77,596

4,513
64,037

9,049
57,950

2,168
61,724

1,998
57,761

outstanding, in thousands...........................................

1,537

1,535

1,528

1,526

1,521

Shareholders’ equity per outstanding

Class A equivalent common share ............................. $  50,498

$  41,727

$  37,920

$  40,442

$  37,987

(1)

The amount of realized investment gains and losses for any given period has no predictive value, and variations in amount
from period to period have no practical analytical value, particularly in view of the unrealized appreciation now existing in
Berkshire's consolidated investment portfolio.  After-tax realized investment gains were $2,729 million in 2003, $566 million
in 2002, $923 million in 2001, $2,746 million in 2000 and $809 million in 1999.

(2)  Net earnings for the year ending December 31, 2001 includes pre-tax underwriting losses of $2.4 billion in connection with
the September 11th terrorist attack.  Such loss reduced net earnings by approximately $1.5 billion and earnings per share by
$982.

(3)  Effective January 1, 2002, Berkshire adopted Statement of Financial Accounting Standards (“SFAS”) No. 142 “Goodwill
and Other Intangible Assets.”  SFAS No. 142 changed the accounting for goodwill from a model that required amortization
of goodwill, supplemented by impairment tests, to an accounting model that is based solely upon impairment tests.

A reconciliation of Berkshire’s Consolidated Statements of Earnings for each of the five years ending December 31, 2003 from
amounts  reported  to  amounts  exclusive  of  goodwill  amortization  is  shown  below.    Goodwill  amortization  for  the  years  ending
December 31, 2001 and 2000 includes $78 million and $65 million, respectively, related to Berkshire’s equity method investment
in MidAmerican Energy Holdings Company.

Net earnings as reported ...........................................................
Goodwill amortization, after tax ...............................................
Net earnings as adjusted ...........................................................

Earnings per Class A equivalent common share:
As reported ................................................................................
Goodwill amortization...............................................................
Earnings per share as adjusted .................................................

2003
$8,151
       —
$8,151

$5,309
       —
$5,309

2002
$4,286
       —
$4,286

$2,795
       —
$2,795

2001
$    795
      636
$ 1,431

$    521
      416
$    937

2000
$  3,328
       548
$  3,876

1999
$  1,557
       476
$  2,033

$  2,185
      360
$  2,545

$  1,025
      313
$  1,338

24

BERKSHIRE HATHAWAY INC.

ACQUISITION CRITERIA

We are eager to hear from principals or their representatives about businesses that meet all of the following criteria:

Large purchases (at least $50 million of before-tax earnings),
Demonstrated consistent earning power (future projections are of no interest to us, nor are “turnaround” situations),
Businesses earning good returns on equity while employing little or no debt,

(1)
(2)
(3)
(4) Management in place (we can’t supply it),
(5)
(6)

Simple businesses (if there’s lots of technology, we won’t understand it),
An offering price (we don’t want to waste our time or that of the seller by talking, even preliminarily, 
about a transaction when price is unknown).

The larger the company, the greater will be our interest: We would like to make an acquisition in the $5-20 billion range.

We are not interested, however, in receiving suggestions about purchases we might make in the general stock market.

We  will  not  engage  in  unfriendly  takeovers.  We  can  promise  complete  confidentiality  and  a  very  fast  answer  —
customarily within five minutes — as to whether we’re interested. We prefer to buy for cash, but will consider issuing stock
when we receive as much in intrinsic business value as we give.  We don’t participate in auctions.

Charlie and I frequently get approached about acquisitions that don’t come close to meeting our tests: We’ve found that if
you advertise an interest in buying collies, a lot of people will call hoping to sell you their cocker spaniels. A line from  a
country song expresses our feeling about new ventures, turnarounds, or auction-like sales: “When the phone don’t ring, you’ll
know it’s me.”
_____________________________________________________________________________________________

INDEPENDENT AUDITORS’ REPORT

To the Board of Directors and Shareholders
Berkshire Hathaway Inc.

We  have  audited  the  accompanying  consolidated  balance  sheets  of  Berkshire  Hathaway  Inc.  and  subsidiaries  (the
“Company”) as of December 31, 2003 and 2002, and the related consolidated statements of earnings, cash flows and changes
in shareholders’ equity and comprehensive income for each of the three years in the period ended December 31, 2003.  These
financial  statements  are  the  responsibility  of  the  Company’s  management.    Our  responsibility  is  to  express  an  opinion  on
these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America.  Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements
are  free  of  material  misstatement.    An  audit  includes  examining,  on  a  test  basis,  evidence  supporting  the  amounts  and
disclosures  in  the  financial  statements.    An  audit  also  includes  assessing  the  accounting  principles  used  and  significant
estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits
provide a reasonable basis for our opinion.

In  our  opinion,  such  consolidated  financial  statements  present  fairly,  in  all  material  respects,  the  financial  position  of
Berkshire Hathaway Inc. and subsidiaries  as  of December  31,  2003  and  2002,  and  the results  of  their operations  and  their
cash  flows  for  each  of  the  three  years  in  the  period  ended  December  31,  2003  in  conformity  with  accounting  principles
generally accepted in the United States of America.

As described  in  Note  1  to  the  consolidated  financial  statements,  the  Company  adopted  Statement  of  Financial  Accounting
Standards No. 142 (“SFAS 142”), “Goodwill and Other Intangible Assets”, effective January 1, 2002.

DELOITTE & TOUCHE LLP
March 4, 2004
Omaha, Nebraska

25

BERKSHIRE HATHAWAY INC.
and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(dollars in millions except per share amounts)

ASSETS
Insurance and Other:

Cash and cash equivalents..............................................................................................
Investments:

Fixed maturity securities.............................................................................................
Equity securities .........................................................................................................
Other ...........................................................................................................................
Receivables ....................................................................................................................
Inventories......................................................................................................................
Property, plant and equipment........................................................................................
Goodwill of acquired businesses....................................................................................
Deferred charges reinsurance assumed ..........................................................................
Other...............................................................................................................................

Investments in MidAmerican Energy Holdings Company .............................................
Finance and Financial Products:

Cash and cash equivalents..............................................................................................
Investments in fixed maturity securities:

Available-for-sale .......................................................................................................
Other ...........................................................................................................................
Trading account assets ...................................................................................................
Loans and finance receivables........................................................................................
Other...............................................................................................................................

LIABILITIES AND SHAREHOLDERS’ EQUITY
Insurance and Other:

Losses and loss adjustment expenses .............................................................................
Unearned premiums .......................................................................................................
Life and health insurance benefits..................................................................................
Other policyholder liabilities..........................................................................................
Accounts payable, accruals and other liabilities.............................................................
Income taxes, principally deferred .................................................................................
Notes payable and other borrowings ..............................................................................

Finance and Financial Products:

Securities sold under agreements to repurchase .............................................................
Trading account liabilities ..............................................................................................
Notes payable and other borrowings ..............................................................................
Other...............................................................................................................................

Total liabilities..............................................................................................................
Minority shareholders’ interests........................................................................................
Shareholders’ equity:

Common stock - Class A, $5 par value and Class B, $0.1667 par value........................
Capital in excess of par value.........................................................................................
Accumulated other comprehensive income....................................................................
Retained earnings ...........................................................................................................
Total shareholders’ equity ........................................................................................

See accompanying Notes to Consolidated Financial Statements

26

December 31,

2003

2002

$  31,262

$  10,283

26,116
35,287
2,924
12,314
3,656
6,260
22,948
3,087
      4,468
  148,322
      3,899

38,096
28,363
3,752
13,153
3,030
5,368
22,298
3,379
     4,023
 131,745
     3,651

4,695

2,465

9,092
711
4,519
4,951
      4,370
    28,338
$180,559

$  45,393
6,308
2,872
3,635
6,386
11,479
      4,182
    80,255

7,931
5,445
4,937
      3,650
    21,963
  102,218
         745

8
26,151
19,556
    31,881
    77,596
$180,559

15,666
1,187
6,874
3,863
     4,093
   34,148
$169,544

$  43,771
6,694
2,642
4,218
4,995
8,051
     4,775
   75,146

13,789
7,274
4,513
     3,394
   28,970
 104,116
     1,391

8
26,028
14,271
   23,730
   64,037
$169,544

BERKSHIRE HATHAWAY INC.
and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
(dollars in millions except per share amounts)

Year Ended December 31,
2002

2003

2001

Revenues:
Insurance and Other:

Insurance premiums earned..............................................................
Sales and service revenues ...............................................................
Interest, dividend and other investment income ...............................
Realized investment gains ................................................................

$21,493
32,098
3,098
    2,914

$19,182
16,958
2,943
       340

$17,905
14,507
2,765
    1,363

Finance and Financial Products:

Interest income .................................................................................
Realized investment gains ................................................................
Other.................................................................................................

1,093
1,215
    1,948

1,497
578
       737

1,377
125
       551

  59,603

  39,423

  36,540

    4,256

    2,812

    2,053

  63,859

  42,235

  38,593

Costs and expenses:
Insurance and Other:

Insurance losses and loss adjustment expenses ................................
Insurance underwriting expenses......................................................
Cost of sales and services .................................................................
Selling, general and administrative expenses ...................................
Goodwill amortization......................................................................
Interest expense ................................................................................

14,927
4,848
25,737
4,228
—
       153

15,256
4,324
11,971
3,033
—
       192

18,385
3,574
10,340
2,735
572
       205

Finance and Financial Products:

Interest expense................................................................................
Other.................................................................................................

319
    2,056

533
       926

763
       715

  49,893

  34,776

  35,811

Earnings before income taxes and equity in earnings of 

MidAmerican Energy Holdings Company...................................
Equity in earnings of MidAmerican Energy Holdings Company .......

Earnings before income taxes and minority interests ....................
Income taxes.....................................................................................
Minority shareholders’ interests .......................................................

    2,375

    1,459

    1,478

  52,268

  36,235

  37,289

11,591
       429

12,020
3,805
         64

6,000
       359

6,359
2,059
         14

1,304
       134

1,438
590
         53

Net earnings .......................................................................................

$  8,151

$  4,286

$     795

Average common shares outstanding * ............................................

1,535,405

1,533,294

1,527,234

Net earnings per common share *....................................................

$  5,309

$  2,795

$      521

*      Average  shares  outstanding  include  average  Class  A  common  shares  and  average  Class  B  common
shares  determined  on  an  equivalent  Class  A  common  stock  basis.  Net  earnings  per  common  share
shown above represents net earnings per equivalent Class A common share. Net earnings per Class B
common share is equal to one-thirtieth (1/30) of such amount or $177 per share for 2003, $93 per share
for 2002, and $17 per share for 2001.

See accompanying Notes to Consolidated Financial Statements

27

BERKSHIRE HATHAWAY INC.
and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in millions)

Year Ended December 31,
2001
2002
2003

Cash flows from operating activities:

 Net earnings................................................................................................
 Adjustments to reconcile net earnings to cash flows

$  8,151

$  4,286

$   795

from operating activities:

Realized investment gains ..........................................................................
Depreciation and amortization....................................................................
Changes in assets and liabilities before effects from

business acquisitions:
Losses and loss adjustment expenses.......................................................
Deferred charges reinsurance assumed ....................................................
Unearned premiums .................................................................................
Receivables ..............................................................................................
Accounts payable, accruals and other liabilities ......................................
Finance businesses operating activities....................................................
Income taxes ............................................................................................
Other...........................................................................................................

(4,129)
520

(918)
520

(1,488)
945

397
292
(585)
2,018
(907)
1,558
505
       437

3,209
(147)
1,880
(896)
1,062
2,940
195
      (996)

7,571
(498)
929
219
(339)
(1,083)
(329)
     (148)

Net cash flows from operating activities ....................................................

    8,257

  11,135

    6,574

Cash flows from investing activities:

 Purchases of securities with fixed maturities..............................................
 Purchases of equity securities.....................................................................
 Proceeds from sales of securities with fixed maturities..............................
 Proceeds from redemptions and maturities of securities

with fixed maturities ................................................................................
 Proceeds from sales of equity securities.....................................................
 Loans and investments originated in finance businesses............................
 Principal collection on loans and investments

originated in finance businesses...............................................................
 Acquisitions of businesses, net of cash acquired........................................
 Other...........................................................................................................

(9,924)
(1,842)
17,650

9,847
3,159
(3,046)

(16,288)
(1,756)
9,108

(16,475)
(1,075)
8,427

6,740
1,340
(2,281)

4,305
3,881
(9,502)

4,241
(3,213)
     (759)

5,226
(2,620)
     (780)

4,126
(4,697)
     (684)

Net cash flows from investing activities.....................................................

  16,113

  (1,311)

(11,694)

Cash flows from financing activities:

 Proceeds from borrowings of finance businesses .......................................
 Proceeds from other borrowings.................................................................
 Repayments of borrowings of finance businesses ......................................
 Repayments of other borrowings................................................................
 Change in short term borrowings of finance businesses.............................
 Changes in other short term borrowings.....................................................
 Other...........................................................................................................

2,479
822
(2,260)
(783)
(63)
(642)
     (714)

211
1,472
(3,802)
(774)
(1,207)
380
       146

6,288
824
(865)
(798)
794
(345)
       116

Net cash flows from financing activities ....................................................

  (1,161)

  (3,574)

    6,014

Increase in cash and cash equivalents.........................................................
Cash and cash equivalents at beginning of year ...............................................

23,209
  12,748

6,250
    6,498

894
    5,604

Cash and cash equivalents at end of year *..................................................

$35,957

$12,748

$  6,498

* Cash and cash equivalents at end of year are comprised of the following:

Insurance and Other...................................................................................
Finance and Financial Products ................................................................

$31,262
    4,695
$35,957

$10,283
    2,465
$12,748

$  5,313
    1,185
$  6,498

See accompanying Notes to Consolidated Financial Statements

28

BERKSHIRE HATHAWAY INC.
and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
AND COMPREHENSIVE INCOME
(dollars in millions)

Year Ended December 31,
2002

2001

2003

Class A & B Common Stock

Balance at beginning and end of year........................................................

$         8

$         8

$         8

Capital in Excess of Par Value

Balance at beginning of year .....................................................................
Common stock issued in connection with business acquisitions ...........
Exercise of stock options issued in connection with business

$26,028
—

$25,607
324

$25,524
—

acquisitions and SQUARZ warrant premiums .................................

      123

         97

         83

Balance at end of year ...............................................................................

$26,151

$26,028

$25,607

Retained Earnings

Balance at beginning of year .....................................................................
Net earnings ...........................................................................................

$23,730
    8,151

$19,444
    4,286

$18,649
       795

Balance at end of year ...............................................................................

$31,881

$23,730

$19,444

Accumulated Other Comprehensive Income

Unrealized appreciation of investments ....................................................
Applicable income taxes ......................................................................

$12,049
(4,158)

$  3,140
(1,147)

$ (5,583)
1,956

Reclassification adjustment for appreciation

included in net earnings....................................................................
Applicable income taxes ......................................................................
Foreign currency translation adjustments and other ..................................
Applicable income taxes ......................................................................
Minimum pension liability adjustment......................................................
Applicable income taxes ......................................................................
Other..........................................................................................................
Other comprehensive income (loss) ..........................................................
Accumulated other comprehensive income at beginning of year..............

(4,129)
1,379
267
(127)
1
(3)
          6
  5,285
  14,271

(918)
341
272
(65)
(279)
29
          7
  1,380
  12,891

(1,488)
536
(114)
24
(35)
12
         40
(4,652)
  17,543

Accumulated other comprehensive income at end of year ........................

$19,556

$14,271

$12,891

Comprehensive Income

Net earnings...............................................................................................
Other comprehensive income (loss) ..........................................................

$  8,151
    5,285

$  4,286
    1,380

$     795
  (4,652)

Total comprehensive income (loss)...........................................................

$13,436

$  5,666

$(3,857)

See accompanying Notes to Consolidated Financial Statements

29

BERKSHIRE HATHAWAY INC.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003

(1)  Significant accounting policies and practices

(a)

Nature of operations and basis of consolidation
Berkshire Hathaway Inc. (“Berkshire” or “Company”) is a holding company owning subsidiaries engaged
in  a  number  of  diverse  business  activities.    The  most  important  of  these  are  property  and  casualty
insurance businesses conducted on both a primary and reinsurance basis.  Further information regarding
these businesses and Berkshire’s other reportable business segments is contained in Note 20.  Berkshire
initiated  and/or  consummated  a  number  of  business  acquisitions  over  the  past  three  years  which  are
discussed in Note 2.

(b)

(c)

(d)

The accompanying Consolidated Financial Statements include the accounts of Berkshire consolidated with
the  accounts  of  all  of  its  subsidiaries  and  affiliates  in  which  Berkshire  holds  a  controlling  financial
interest  as  of  the  financial  statement  date.    Normally  control  reflects  ownership  of  a  majority  of  the
voting  interests.    Other  factors  considered  in  determining  whether  control  is  held  include  whether
Berkshire provides significant financial support as a result of its authority to purchase or sell assets or
make  other  operating  decisions  that  significantly  affect  the  entity’s  results  of  operations  and  whether
Berkshire bears a majority of the financial risks.

Intercompany  accounts  and  transactions  have  been  eliminated.    Certain  amounts  in  2002  and  2001  have

been reclassified to conform with the current year presentation.

Use of estimates in preparation of financial statements
The preparation of the Consolidated Financial Statements in conformity with generally accepted accounting
principles (“GAAP”) requires management to make estimates and assumptions that affect the reported
amount  of  assets  and  liabilities  at  the  date  of  the  financial  statements  and  the  reported  amount  of
revenues and expenses during the period.  In particular, estimates of unpaid losses and loss adjustment
expenses and related recoverables under reinsurance for property and casualty insurance are subject to
considerable estimation error due to the inherent uncertainty in projecting ultimate claim amounts that
will  be  reported  and  settled  over  a  period  of  many  years.    In  addition,  estimates  and  assumptions
associated  with  the  amortization  of  deferred  charges  reinsurance  assumed,  the  determination  of  fair
value of invested assets and related impairments, and the determination of goodwill impairments require
considerable judgement by management.  Actual results may differ from the estimates and assumptions
used in preparing the Consolidated Financial Statements.

Cash equivalents
Cash  equivalents  consist  of  funds  invested  in  U.S.  Treasury  Bills,  money  market  accounts,  and  in  other

investments with a maturity of three months or less when purchased.

Investments
Berkshire’s  management  determines  the  appropriate  classifications  of  investments  in  fixed  maturity
securities  and  equity  securities  at  the  time  of  acquisition  and  re-evaluates  the  classifications  at  each
balance  sheet  date.    Berkshire’s  investments  in  fixed  maturity  and  equity  securities  are  primarily
classified  as  available-for-sale,  except  for  certain  securities  held  by  finance  businesses  which  are
classified as held-to-maturity.

Held-to-maturity investments are carried at amortized cost, reflecting Berkshire’s intent and ability to hold
the securities to maturity.  Available-for-sale securities are stated at fair value with net unrealized gains
or losses reported as a component of accumulated other comprehensive income.

Realized gains and losses arise when investments are sold (as determined on a specific identification basis)
or  are  other-than-temporarily  impaired  and  are  included  in  the  Consolidated  Statements  of  Earnings.
Berkshire  reviews  investments  classified  as  held-to-maturity  or  available-for-sale  as  of  each  balance
sheet date with respect to investments of an issuer carried at a net unrealized loss.  If in management’s 

30

(1)  Significant accounting policies and practices (Continued)

(d) 

Investments (Continued)

judgement,  the decline  in  value  is other-than-temporary,  the  cost of  the  investment  is  written  down  to
fair  value  with  a  corresponding  charge  to  earnings.    Factors  considered  in  determining  whether  an
impairment exists include: the financial condition, business prospects and creditworthiness of the issuer,
the length of time that the asset’s fair value has been less than cost, and Berkshire’s ability and intent to
hold such investments until the fair value recovers.

Berkshire utilizes the equity method of accounting with respect to investments where it exercises significant
influence,  but  not  control,  over  the  policies  of  the  investee.    A  voting  interest  of  at  least  20%  and  no
greater  than  50%  is  normally  a  prerequisite  for  utilizing  the  equity  method.    However  Berkshire  may
apply  the  equity  method  with  less  than  20%  voting  interests  based  upon  the  facts  and  circumstances
including representation on the Board of Directors, contractual veto or approval rights, participation in
policy making processes and the existence or absence of other significant owners.  Berkshire applies the
equity method to investments in common stock and investments in preferred stock when such preferred
stock possesses substantially identical subordinated interests to common stock.  Berkshire accounts for
investments in unconsolidated limited partnerships under the equity method.

In applying the equity method, investments are recorded at cost and subsequently increased or decreased by
the proportionate share of net earnings or losses of the investee.  Berkshire also records its proportionate
share of other comprehensive income items of the investee as a component of its comprehensive income.
Dividends or other equity distributions are recorded as a reduction of the investment.  In the event that
net losses of the investee have reduced the equity method investment to zero, additional net losses may
be recorded if additional investments in the investee are at-risk, even if Berkshire has not committed to
provide financial support to the investee.  Berkshire bases such additional equity method loss amounts, if
any, on the change in its claim on the investee’s book value.

Loans and finance receivables
Loans  and  finance  receivables  consist  of  commercial  and  consumer  loans  originated  or  purchased  by
Berkshire’s  finance  and  financial  products  businesses.    Loans  and  finance  receivables  are  carried  at
amortized cost.

Derivatives
Derivative  contracts  are  predominantly  used  to  manage  economic  risks  associated  with  financial
instruments  of  finance  and  financial  products  businesses,  including  other  derivative  contracts.    In
addition, Berkshire enters into derivative contracts to manage general economic risks of the Company as
a whole.  Derivative instruments include interest rate, currency and equity swaps and options, interest
rate caps and floors, futures and forward contracts and foreign currency exchange contracts.

Berkshire carries all derivative contracts at estimated fair value.  These contracts are classified as trading
account  assets  or  trading  account  liabilities  in  the  accompanying  Consolidated  Balance  Sheets  and
reflect  reductions  permitted  under  master  netting  agreements  with  counterparties.    The  fair  values  of
these instruments represent the present value of expected future cash flows under the contract, which is
a  function  of  underlying  interest  rates,  currency  rates,  security  values,  related  volatility,  the
creditworthiness  of  counterparties  and  duration  of  the  contract.    Future  changes  in  these  factors  or  a
combination thereof may affect the fair value of  these  instruments.    Most  derivative  contracts  entered
into by Berkshire are not designated as hedges for accounting purposes.  Realized and unrealized gains
and losses from such contracts are included in the Consolidated Statements of Earnings.

(e)

(f)

(g)

Securities sold under agreements to repurchase
Securities  sold  under  agreements  to  repurchase  are  accounted  for  as  collateralized  borrowings  and  are

recorded at the contractual repurchase amounts.

31

Notes to Consolidated Financial Statements (Continued)

(1) Significant accounting policies and practices (Continued)

(h)

(i)

(j)

(k)

(l)

Inventories
Inventories are stated at the lower of cost or market.  Cost with respect to manufactured goods includes raw
materials, direct and indirect labor and factory overhead.  As of December 31, 2003, approximately 59%
of  the  total  inventory  cost  was  determined  using  the  last-in-first-out  (“LIFO”)  method,  28%  using  the
first-in-first-out  (“FIFO”)  method,  with  the  remainder  using  the  specific  identification  method.    With
respect to inventories carried at LIFO cost, the aggregate difference in value between LIFO cost and cost
determined under FIFO methods was not material as of December 31, 2003 and December 31, 2002.

Property, plant and equipment
Property, plant and equipment is recorded at cost.  Depreciation is provided principally on the straight-line
method over estimated useful lives as follows:  aircraft, simulators, training equipment and spare parts, 4
to 20 years; buildings and improvements, 10 to 40 years; machinery, equipment, furniture and fixtures, 3
to  20  years.    Leasehold  improvements  are  amortized  over  the  life  of  the  lease  or  the  life  of  the
improvement, whichever is shorter.  Interest is capitalized as an integral component of cost during the
construction period of simulators and facilities and is amortized over the life of the related assets.

Goodwill of acquired businesses
Goodwill of acquired businesses represents the difference between purchase cost and the fair value of net
assets  of  acquisitions  accounted  for  under  the  purchase  method.    Prior  to  2002,  goodwill  from  each
acquisition  was  generally  amortized  as  a  charge  to  earnings  over  periods  not  exceeding  40  years,  and
was reviewed for impairment if conditions were identified that indicated possible impairment.

Effective January 1, 2002, Berkshire adopted Statement of Financial Accounting Standards (“SFAS”) No.
142  “Goodwill  and  Other  Intangible  Assets.”    SFAS  No.  142  eliminated  the  periodic  amortization  of
goodwill  in  favor  of  an  accounting  model  that  is  based  solely  upon  impairment  tests.    Goodwill  is
reviewed  for  impairment  using  a  variety  of  methods  at  least  annually,  and  impairments,  if  any,  are
charged to earnings.  Annual impairment tests are performed in the fourth quarter.

Revenue recognition
Insurance  premiums  for  prospective  property/casualty  insurance  and  reinsurance  and  health  reinsurance
policies are earned in proportion to the level of insurance protection provided.  In most cases, premiums
are recognized as revenues ratably over their terms with unearned premiums computed on a monthly or
daily pro rata basis.  Premium adjustments on contracts and audit premiums are based on estimates made
over the contract period.  Premiums for retroactive reinsurance policies are earned at the inception of the
contracts.  Premiums for life reinsurance contracts are earned when due.  Premiums earned are stated net
of  amounts  ceded  to  reinsurers.    Premiums  are  estimated  with  respect  to  certain  reinsurance  contracts
where  premiums  are  based  upon  reports  from  ceding  companies  for  the  reporting  period  that  are
contractually due after the balance sheet date.

Revenues  from  product  sales  are  recognized  upon  passage  of  title  to  the  customer,  which  generally
coincides  with  customer  pickup,  product  shipment,  delivery  or  acceptance,  depending  on  terms  of  the
sales arrangement.  Service revenues are recognized as the services are performed.  Services provided
pursuant to a contract are either recognized over the contract period, or upon completion of the elements
specified in the contract, depending on the terms of the contract.

Losses and loss adjustment expenses
Liabilities  for  unpaid  losses and  loss  adjustment  expenses  represent  estimated  claim  and  claim  settlement
costs of property/casualty insurance and reinsurance contracts with respect to losses that have occurred
as of the balance sheet date.  The liabilities for losses and loss adjustment expenses are recorded at the
estimated  ultimate  payment  amounts,  except  that  amounts  arising  from  certain  workers’  compensation
reinsurance business are discounted as discussed below.  Estimated ultimate payment amounts are based
upon  (1)  individual  case  estimates,  (2)  reports  of  losses  from  ceding  insurers  and  (3)  estimates  of
incurred but not reported (“IBNR”) losses.

The estimated liabilities of workers’ compensation claims assumed under reinsurance contracts are carried
in  the  Consolidated  Balance  Sheets  at  discounted  amounts.    Discounted  amounts  are  based  upon  an
annual discount rate of 4.5% for claims arising prior to 2003 and 1% for claims arising after 2002.  The 

32

(1)  Significant accounting policies and practices (Continued)

(l)

Losses and loss adjustment expenses (Continued)

lower  rate  for  post-2002  claims  reflects  the  lower  interest  rate  environment  prevailing  in  the  United
States.  The discount rates are the same rates used under statutory accounting principles.  The periodic
discount accretion is included in the Consolidated Statements of Earnings as a component of losses and
loss adjustment expenses.

(m) Deferred charges reinsurance assumed

The excess of estimated liabilities for claims and claim costs over the consideration received with respect to
retroactive property and casualty reinsurance contracts that provide for indemnification of insurance risk
is established as a deferred charge at inception of such contracts.  The deferred charges are subsequently
amortized  using  the  interest  method  over  the  expected  claim  settlement  periods.    The  periodic
amortization charges are reflected in the accompanying Consolidated Statements of Earnings as losses
and loss adjustment expenses.

Changes to the expected timing and estimated amount of loss payments produce changes in the unamortized
deferred charge balance.  Such changes in estimates are accounted for retrospectively with the net effect
included in amortization expense in the period of the change.

Reinsurance
Provisions  for  losses  and  loss  adjustment  expenses  are  reported  in  the  accompanying  Consolidated
Statements of Earnings after deducting amounts recovered and estimates of amounts recoverable under
reinsurance  contracts.    Reinsurance  contracts  do  not  relieve  the  ceding  company  of  its  obligations  to
indemnify policyholders with respect to the underlying insurance and reinsurance contracts.

Insurance premium acquisition costs
Certain costs of acquiring insurance premiums are deferred, subject to ultimate recoverability, and charged
to  income  as  the  premiums  are  earned.    Acquisition  costs  consist  of  commissions,  premium  taxes,
advertising  and  other  underwriting  costs.    The  recoverability  of  premium  acquisition  costs,  generally,
reflects anticipation of investment income.  The unamortized balances of deferred premium acquisition
costs are included in other assets and were $1,278 million and $1,303 million at December 31, 2003 and
2002, respectively.

Foreign currency
The accounts of foreign-based subsidiaries are measured using the local currency as the functional currency.
Revenues and expenses of these businesses are translated into U.S. dollars at the average exchange rate
for  the  period.   Assets  and  liabilities  are  translated  at  the  exchange rate  as of  the  end of  the  reporting
period.    Gains  or  losses  from  translating  the  financial  statements  of  foreign-based  operations  are
included  in  shareholders’  equity  as  a  component  of  accumulated  other  comprehensive  income.    Gains
and  losses  arising  from  other  transactions  denominated  in  a  foreign  currency  are  included  in  the
Consolidated Statements of Earnings.

Deferred income taxes
Deferred  income  taxes  are  calculated  under  the  liability  method.    Deferred  tax  assets  and  liabilities  are
recorded based on differences between the financial statement and tax bases of assets and liabilities at
the  enacted  tax  rates.    Changes  in  deferred  income  tax  assets  and  liabilities  that  are  associated  with
components  of  other  comprehensive  income,  primarily  unrealized  investment  gains,  are  charged  or
credited directly to other comprehensive income.  Otherwise, changes in deferred income tax assets and
liabilities are included as a component of income tax expense.

Accounting pronouncements to be adopted in 2004
In December 2003, the Financial Accounting Standards Board (“FASB”) issued a revision to Statement No.
132, “Employers’ Disclosures about Pension Plans and Other Post Retirement Benefits”, which requires
additional quantitative and qualitative disclosures concerning plan assets and benefit obligations. Certain
of the new disclosures are effective immediately for U.S. plans and are included in Note 17.

(n)

(o)

(p)

(q)

(r)

33

Notes to Consolidated Financial Statements (Continued)

(1) Significant accounting policies and practices (Continued)

(r)

Accounting pronouncements to be adopted in 2004 (Continued)
In December 2003, the FASB issued a revision to Interpretation No. 46, “Consolidation of Variable Interest
Entities”  (“FIN  46”),  which  was  originally  issued  in  January  2003.    FIN  46,  as  revised,  provides
guidance  on  the  consolidation  of  certain  entities  when  control  exists  through  other  than  voting  (or
similar) interests and was effective immediately with respect to entities created after January 31, 2003.
For  certain  special  purpose  entities  created  prior  to  February  1,  2003,  FIN  46,  as  revised,  became
effective for financial statements issued after December 15, 2003.  FIN 46, as revised, is effective for all
other entities created prior to February 1, 2003 beginning with financial statements for reporting periods
ending after March 15, 2004.

FIN 46, as revised, requires consolidation by the majority holder of expected residual gains and losses of the
activities  of  a  variable  interest  entity  (“VIE”).    Berkshire  is  a  limited  partner  in  Value  Capital  L.P.
(“Value  Capital”),  whose  objective  is  to  achieve  income  and  capital  growth  from  investment  and
arbitrage of fixed maturity securities.  See Note 10.  Neither Berkshire nor any of its subsidiaries possess
any  management  authority  over  Value  Capital  and  possess  no  voting  or  similar  rights.  Berkshire
conducts no business activities with Value Capital.  Berkshire does not guaranty or provide any financial
support with respect to the obligations of Value Capital beyond its direct equity investment.

Berkshire has concluded that Value Capital meets the definition of a VIE under FIN 46, as revised.  As the
primary beneficiary of the VIE, Berkshire is required to consolidate Value Capital beginning in the first
quarter  of  2004.    This  change  will  have  no  effect  on  previously  reported  net  earnings.    Berkshire’s
consolidated  assets  and  liabilities  will  increase  approximately  $18.5  billion  based  upon  the  assets  and
liabilities of Value Capital as of December 31, 2003.

(2) Significant business acquisitions

Berkshire’s long-held acquisition strategy is to purchase businesses with consistent earning power, good returns on
equity, able and honest management and at sensible prices.  Businesses with these characteristics typically have market
values that exceed net asset value, thus producing goodwill for accounting purposes.

On May 23, 2003, Berkshire acquired McLane Company, Inc. (“McLane”), from Wal-Mart Stores, Inc. for cash
consideration of approximately $1.5 billion.  McLane is one of the nation’s largest wholesale distributors of groceries
and nonfood items to convenience stores, wholesale clubs, mass merchandisers, quick service restaurants, theaters and
others.

On August 7, 2003, Berkshire acquired  all  the  outstanding  common  stock  of  Clayton  Homes,  Inc.  (“Clayton”)  for
cash consideration of approximately $1.7 billion in the aggregate.  Clayton is a vertically integrated manufactured housing
company with 20 manufacturing plants, 306 company owned stores, 535 independent retailers, 89 manufactured housing
communities and financial services operations that provide mortgage services and insurance protection.

During 2002, Berkshire completed five business acquisitions for cash consideration of approximately $2.3 billion

in the aggregate. Information concerning these acquisitions follows.

Albecca Inc. (“Albecca”)
On February 8, 2002, Berkshire acquired all of the outstanding shares of Albecca.  Albecca designs, manufactures

and distributes a complete line of high-quality custom picture framing products primarily under the Larson-Juhl name.

Fruit of the Loom (“FOL”)
On April 30, 2002, Berkshire acquired the basic apparel business of Fruit of the Loom, LTD.  FOL is a leading
vertically  integrated  basic  apparel  company  manufacturing  and  marketing  underwear,  activewear,  casualwear  and
childrenswear.  FOL operates on a worldwide basis and sells its products principally in North America under the Fruit of
the Loom and BVD brand names.

Garan, Incorporated (“Garan”)
On  September  4,  2002,  Berkshire  acquired  all  of  the  outstanding  common  stock  of  Garan.    Garan  is  a  leading
manufacturer of children’s, women’s, and men’s apparel bearing the private labels of its customers as well as several of
its own trademarks, including GARANIMALS.

CTB International (“CTB”)
On October 31, 2002, Berkshire acquired all of the outstanding shares of CTB, a manufacturer of equipment and

systems for the poultry, hog, egg production and grain industries.

34

(2) Significant business acquisitions (Continued)

The Pampered Chef, LTD (“The Pampered Chef”)
On  October  31,  2002,  Berkshire  acquired  The  Pampered  Chef,  LTD.    The  Pampered  Chef  is  the  premier  direct

seller of kitchen tools in the U.S., primarily through branded product lines.

In  addition,  Berkshire  completed  four  business  acquisitions  during  2001.    Information  concerning  these

acquisitions follows.

Shaw Industries, Inc. (“Shaw”)
On January 8, 2001, Berkshire acquired approximately 87.3% of the common stock of Shaw for $19 per share, or
$2.1 billion in the aggregate and in January 2002, Berkshire acquired the remaining shares in exchange for 4,505 shares
of Berkshire Class A common stock and 7,063 shares of Berkshire Class B common stock.  The aggregate market value
of  Berkshire  stock  issued  was  approximately  $324  million.    Shaw  is  the  world’s  largest  manufacturer  of  tufted
broadloom carpet and rugs for residential and commercial applications throughout the U.S.  Shaw markets its residential
and commercial products under a variety of brand names.

Johns Manville Corporation (“Johns Manville”)
On  February 27, 2001,  Berkshire  acquired  all  of  the  outstanding  shares  of  Johns  Manville  for  $13  per  share,  or
$1.8  billion  in  the  aggregate.    Johns  Manville  is  a  leading  manufacturer  of  insulation  and  building  products.    Johns
Manville manufactures and markets products for building and equipment insulation, commercial and industrial roofing
systems,  high-efficiency  filtration  media,  and  fibers  and  non-woven  mats  used  as  reinforcements  in  building  and
industrial applications.

MiTek Inc. (“MiTek”)
On July 31, 2001, Berkshire acquired a 90% interest in MiTek for approximately $400 million.  Existing MiTek
management  acquired  the  remaining  10%  interest.    MiTek  produces  steel  connector  products,  design  engineering
software and ancillary services for the building components market.

XTRA Corporation (“XTRA”)
On  September  20,  2001,  Berkshire  acquired  all  of  the  outstanding  shares  of  XTRA  for  approximately  $578
million.    XTRA  is  a  leading  operating  lessor  of  transportation  equipment,  including  over-the-road  trailers,  marine
containers and intermodal equipment.

The  results  of  operations  for  each  of  the  entities  acquired  are  included  in  Berkshire’s  consolidated  results  of
operations  from  the  effective  date  of  each  acquisition.    The  following  table  sets  forth  certain  unaudited  consolidated
earnings data for 2003 and 2002, as if each of the acquisitions discussed above were consummated on the same terms at
the beginning of each year.  Dollars are in millions, except per share amounts.

Total revenues ............................................................................................................................
Net earnings ...............................................................................................................................
Earnings per equivalent Class A common share........................................................................

2003
$72,945
8,203
5,343

2002
$66,194
4,512
2,942

(3)

Investments in MidAmerican Energy Holdings Company

On March 14, 2000, Berkshire acquired 900,942 shares of common stock and 34,563,395 shares of convertible
preferred stock of MidAmerican Energy Holdings Company (“MidAmerican”) for $35.05 per share, or approximately
$1.24 billion in the aggregate.  During March 2002, Berkshire acquired 6,700,000 additional shares of the convertible
preferred stock for $402 million.  Such investments currently give Berkshire about a 9.9% voting interest and an 83.7%
economic interest in the equity of MidAmerican (80.5% on a diluted basis).  Since March 2000, Berkshire and certain of
its subsidiaries also acquired approximately $1,728 million of 11% non-transferable trust preferred securities, of which
$150  million  were  redeemed  in  August  2003.    Mr.  Walter  Scott,  Jr.,  a  member  of  Berkshire’s  Board  of  Directors,
controls approximately 88% of the voting interest in MidAmerican.

MidAmerican is a U.S. based global energy company whose principal businesses are regulated electric and natural
gas utilities, regulated interstate natural gas transmission and electric power generation.  Through its subsidiaries it owns
and  operates  a  combined  electric  and  natural  gas  utility  company  in  the  United  States,  two  natural  gas  pipeline
companies in the United States, two electricity distribution companies in the United Kingdom and a diversified portfolio
of domestic and international electric power projects.  It also owns the second largest residential real estate brokerage
firm in the United States.

35

Notes to Consolidated Financial Statements (Continued)

(3)

Investments in MidAmerican Energy Holdings Company (Continued)

While the convertible preferred stock does not vote generally with the common stock in the election of directors,
the  convertible  preferred  stock  gives  Berkshire  the  right  to  elect  20%  of  MidAmerican’s  Board  of  Directors.    The
convertible  preferred  stock  is  convertible  into  common  stock  only  upon  the  occurrence  of  specified  events,  including
modification or elimination of the Public Utility Holding Company Act of 1935 so that holding  company  registration
would not be triggered by conversion.  Additionally, the prior approval of the holders of convertible preferred stock is
required for certain fundamental transactions by MidAmerican.  Such transactions include, among others: a) significant
asset  sales  or  dispositions;  b)  merger  transactions;  c)  significant  business  acquisitions  or  capital  expenditures;  d)
issuances or repurchases of equity securities; and e) the removal or appointment of the Chief Executive Officer. Through
the  investments  in  common  and  convertible  preferred  stock  of  MidAmerican,  Berkshire  has  the  ability  to  exercise
significant influence on the operations of MidAmerican.

MidAmerican’s  Articles  of  Incorporation  further  provide  that  the  convertible  preferred  shares:  a)  are  not
mandatorily  redeemable  by  MidAmerican  or  at  the  option  of  the  holder;  b)  participate  in  dividends  and  other
distributions to common shareholders as if they were common shares and otherwise possess no dividend rights; c) are
convertible into common shares on a 1 for 1 basis, as adjusted for splits, combinations, reclassifications and other capital
changes by MidAmerican; and d) upon liquidation, except for a de minimus first priority distribution of $1 per share,
share  ratably  with  the  shareholders  of  common  stock.    Further,  the  aforementioned  dividend  and  distribution
arrangements  cannot  be  modified  without  the  positive  consent  of  the  preferred  shareholders.    Accordingly,  the
convertible preferred stock is, in substance, a substantially identical subordinate interest to a share of common stock and
economically equivalent to common stock.  Therefore, Berkshire accounts for its investments in MidAmerican pursuant
to the equity method.

Condensed consolidated balance sheets of MidAmerican are as follows.  Amounts are in millions.

Assets:
Properties, plant, and equipment, net .............................................................................
Goodwill.........................................................................................................................
Other assets ....................................................................................................................

Liabilities and shareholders’ equity:
Debt, except debt owed to Berkshire..............................................................................
Debt owed to Berkshire..................................................................................................
Other liabilities and minority interests ...........................................................................

Shareholders’ equity.......................................................................................................

December 31, December 31,

2003

2002

$11,181
4,306
    3,681

$19,168

$10,296
1,578
    4,523
16,397
    2,771

$19,168

$10,285
4,258
    3,892

$18,435

$10,286
1,728
    4,127
16,141
    2,294

$18,435

Condensed consolidated statements of earnings of MidAmerican for each of the three years in the period ending

December 31, 2003 are as follows.  Amounts are in millions.

Revenues ...........................................................................................................
Costs and expenses:
Cost of sales and operating expenses ................................................................
Depreciation and amortization ..........................................................................
Interest expense – debt held by Berkshire .........................................................
Other interest expense .......................................................................................

Earnings before taxes ........................................................................................
Income taxes and minority interests ..................................................................
Net earnings ......................................................................................................

36

2003

2002

2001

$6,145

$4,968

$4,973

3,944
610
184
     727
  5,465
680
     264
$   416

3,189
526
118
     640
  4,473
495
     115
$   380

3,522
539
50
     443
  4,554
419
     276
$   143

(4)

Investments in fixed maturity securities

Investments in securities with fixed maturities as of December 31, 2003 and 2002 are shown below (in millions).

December 31, 2003

Insurance and other:
Obligations of U.S. Treasury, U.S. government 

Amortized
Cost

Unrealized Unrealized

Gains

Losses

Fair
Value

corporations and agencies ...............................................

$  2,019

$    95

$    (5)

$  2,109

Obligations of states, municipalities

and political subdivisions ................................................
Obligations of foreign governments ......................................
Corporate bonds and redeemable preferred stock..................
Mortgage-backed securities ...................................................

Finance and financial products, available-for-sale:
Obligations of U.S. Treasury, U.S. government 

corporations and agencies ...............................................
Corporate bonds .....................................................................
Mortgage-backed securities ...................................................

Mortgage-backed securities, held-to-maturity .......................

4,659
4,986
8,677
    2,802
$23,143

$  3,733
704
    4,076
$  8,513
$     563

241
80
2,472
     145
$3,033

$   320
79
     180
$   579
$   105

—
(26)
(23)
      (6)
$  (60)

$   —
—
    —
$   —
$   —

4,900
5,040
11,126
    2,941
$26,116

$  4,053
783
    4,256
$  9,092
$     668

December 31, 2002

Insurance and other:
Obligations of U.S. Treasury, U.S. government

Amortized
Cost

Unrealized Unrealized

Gains

Losses

Fair
Value

corporations and agencies ...............................................

$  9,091

$   966

$     —

$10,057

Obligations of states, municipalities

and political subdivisions ................................................
Obligations of foreign governments ......................................
Corporate bonds and redeemable preferred stocks ................
Mortgage-backed securities ...................................................

Finance and financial products, available-for-sale:
Obligations of U.S. Treasury, U.S. government

corporations and agencies ...............................................
Corporate bonds .....................................................................
Mortgage-backed securities ...................................................

Mortgage-backed securities, held-to-maturity .......................

6,346
3,813
10,120
    6,155
$35,525

$  3,543
1,261
  10,202
$15,006
$  1,019

280
92
1,041
     321
$2,700

$   331
40
     299
$   670
$   178

(1)
(2)
(118)
        (8)
$  (129)

$     —
(10)
       —
$    (10)
$     —

6,625
3,903
11,043
    6,468
$38,096

$  3,874
1,291
  10,501
$15,666
$  1,197

Shown    below    are    the    amortized    cost    and    estimated    fair  values  of    securities  with  fixed    maturities    at
December  31,  2003,  by  contractual  maturity  dates.    Actual  maturities  will  differ  from  contractual  maturities  because
issuers of certain of the securities retain early call or prepayment rights.  Amounts are in millions.

Due in 2004 .................................................................................................................
Due 2005 – 2008 .........................................................................................................
Due 2009 – 2013 .........................................................................................................
Due after 2014.............................................................................................................

Mortgage-backed securities.........................................................................................

Amortized
Cost
$  4,105
7,914
8,590
    4,169
24,778
    7,441
$32,219

Fair
Value
$  4,217
8,656
10,018
    5,120
28,011
    7,865
$35,876

37

Notes to Consolidated Financial Statements (Continued)

(5)

 Investments in equity securities

Data with respect to investments in equity securities are shown below.  Amounts are in millions.

Unrealized
Gains(2)

Fair
Value

Cost

December 31, 2003

Common stock of:

American Express Company(1) .............................................................................
The Coca-Cola Company .....................................................................................
The Gillette Company ..........................................................................................
Wells Fargo & Company......................................................................................
Other equity securities.............................................................................................

$1,470
1,299
600
463
  4,683

$  5,842
8,851
2,926
2,861
    6,292

$  7,312
10,150
3,526
3,324
  10,975

$8,515

$26,772

$35,287

December 31, 2002

Common stock of:

American Express Company(1) .............................................................................
The Coca-Cola Company .....................................................................................
The Gillette Company ..........................................................................................
Wells Fargo & Company......................................................................................
Other equity securities.............................................................................................

$1,470
1,299
600
306
  5,489

$  3,889
7,469
2,315
2,191
    3,335

$  5,359
8,768
2,915
2,497
    8,824

$9,164

$19,199

$28,363

(1) Common  shares  of  American  Express  Company  ("AXP")  owned  by  Berkshire  and  its  subsidiaries  possessed
approximately 11.8% of the voting rights of all AXP shares outstanding at December 31, 2003.  The shares are
held  subject  to  various  agreements  which,  generally,  prohibit  Berkshire  from  (i)  unilaterally  seeking
representation  on  the  Board  of  Directors  of  AXP  and  (ii)  possessing  17%  or  more  of  the  aggregate  voting
securities  of  AXP.    Berkshire  has  entered  into  an  agreement  with  AXP  which  will  remain  effective  so  long  as
Berkshire owns  5%  or  more  of  AXP's  voting  securities.  The  agreement  obligates  Berkshire,  so  long  as  Kenneth
Chenault is chief  executive  officer  of AXP,  to  vote  its  shares  in accordance  with  the  recommendations of  AXP's
Board  of  Directors.  Additionally,  subject  to  certain  exceptions,  Berkshire  has  agreed  not  to  sell  AXP  common
shares to any person who owns 5% or more of AXP voting securities or seeks to control AXP, without the consent
of AXP.
(2) Net of unrealized losses of $65 million and $406 million as of December 31, 2003 and 2002, respectively.

(6) Realized investment gains (losses)

Realized investment gains (losses) are summarized below (in millions).

Fixed maturity securities —

Gross realized gains .................................................................................
Gross realized losses ................................................................................

$2,715
(129)

$  997
(287)

$   536
(201)

Equity securities and other —

Gross realized gains .................................................................................
Gross realized losses ................................................................................

2,033
   (490)

791
  (583)

1,522
   (369)

2003

2002

2001

$4,129

$  918

$1,488

Net realized gains are reflected in the Consolidated Statements of Earnings as follows.

Insurance and other......................................................................................
Finance and financial products ....................................................................

$2,914
  1,215

$4,129

$  340
    578

$  918

$1,363
     125

$1,488

38

(7) Receivables

Receivables of insurance and other businesses are comprised of the following (in millions).

Insurance premiums receivable..........................................................................
Reinsurance recoverables on unpaid losses .......................................................
Trade and other receivables................................................................................
Allowances for uncollectible accounts ..............................................................

December 31,
2003
$  5,183
2,781
4,791
     (441)

December 31,
2002
$  6,318
2,773
4,437
     (375)

$12,314

$13,153

(8)  Goodwill of acquired businesses

Effective  January  1,  2002,  Berkshire  adopted  Statement  of  Financial  Accounting  Standards  (“SFAS”)  No.  142
“Goodwill and Other Intangible Assets.”  SFAS 142 changed the accounting for goodwill from a model that required
amortization  of  goodwill,  supplemented  by  impairment  tests,  to  an  accounting  model  that  is  based  solely  upon
impairment  tests.    Thus,  Berkshire’s  Consolidated  Statements  of  Earnings  for  2003  and  2002  include  no  periodic
amortization of goodwill.  In 2001, goodwill amortization, net of tax, was $636 million (or $416 per equivalent Class A
share).  Such  amount  included  $78  million  related  to  Berkshire’s  equity  method  investment  in  MidAmerican.    A
reconciliation of the change in the carrying value of goodwill for 2003 and 2002 is as follows (in millions).

Balance at beginning of year .....................................................................
Acquisitions of businesses.........................................................................

Balance at end of year ...............................................................................

(9)  Derivatives

2003
$22,298
       650

2002
$21,510
       788

$22,948

$22,298

Certain Berkshire subsidiaries, in particular, General Re Securities (“GRS”), regularly utilize derivatives as risk
management tools.  In January 2002, GRS commenced a long-term run-off of its operations.  Previously GRS operated
as a dealer in various types of derivatives instruments, such as swaps, forwards, futures and options, which are used by
clients to manage economic risks arising from interest rate, foreign exchange rate, or market price movements.  The run-
off  is  expected  to  occur  over  a  number  of  years  during  which  GRS  will  limit  its  new  business  to  certain  risk
management  transactions  and  will  unwind  its  existing  asset  and  liability  positions  in  an  orderly  manner.    General  Re
Corporation, the parent of GRS, has guaranteed the obligations of GRS.

In addition, beginning in 2002, another Berkshire subsidiary entered into derivatives contracts with the objective
of hedging a portion of certain corporate-wide risks.  Accordingly, such contracts do not qualify for hedge accounting.
During  2003,  such  contracts  were  primarily  foreign  currency  exchange  forward  contracts.  Additional  information
regarding Berkshire’s derivative contracts follows.

Derivative instruments involve, to varying degrees, elements of  market, credit, and liquidity risks.  Market risks
may be controlled by taking offsetting positions in either cash instruments or other derivatives.  Exposures are managed
on a portfolio basis and monitored daily.  For instance, GRS calculates the effect on operating results of potential changes
in market variables, which include volatility, correlation and liquidity.  GRS monitors risks over a one week period and
has established $15 million as its value at risk limit with a 99th percentile confidence interval for potential losses over a
weekly  horizon.  GRS,  which  may  enter  into  long  duration  contracts,  records  fair  value  adjustments  to  recognize
counterparty credit exposure and future costs associated with administering each contract.  The fair value adjustment for
counterparty credit exposures and future administrative costs on existing contracts was $55 million at December 31, 2003.

Master netting agreements are utilized to manage counterparty credit risk, where gains and losses are netted across
all  contracts  with  that  counterparty.    In  addition,  counterparty  credit  limits  are  established,  and  credit  exposures  are
monitored in accordance with these limits.  In addition, Berkshire may receive cash or investment grade securities from
counterparties  as  collateral  and,  where  appropriate,  may  purchase  credit  insurance  or  enter  into  other  transactions  to
mitigate  exposure,  if  balances  exceed  specified  levels  or  if  credit  ratings  of  counterparties  are  downgraded  below
specified levels.  Berkshire may incorporate contractual provisions that allow the unwinding of transactions under adverse
conditions.  Likewise, Berkshire may be required to post cash or securities as collateral with counterparties under similar
circumstances.

39

Notes to Consolidated Financial Statements (Continued)

(9)

Derivatives (Continued)

At  December  31,  2003,  Berkshire  subsidiaries  accepted  collateral  with  a  fair  value  of  $1,220  million  to  secure
unrealized  gains  on  derivatives.    Of  the  securities  held  as  collateral,  approximately  $31  million  were  repledged  as  of
December 31, 2003.  At December 31, 2003, securities with a fair value of approximately $441 million (which includes
$31  million  of  repledged  securities  as  described  above)  were  pledged  against  derivative  liabilities  with  a  fair  value  of
$733 million.  Contractual terms with counterparties often require additional collateral  to be posted immediately  in  the
event of a decline in the financial rating of the counterparty or its guarantor.

Assuming  non-performance  by  all  counterparties  on  all  contracts  potentially  subject  to  a  loss,  the  maximum
potential loss, based on the cost of replacement, net of collateral held, at market rates prevailing at December 31, 2003
approximated  $3,439  million.    The  following  table  presents  derivatives  portfolios  by  counterparty  credit  quality  and
maturity at December 31, 2003.  The amounts shown under gross exposure in the table are before consideration of netting
arrangements and collateral held by Berkshire affiliates.  Net fair value shown in the table represents unrealized gains on
financial  instrument  contracts  in  gain  positions,  net  of  any  unrealized  loss  owed  to  these  counterparties  on  offsetting
positions.  Net exposure shown in the table that follows is net fair value less collateral held.  Amounts are in millions.

Gross Exposure

Credit quality

AAA .......................................
AA ..........................................
A.............................................
BBB and Below......................

6 – 10

Over 10
0 – 5
                           (years)                             
$   631
1,969
1,517
       39

$   443
1,781
1,035
     175

$1,119
3,236
2,341
     361

Total

$  2,193
6,986
4,893
       575

Net Fair
Value

Net
Exposure

Percentage
of Total

$   557
2,187
1,554
     221

$   557
1,578
1,132
     172

$3,439

16%
46
33
    5

100%

Total

$7,057

$3,434

$4,156

$14,647

$4,519

Liquidity risk can arise from funding the portfolio of open transactions.  Movements in underlying market variables

affect both future cash flows related to the transactions and collateral required to cover the value of open positions.

(10) Investment in Value Capital

Value  Capital  L.P.,  (“Value  Capital”),  a  limited  partnership,  commenced  operations  in  1998.    A  wholly  owned
Berkshire subsidiary is a limited partner in Value Capital.  The partnership’s objective is to achieve income and capital
growth from investments and arbitrage in fixed income investments.  Profits and losses (after fees to the general partner)
are allocated to the partners based upon each partner’s investment.  Through December 31, 2003, Berkshire accounted
for its limited partnership investment pursuant to the equity method.  At December 31, 2003, the carrying value of $634
million (including Berkshire’s share of accumulated undistributed earnings of $204 million) is included as a component
of other assets of finance and financial products businesses.  In January of 2004, Berkshire received a cash distribution
of $30 million from Value Capital.  As a limited partner, Berkshire’s exposure to loss is limited to the carrying value of
its investment.  Beginning in 2004, Berkshire will consolidate Value Capital in connection with the adoption of FIN 46,
as revised.  See Note 1 (r) for additional information.

As  of  December  31,  2003,  Value  Capital  had  total  assets  of  $19.2  billion,  total  liabilities  of  $18.5  billion  and
capital  of  $688  million.    For  the  year  ending  December  31,  2003,  revenues  were  $596  million,  expenses  were  $564
million and net earnings were $32 million.

(11) Unpaid losses and loss adjustment expenses

The balances of unpaid losses and loss adjustment expenses are based upon estimates of the ultimate claim costs
associated  with  claim  occurrences  as  of  the  balance  sheet  dates  including  estimates  for  incurred  but  not  reported
(“IBNR”)  claims.    Considerable  judgment  is  required  to  evaluate  claims  and  establish  estimated  claim  liabilities,
particularly with respect to certain casualty or liability claims, which are typically reported over long periods of time and
subject to changing legal and litigation trends.  This delay in claim reporting is exacerbated in reinsurance of liability or
casualty claims as claim reporting by ceding companies is further delayed by contract terms.

40

(11)  Unpaid losses and loss adjustment expenses (Continued)

Supplemental  data  with  respect  to  unpaid  losses  and  loss  adjustment  expenses  of  property/casualty  insurance

subsidiaries (in millions) is as follows.

Unpaid losses and loss adjustment expenses:

2003

2002

2001

Gross liabilities at beginning of year ................................................................
Ceded losses and deferred charges....................................................................

$43,771
  (6,002)

$40,562
  (6,189)

$32,868
  (5,590)

Net balance........................................................................................................

  37,769

  34,373

  27,278

Incurred losses recorded:

Current accident year ........................................................................................
All prior accident years .....................................................................................

13,135
       480

12,206
    1,540

15,607
    1,152

Total incurred losses .........................................................................................

  13,615

  13,746

  16,759

Payments with respect to:

Current accident year ........................................................................................
All prior accident years .....................................................................................

4,493
    8,092

4,042
    6,653

4,435
   5,352

Total payments ..................................................................................................

  12,585

  10,695

   9,787

Unpaid losses and loss adjustment expenses:

Net balance at end of year.................................................................................
Ceded losses and deferred charges....................................................................
Foreign currency translation adjustment...........................................................
Net liabilities assumed in connection with business acquisitions.....................

38,799
5,684
910

34,250
6,189
30
         —          —          93

37,424
6,002
345

Gross liabilities at end of year..............................................................................

$45,393

$43,771

$40,562

Incurred losses “all prior accident years” reflects the amount of estimation error charged or credited to earnings in
each year with respect to the liabilities established as of the beginning of that year.  Berkshire recorded additional losses
of $480 million in 2003, $1,540  million  in 2002  and  $1,152  million  in 2001  with respect  to  losses  occurring  in prior
years.  Such amounts as percentages of the net balance as of the beginning of the year were 1.3%, 4.5% and 4.2% in
2003, 2002 and 2001, respectively.

Prior  accident  years’  losses  incurred  also  include  amortization  of  deferred  charges  related  to  retroactive
reinsurance contracts incepting prior to January 1, 2003.  Amortization charges included in prior accident years’ losses
were $432 million in 2003, $430 million in 2002 and $328 million in 2001.  Certain workers’ compensation reserves of
General Re are discounted.  Net discounted liabilities at December 31, 2003 and 2002 were $2,211 million and $2,015
million, respectively, and are net of discounts totaling $2,435 million and $2,405 million.  Periodic accretions of these
discounts  are  also  a  component  of  prior  years’  losses  incurred.    The  accretion  of  discounted  liabilities  is  included  in
incurred  losses  for  all  prior  accident  years  and  was  approximately  $85  million  in  2003,  $81  million  in  2002  and  $69
million in 2001.  The most significant component of losses from prior years’ occurrences in both 2002 and 2001 was
reserve  increases  with  respect  to  General  Re’s  North  American  and  international  property/casualty  reinsurance
businesses.

Berkshire’s  insurance  subsidiaries  are  exposed  to  environmental,  asbestos  and  other  latent  injury  claims  arising
from insurance and reinsurance contracts.  Loss reserve estimates for environmental and asbestos exposures include case
basis  reserves,  which  also  reflect  reserves  for  legal  and  other  loss  adjustment  expenses  and  IBNR  reserves.    IBNR
reserves are determined based upon Berkshire’s historic general liability exposure base and policy language, previous
environmental and loss experience and the assessment of current trends of  environmental  law,  environmental  cleanup
costs, asbestos liability law and judgmental settlements of asbestos liabilities.

The  liabilities  for  environmental,  asbestos,  and  latent  injury  claims  and  claims  expenses  net  of  reinsurance
recoverables  were  approximately  $5.5  billion  at  December  31,  2003  and  $6.6  billion  at  December  31,  2002.    These
liabilities include $4.4 billion at December 31, 2003 and $5.4 billion at December 31, 2002, of liabilities assumed under 

41

Notes to Consolidated Financial Statements (Continued)

(11) Unpaid losses and loss adjustment expenses (Continued)

retroactive reinsurance contracts written by the Berkshire Hathaway Reinsurance Group.  The decline in these liabilities
over  the  last  twelve  months  was  primarily  attributed  to  commutations  of  certain  contracts  in  2003.    Claim  liabilities
arising  from  the  retroactive  contracts  are  subject  to  aggregate  policy  limits.    Thus,  Berkshire’s  exposure  to
environmental and latent injury claims under these contracts is, likewise, limited.  Claims paid or reserved under these
policies were approximately 86% of aggregate policy limits as of the end of 2003.

Berkshire  monitors  evolving  case  law  and  its  effect  on  environmental  and  latent  injury  claims.    Changing
government  regulations,  newly  identified  toxins,  newly  reported  claims,  new  theories  of  liability,  new  contract
interpretations  and  other  factors  could  result  in  significant  increases  in  these  liabilities.    Such  development  could  be
material to Berkshire’s results of operations.  It is not possible to reliably estimate the amount of additional net loss, or
the range of net loss, that is reasonably possible.

(12) Notes payable and other borrowings

Notes  payable  and  other  borrowings  of  Berkshire  and  its  subsidiaries  as  of  December  31,  2003  and  2002  are

summarized below.  Amounts are in millions.

2003

2002

Insurance and other:

Issued by Berkshire:

SQUARZ notes 3% due 2007................................................................
Investment agreements due 2012-2033 .................................................

Issued by subsidiaries and guaranteed by Berkshire:

Commercial paper and other short-term borrowings.............................
Other debt due 2006-2035 .....................................................................

Issued by subsidiaries and not guaranteed by Berkshire:

Commercial paper and other short-term borrowings.............................
Borrowings under investment agreements due 2004-2041....................
Other debt due 2004-2032 .....................................................................

Finance and financial products:

Issued by subsidiaries and guaranteed by Berkshire:

Commercial paper and other short-term borrowings.............................
3.375% notes due 2008 .........................................................................
4.20% notes due 2010 ...........................................................................
4.625% notes due 2013 .........................................................................
Bank borrowings due 2006....................................................................
Other......................................................................................................

Issued by subsidiaries and not guaranteed by Berkshire:

Commercial paper and other short-term borrowings.............................
Other debt due 2004-2037 .....................................................................

$   400
632

1,527
315

14
271
  1,023

$4,182

$     83
744
497
744
525
201

80
  2,063

$4,937

$   400
386

1,834
275

349
384
  1,147

$4,775

$     22
—
—
—
2,175
196

204
  1,916

$4,513

Commercial  paper  and  other  short-term  borrowings  are  obligations  of  certain  businesses  that  utilize  short-term
borrowings as part of financing their operations.  Weighted  average  interest  rates  as of December 31, 2003  and  2002
were 1.3% and 2.4% respectively.  Berkshire affiliates have approximately $6.6 billion available unused lines of credit
and  commercial  paper  capacity  to  support  their  short-term  borrowing  programs  and,  otherwise,  provide  additional
liquidity.

Investment  agreements  represent  numerous  individual  contractual  borrowing  arrangements  under  which
Berkshire is required to periodically pay interest over contract terms, which range from a few months to over 30 years.
Interest  under  such  contracts  may  be  at  fixed  or  variable  rates.  The  weighted  average  interest  rate  on  amounts
outstanding as of December 31, 2003 and 2002 was 3.1% and 3.9%, respectively.  Under certain conditions, principal
amounts may be redeemed without premium prior to the contractual maturity date at the option of the counterparties.

42

(12) Notes payable and other borrowings (Continued)

On May 28, 2002, Berkshire issued 40,000 SQUARZ securities for net proceeds of $398 million.  Each SQUARZ
security consists of a $10,000 par amount senior note due in November 2007 together with a warrant, which expires in
May 2007, to purchase either 0.1116 shares of Class A common stock or 3.3480 shares of Class B common stock for
$10,000.  A warrant premium is payable to Berkshire at an annual rate of 3.75% and interest is payable to note holders
at a rate of 3.00% per annum.  All debt and warrants issued in conjunction with SQUARZ securities were outstanding at
December 31, 2003.

In September 2003, Berkshire Hathaway Finance Corporation (“BHFC”), a wholly-owned subsidiary of Berkshire,
issued $1.5 billion par of senior notes consisting of $750 million par of 3.375% notes due 2008 and $750 million par of
4.625% notes due 2013.  In December 2003, BHFC issued an additional $500 million par of 4.20% notes due 2010.  The
proceeds were used in the financing activities of Clayton Homes.

Bank  borrowings  due  2006  relate  to  Berkadia  LLC’s  (“Berkadia”)  floating  rate  loan  to  FINOVA  Capital
Corporation, a subsidiary of The FINOVA Group (“FNV”) in connection with a restructuring of all of that entity’s then
outstanding  bank debt  and publicly  traded debt  securities  in  August 2001.   Berkadia  financed  the  entire  loan  to  FNV
($5.6 billion) through a floating rate loan from a third party lending facility led by Fleet Bank (“Fleet Loan”), which is
secured by the FNV loan.  Subsequent to December 31, 2003, FNV repaid the entire remaining principal amount on the
loan and Berkadia has fully repaid the Fleet Loan.

Generally,  Berkshire’s  guarantee  of  a  subsidiary’s  debt  obligation  is  an  absolute,  unconditional  and  irrevocable

guarantee for the full and prompt payment when due of all present and future payment obligations of the issuer.

Payments of principal amounts expected during the next five years are as follows (in millions).

Insurance and other..............................................................
Finance and financial products ............................................

2004
$1,606
  1,347

$2,953

2005
$255
    79

$334

2006
$118
  129

$247

2007
$556
  107

$663

2008
$     15
  1,057

$1,072

(13) Income taxes

The liability for income taxes as of December 31, 2003 and 2002 as reflected in the accompanying Consolidated

Balance Sheets is as follows (in millions).

2003

2002

Payable currently .................................................................................
Deferred ...............................................................................................

$       44
  11,435

$    (21)
  8,072

$11,479

$8,051

The Consolidated Statements of Earnings reflect charges for income taxes as shown below (in millions).

Federal .................................................................................................
State .....................................................................................................
Foreign .................................................................................................

Current .................................................................................................
Deferred ...............................................................................................

2003
$3,490
81
     234

$3,805

$3,346
     459

2002
$1,916
87
       56

$2,059

$2,218
    (159)

$3,805

$2,059

2001
$  599
68
    (77)

$  590

$    91
    499

$  590

43

Notes to Consolidated Financial Statements (Continued)

(13) Income taxes (Continued)

The tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax

liabilities at December 31, 2003 and 2002 are shown below (in millions).

Deferred tax liabilities:

Unrealized appreciation of investments ............................................
Deferred charges reinsurance assumed .............................................
Property, plant and equipment ..........................................................
Investments .......................................................................................
Other .................................................................................................

$10,663
1,080
1,124
337
    1,350

$7,884
1,183
1,059
282
     648

2003

2002

Deferred tax assets:

Unpaid losses and loss adjustment expenses.....................................
Unearned premiums ..........................................................................
Other .................................................................................................

(1,299)
(372)
   (1,448)

(870)
(413)
 (1,701)

  14,554

11,056

   (3,119)

 (2,984)

Net deferred tax liability ......................................................................

$11,435

$8,072

Charges for income taxes are reconciled to hypothetical amounts computed at the Federal statutory rate in the table

shown below (in millions).

Earnings before income taxes ..............................................................................
Hypothetical amounts applicable to above

2003

2002

2001

$12,020

$6,359

$1,438

computed at the Federal statutory rate ..............................................................

$  4,207

$2,226

$   503

Tax effects resulting from:

Tax-exempt interest income..............................................................................
Dividends received deduction ...........................................................................
Net earnings of MidAmerican...........................................................................
Goodwill amortization .........................................................................................
State income taxes, less Federal income tax benefit ............................................
Foreign rate differences .......................................................................................
Other differences, net...........................................................................................

(88)
(100)
(150)
—
53
(104)
       (13)

(109)
(97)
(126)
—
57
59
       49

(123)
(101)
(47)
191
44
82
       41

Total income taxes ...............................................................................................

$  3,805

$2,059

$   590

(14)  Dividend restrictions – Insurance subsidiaries

Payments of dividends by insurance subsidiaries are restricted by insurance statutes and regulations.  Without prior
regulatory approval, insurance subsidiaries may pay up to approximately $3.7 billion as ordinary dividends during 2004.

Combined  shareholders’  equity  of  U.S.  based  property/casualty  insurance  subsidiaries  determined  pursuant  to
statutory    accounting  rules    (Statutory    Surplus    as    Regards    Policyholders)  was  approximately  $40.7  billion  at
December 31, 2003 and $28.4 billion at December 31, 2002.

Statutory surplus differs from the corresponding amount determined on the basis of GAAP.  The major differences
between  statutory  basis  accounting  and  GAAP  are  that  deferred  charges  reinsurance  assumed,  deferred  policy
acquisition  costs,  unrealized  gains  and  losses  on  investments  in  securities  with  fixed  maturities  and  related  deferred
income taxes are recognized under GAAP but not for statutory reporting purposes.  In addition, statutory accounting for
goodwill of acquired businesses requires amortization of goodwill over 10 years as compared to 40 years under GAAP
for periods ending December 31, 2001 and prior.  As of January 1, 2002, under GAAP, goodwill is only subject to tests
for impairment.

44

(15) Fair values of financial instruments

The estimated fair values of Berkshire’s financial instruments as of December 31, 2003 and 2002, are as follows

(in millions).

Insurance and other:

Carrying Value
2002
2003

Fair Value

2003

2002

Investments in fixed maturity securities............................................
Investments in equity securities ........................................................
Notes payable and other borrowings .................................................

$26,116
35,287
4,182

$38,096
28,363
4,775

$26,116
35,287
4,334

$38,096
28,363
4,925

Finance and financial products:

Investments in fixed maturity securities............................................
Trading account assets ......................................................................
Loans and finance receivables...........................................................
Notes payable and other borrowings .................................................
Trading account liabilities .................................................................

9,803
4,519
4,951
4,937
5,445

16,853
6,874
3,863
4,513
7,274

9,908
4,519
5,067
5,019
5,445

17,031
6,874
3,988
4,661
7,274

In  determining  fair  value  of  financial  instruments,  Berkshire  used  quoted  market  prices  when  available.    For
instruments  where  quoted  market  prices  were not available,  independent  pricing  services or  appraisals  by  Berkshire’s
management  were  used.    Those  services  and  appraisals  reflected  the  estimated  present  values  utilizing  current  risk
adjusted market rates of similar instruments.  The carrying values of cash and cash equivalents, accounts receivable and
payable, other accruals, securities sold under agreements to repurchase and other liabilities are deemed to be reasonable
estimates of their fair values.

Considerable  judgment  is  necessarily  required  in  interpreting  market  data  used  to  develop  the  estimates  of  fair
value.  Accordingly, the estimates presented herein are not necessarily indicative of the amounts that could be realized in
a  current  market  exchange.    The  use  of  different  market  assumptions  and/or  estimation  methodologies  may  have  a
material effect on the estimated fair value.
(16) Common stock

Changes in issued and outstanding Berkshire common stock during the three years ended December 31, 2003 are

shown in the table below.

Balance December 31, 2000.....................................
Conversions of Class A common stock

to Class B common stock and other ......................
Balance December 31, 2001.....................................
Common stock issued in connection

with a business acquisition ....................................

Conversions of Class A common stock

to Class B common stock and other ......................
Balance December 31, 2002.....................................
Conversions of Class A common stock

to Class B common stock and other ......................

Balance December 31, 2003.....................................

Class A Common, $5 Par Value Class B Common $0.1667 Par Value
(1,650,000 shares authorized)
Shares Issued and
Outstanding
1,343,904

(55,000,000 shares authorized)
Shares Issued and
Outstanding
5,469,786

   (20,494)
1,323,410

4,505

   (16,729)
1,311,186

   (28,207)

1,282,979

   674,436
6,144,222

7,063

   552,832
6,704,117

   905,426

7,609,543

Each  share  of  Class  B  common  stock  has  dividend  and  distribution  rights  equal  to  one-thirtieth  (1/30)  of  such
rights  of  a  Class  A  share.  Accordingly,  on  an  equivalent  Class  A  common  stock  basis  there  are  1,536,630  shares
outstanding as of December 31, 2003 and 1,534,657 shares as of December 31, 2002.

Each  share  of  Class  A  common  stock  is  convertible,  at  the  option  of  the  holder,  into  thirty  shares  of  Class  B
common stock.  Class B common stock is not convertible into Class A common stock.  Each share of Class B common
stock possesses voting rights equivalent to one-two-hundredth (1/200) of the voting rights of a share of Class A common
stock.  Class A and Class B common shares vote together as a single class.

45

Notes to Consolidated Financial Statements (Continued)

(17) Pension plans

Certain  Berkshire  subsidiaries  individually  sponsor  defined  benefit  pension  plans  covering  their  employees.
Benefits under the plans are generally based on years of service and compensation, although benefits under certain plans
are based on years of service and fixed benefit rates.  Funding policies are generally to contribute amounts required to
meet regulatory requirements plus additional amounts determined by management based on actuarial valuations.

The  components  of  net  periodic  pension  expense  for  each  of  the  three  years  ending  December  31,  2003  are  as

follows (in millions).

Service cost ......................................................................................................................
Interest cost ......................................................................................................................
Expected return on plan assets..........................................................................................
Net amortization, deferral and other.................................................................................

2003
$  106
182
(159)
        5

2002
$    91
164
(147)
        8

2001
$    72
138
(137)
        3

Net pension expense .........................................................................................................

$  134

$  116

$    76

The  increase  (decrease)  in  minimum  liabilities  included  in  other  comprehensive  income  for  each  year  are  as
follows  (in  millions).    Such  amounts  do  not  include  Berkshire’s  share  of  changes  in  minimum  liabilities  of
MidAmerican.

2003
$(16)

2002
$2

2001
$30

The  accumulated  benefit  obligation  is  the  actuarial  present  value  of  benefits  earned  based  on  service  and
compensation  prior  to  the  valuation  date.  The  projected  benefit  obligation  is  the  actuarial  present  value  of  benefits
earned  based  upon  service  and  compensation  prior  to  the  valuation  date  and  includes  assumptions  regarding  future
compensation  levels  when  benefits  are  based  on  those  amounts.    Information  regarding  accumulated  and  projected
benefit obligations and plan assets are as follows (in millions).

Projected benefit obligation, beginning of year................................................................
Service cost ......................................................................................................................
Interest cost ......................................................................................................................
Benefits paid.....................................................................................................................
Benefit obligations of acquired businesses.......................................................................
Actuarial loss and other ....................................................................................................

Projected benefit obligation, end of year..........................................................................
Accumulated benefit obligation, end of year....................................................................

Plan assets at fair value, beginning of year.......................................................................
Employer contributions ....................................................................................................
Benefits paid.....................................................................................................................
Plan assets of acquired businesses....................................................................................
Actual return on plan assets..............................................................................................
Other and expenses...........................................................................................................

2003
$2,862
106
182
(150)
—
     193

$3,193
$2,675

$2,548
78
(150)
—
332
       11

2002
$2,376
91
164
(165)
318
       78

$2,862
$2,408

$2,215
59
(165)
231
200
         8

Plan assets at fair value, end of year.................................................................................

$2,819

$2,548

Defined benefit pension plan  obligations  to  U.S.  employees  are funded  through  assets held  in  trusts  and  are not
included as assets in Berkshire’s Consolidated Financial Statements. Pension obligations under certain non-U.S. plans
and  non-qualified  U.S.  plans  are  unfunded.    As  of  December  31,  2003  and  2002,  total  plan  assets  were  invested  as
follows:

Fixed maturity investments:

Cash and equivalents.....................................................................................................
U.S. Government obligations ........................................................................................
Mortgage-backed securities...........................................................................................
Corporate obligations ....................................................................................................
Equity securities ...............................................................................................................
Other.................................................................................................................................

46

2003

2002

$   813
152
597
451
764
       42

$260
46
1,349
510
341
       42

$2,819

$2,548

(17) Pension plans (Continued)

Pension  plan  assets  are  generally  invested  with  the  long-term  objective  of  earning  sufficient  amounts  to  cover
expected  benefit  obligations,  while  assuming  a  prudent  level  of  risk.  There  are  no  target  allocation  investment
percentages  with  respect  to  individual  or  categories  of  investments.  Allocations  may  change  rapidly  as  a  result  of
changing market conditions and investment opportunities. The expected rates of return on plan assets reflect Berkshire’s
subjective assessment of expected invested asset returns over a period of  several  years, given  the  current  low  interest
rate  environment  and  current  equity  security  valuations,  in  general.    Actual  experience  will  differ  from  the  assumed
rates, in particular over quarterly or annual periods as a result of market volatility and changes in the mix of assets.

The funded status of the plans as of December 31, 2003 and 2002 is as follows (in millions).

Excess of projected benefit obligations over plan assets ..................................................
Unrecognized net actuarial gains and other......................................................................

2003
$374
 134

Accrued benefit cost liability............................................................................................

$508

2002
$314
 108

$422

The total net deficit status for plans (including unfunded plans) with accumulated benefit obligations in excess of
plan assets was $378 million and $320 million as of December 31, 2003 and 2002, respectively.  Expected contributions
to plans during 2004 are estimated to be $72 million.

The benefit payments, which reflect expected future service as appropriate, are expected to be paid as follows (in

millions).

2004
$144

2005
$144

2006
$152

2007
$157

2008
$166

2009 to 2013
$955

Weighted average assumptions used in determining projected benefit obligations were as follows.  These rates are

substantially the same as the weighted average rates used in determining the net periodic pension expense.

Discount rate............................................................................................................................
Discount rate – non-U.S. plans................................................................................................
Long-term expected rate of return on plan assets ....................................................................
Rate of compensation increase ................................................................................................
Rate of compensation increase – non-U.S. plans.....................................................................

2003
6.0
5.3
6.5
4.6
2.6

2002
6.4
5.9
6.5
4.7
3.8

Most Berkshire subsidiaries also sponsor defined contribution retirement plans, such as a 401(k) or profit sharing
plans.  The plans generally cover all employees who meet specified eligibility requirements.  Employee contributions to
the plans are subject to regulatory limitations and the specific plan provisions.  Berkshire subsidiaries generally match
these  contributions  up  to  levels  specified  in  the  plans,  and  may  make  additional  discretionary  contributions  as
determined by management.    The  total  expenses  related  to  employer  contributions for  these  plans were $242  million,
$202 million and $77 million for the years ended December 31, 2003, 2002 and 2001, respectively.

(18) Litigation

GEICO  is  a  defendant  in  a  number  of  class  action  lawsuits  related  to  the  use  of  replacement  repair  parts  not
produced by the original auto manufacturer, the calculation of “total loss” value and whether to pay diminished value as
part  of  the  settlement  of  certain  claims.    Management  intends  to  vigorously  defend  GEICO’s  position  on  these  claim
settlement procedures.  However, these lawsuits are in various stages of development and the ultimate outcome cannot
be reasonably determined.

Berkshire and its subsidiaries are parties in a variety of legal actions arising out of the normal course of business.
In particular, such legal actions affect Berkshire’s insurance and reinsurance businesses.  Such litigation generally seeks
to establish liability directly through insurance contracts or indirectly through reinsurance contracts issued by Berkshire
subsidiaries.  Plaintiffs occasionally seek punitive or exemplary damages.  Berkshire does not believe that such normal
and routine litigation will have a material effect on its financial condition or results of operations.

47

 
Notes to Consolidated Financial Statements (Continued)

(19)  Supplemental cash flow information

A  summary  of  supplemental  cash  flow  information  for  each  of  the  three  years  ending  December  31,  2003  is

presented in the following table (in millions).

Cash paid during the year for:

2003

2002

2001

Income taxes.................................................................................................................. $3,309
372
Interest of finance and financial products businesses ....................................................
215
Interest of insurance and other businesses.....................................................................

$1,945
509
207

$   905
726
221

Non-cash investing and financing activities:

Liabilities assumed in connection with acquisitions of businesses................................
Common shares issued in connection with acquisitions of businesses..........................
Securities sold (purchased) offset by decrease (increase) in repurchase agreements ....

2,167
—
5,936

700
324
6,666

3,507
—
(6,731)

(20) Business segment data

Information related to Berkshire’s reportable business operating segments is shown below. Berkshire’s reportable
segments  are  reported  in  a  manner  consistent  with  the way  management  evaluates  the  businesses.  As  such,  insurance
underwriting activities are evaluated separately from investment activities. Realized investment gains are not considered
relevant in evaluating investment performance on an annual basis.  Amortization of purchase accounting adjustments is
not considered by management in evaluating the results of the business segments.

Business Identity

GEICO

General Re

Berkshire Hathaway Reinsurance Group

Berkshire Hathaway Primary Group

Business Activity

Underwriting private passenger automobile insurance
mainly by direct response methods

Underwriting excess-of-loss, quota-share and facultative
reinsurance worldwide

Underwriting excess-of-loss and quota-share reinsurance for
property and casualty insurers and reinsurers

Underwriting multiple lines of property and casualty
insurance policies for primarily commercial accounts

Fruit of the Loom, Garan, Fechheimer Brothers,
H.H. Brown Shoe, Lowell Shoe, Justin Brands
and Dexter Shoe (“Apparel”)

Manufacturing and distribution of a variety of footwear and
clothing products, including underwear, activewear,
children’s clothes and uniforms

Acme Building Brands, Benjamin Moore, Johns
Manville and MiTek (“Building products”)

Manufacturing and distribution of a variety of building
materials and related products and services

BH Finance, Clayton Homes, XTRA, CORT,
Berkshire Hathaway Life and General Re
Securities (“Finance and financial products”)

FlightSafety and NetJets (“Flight services”)

McLane

Nebraska Furniture Mart, R.C. Willey Home
Furnishings, Star Furniture Company, Jordan’s
Furniture, Borsheim’s, Helzberg Diamond Shops
and Ben Bridge Jeweler (“Retail”)

Shaw Industries

Proprietary investing, manufactured housing and related
consumer financing, transportation equipment leasing,
furniture leasing, life annuities and risk management
products

Training to operators of aircraft and ships and providing
fractional ownership programs for general aviation aircraft

Wholesale distributing of groceries and non-food items

Retail sales of home furnishings, appliances, electronics,
fine jewelry and gifts

Manufacturing and distribution of carpet and floor
coverings under a variety of brand names

Other businesses not specifically identified consist of:  Scott Fetzer, a diversified manufacturer and distributor of
commercial  and  industrial products;  Buffalo  News,  a  newspaper  publisher  in  Western  New  York;  International  Dairy
Queen,  which  licenses  and  services  a  system  of  about  6,000  Dairy  Queen  stores;  See’s  Candies,  a  manufacturer  and
distributor  of  boxed  chocolates  and  other  confectionery  products;  Larson-Juhl,  which  designs,  manufactures,  and
distributes  custom  picture  framing  products;  CTB  International,  a  manufacturer  of  equipment  and  systems  for  the
poultry, hog, egg production and grain industries and The Pampered Chef, a direct seller of kitchen tools.

48

(20) Business segment data (Continued)

A disaggregation of Berkshire’s consolidated data for each of the three most recent years is presented in the tables

which follow on this and the following page.  Amounts are in millions.

Operating Businesses:
Insurance group:

Premiums earned:

GEICO....................................................................................................
General Re ..............................................................................................
Berkshire Hathaway Reinsurance Group................................................
Berkshire Hathaway Primary Group.......................................................
Investment income.....................................................................................
Total insurance group...................................................................................

Apparel.........................................................................................................
Building products .........................................................................................
Finance and financial products.....................................................................
Flight services ..............................................................................................
McLane Company ........................................................................................
Retail ............................................................................................................
Shaw Industries ............................................................................................
Other businesses...........................................................................................

2003

$  7,784
8,245
4,430
1,034
    3,238
24,731

2,075
3,846
3,073
2,431
13,743
2,311
4,660
    3,040
59,910

Revenues
2002

$  6,670
8,500
3,300
712
    3,067
22,249

1,619
3,702
2,234
2,837
—
2,103
4,334
    2,375
41,453

2001

$  6,060
8,353
2,991
501
    2,844
20,749

726
3,269
1,928
2,563
—
1,998
4,012
    1,957
37,202

Reconciliation of segments to consolidated amount:

Realized investment gains .........................................................................
Other revenues...........................................................................................
Eliminations...............................................................................................
Purchase-accounting adjustments..............................................................

4,129
39
(83)
     (136)

918
29
(56)
     (109)

1,488
35
(65)
       (67)

$63,859

$42,235

$38,593

Operating Businesses:
Insurance group:

Underwriting gain (loss):

Earnings (loss) before taxes
2002

2003

2001

GEICO....................................................................................................
General Re ..............................................................................................
Berkshire Hathaway Reinsurance Group................................................
Berkshire Hathaway Primary Group.......................................................
Net investment income ..............................................................................
Total insurance group...................................................................................

Apparel.........................................................................................................
Building products .........................................................................................
Finance and financial products.....................................................................
Flight services ..............................................................................................
McLane Company ........................................................................................
Retail ............................................................................................................
Shaw Industries ............................................................................................
Other businesses...........................................................................................

Reconciliation of segments to consolidated amount:

Realized investment gains .........................................................................
Equity in earnings of MidAmerican Energy Holdings Company..............
Interest expense, excluding interest allocated to business segments .........
Corporate and other ...................................................................................
Goodwill amortization and other purchase-accounting adjustments .........

$     452
145
1,047
74
    3,223
4,941

289
559
619
72
150
165
436
       486
7,717

4,121
429
(94)
24
     (177)

$     416
(1,393)
547
32
    3,050
2,652

229
516
726
225
—
166
424
       381
5,319

884
359
(86)
2
     (119)

$     221
(3,671)
(634)
30
    2,824
(1,230)

(33)
461
402
186
—
175
292
       320
573

1,445
134
(92)
8
     (630)

$12,020

$  6,359

$  1,438

49

Notes to Consolidated Financial Statements (Continued)

(20) Business segment data (Continued)

Operating Businesses:
Insurance group:

Capital expenditures *
2001
2002
2003

Depreciation
of tangible assets
2002

2003

2001

GEICO............................................................................
General Re......................................................................
Berkshire Hathaway Primary Group ..............................
Total insurance group........................................................

Apparel..............................................................................
Building products ..............................................................
Finance and financial products..........................................
Flight services ...................................................................
McLane Company.............................................................
Retail .................................................................................
Shaw Industries .................................................................
Other businesses................................................................

$     39
13
         3
55

71
170
232
150
51
106
120
       47

$   31
18
       4
53

51
158
51
241
—
113
196
     65

$   20
19
       3
42

8
152
21
408
—
76
71
     33

$   34
26
       3
63

51
174
161
136
59
51
91
     43

$   32
17
       3
52

37
152
150
127
—
40
91
     30

$   70
20
       2
92

13
124
57
108
—
37
88
     25

$1,002

$ 928

$ 811

$  829

$ 679

$ 544

* Excludes capital expenditures which were part of business acquisitions.

Operating Businesses:
Insurance group:

Goodwill
at year-end

2003

2002

Identifiable assets
at year-end

2003

2002

GEICO..................................................................................
General Re ............................................................................
Berkshire Hathaway Reinsurance Group..............................
Berkshire Hathaway Primary Group.....................................
Total insurance group ..............................................................

Apparel (1) ................................................................................
Building products ....................................................................
Finance and financial products ................................................
Flight services..........................................................................
McLane Company (2) ...............................................................
Retail .......................................................................................
Shaw Industries .......................................................................
Other businesses (3) ..................................................................

$  1,370
13,515
—
      143
15,028

57
2,131
877
1,369
145
434
1,996
      911

$  1,370
13,503
—
      143
15,016

57
2,082
495
1,369
—
434
1,941
       904

$  14,088
38,831
51,133
      4,952
109,004

1,523
2,593
28,338
2,875
2,243
1,495
1,999
      1,813

$  12,751
38,271
40,181
      4,770
95,973

1,539
2,515
34,148
3,105
—
1,341
1,932
      1,785

$22,948

$22,298

151,883

142,338

Reconciliation of segments to consolidated amount:

Corporate and other .............................................................
Investments in MidAmerican Energy Holdings Company ..
Goodwill ..............................................................................

1,829
3,899
    22,948

1,257
3,651
    22,298

$180,559

$169,544

(1)

(2)

(3)

Excludes other intangible assets not subject to amortization of ................
Excludes other intangible assets not subject to amortization of ................
Excludes other intangible assets not subject to amortization of ................

2003
$311
65
697

2002
$311
—
697

50

(20)  Business segment data (Continued)

Insurance premiums written by geographic region (based upon the domicile of the insured) are summarized below.

Dollars are in millions.

United States .......................................................
Western Europe...................................................
All other ..............................................................

Property/Casualty
2002
$14,297
3,870
       800

2001
$13,319
2,352
    1,065

2003
$14,701
3,880
       797

2003
$1,031
297
     510

Life/Health
2002
$1,153
411
     335

2001
$1,176
518
     311

$19,378

$18,967

$16,736

$1,838

$1,899

$2,005

Consolidated  sales  and  service  revenues  in  2003,  2002  and  2001  totaled  $32.1  billion,  $17.0  billion  and  $14.5
billion respectively.  Over 90% of such amounts in each year were in the United States with the remainder primarily in
Canada and Europe.  In 2003, consolidated sales and service revenues included $5.5 billion of sales to Wal-Mart Stores,
Inc. which were primarily related to McLane’s wholesale distribution business that Berkshire acquired in May 2003.

Premiums written and earned by Berkshire’s property/casualty and life/health insurance businesses during each of

the three years ending December 31, 2003 are summarized below.  Dollars are in millions.

Property/Casualty
2002

2001

2003

Life/Health
2002

2003

2001

Premiums Written:

Direct................................................................
Assumed ...........................................................
Ceded................................................................

$10,710
9,227
     (559)

$  9,457
10,471
     (961)

$  8,294
9,332
     (890)

$2,517
   (679)

$2,031
   (132)

$2,162
   (157)

Premiums Earned:

Direct................................................................
Assumed ...........................................................
Ceded................................................................

$10,342
9,992
     (688)

$  8,825
9,293
     (822)

$  7,654
9,097
     (834)

$2,520
   (673)

$2,021
   (135)

$2,143
   (155)

$19,378

$18,967

$16,736

$1,838

$1,899

$2,005

$19,646

$17,296

$15,917

$1,847

$1,886

$1,988

(21) Quarterly data

A summary of revenues and earnings by quarter for each of the last two years is presented in the following table.

This information is unaudited.  Dollars are in millions, except per share amounts.
1st

Revenues.................................................................................................. $11,376
Net earnings (1).........................................................................................
1,730
1,127
Net earnings per equivalent Class A common share................................

2nd

Quarter Quarter
$14,396
2,229
1,452

3rd
Quarter
$18,232
1,806
1,176

4th
Quarter
$19,855
2,386
1,553

2003

2002

Revenues.................................................................................................. $  9,506
Net earnings (1).........................................................................................
916
598
Net earnings per equivalent Class A common share................................
(1)

$10,030
1,045
681

$10,603
1,141
744

$12,096
1,184
772

Includes realized investment gains, which, for any given period have no predictive value, and variations in amount from period to period
have no practical analytical value, particularly in view of the unrealized appreciation now existing in Berkshire’s consolidated investment
portfolio.  After-tax realized investment gains for the periods presented above are as follows:

1st
Quarter
$526
100

2nd
Quarter
$905
43

3rd
Quarter
$453
164

4th
Quarter
$845
259

Realized investment gains – 2003 ........................................................................
Realized investment gains – 2002 ........................................................................

51

BERKSHIRE HATHAWAY INC.
and Subsidiaries
Management’s Discussion and Analysis of
Financial Condition and Results of Operations

Results of Operations

Net earnings for each of the past three years are disaggregated in the table that follows.  Amounts are after

deducting income taxes and minority interest.  Dollars are in millions.

Insurance – underwriting .................................................................................
Insurance – investment income ........................................................................
Non-insurance businesses ................................................................................
Equity in earnings of MidAmerican Energy Holdings Company ....................
Interest expense................................................................................................
Purchase-accounting adjustments ....................................................................
Other ................................................................................................................
Earnings before realized investment gains ...........................................
Realized investment gains................................................................................

2003

2002

2001

$1,114
2,276
1,745
429
(59)
(104)
       21
5,422
  2,729

$  (284)
2,096
1,668
359
(55)
(65)
          1
3,720
      566

$(2,654)
1,968
1,082
134
(60)
(603)
          5
(128)
      923

Net earnings..........................................................................................

$8,151

$ 4,286

$    795

The business segment data (Note 20 to Consolidated Financial Statements) should be read in conjunction

with this discussion.

Insurance — Underwriting

A summary follows of underwriting results from Berkshire’s insurance businesses for the past three years.

Dollars are in millions.

Underwriting gain (loss) attributable to:

2003

2002

2001

GEICO........................................................................................................
General Re..................................................................................................
Berkshire Hathaway Reinsurance Group ...................................................
Berkshire Hathaway Primary Group ..........................................................
Underwriting gain (loss) — pre-tax .................................................................
Income taxes and minority interest  .................................................................

$     452
145
1,047
         74
1,718
       604

$     416
(1,393)
547
         32
(398)
     (114)

$     221
(3,671)
(634)
         30
(4,054)
  (1,400)

Net underwriting gain (loss) .................................................................

$  1,114

$   (284)

$(2,654)

Berkshire  engages  in  both  primary  insurance  and  reinsurance  of  property  and  casualty  risks.    Through
General  Re,  Berkshire  also  reinsures  life  and  health  risks.    In  primary  insurance  activities,  Berkshire  subsidiaries
assume defined portions of the risks of loss from persons or organizations that are directly subject to the risks.  In
reinsurance  activities,  Berkshire  subsidiaries  assume  defined  portions  of  similar  or  dissimilar  risks  that  other
insurers or reinsurers have subjected themselves to in their own insuring activities.  Berkshire’s principal insurance
businesses  are:  (1)  GEICO,  the  fifth  largest  auto  insurer  in  the  U.S.,  (2)  General  Re,  one  of  the  four  largest
reinsurers  in  the  world,  (3)  Berkshire  Hathaway  Reinsurance  Group  (“BHRG”)  and  (4)  Berkshire  Hathaway
Primary  Group.    Berkshire’s  management  views  insurance  businesses  as  possessing  two  distinct  operations  –
underwriting and investing.  Accordingly, Berkshire evaluates performance of underwriting operations without any
allocation of investment income.

A  significant  marketing  strategy  followed  by  all  these  businesses  is  the  maintenance  of  extraordinary
capital  strength.    Statutory  surplus  of  Berkshire’s  insurance  businesses  totaled  approximately  $40.7  billion  at
December  31,  2003.    This  superior  capital  strength  creates  opportunities,  especially  with  respect  to  reinsurance
activities, to negotiate and enter into insurance and reinsurance contracts specially designed to meet unique needs of
sophisticated  insurance  and  reinsurance  buyers.    Additional  information  regarding  Berkshire’s  insurance  and
reinsurance operations follows.

GEICO

GEICO provides primarily private passenger automobile coverages to insureds in 48 states and the District
of  Columbia.    GEICO  policies  are  marketed  mainly  by  direct  response  methods  in  which  customers  apply  for
coverage  directly  to  the  company  over  the  telephone,  through  the  mail  or  via  the  Internet.    This  is  a  significant

52

Insurance — Underwriting (Continued)

GEICO (Continued)

element  in  GEICO’s  strategy  to  be  a  low  cost  insurer.    In  addition,  GEICO  strives  to  provide  excellent  service  to
customers, with the goal of establishing long-term customer relationships.

GEICO’s underwriting results for the past three years are summarized below.  Dollars are in millions.

2003

2002

2001

Premiums written ......................................................

Premiums earned.......................................................
Losses and loss adjustment expenses ........................
Underwriting expenses..............................................
Total losses and expenses..........................................

Amount
$8,081

$7,784
5,955
  1,377
  7,332

Pre-tax underwriting gain..........................................

$   452

%

Amount
$6,963

%

Amount
$6,176

%

100.0
76.5
  17.7
  94.2

100.0
77.0
  16.8
  93.8

$6,670
5,137
  1,117
  6,254

$   416

$6,060
4,842
     997
  5,839

$   221

100.0
79.9
  16.5
  96.4

Premiums  earned  in  2003  were  $7,784  million,  an  increase  of  16.7%  over  2002,  following  an  increase  of
10.1%  in  2002  over  2001.    The  growth  in  premiums  earned  in  2003  reflects  a  10.9%  increase  in  voluntary  auto
policies-in-force during the past year and average premium rate increases of about two percent.  During 2003, policies-
in-force increased 8.2% in the preferred risk auto line and 21.4% in the standard and nonstandard auto lines.  Voluntary
auto new business sales in 2003 increased 20.3% compared to 2002.  Voluntary auto policies-in-force at December 31,
2003 were 531,000 higher than at December 31, 2002 and reflect strong growth in the standard and nonstandard lines
during the last twelve months.

Losses  and  loss  adjustment  expenses  incurred  increased  15.9%  to  $5,955  million  in  2003,  following  an
increase of 6.1% in 2002 over 2001.  The loss ratio for property and casualty insurance, which measures the portion of
premiums earned that is paid or reserved for losses and related claims handling expenses, was 76.5% in 2003 compared
to 77.0% in 2002 and 79.9% in 2001.  Claims frequencies in 2003 for physical damage and bodily injury coverages
have decreased in the two to five percent range from 2002 despite more weather related losses in 2003 resulting from
winter  snowstorms,  spring  hailstorms  and  Hurricane  Isabel.    Bodily  injury  severity  has  increased  in  the  six  to  eight
percent  range  over  2002  while  physical  damage  severity  has  increased  in  the  two  to  three  percent  range.    Incurred
losses from catastrophe events for 2003 totaled approximately $57 million compared to $20 million in 2002 and $47
million in 2001.

Underwriting expenses increased 23.3% to $1,377 million in 2003 over 2002, which follows an increase of
12.0% in 2002 over 2001.  Policy acquisition expenses increased 18.7% in 2003 to $731 million reflecting increased
advertising  and  increased  staffing  to  handle  the  growth  in  policies-in-force.    Other  operating  expenses  were  $646
million  in  2003,  up  from  $501  million  in  2002  and  reflect  higher  salary,  profit  sharing  and  other  employee  benefit
expenses.

General Re

General Re conducts a reinsurance business, which offers reinsurance coverage of essentially all types of
property,  casualty,  life  and  health  risks  in  the  United  States  and  worldwide.    General  Re’s  principal  reinsurance
operations  are  internally  comprised  of:  (1)  North  American  property/casualty,  (2)  international  property/casualty,
which  principally  consists  of  business  written 
through  89%  owned  Cologne  Re,  (3)  London-market
property/casualty through the Faraday operations, and (4) global life/health.

General Re’s pre-tax underwriting  results  for  the  past  three  years  are  summarized  below.    Dollars  are  in

millions.

North American property/casualty.......................
International property/casualty ............................
Faraday (London-market) ....................................
Global life/health...................................................

Premiums earned

Pre-tax underwriting gain (loss)

2003
$3,551
1,897
950
  1,847

2002
$3,967
1,792
855
  1,886

2001
$3,968
1,822
575
  1,988

2003
$     67
38
(18)
       58

2002
$(1,019)
(315)
(4)
       (55)

2001
$(2,843)
(568)
(178)
       (82)

$8,245

$8,500

$8,353

$   145

$(1,393)

$(3,671)

53

Management’s Discussion (Continued)

Insurance — Underwriting (Continued)

General Re (Continued)

General Re’s consolidated underwriting results in 2003 reflect significant improvements over the past two
years and are attributed to rate increases, better coverage terms and the absence of large property losses, partially
offset  by  increases  in  prior  accident  years’  loss  estimates.    Underwriting  results  in  both  2002  and  2001  included
significant  charges  from  increases  in  loss  reserve  estimates  established  for  claims  occurring  in  prior  years.
Additionally,  underwriting  results  for  2001  were  severely  impacted  by  losses  from  the  September  11th  terrorist
attack.  General Re strives  to  generate  long-term  pre-tax  underwriting  gains  in  essentially  all  of  its  product  lines.
Underwriting  performance  is  not  evaluated  based  upon  market  share  and  underwriters  are  instructed  to  reject
inadequately priced risks.  Over the past three years, General Re has taken significant underwriting actions to better
align premium rates with coverage terms.  Information with respect to each of General Re’s underwriting units is
presented below.

North American property/casualty

General  Re’s  North  American  property/casualty  operations  underwrite  predominantly  excess  reinsurance
across essentially all lines of property and casualty business.  Excess reinsurance provides indemnification of losses
above  a  stated  retention  on  either  an  individual  claim  basis  or  in  the  aggregate  across  all  claims  in  a  portfolio.
Reinsurance contracts are written on both a treaty (group of risks) and facultative (individual risk) basis.

Premiums  earned  in  2003  declined  from  2002  premium  levels  by  $416  million  (10.5%).    The  decline  in
premiums earned reflects a net reduction from cancellations/non-renewals in excess of new contracts (estimated at
$761 million), partially offset by rate increases across all lines of business (estimated at $345 million).  Premiums
earned in 2002 were essentially unchanged compared to 2001 as rate increases (approximately $800 million) across
most lines of business were offset by reductions from cancellations in excess of new business.  Premiums earned in
2001 included $400 million from one retroactive reinsurance contract and a large quota share agreement.  No such
contracts were written in 2002 or 2003.

The  North  American  property/casualty  business  produced  a  pre-tax  underwriting  gain  of  $67  million  in
2003,  compared  with  losses  of  $1,019  million  and  $2,843  million  in  2002  and  2001,  respectively.    The  2003
underwriting gain consisted of $200 million in current accident year gains, partially offset by $133 million in prior
accident  year  losses.    The  favorable  effects  of  re-pricing  efforts  and  improved  contract  terms  and  conditions
implemented over the past three years contributed to the net gain.  In addition, underwriting results for 2003 were
favorably impacted by the absence of major catastrophes and other large individual property losses ($20 million or
greater), a condition that is unusual and should not be expected to occur regularly in the future.

The prior accident years’ losses of $133 million recorded in 2003 included $99 million related to discount
accretion on workers’ compensation reserves and deferred charge amortization on retroactive reinsurance contracts,
reserve  increases  of  $153  million  for  casualty  claims,  (primarily  in  the  workers’  compensation,  directors  and
officers, and errors and omissions lines), and reserve decreases of $119 million for property claims.

For statutory and GAAP reporting purposes workers’ compensation loss reserves are discounted at 1.0%
per annum for claims occurring after 2002 and at 4.5% for claims occurring before 2003.  The lower discount rate
for  2003  claims  was  approved  by  General  Re’s  state  insurance  regulators  and  reflects  the  lower  interest  rate
environment  that  now  exists.    The  lower  discount  rate  effectively  reduced  2003  underwriting  gains  by
approximately $74 million.

Underwriting results for 2002 included $1,085 million in prior year loss reserve adjustments, offset by net
gains of $66 million with respect to the 2002 accident year.  Results for 2002 included $990 million in increased
loss estimates related to casualty lines of business (general liability, workers’ compensation, medical malpractice,
auto liability and professional liability coverages), principally related to the 1997 through 2000 accident years.  The
2002 prior years’ loss reserve adjustment was net of a $115 million reduction in reserves established in connection
with  the  September  11th  terrorist  attack,  primarily  due  to  decreased  loss  estimates  for  certain  claims.    The
underwriting  loss  in  2001  included  $923  million  in  prior  years’  loss  reserve  adjustments,  approximately  $1.54
billion of net losses from the September 11th terrorist attack, as well as $87 million of losses from other catastrophes
(principally Tropical Storm Allison) and other large individual property losses.

54

Insurance — Underwriting (Continued)

General Re (Continued)

Management believes the revised estimates in 2003 on prior years’ casualty loss reserves were primarily
due  to  escalating  medical  inflation  and  utilization  that  adversely  affect  workers’  compensation  and  other  casualty
lines; and an increased frequency in corporate bankruptcies, scandals and accounting restatements which increased
losses under errors and omissions and directors and officers coverages.  Otherwise, reported casualty losses for prior
years  were  generally  consistent  with  management  estimates.    In  addition  to  the  above  listed  factors,  revised
estimates in 2002 and 2001 for prior years’ loss reserves were due to (1) an increase in claim severity, which has a
leveraged effect on excess of loss coverages provided by General Re by producing a disproportionate increase in
claims  exceeding  General  Re’s  attachment  point;  (2)  broadened  coverage  terms  under  General  Re’s  reinsurance
contracts  during  1997  through  2000;  (3)  increased  ceding  companies’  reserve  inadequacies,  likely  arising  from
broadened  terms  and  conditions,  as  well  as  previously  unrecognized  premium  inadequacies;  and  (4)  increased
primary  company  insolvencies,  which  changed  historical  claim  reporting  patterns.    See  the  discussion  regarding
“Critical Accounting Policies” for information about the processes used in estimating loss reserves.

In  addition,  General  Re  continuously  estimates  its  liabilities  and  related  reinsurance  recoverables  for
environmental  and  asbestos  claims  and  claim  expenses.    Most  liabilities  for  such  claims  arise  from  exposures  in
North  America.    Environmental  and  asbestos  exposures  do  not  lend  themselves  to  traditional  methods  of  loss
development determination and therefore reserves related to these exposures may be considered  less  reliable  than
reserves  for  standard  lines  of  business  (e.g.,  automobile).    The  estimate  for  environmental  and  asbestos  losses  is
composed of four parts:  known claims, development on known claims, incurred but not reported (“IBNR”) losses
and direct excess coverage litigation expenses.  At December 31, 2003, environmental and asbestos loss reserves for
North  America  were  $1,050  million  ($890  million  net  of  reinsurance).    As  of  December  31,  2002  such  amounts
totaled $1,161 million ($1,008 million net of reinsurance). The changing legal environment concerning asbestos and
environmental  claims  has  made  quantification  of  potential  exposures  very  difficult.    Future  changes  to  the  legal
environment may precipitate significant changes in reserves.

Due to the long-tail nature of casualty business, a very high degree of estimation is involved in establishing
loss reserves for current accident year casualty occurrences.  Thus, the ultimate level of underwriting gain or loss
with respect to the 2003 accident year will not be fully known for many years.  North American property/casualty
loss reserves were $15.5 billion ($14.3 billion net of reinsurance) at December 31, 2003 and $16.2 billion ($14.9
billion  net  of  reinsurance)  at  December  31,  2002.    About  52%  of  this  amount  at  December  31,  2003  represents
estimates of IBNR losses.

Although  loss  reserve  levels  are  now  believed  to  be  adequate,  there  can  be  no  guarantees.    A  relatively
small change in the estimate of net reserves can produce large changes in annual underwriting results.  For instance,
a one percentage point change in net loss reserves at year end 2003 would produce a pre-tax underwriting gain or
loss  of  $143  million,  or  roughly  4%  of  premiums  earned  in  2003.    In  addition,  the  timing  and  magnitude  of
catastrophe  and  large  individual  property  losses  are  expected  to  continue  to  contribute  to  volatile  periodic
underwriting results in the future.

International property/casualty

The international property/casualty operations write quota-share and excess reinsurance on risks around the
world,  with  its  largest  markets  in  Continental  Europe  and  the  United  Kingdom.    International  property/casualty
business is written on a direct reinsurance basis primarily through Cologne Re.

Premiums  earned  in  2003  increased  $105  million  (5.9%)  from  2002  amounts,  reflecting  the  increase  in
values of most foreign currencies relative to the U.S. dollar.  In local currencies, premiums earned declined 8.1% in
2003 versus 2002.  The decrease in premiums earned was primarily due to the non-renewal of unprofitable business
in Continental Europe, the United Kingdom, Latin America and Australia.  In local currencies, premiums earned in
2002 declined 2.1% from 2001, primarily due to a substantial decline in premiums in Argentina, the non-renewal of
under-performing  business  in  Continental  Europe  and  parts  of  Asia,  partially  offset  by  increases  in  the  United
Kingdom and Australia.

The international property/casualty operations produced a pre-tax underwriting gain of $38 million during
2003, compared with pre-tax underwriting losses of $315 million and $568 million for 2002 and 2001, respectively.
The net underwriting gain for 2003 included $69 million of gains in the current underwriting year, which reflected
rate increases and the absence of large property losses, and losses of $31 million from increases to reserves for prior
years’ loss occurrences.  Results for 2002 included $240 million of net increases to prior years’ loss reserves, and
approximately  $107  million  in  catastrophe  and  other  large  individual  property  losses,  principally  European  flood

55

Management’s Discussion (Continued)

Insurance — Underwriting (Continued)

General Re (Continued)

losses in August and European storm Jeanette in October.  The underwriting loss of $568 million in 2001 included
$247 million of net losses related to the September 11th terrorist attack and $143 million resulting from other large
individual property losses.

At  December  31,  2003,  the  international  property/casualty  operations  had  gross  loss  reserves  of  $6.4
billion, ($6.0 billion net of reinsurance) compared to $5.4 billion in gross loss reserves at December 31, 2002 ($5.1
billion net of reinsurance).  The increase in reserves during 2003 was primarily due to changes in foreign currency
rates.    The  overall  economic  effect  of  foreign  currency  changes  were  mitigated  because  foreign  denominated
liabilities are largely offset by assets denominated in those currencies.

Faraday (London-market)

London-market  business  is  written  through  Faraday  Holdings  Limited  (“Faraday”).    Faraday  owns  the
managing  agent  of  Syndicate  435  at  Lloyd’s  of  London  and  provides  capacity  and  participates  in  the  results  of
Syndicate 435.  Through Faraday, General Re’s participation in Syndicate 435 was 100% in 2003.  Also included in
the London-market segment are Cologne Re’s UK and Continental Europe broker-market subsidiaries.

Premiums earned in the London-market operations increased $95 million (11.1%) in 2003 as compared to
2002.  Premiums earned in 2002 increased $280 million (48.7%) over 2001 amounts.  In local currencies, premiums
earned  in  2003  were  unchanged  from  2002  and  increased  41.9%  in  2002  over  2001.    In  2003,  premiums  earned
from Cologne Re’s Continental Europe broker-market subsidiary, which was placed in run-off, declined but were
offset by  increases  in  earned  premiums  in  Faraday  Syndicate  435.    Premiums  earned  in  2002  increased  primarily
due to the increased participation in Faraday Syndicate 435 from 60.6% in 2001 to 96.7% in 2002.

London-market  operations  produced  a  pre-tax  underwriting  loss  of  $18  million  in  2003,  compared  with
pre-tax underwriting losses of $4 million and $178 million in 2002 and 2001, respectively.  The underwriting loss in
2003 included $73 million of reserve increases related to prior years’ loss events.  These losses occurred primarily
in casualty lines.  In 2003, underwriting gains were earned in property and aviation lines, reflecting more selective
underwriting  and  a  lack  of  catastrophes  and  other  large  losses.    Underwriting  results  in  2002  were  adversely
impacted  by  $80  million  of  increases in  prior  years’  casualty  loss  reserve  estimates  and  $17  million  of  European
flood losses.  Offsetting these amounts  were  gains  in  property  business.  The  London-market  underwriting  loss  in
2001  included  $66  million  of  losses  from  the  September  11th  terrorist  attack  as  well  as  relatively  high  property
losses.

At December 31, 2003, the Faraday operations had gross loss reserves of $1.9 billion, ($1.7 billion net of
reinsurance) compared to $1.7 billion in gross reserves at December 31, 2002 ($1.3 billion net of reinsurance).  The
increase in reserves during 2003 was primarily due to changes in foreign currency rates.

Global life/health

General  Re’s  global  life/health  affiliates  reinsure  such  risks  worldwide.    Premiums  earned  in  2003
decreased  by  $39  million  (2.1%)  compared  with  2002.    Premiums  earned  in  2002  for  the  global  life/health
operations  declined  $102  million  (5.1%)  from  2001.    Adjusting  for  the  effects  of  foreign  currency  exchange,
premiums earned declined 9.6% in 2003, and 6.7% in 2002.  The decline in 2003 was primarily due to decreases in
the group and individual health businesses in the U.S. life/health operations.

Underwriting  results  for  the  global  life/health  operations  produced  a  pre-tax  underwriting  gain  of  $58
million in 2003, compared with underwriting losses of $55 million and $82 million in 2002 and 2001, respectively.
While both the U.S. and international life/health segments were profitable in 2003, most of the gains were earned in
the  international  life  segment.    The  underwriting  losses  for  2002  and  2001  were  principally  due  to  increased
reserves  on  run-off  business  in  the  U.S.  life/health  operations.    Underwriting  results  for  2001  also  include  $19
million of net losses related to the September 11th terrorist attack.

56

Insurance — Underwriting (Continued)

Berkshire Hathaway Reinsurance Group

The  Berkshire  Hathaway  Reinsurance  Group  (“BHRG”)  underwrites  excess-of-loss  and  quota-share
reinsurance coverages for insurers and reinsurers around the world.  BHRG is believed to be one of the leaders in
providing  catastrophe  excess-of-loss  reinsurance  and  writing  coverages  for  large  or  otherwise  unusual  discrete
commercial  property  risks  on  a  direct  and  facultative  reinsurance  basis,  referred  to  as  individual  risk  business.
BHRG’s underwriting results are summarized in the table below.

Catastrophe and individual risk.............................
Retroactive reinsurance .........................................
Traditional multi-line ............................................

Premiums earned
2002
$1,283
407
  1,610

2001
$   553
1,993
     445

2003
$1,330
526
  2,574

Pre-tax underwriting gain (loss)
2002
$1,006
(433)
     (26)

2001
$ (150)
(358)
   (126)

2003
$1,108
(387)
     326

Total ......................................................................

$4,430

$3,300

$2,991

$1,047

$   547

$ (634)

During the second half of 2001, opportunities for BHRG to write catastrophe and individual risk business
increased  significantly,  particularly  subsequent  to  September  11th.    Contracts  written  may  provide  exceptionally
large limits of indemnification, often several hundred million dollars and occasionally in excess of $1 billion, and
may cover catastrophe risks (such as hurricanes, earthquakes or other natural disasters) or other property risks (such
as aviation and aerospace, commercial multi-peril or terrorism).  Catastrophe and individual business written totaled
about  $1.2  billion  in  2003  and  $1.5  billion  in  2002.    The  level  of  business  written  in  future  periods  will  vary,
perhaps materially, based upon market conditions and management’s assessment of the adequacy of premium rates.

The catastrophe and individual risk business produced substantial underwriting gains in 2003 and 2002 due
to the lack of catastrophic or otherwise large loss events.  The net underwriting loss in 2001 included about $410
million from the September 11th terrorist attack.  Losses related to the September 11th terrorist attack were reduced
by  about  $85  million  in  2002,  as  payments  to  settle  claims  under  certain  policies  were  below  original  estimates.
Although  very  large  underwriting  gains  were  achieved  in  2003  and  2002,  a  single  loss  event  could  have  easily
eliminated those gains.  The pre-tax maximum probable loss from a single event at December 31, 2003 is estimated
to be approximately $6.7 billion resulting from potential risk of loss from a major earthquake in California.

BHRG, as a matter of general practice, does not cede catastrophe and individual risks to other reinsurers
due  to  the  uncertainty  of  collecting  recoverable  losses  ceded  to  financially  weaker  companies  if  a  natural  or
financial  mega-catastrophe  should  occur.    Underwriting  results  of  this  business  will  remain  subject  to  extreme
volatility.    Nevertheless,  Berkshire’s  management  remains  willing  to  accept  such  volatility  provided  there  is  a
reasonable prospect of long-term underwriting profitability.

Retroactive  reinsurance  contracts  indemnify  ceding  companies  for  losses  arising  under  insurance  or
reinsurance  contracts  written  in  the  past,  usually  many  years  ago.    While  contract  terms  vary,  losses  under  the
contracts are subject to a very large aggregate dollar limit, occasionally exceeding $1 billion under a single contract.
Generally, it is also anticipated, although not assured, that claims under retroactive contracts will be paid over long
time periods.  These contracts do not produce an immediate underwriting loss for financial reporting purposes.  The
excess  of  the  estimated  ultimate  claims  payable  over  the  premiums  received  is  established  as  a  deferred  charge
which  is  subsequently  amortized  over  the  expected  claim  settlement  periods.    Such  amortization  is  included  as  a
component of losses incurred and essentially represents the net underwriting losses from this business in each of the
past three years.  In addition, underwriting results in 2003 included a net gain of $41 million from the commutation
of contracts written in prior years in exchange for commutation payments of $710 million.

Retroactive reinsurance contracts are expected to generate significant underwriting losses over time due to
the  amortization  of  deferred  charges.    This  business  is  accepted  due  to  the  exceptionally  large  amounts  of  float
generated,  which  totaled  about  $7.7  billion  at  December  31,  2003.    Unamortized  deferred  charges  under  BHRG
retroactive reinsurance contracts were $2.8 billion at December 31, 2003 and $3.2 billion as of December 31, 2002.

During  the  last  two  years,  BHRG  wrote  a  significant  amount  of  business  under  traditional  multi-line
contracts. Such contracts included several quota-share participations in, and contracts with, Lloyd’s syndicates and a
quota-share contract written in 2002 with a major U.S. based insurer, which was cancelled in 2003.  These contracts
and participations generated written premiums of about $1.6 billion in 2003 and $2.0 billion in 2002.  In a quota-

57

Management’s Discussion (Continued)

Insurance — Underwriting (Continued)

Berkshire Hathaway Reinsurance Group (Continued)

share  arrangement,  BHRG  essentially  participates  proportionately  in  the  premiums  and  claims  of  the  business
written by the ceding company.  BHRG was willing to enter into these new contracts because it believed the level of
rate  adequacy  in  certain  property/casualty  markets  was  much  improved  in  relation  to  past  years.    BHRG’s
participation  in  the  Lloyd’s  business  declined  in  2003  as  the  availability  of  other  sources  of  capacity  for  Lloyd’s
syndicates increased.

Berkshire Hathaway Primary Group

Berkshire’s  primary  insurance  group  consists  of  a  wide  variety  of  smaller  insurance  businesses  that
principally  write  liability  coverages  for  commercial  accounts.    These  businesses  include:    National  Indemnity
Company’s  primary  group  operation  (“NICO  Primary  Group”),  a  writer  of  motor  vehicle  and  general  liability
coverages; U.S. Investment Corporation (“USIC”), whose subsidiaries underwrite specialty insurance coverages; a
group of companies referred to internally as “Homestate” operations, providers of standard multi-line insurance; and
Central States Indemnity Company, a provider of credit and disability insurance to individuals nationwide through
financial institutions.

Collectively, Berkshire’s other primary insurance businesses produced earned premiums of $1,034 million
in 2003, $712 million in 2002, and $501 million in 2001.  The increases in premiums earned during the past two
years were largely attributed to increased volume at USIC and the NICO Primary Group.  Net underwriting gains of
Berkshire’s other primary insurance businesses totaled $74 million in 2003, $32 million in 2002, and $30 million in
2001.  The improvement in year-to-year comparative underwriting results was due to the aforementioned increases
in premiums and reasonably good claim experience.

Insurance — Investment Income

Following is a summary of the net investment income of Berkshire’s insurance operations for the past three

years.  Dollars are in millions.

Investment income before taxes.............................................................................
Applicable income taxes and minority interest ......................................................

2003
$3,223
     947

2002
$3,050
     954

2001
$2,824
     856

Investment income after taxes and minority interest..............................................

$2,276

$2,096

$1,968

Investment income from insurance operations in 2003 of $3,223 million increased 5.7% over 2002, which
exceeded 2001 by 8.0%.  The increase in 2003 investment income was due primarily to higher amounts of interest
earned  from  high-yield  corporate  obligations,  partially  offset  by  the  effects  of  lower  interest  rates  for  other  fixed
maturity  obligations.    Berkshire’s  investments  in  high-yield  corporate  bonds  were  approximately  $8  billion  (at
original cost) as of December 31, 2002.  As of December 31, 2003 the cost of such investments declined about $1.5
billion, as a result of sales and prepayments by issuers.

The  high-yield  investments  were  primarily  acquired  at  distressed  prices.    The  credit  risk  associated  with
such investments is much greater than with other fixed maturity investments typically acquired by Berkshire, which
are generally U.S. Government, municipal and mortgage-backed securities and short-term cash equivalents. As of
December  31,  2003,  approximately  65%  of  Berkshire’s  high-yield  investments  were  issued  by  companies  in  the
energy industry.  While the market prices of such investments increased significantly for all major positions during
2003, Berkshire management does not believe that the credit risks associated with the issuers of these instruments
has  correspondingly  declined.    Credit  losses  may  eventually  occur  with  respect  to  some  of  these  investments.
However, management also believes that over time these investments will produce reasonable returns in relation to
credit risk.

Invested  assets  of  insurance  businesses  increased  during  2003  by  $14.5  billion  to  $93.5  billion  at
December 31, 2003 following an increase of $7 billion during 2002.  The increase in invested assets during 2003
was  primarily  the  result  of  the  market  price  appreciation  of  Berkshire’s  major  equity  investments  and  high-yield
fixed maturity investments, as well as strong operating cash flow.

Float represents an estimate of the amount of funds ultimately payable to policyholders that is available for
investment.    Total  float  at  December  31,  2003  was  approximately  $44.2  billion  compared  to  $41.2  billion  at
December 31, 2002 and about $35.5 billion at December 31, 2001.  The cost of float, represented by the ratio of the
pre-tax  underwriting  gain  or  loss  over  average  float,  was  negative  for  2003  due  to  $1.7  billion  of  pre-tax  net
underwriting gains.  The cost of float in 2002 was about 1.1% as compared to 12.8% for 2001.

58

Non-Insurance Businesses

Since  December  31,  2000,  Berkshire’s  numerous  non-insurance  business  activities  have  increased
significantly through several business acquisitions.  Additional information regarding these acquisitions is contained
in Note 2 to the Consolidated Financial Statements.

A summary follows of results from Berkshire’s non-insurance businesses for the past three years.  Dollars

are in millions.

Pre-tax earnings.......................................................................................................
Income taxes and minority interest .........................................................................

2003
$2,776
  1,031

2002
$2,667
     999

2001
$1,803
     721

Net earnings ............................................................................................................

$1,745

$1,668

$1,082

A  comparison  of  revenues  and  pre-tax  earnings  between  2003,  2002  and  2001  for  the  non-insurance

businesses follows.  Dollars are in millions.

Apparel..................................................................
Building products..................................................
Finance and financial products..............................
Flight services .......................................................
McLane .................................................................
Retail .....................................................................
Shaw Industries .....................................................
Other businesses....................................................

2003

$  2,075
3,846
3,073
2,431
13,743
2,311
4,660
    3,040

Revenues
2002

2001

Pre-tax earnings (loss)
2002

2003

2001

$  1,619
3,702
2,234
2,837
—
2,103
4,334
    2,375

$     726 $   289
559
619
72
150
165
436
     1,957      486

3,269
1,928
2,563
—
1,998
4,012

$   229
516
726
225
—
166
424
     381

$   (33)
461
402
186
—
175
292
     320

$35,179

$19,204

$16,453

$2,776

$2,667

$1,803

Apparel

Berkshire’s apparel manufacturing and distribution businesses have grown significantly during the last two
years  as  a  result  of  the  acquisitions  of  Fruit  of  the  Loom  on  April  30,  2002  and  Garan  on  September  4,  2002.
During  2003  these  two  businesses  generated  combined  revenues  of  $1,459  million  and  pre-tax  earnings  of  $260
million. From their respective acquisition dates, these two businesses generated combined revenues of $957 million
and  pre-tax  earnings  of  $190  million  in  2002.    On  a  comparative  full  year  basis,  total  apparel  group  revenues  in
2003 declined 5% from 2002 and pre-tax earnings in 2003 declined 11% as compared to 2002.  Pre-tax losses in
2001 from the apparel businesses included operating losses and a restructuring charge at Dexter.

Building products

Each  of  Berkshire’s  building  products  businesses  manufactures  and  distributes  products  and  services  for
the  residential  and  commercial  construction  and  home  improvement  markets.    Revenues  of  the  building  products
group totaled $3,846 million in 2003 compared to $3,702 million in 2002.  Each of the building products businesses
generated higher revenues in 2003 as compared to 2002 and benefited from the strong housing market and relatively
low  interest  rates.    Pre-tax  earnings  of  the  building  products  businesses  in  2003  were  $559  million  compared  to
$516 million in 2002.

Finance and financial products

A  variety  of  finance  and  financial  products  businesses  are  included  in  this  segment.    These  businesses
invest  in  various  types  of  fixed-income  securities  (BH  Finance),  make  commercial  loans  (Berkshire  Hathaway
Credit Corporation and Berkadia LLC), issue and service installment  loan  contracts  with  respect  to  manufactured
housing (Clayton Homes, through its subsidiary Vanderbilt Mortgage, acquired August 7, 2003), lease trailers and
shipping  containers  used  in  product  transportation  and  lease  furniture  (XTRA  and  CORT)  and  offer  for  sale
annuities  and  similar  type  products  (Berkshire  Hathaway  Life).    This  group  also  includes  General  Re  Securities
(“GRS”), a dealer in derivative contracts.  These businesses generally issue debt or interest bearing obligations to
finance asset acquisitions.

59

Management’s Discussion (Continued)

Non-Insurance Businesses (Continued)

Finance and financial products (Continued)

Revenues of the finance group consist of interest, rentals, and sales of manufactured homes, transportation
equipment and furniture.  Revenues in 2003 totaled $3,073 million, an increase of 37.6% over 2002.  The increase
in 2003 was primarily due to the inclusion of Clayton (approximately $500 million), revenues from the issuance of
annuity  products  of  approximately  $700  million  versus  none  in  2002  and  was  partially  offset  by  lower  interest
income.

Pre-tax  earnings  of  the  finance  group  in  2003,  which  exclude  realized  investment  gains,  declined  $107
million  (14.7%)  from  2002.    Much  of  the  comparative  decline  in  pre-tax  earnings  was  due  to  lower  net  interest
earned by BH Finance.  BH Finance’s fixed maturity investment portfolio declined about $6 billion during 2003 as
a result of sales and prepayments and was offset by corresponding declines in repurchase agreement obligations.

During 2003, pre-tax earnings included about $101 million from Berkadia as compared to $115 million in
2002.  Earnings of Berkadia are directly correlated with the outstanding amount of a term loan to FINOVA, which
totaled $525 million at December 31, 2003 compared to $2.175 billion at December  31,  2002  and  $4.9  billion  at
December 31, 2001.  Most of Berkadia’s pre-tax earnings in 2003 were represented by the accelerated recognition
in earnings of fees received in 2001 from FINOVA in connection with origination of the loan  as  a  result  of  loan
repayments being at a much faster rate than originally anticipated.  In February 2004, the FINOVA loan was repaid
in full.  Thus, earnings from Berkadia in 2004 will be nominal.

GRS had a pre-tax loss in 2003 of $99 million versus a loss of $173 million in 2002.  GRS’s operation has
been  in  run-off  since  January  2002.    During  the  run-off  period,  GRS  has  limited  new  business  to  certain  risk
management  transactions  and  is  unwinding  existing  asset  and  liability  positions  in  an  orderly  manner.    Since  the
run-off commenced, approximately two-thirds of GRS’s open trades have been terminated. It is expected that the
run-off will take at least several more years to complete.  The pre-tax losses in the last two years reflect related run-
off costs as well as net transaction and position losses.  Additional losses will almost certainly be incurred over time
in connection with the run-off.  The timing and amounts of such losses is uncertain.

Flight services

This segment includes FlightSafety, a leading provider of high technology training to operators of aircraft
and ships and NetJets, the world’s leading provider of fractional ownership programs for general aviation aircraft.
FlightSafety’s worldwide clients include corporations, regional airlines, the military and government agencies.  The
decline in revenues was split between FlightSafety (about $96 million) and NetJets (about $310 million).  A decline
in  FlightSafety  training  revenues  accounted  for  most  of  that  businesses  revenue  decline.    The  decline  in  training
revenues was due to a decline in regional airline training somewhat offset by increased U.S. Government training
revenues.    The  decline  in  revenues  at  NetJets  was  due  to  a  reduction  of  revenues  from  sales  of  aircraft  of  $514
million partially offset by increased flight services and other revenues of about $204 million.  Pre-tax earnings from
these businesses was $72 million in 2003 as compared to $225 million in 2002.  The results for 2002 include a gain
of $60 million from the sale of a partnership interest to Boeing and the results for 2003 include the recognition of
pre-tax  charges  of  $69  million  related  to  write  downs  of  certain  simulators  and  aircraft  inventory.  Excluding  the
aforementioned gain and write downs, “normal earnings” from these businesses were $141 million in 2003 versus
$165  million  in  2002.    The  reduction  in  combined  “normal”  pre-tax  earnings  from  these  businesses  is  due  to
reduced “normal” pre-tax earnings at FlightSafety  of  $34  million  somewhat  offset  by  improved  results  at  NetJets
where its pre-tax loss before write downs was $9 million in 2003 versus about $19 million in 2002.  The corporate
aviation  business  has  slowed  significantly  in  the  past  few  years  which  has  hurt  FlightSafety’s  results.  NetJets
continues to be the leader in the fractional ownership field.

McLane

On  May  23,  2003,  Berkshire  acquired  McLane  Company,  Inc.  from  Wal-Mart  Stores,  Inc.    Results  of
McLane’s business operations are included in Berkshire’s consolidated results beginning on that date.  McLane’s
revenues were $13,743 million and pre-tax earnings totaled $150 million for the period from May 23 to December
31.  Approximately 35% of McLane’s revenues derived from sales to Wal-Mart Stores, Inc.  McLane’s business is
marked  by  high  sales  volume  and  low  profit  margins.    For  its  most  recently  completed  fiscal  year  prior  to  the
acquisition, McLane’s sales and pre-tax earnings totaled approximately $21.9 billion and $220 million, respectively.
See  Note  2  to  the  Consolidated  Financial  Statements  for  information  regarding  the  acquisition  and  McLane’s
business.

60

Non-Insurance Businesses (Continued)

Retail

Berkshire’s  retailing  businesses  consist  of  four  independently  managed  retailers  of  home  furnishings
(Nebraska  Furniture  Mart  and  its  subsidiaries  (“NFM”),  R.C.  Willey  Home  Furnishings  (“R.C.  Willey”),  Star
Furniture  (“Star”)  and  Jordan’s  Furniture)  and  three  independently  managed  retailers  of  fine  jewelry  (Borsheim’s
Jewelry, Helzberg’s Diamond Shops (“Helzberg”), and Ben Bridge Jeweler).  Revenues of the retail businesses in
2003  increased  $208  million  (9.9%)  as  compared  to  2002,  and  2002  revenues  increased  5.3%  over  2001.    The
increase  in  revenues  in  2003  was  primarily  attributed  to  Nebraska  Furniture  Mart’s  new  store  in  Kansas  City,
Kansas,  which  opened  in  August  2003  and  R.C.  Willey’s  second  Nevada  location,  which  opened  in  May  2003.
Comparative pre-tax earnings of the  retail  group  in 2003  were  relatively  unchanged  from  2002.    Higher  earnings
associated with the new R.C. Willey store were offset by start-up and depreciation costs incurred in connection with
NFM’s new store.

Shaw Industries

Shaw  is  a  leading  manufacturer  and  distributor  of  carpet  and  rugs  for  residential  and  commercial  use.
Shaw also provides installation services and offers hardwood floor and other floor coverings.  Berkshire acquired
87.3% of the common stock of Shaw in January 2001 and the remainder of the outstanding stock in January 2002.
Shaw’s  revenues  in  2003  of  $4,660  million  increased  by  $326  million  (7.5%)  over  2002,  and  2002  revenues
increased 8.0% over 2001.  The increase in 2003 revenues reflects a 6.1% increase in carpet sales revenues as well
as  increased  sales  of  hard  floor  surfaces.    Shaw’s  revenues  in  2003  also  include  the  results  from  Dixie  Group,  a
carpet  and  rug  manufacturer  acquired  in  November.    In  2003,  Shaw’s  pre-tax  earnings  totaled  $436  million,  an
increase  of  $12  million  (2.8%)  over  2002.    Shaw’s  operating  results  in  2003  benefited  from  increased  sales  and
lower borrowing costs.

Other businesses

Revenues in 2003 from Berkshire’s other businesses as compared to 2002 increased $665 million to $3,040
million  and  pre-tax  earnings  increased  $105  million  to  $486 million.    Berkshire’s  other  non-insurance  businesses
consist  of  the  results  of  numerous  smaller  businesses.    The  increase  in  revenues  and  pre-tax  earnings  of  other
businesses  in  2003  was  primarily  due  to  the  inclusion  of  the  results  of  businesses  acquired  in  2002  from  their
respective  acquisition  dates  (Larson-Juhl—February  8,  2002,  The  Pampered  Chef  and  CTB  International—both
October 31, 2002).

Equity in earnings of MidAmerican Energy Holdings Company

Earnings  from  MidAmerican  represent  Berkshire’s  share  of  MidAmerican’s  net  earnings,  as  determined
under the equity method. Earnings from MidAmerican totaled $429 million in 2003, $359 million in 2002 and $134
million  in  2001.  MidAmerican’s  earnings  increased  in  2003  due  to  improved  results  in  its  utility  businesses,  the
effects of the acquisition during 2002 and the subsequent expansion during 2003 of two natural gas pipelines and
increased earnings from its real estate brokerage business due to acquisitions and increased transaction volume. See
Note  3  to  the  Consolidated  Financial  Statements  for  additional  information  regarding  Berkshire’s  investments  in
MidAmerican.

Purchase-Accounting Adjustments

Purchase-accounting adjustments reflect the after-tax effect on net earnings with respect to the amortization
of  fair  value  adjustments  to  certain  assets  and  liabilities  recorded  at  various  business  acquisition  dates.    Prior  to
2002,  this  amount  also  included  goodwill  amortization.    Effective  January  1,  2002,  Berkshire  ceased  amortizing
goodwill of previously acquired businesses in accordance with the provisions of SFAS No. 142.

Realized Investment Gains

Realized investment gains and losses have been a recurring element in Berkshire’s net earnings for many
years.    Such  amounts  are  recorded  when  investments  are:  (1)  sold  or  disposed;  (2)  impaired;  or  (3)  marked-to-
market with a corresponding gain or loss included in earnings.  Such amounts also include realized and unrealized
gains or losses associated with certain derivatives contracts.  Realized investment gains may fluctuate significantly
from period to period, resulting in a meaningful effect on reported net earnings.  However, the amount of realized
gains  in  a  given  period  has  no  practical  analytical  value,  given  the  magnitude  of  unrealized  gains  existing  in
Berkshire’s consolidated investment portfolio.

61

Management’s Discussion (Continued)

Realized Investment Gains (Continued)

The Consolidated Statements of Earnings include after-tax realized investment gains of $2,729 million in
2003, $566 million in 2002 and $923 million in 2001.  These gains were net of after-tax losses of $188 million in
2003, $373 million in 2002 and $161 million in 2001 related to “other-than-temporary” impairments. Management
evaluates investments for impairment as of each balance sheet date.  Factors considered in determining whether an
impairment charge is warranted include the length of time the unrealized loss has existed, the financial condition of
the  investee,  future  business  prospects  and  creditworthiness  of  the  investee,  and  Berkshire’s  ability  and  intent  to
hold the investment until the value recovers.  When an impairment charge is recorded, the cost of the investment is
written down to fair value through a charge to earnings.  Consequently, impairment charges from essentially all of
Berkshire’s  “other-than-temporarily”  impaired  investments  produced  little  effect  on  total  shareholders’  equity
because these investments were already carried at fair value with the difference between fair value and cost included
in shareholders’ equity as a component of accumulated other comprehensive income.

After-tax  realized  gains  also  included  $536  million  in  2003  and  $193  million  in  2002  of  realized  and
unrealized gains on foreign currency forward contracts entered into during the last two years.  After-tax unrealized
gains included in earnings with respect to open contracts totaled $414 million as of December 31, 2003 and $193
million at December 31, 2002.  The gains in each year were due primarily to the decline in the value of the U.S.
dollar against certain foreign currencies.

Financial Condition

Berkshire’s balance sheet continues to reflect significant liquidity and a strong capital base.  Consolidated
shareholders’ equity at December 31, 2003 totaled $77.6 billion.  Consolidated cash and invested assets, excluding
assets  of  finance  and  financial  products  businesses,  totaled  approximately  $95.6  billion  at  December  31,  2003,
(including $31.3 billion in cash and cash equivalents) and totaled $80.5 billion at December 31, 2002.  During 2003,
the  market  prices  of  Berkshire’s  holdings  in  equity  and  fixed  maturity  securities  increased  significantly  and  cash
flow  generated  from  operations  was  about  $8.2  billion.    During  2003,  Berkshire  deployed  about  $3.2  billion  in
internally  generated  cash  for  business  acquisitions  and  during  the  preceding  two  years,  cash  of  $7.3  billion  was
utilized in business acquisitions, and $1.7 billion was utilized for additional investments in MidAmerican.

Berkshire’s consolidated notes payable and other borrowings, excluding borrowings of finance businesses,
totaled $4.2 billion at December 31, 2003 and $4.8 billion at December 31, 2002.  During 2003, commercial paper
and  short-term  borrowings  of  subsidiaries  declined  $642  million  from  prepayments  arising  from  strong  operating
cash  flow  at  Shaw  and  utilization  of  excess  cash  by  General  Re.    Other  borrowings  consist  primarily  of  debt  of
subsidiaries and investment contracts issued by Berkshire.

In May 2002, Berkshire issued the SQUARZ securities, which consist of $400 million par amount of senior
notes  due  in  November  2007  together  with  warrants  to  purchase  4,464  Class  A  equivalent  shares  of  Berkshire
common stock, which expire in May 2007.  A warrant premium is payable to Berkshire at an annual rate of 3.75%
and interest is payable to note holders at a rate of 3.00%.  Each warrant provides the holder the right to purchase
either  0.1116  shares  of  Class  A  or  3.348  shares  of  Class  B  stock  for  $10,000.    In  addition,  holders  of  the  senior
notes have the option to require Berkshire to repurchase the senior notes at par annually each May 15 from 2004
through  2006,  provided  that  the  holders  also  surrender  a  corresponding  amount  of  warrants  for  cancellation.    All
warrants and senior notes were outstanding as of December 31, 2003.

Assets  of  the  finance  and  financial  products  businesses  totaled  $28.3  billion  at  December  31,  2003  and
$34.1 billion at December 31, 2002.  The overall decline reflects a $6 billion decline in assets of BH Finance as a
result of the liquidation of certain fixed income investments, FINOVA loan prepayments totaling $1.65 billion and a
decline  in  assets  of  GRS,  which  is  in  run-off.    The  outstanding  loan  to  FINOVA  as  of  December  31,  2003  and
corresponding borrowing from Fleet (each $525 million) were fully repaid in February 2004.

As of December 31, 2003, finance assets included approximately $3.8 billion in assets of Clayton, which
was  acquired  by  Berkshire  in  August  2003.    Clayton  is  a  leading  builder  of  manufactured  housing,  provides
financing and services loans to customers, and acquires other installment loan portfolios.  Prior to its acquisition,
Clayton securitized and sold a significant portion of its installment loans through special purpose entities.  In early
2003, Clayton discontinued loan securitizations and sales.  Since being acquired by Berkshire, Clayton retained loan
portfolios have increased by about $1.3 billion.  Loan portfolios are expected to continue to grow over time.

Notes payable and other borrowings of Berkshire’s finance and financial products businesses totaled $4.9
billion  at  December  31,  2003  and  $4.5  billion  at  December  31,  2002.    During  the  last  four  months  of  2003,
Berkshire Hathaway Finance Corporation issued a total of $2.0 billion par amount of medium term notes due from

62

Financial Condition (Continued)

2008  through  2013.    The  proceeds  of  these  issues  were  used  to  finance  new  and  existing  loans  of  Clayton.    The
medium term notes are guaranteed by Berkshire.  Additional borrowings are expected in the future as retained loan
portfolios continue to increase.

Berkshire  believes  that  it  currently  maintains  sufficient  liquidity  to  cover  its  existing  requirements  and

provide for contingent liquidity.

Contractual Obligations

Berkshire and its subsidiaries have contractual obligations associated with ongoing business and financing
activities, which will result in cash payments in future periods.  Certain of those obligations, such as notes payable
and  other  borrowings  and  related  interest  payments,  are  reflected  in  the  Consolidated  Financial  Statements.  In
addition, Berkshire and subsidiaries have entered into long-term contracts to acquire goods or services in the future,
which are not currently reflected in the financial statements and will be reflected in future periods as the goods are
delivered or services provided.  A summary of contractual obligations follows.  Amounts are in millions.

Total

Contractual obligations
Notes payable and other borrowings (1).................... $12,107
Securities sold under agreements to repurchase (1)...
7,958
1,508
Operating leases .......................................................
Purchase obligations (2) ............................................
6,842
Other (3) ....................................................................
       924
Total ......................................................................... $29,339

2004
$  3,225
7,958
322
2,561
       202
$14,268

Payments due by period
2005-2006
$1,015
—
505
1,808
     173
$3,501

2007-2008
$2,104
—
334
1,418
     125
$3,981

2009 and after
$5,763
—
347
1,055
     424
$7,589

(1) 

(2) 

(3) 

Includes interest

Principally relates to NetJets aircraft purchases

Principally employee benefits and deferred compensation

Critical Accounting Policies

In  applying  certain  accounting  policies,  Berkshire’s  management  is  required  to  make  estimates  and
judgments  regarding  transactions  that  have  occurred  and  ultimately  will  be  settled  several  years  in  the  future.
Amounts  recognized  in  the  financial  statements  from  such  estimates  are  necessarily  based  on  assumptions  about
numerous factors involving varying, and possibly significant, degrees of judgment and uncertainty.  Accordingly,
the amounts currently recorded in the financial statements may prove, with the benefit of hindsight, to be inaccurate.
The  balance  sheet  items  most  significantly  affected  by  these  estimates  are  property  and  casualty  insurance  and
reinsurance related liabilities.

Berkshire  records  liabilities  for  unpaid  losses  and  loss  adjustment  expenses  under  property  and  casualty
insurance  and  reinsurance  contracts  based  upon  estimates  of  the  ultimate  amounts  payable  under  the  contracts
related to losses occurring on or before the balance sheet date.  Berkshire uses a variety of techniques to establish
and  review  the  liabilities  for  unpaid  losses  recorded  as  of  the  balance  sheet  date.    While  techniques  may  vary,
significant judgments and assumptions are necessary in projecting the ultimate amount payable in the  future  with
respect to loss events that have occurred as of the balance sheet date.

Reserves  for  unpaid  losses  and  loss  adjustment  expenses  are  established  by  policy  type  (or  line)  or
individual  coverage  within  the  policy  type.  Reserves  may  consist  of  individual  case  estimates,  supplemental  case
estimates, development estimates and incurred-but-not-reported (“IBNR”) claim estimates.  Once reported, certain
casualty claims may take years to settle, especially if legal action is involved.  Liabilities may also reflect implicit or
explicit assumptions regarding the potential effects of future economic and social inflation, judicial decisions, law
changes, and recent trends in such factors.

Berkshire uses a variety of techniques as tools in establishing and evaluating aggregate reserve amounts.
Techniques  used  vary  within  each  business  depending  upon  the  availability  of  reliable  information.    Statistical
techniques  may  include  detailed  analysis  of  historical  amounts  of  losses  incurred  or  paid,  claim  frequency  and
severity  data,  average  paid  or  incurred  loss  data,  closed  claim  data,  paid  or  incurred  loss  ratios  or  other
measurements.    Statistical  techniques  are  more  reliable  when  a  sufficient  volume  of  historical  loss  information
exists.    Significant  changes  to  policy  terms  or  coverages  or  in  volumes  of  business  written  (and,  therefore,  loss
exposures),  or  changes  in  the  insurance  laws  or  legal  environment  can  cause  historical  statistical  data  to  be  less
reliable in projecting the ultimate amount of losses as of the balance sheet date.  Statistical analysis may be based
upon  internally  developed  loss  experience,  the  experience  of  individual  clients  or  groups  of  clients,  or  overall
industry-wide  experience.    Reserving  techniques  are  based  more  upon  informed  judgment  when  statistical  data  is
insufficient or unavailable.  Management must make judgments regardless of the techniques used.

63

Management’s Discussion (Continued)

Critical Accounting Policies (Continued)

As of any balance sheet date, all claims that have occurred have not yet been reported to Berkshire, and if
reported may not have been settled. The time period between the occurrence of a loss and the time it is settled by the
insurer  or  reinsurer  is  referred  to  as  the  “claim-tail.”    Property  claims  usually  have  a  fairly  short  claim-tail  and,
absent claim litigation, are reported and settled within no more than a few years of the balance sheet date. Casualty
losses, on the other hand, can have a very long claim-tail, occasionally extending for decades. In addition, casualty
claims are more susceptible to litigation and can be significantly affected by changing contract interpretations and to
the legal environment, which contributes to the extended claim-tail. The claim-tail for reinsurers is further extended
due to delayed reporting by ceding insurers or reinsurers due to contractual provisions or reporting practices.

The  process  of  establishing  reserves  for  losses  assumed  under  reinsurance  contracts  requires  additional
estimation and judgments by management.  Loss reserve estimates are based primarily on claims reported by ceding
companies (such amounts generally exclude IBNR claim estimates), analysis of historical claim reporting patterns
of  ceding  companies,  and  estimates  of  expected  overall  loss  amounts.    Techniques  for  estimating  facultative  (or
individual) reinsurance losses can be similar to those techniques used by primary insurers and subject to the same
caveats.    In  estimating  losses  assumed  under  treaty  reinsurance  (groups  of  losses),  claim  frequency  or  count
analyses may not be used because such data is either not provided by ceding companies or otherwise not timely or
reliable.    Loss  reserves  established  by  line  of  business  and  type  of  coverage  are  regularly  re-evaluated  with
appropriate adjustments being made to bring reserves in line with the revised estimates.

IBNR reserves are largely comprised of casualty exposures, which include workers’ compensation losses.
These  claims  tend  to  be  reported  by  and  settled  with  ceding  companies  over  long  time  periods.    Therefore,  such
claims are subject to a higher degree of estimation error as a result of changes in the legal environment, jury awards,
medical  cost  trends  and  general  cost  inflation.    Based  upon  statistical  analysis  of  past  reporting  trends,  Berkshire
estimates how much IBNR is required to cover claims that will be reported by ceding companies in future  years.
Subsequently, as claims are reported, amounts are measured against previous expectations, with variances (positive
or negative) recognized in earnings as a component of losses and loss adjustment expenses.  Significant variances
between  expected  claims  and  reported claims  are  analyzed  and  considered when  revising  estimates  for  remaining
IBNR reserve levels.

Due to the inherent uncertainties in the processes and judgments used in establishing reserves, and because
expected losses are an input in establishing premium rates for new policies, Berkshire’s management believes it is
appropriate to establish reserve levels using a reasonable level of caution, especially with respect to casualty claims.

Receivables recorded with respect to insurance losses ceded to other reinsurers under reinsurance contracts
are  estimated  in  a  manner  similar  to  liabilities  for  insurance  losses  and,  therefore,  are  also  subject  to  estimation
error.  In addition to the factors cited above, reinsurance recoverables may ultimately prove to be uncollectible if the
reinsurer is unable to perform under the contract.  Reinsurance contracts do not relieve the ceding company of its
obligations to indemnify its own policyholders.

A summary of Berkshire’s consolidated liabilities for unpaid property and casualty losses are in the table
below.    The  amount  of  losses  recorded  in  each  of  the  past  two  years  relating  to  prior  years’  loss  occurrences  is
expressed as a percentage of total net premiums earned as well as a percentage of the net reserve balance established
as of the beginning of the year.  Dollars are in millions.

Unpaid losses

Net unpaid losses*

Dec.31, 2003 Dec.31, 2002 Dec.31, 2003 Dec.31, 2002

General Re..................................................................
BHRG.........................................................................
GEICO........................................................................
Berkshire Hathaway Primary .....................................
Total ...........................................................................

Losses incurred related to prior years.........................

Losses as a % of net reserves beginning of the year ..

Losses as a % of net premiums earned current year...

$23,820
15,769
4,492
    1,312
$45,393

$23,326
15,516
4,010
       919
$43,771

$20,787
12,513
4,282
    1,217
$38,799

$20,784
11,990
3,816
       834
$37,424

$     480**

$  1,540**

1.3%

2.4%

4.5%

8.9%

*

**

Net of reinsurance recoverable and deferred charges reinsurance assumed.

Includes  amortization  of  deferred  charges  and  includes  accretion  of  discounts  on  General  Re  workers’  compensation
reserves (See Note 11 to the Consolidated Financial Statements).

64

Critical Accounting Policies (Continued)

In each year, General Re’s casualty reserve estimates for prior years’ losses have increased.  In addition,
the net reserves of BHRG’s retroactive reinsurance policies have increased each year, primarily as a consequence of
amortization of deferred charges.  As shown in the table, a relatively small percentage change in estimates of this
magnitude will result in a material effect on reported earnings.  A hypothetical 5% increase in estimated net unpaid
losses at December 31, 2003, would produce a $1.9 billion charge to pre-tax earnings.  Future effects from changes
in these estimates will be recorded as a component of losses incurred in the period of the change.

Berkshire records deferred charges as assets on its balance sheet with respect to liabilities assumed under
retroactive reinsurance contracts.  At the inception of these contracts the deferred charges represent the difference
between the consideration received and the estimated ultimate liability for unpaid losses.  The deferred charges are
amortized  as  a  component  of  losses  incurred  using  the  interest  method  over  an  estimate  of  the  ultimate  claim
payment period.  The deferred charge balance may be adjusted periodically to reflect new projections of the amount
and timing of loss payments.  Adjustments to these assumptions are applied retrospectively from the inception of the
contract.  Unamortized deferred charges totaled $3.1 billion at December 31, 2003.  Significant changes in either the
timing or ultimate amount of loss payments may have a significant effect on unamortized deferred charges and the
amount of periodic amortization.

Berkshire’s Consolidated Balance Sheet as of December 31, 2003 includes goodwill of acquired businesses
of  approximately  $22.9  billion.    These  amounts  have  been  recorded  as  a  result  of  Berkshire’s  numerous  prior
business acquisitions accounted for under the purchase method.  Prior to 2002, goodwill from each acquisition was
generally amortized as a charge to earnings over periods not exceeding 40 years.  Under SFAS No. 142, which was
adopted  by  Berkshire  as  of  January  1,  2002,  periodic  amortization  ceased,  in  favor  of  an  impairment-only
accounting model.

A significant amount of judgment is required in performing goodwill impairment tests.  Such tests include
periodically determining or reviewing the estimated fair value of Berkshire’s reporting units.  Under SFAS No. 142,
fair value refers to the amount for which the entire reporting unit may be bought or sold.  There are several methods
of estimating reporting unit values, including market quotations, asset and liability fair values and other valuation
techniques,  such  as  discounted  cash  flows  and  multiples  of  earnings  or  revenues.    If  the  carrying  amount  of  a
reporting  unit,  including  goodwill,  exceeds  the  estimated  fair  value,  then  individual  assets,  including  identifiable
intangible  assets  and  liabilities  of  the  reporting  unit  are  estimated  at  fair  value.    The  excess  of  the  estimated  fair
value of the reporting unit over the estimated fair value of net assets would establish the implied value of goodwill.
The excess of the recorded amount of goodwill over the implied value is then charged to earnings as an impairment
loss.

Berkshire’s consolidated financial position reflects large amounts of invested assets, including assets of its
finance and financial products businesses.  A substantial portion of these assets are carried at fair values based upon
current  market  quotations  and,  when  not  available,  based  upon  fair  value  pricing  models.    Certain  fixed  maturity
securities Berkshire owns are not actively traded in the markets.  Further, Berkshire’s finance businesses maintain
significant balances of finance receivables, which are carried at amortized cost. Considerable judgment is required
in determining the assumptions used in certain pricing models, including interest rate, loan prepayment speed, credit
risk  and  liquidity  risk  assumptions.    Significant  changes  in  these  assumptions  can  have  a  significant  effect  on
carrying values.

Market Risk Disclosures

Berkshire’s Consolidated Balance Sheets include a substantial amount of assets and liabilities whose fair
values are subject to market risks.  Berkshire’s significant market risks are primarily associated with interest rates
and  equity  prices  and  to  a  lesser  degree  derivatives.    The  following  sections  address  the  significant  market  risks
associated with Berkshire’s business activities.

Interest Rate Risk

Berkshire’s management prefers to invest in equity securities or to acquire entire businesses based upon the
principles  discussed  in  the  following  section  on  equity  price  risk.    When  unable  to  do  so,  management  may
alternatively  invest  in  bonds,  loans  or  other  interest  rate  sensitive  instruments.    Berkshire’s  strategy  is  to  acquire
securities that are attractively priced in relation to the perceived credit  risk.    Management  recognizes  and  accepts
that losses may occur.  Berkshire has historically utilized a modest level of corporate borrowings and debt.  Further,
Berkshire  strives  to  maintain  the  highest  credit  ratings  so  that  the  cost  of  debt  is  minimized.    Berkshire  utilizes
derivative products to manage interest rate risks to a very limited degree.

The  fair  values  of  Berkshire’s  fixed  maturity  investments  and  notes  payable  and  other  borrowings  will
fluctuate  in  response  to  changes  in  market  interest  rates.    Increases  and  decreases  in  prevailing  interest  rates
generally  translate  into  decreases  and  increases  in  fair  values  of  those  instruments.  Additionally,  fair  values  of

65

Management’s Discussion (Continued)

Interest Rate Risk (Continued)

interest rate sensitive instruments may be affected by the creditworthiness of the issuer, prepayment options, relative
values of alternative investments, the liquidity of the instrument and other general market conditions.  Fixed interest
rate investments may be more sensitive to interest rate changes than variable rate investments.

The  following  table  summarizes  the  estimated  effects  of  hypothetical  increases  and  decreases  in  interest
rates on assets and liabilities that are subject to interest rate risk.  It is assumed that the changes occur immediately
and  uniformly  to  each  category  of  instrument  containing  interest  rate  risks.    The  hypothetical  changes  in  market
interest rates do not reflect what could be deemed best or worst case scenarios.  Variations in market interest rates
could  produce  significant  changes  in  the  timing  of  repayments  due  to  prepayment  options  available.  For  these
reasons, actual results might differ from those reflected in the table.  Dollars are in millions.

Estimated Fair Value after
Hypothetical Change in Interest Rates
(bp=basis points)
200 bp
increase

100 bp
increase

300 bp
increase

100 bp
decrease

Fair Value

$26,116
4,334

$27,113
4,397

$25,220
4,277

$24,333
4,226

$23,550
4,177

$38,096
4,925

$40,411
5,010

$36,087
4,847

$34,129
4,777

$32,262
4,712

Insurance and other businesses

As of December 31, 2003
Investments in securities with fixed maturities .....
Notes payable and other borrowings.....................

As of December 31, 2002
Investments in securities with fixed maturities .....
Notes payable and other borrowings.....................

Finance and financial products businesses *

As of December 31, 2003
Investments in securities with fixed maturities

and loans and finance receivables ......................
Notes payable and other borrowings **................

$14,573
11,617

$14,905
11,838

$14,323
11,419

$13,987
11,244

$13,557
11,079

As of December 31, 2002
Investments in securities with fixed maturities

and loans and finance receivables ......................
Notes payable and other borrowings **................

$20,011
17,237

$20,152
17,317

$20,062
17,112

$19,779
17,032

$19,161
16,962

* Excludes General Re Securities – See Financial Products Risk section for discussion of risks associated with this business.

** Includes securities sold under agreements to repurchase.

Equity Price Risk

Strategically,  Berkshire  strives  to  invest  in  businesses  that  possess  excellent  economics,  with  able  and
honest  management and at sensible  prices.  Berkshire’s  management prefers to invest  a meaningful amount in
each  investee.    Accordingly,  Berkshire’s  equity  investments  are  concentrated  in  relatively  few  investees.    At
December 31, 2003, 68.9% of the total fair value of equity investments was concentrated in four investees.

Berkshire’s preferred strategy is to hold equity investments for very long periods of time.  Thus, Berkshire
management is not necessarily troubled by short term equity price volatility with respect to its investments provided
that  the  underlying  business,  economic  and  management  characteristics  of  the  investees  remain  favorable.
Berkshire strives to maintain above average levels of shareholder capital to provide a margin of safety against short
term equity price volatility.

The  carrying  values  of  investments  subject  to  equity  price  risks  are  based  on  quoted  market  prices  or
management’s estimates of fair  value  as  of  the  balance  sheet  dates.    Market  prices  are  subject  to  fluctuation  and,
consequently, the amount realized in the subsequent sale of an investment may significantly differ from the reported
market  value.    Fluctuation  in  the  market  price  of  a  security  may  result  from  perceived  changes  in  the  underlying
economic characteristics of the investee, the relative price of alternative investments and general market conditions.
Furthermore,  amounts  realized  in  the  sale  of  a  particular  security  may  be  affected  by  the  relative  quantity  of  the
security being sold.

66

Equity Price Risk (Continued)

The table below summarizes Berkshire’s equity price risks as of December 31, 2003 and 2002 and shows
the  effects  of  a  hypothetical  30%  increase  and  a  30%  decrease  in  market  prices  as  of  those  dates.    The  selected
hypothetical  change  does  not  reflect  what  could  be  considered  the  best  or  worst  case  scenarios.    Indeed,  results
could  be  far  worse  due  both  to  the  nature  of  equity  markets  and  the  aforementioned  concentrations  existing  in
Berkshire’s equity investment portfolio.  Dollars are in millions.

Fair Value

Hypothetical
Price Change

Estimated
Fair Value after
Hypothetical
Change in Prices

Hypothetical
Percentage
Increase (Decrease) in
Shareholders’ Equity

As of December 31, 2003.................

$35,287

As of December 31, 2002.................

$28,363

30% increase
30% decrease

$45,873
24,701

30% increase
30% decrease

$36,872
19,854

8.9
(8.9)

8.6
(8.6)

Derivatives Risk

Berkshire’s derivatives risks are concentrated in the operations of General Re Securities (“GRS”), a dealer
in  various  types  of  derivative  instruments  in  conjunction  with  offering  risk  management  products  to  its  clients.
Effective January 2002, GRS commenced the run-off of its business. It is expected that the run-off will take several
years  to  complete.  Since  January  2002,  approximately  two-thirds  of  GRS’s  contracts  have  been  terminated.  GRS
manages its market risk from derivatives by estimating the effect on operating results of potential changes in market
variables  over  time,  based  on  historical  market  volatility,  correlation  data  and  informed  judgment.  GRS’s  weekly
maximum  aggregate  market  risk  target  was  $15  million  in  2003  and  weekly  losses  exceeded  that  amount  on  two
occasions. In addition to these daily and weekly assessments of risk, GRS prepares periodic stress tests to assess its
exposure to extreme movements in various market risk factors. The estimated average expected weekly market risk,
as calculated using the methodology described over one week intervals was $5 million in 2003 and $4 million in
2002.

GRS  evaluates  and  records  a  fair-value  adjustment  to  recognize  counterparty  credit  exposure  and  future
costs associated with administering each contract. The expected credit exposure for each trade is initially established
on the trade date and is estimated through the use of a proprietary credit exposure model that is based on historical
default probabilities, market volatilities and, if applicable, the legal right of setoff.  These exposures are continually
monitored  and  adjusted  due  to  changes in  the  credit  quality  of  the  counterparty,  changes  in  interest  and  currency
rates or changes in other factors affecting credit exposure.

During  2003  and  2002,  Berkshire  entered  into  a  significant  number  and  amount  of  foreign  currency
forward contracts.  Generally, these contracts provide that Berkshire receive certain foreign currencies and pay U.S.
dollars  at  specified  exchange  rates  and  at  specified  future  dates.    Management  entered  into  these  contracts  as  an
overall economic hedge of Berkshire’s net assets and business activities.  The value of these contracts is subject to
change due primarily to changes in the spot exchange rates and to a lesser degree, interest rates and time value.  The
duration of the contracts is generally  less  than  twelve  months.    The  aggregate  notional  value  of  such  contracts  at
December  31,  2003  was  approximately  $11  billion.    Unrealized  gains  from  these  contracts  totaled  approximately
$630 million at December 31, 2003.

Berkshire  monitors  the  currency  positions  daily  for  each  currency.    The  following  table  summarizes  the
outstanding foreign currency forward contracts as of December 31, 2003 and shows the estimated changes in values
of the contracts assuming changes in the underlying exchange rates applied immediately and uniformly across all
currencies.  The changes in value do not necessarily reflect the best or worst case results and therefore, actual results
may differ.  Dollars are in millions.

Estimated Fair Value Assuming a Hypothetical
Percentage Increase (Decrease) in the Value of
Foreign Currencies Versus the U.S. Dollar
(10%)
$(512)

10%
$1,865

1%
$748

(1%)
$512

20%
$3,230

As of December 31, 2003.............

Fair Value
$630

(20%)
$(1,583)

67

Management’s Discussion (Continued)

Forward-Looking Statements

Investors are cautioned that certain statements contained in this document, as well as some statements by
the Company in periodic press releases and some oral statements of Company officials during presentations about
the Company, are “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act
of 1995 (the “Act”).  Forward-looking statements include statements which are predictive in nature, which depend
upon  or  refer  to  future  events  or  conditions,  which  include  words  such  as  “expects,”  “anticipates,”  “intends,”
“plans,”  “believes,”  “estimates,”  or  similar  expressions.    In  addition,  any  statements  concerning  future  financial
performance  (including  future  revenues,  earnings  or  growth  rates),  ongoing  business  strategies  or  prospects,  and
possible future Company actions, which may be provided by management are also forward-looking statements as
defined  by  the  Act.    Forward-looking  statements  are  based  on  current  expectations  and  projections  about  future
events and are subject to risks, uncertainties, and assumptions about the Company, economic and market factors and
the  industries  in  which  the  Company  does  business,  among  other  things.    These  statements  are  not  guaranties  of
future performance and the Company has no specific intention to update these statements.

Actual  events  and  results  may  differ  materially  from  those  expressed  or  forecasted  in  forward-looking
statements due to a number of factors.  The principal important risk factors that could cause the Company’s actual
performance and future events and actions to differ materially from such forward-looking statements, include, but
are  not  limited  to,  changes  in  market  prices  of  Berkshire’s  significant  equity  investees,  the  occurrence  of  one  or
more  catastrophic  events,  such  as  an  earthquake,  hurricane  or  an  act  of  terrorism  that  causes  losses  insured  by
Berkshire’s insurance subsidiaries, changes in insurance laws or regulations, changes in Federal income tax laws,
and changes in general economic and market factors that  affect  the  prices  of  securities  or  the  industries  in  which
Berkshire and its affiliates do business, especially those affecting the property and casualty insurance industry.

68

In June 1996, Berkshire’s Chairman, Warren E. Buffett, issued a booklet entitled “An Owner’s Manual”
to  Berkshire’s  Class  A  and  Class  B  shareholders.    The  purpose  of  the  manual  was  to  explain  Berkshire’s  broad
economic principles of operation.  An updated version is reproduced on this and the following five pages.

____________________________________________________________________

OWNER-RELATED BUSINESS PRINCIPLES

At the time of the Blue Chip merger in 1983, I set down 13 owner-related business principles that I thought
would help new shareholders understand our managerial approach.  As is appropriate for “principles,” all 13 remain
alive and well today, and they are stated here in italics.

1.

Although  our  form  is  corporate,  our  attitude  is  partnership.  Charlie  Munger  and  I  think  of  our
shareholders  as  owner-partners,  and  of  ourselves  as  managing  partners.  (Because  of  the  size  of  our
shareholdings we are also, for better or worse, controlling partners.)  We do not view the company itself as
the ultimate owner of our business assets but instead view the  company  as  a  conduit  through  which  our
shareholders own the assets.

Charlie and I hope that you do not think of yourself as merely owning a piece of paper whose price wiggles
around daily and that is a candidate for sale when some economic or political event makes you nervous.
We  hope  you  instead  visualize  yourself  as  a  part  owner  of  a  business  that  you  expect  to  stay  with
indefinitely, much as you might if you owned a farm or apartment house in partnership with members of
your family.  For our part, we do not view Berkshire shareholders as faceless members of an ever-shifting
crowd, but rather as co-venturers who have entrusted their funds to us for what may well turn out to be the
remainder of their lives.

The evidence suggests that most Berkshire shareholders have indeed embraced this long-term partnership
concept.  The annual percentage turnover in Berkshire’s shares is a small fraction of that occurring in the
stocks  of  other  major  American  corporations,  even  when  the  shares  I  own  are  excluded  from  the
calculation.

In effect, our shareholders behave in respect to their Berkshire stock much as Berkshire itself behaves in
respect to companies in which it has an investment.  As owners of, say, Coca-Cola or Gillette shares, we
think of Berkshire as being a non-managing partner in two extraordinary businesses, in which we measure
our success by the long-term progress of the companies rather than by the month-to-month movements of
their stocks.  In fact, we would not care in the least if several years went by in which there was no trading,
or  quotation  of  prices,  in  the  stocks  of  those  companies.  If  we  have  good  long-term  expectations,  short-
term price changes are meaningless for us except to the extent they offer us an opportunity to increase our
ownership at an attractive price.

2.

In line with Berkshire’s owner-orientation, most of our directors have a major portion of their net worth
invested in the company.  We eat our own cooking.

Charlie’s family has 90% or more of its net worth in Berkshire shares; my wife, Susie, and I have more
than 99%. In addition, many of my relatives — my sisters and cousins, for example — keep a huge portion
of their net worth in Berkshire stock.

Charlie and I feel totally comfortable with this eggs-in-one-basket situation because Berkshire itself owns a
wide variety of truly extraordinary businesses. Indeed, we believe that Berkshire is close to being unique in
the  quality  and  diversity  of  the  businesses  in  which  it  owns  either  a  controlling  interest  or  a  minority
interest of significance.

Charlie and I cannot promise you results.  But we can guarantee that your financial fortunes will move in
lockstep with ours for whatever period of time you elect to be our partner.  We have no interest in large
salaries or options or other means of gaining an “edge” over you.  We want to make money only when our
partners do and in exactly the same proportion.  Moreover, when I do something dumb, I want you to be
able to derive some solace from the fact that my financial suffering is proportional to yours.

*Copyright © 1996 By Warren E. Buffett

All Rights Reserved

69

3.

4.

5.

6.

Our long-term economic goal (subject to some qualifications mentioned later) is to maximize Berkshire’s
average  annual  rate  of  gain  in  intrinsic  business  value  on  a  per-share  basis.  We  do  not  measure  the
economic significance or performance of Berkshire by its size; we measure by per-share progress.  We are
certain that the rate of per-share progress will diminish in the future —  a greatly enlarged capital base
will see to that.  But we will be disappointed if our rate does not exceed that of the average large American
corporation.

Our  preference  would  be  to  reach  our  goal  by  directly  owning  a  diversified  group  of  businesses  that
generate cash and consistently earn above-average returns on capital.  Our second choice is to own parts
of similar businesses, attained primarily through purchases of marketable common stocks by our insurance
subsidiaries.    The  price  and  availability  of  businesses  and  the  need  for  insurance  capital  determine  any
given year’s capital allocation.

In  the  last  three  years  we  have  made  eleven  acquisitions.    Though  there  will  be  dry  years,  we  expect  to
make a number of acquisitions  in  the  decades  to  come, and  our  hope  is  that  they  will  be  large.    If  these
purchases approach the quality of those we have made in the past, Berkshire will be well served.

The challenge for us is to generate ideas as rapidly as we generate cash. In this respect, a depressed stock
market is likely to present us with significant advantages.  For one thing, it tends to reduce the prices at
which entire companies become available for purchase.  Second, a depressed market makes it easier for our
insurance  companies  to  buy  small  pieces  of  wonderful  businesses  —  including  additional  pieces  of
businesses we already own — at attractive prices.  And third, some of those same wonderful businesses,
such as Coca-Cola, are consistent buyers of their own shares, which means that they, and we, gain from the
cheaper prices at which they can buy.

Overall, Berkshire and its long-term shareholders benefit from a  sinking  stock  market  much  as  a  regular
purchaser of food benefits from declining food prices.  So when the market plummets — as it will from
time to time — neither panic nor mourn.  It’s good news for Berkshire.

Because  of  our  two-pronged  approach  to  business  ownership  and  because  of  the  limitations  of
conventional  accounting,  consolidated  reported  earnings  may  reveal  relatively  little  about  our  true
economic performance.  Charlie and I, both as owners and managers, virtually ignore such consolidated
numbers.  However, we will also report to you the earnings of each major business we control, numbers we
consider  of  great  importance.  These  figures,  along  with  other  information  we  will  supply  about  the
individual businesses, should generally aid you in making judgments about them.

To  state  things  simply,  we  try  to  give  you  in  the  annual  report  the  numbers  and  other  information  that
really matter.  Charlie and I pay a great deal of attention to how well our businesses are doing, and we also
work  to  understand  the  environment  in  which  each  business  is  operating.  For  example,  is  one  of  our
businesses enjoying an industry tailwind or is it facing a headwind?  Charlie and I need to know exactly
which  situation  prevails  and  to  adjust  our  expectations  accordingly.  We  will  also  pass  along  our
conclusions to you.

Over  time,  practically  all  of  our  businesses  have  exceeded  our  expectations.  But  occasionally  we  have
disappointments, and we will try to be as candid in informing you about those as we are in describing the
happier experiences. When we use unconventional measures to chart our progress — for instance, you will
be reading in our annual reports about insurance “float” — we will try to explain these concepts and why
we  regard  them  as  important.  In  other  words,  we  believe  in  telling  you  how  we  think  so  that  you  can
evaluate  not  only  Berkshire’s  businesses  but  also  assess  our  approach  to  management  and  capital
allocation.

Accounting consequences do not influence our operating or capital-allocation decisions.  When acquisition
costs are similar, we much prefer to purchase $2 of earnings that is not reportable by us under standard
accounting principles than to purchase $1 of earnings that is reportable.  This is precisely the choice that
often faces us since entire businesses (whose earnings will be fully reportable) frequently sell for double
the pro-rata price of small portions (whose earnings will be largely unreportable).  In aggregate and over
time, we expect the unreported earnings to be fully reflected in our intrinsic business value through capital
gains.

70

We have found over time that the undistributed earnings of our investees, in aggregate, have been fully as
beneficial  to  Berkshire  as  if  they  had  been  distributed  to  us  (and  therefore  had  been  included  in  the
earnings we officially report).  This pleasant result has occurred because most of our investees are engaged
in  truly  outstanding  businesses  that  can  often  employ  incremental  capital  to  great  advantage,  either  by
putting it to work in their businesses or by repurchasing their shares.  Obviously, every capital decision that
our investees have made has not benefitted us as shareholders, but overall we have garnered far more than
a  dollar  of  value  for  each  dollar  they  have  retained.    We  consequently  regard  look-through  earnings  as
realistically portraying our yearly gain from operations.

We use debt sparingly and, when we do borrow, we attempt to structure our loans on a long-term fixed-
rate  basis.  We  will  reject  interesting  opportunities  rather  than  over-leverage  our  balance  sheet.  This
conservatism has penalized our results but it is the only behavior that leaves us comfortable, considering
our  fiduciary  obligations  to  policyholders,  lenders  and  the  many  equity  holders  who  have  committed
unusually large portions of their net worth to our care. (As one of the Indianapolis “500” winners said:
“To finish first, you must first finish.”)

The financial calculus that Charlie and I employ would never permit our trading a good night’s sleep for a
shot at a few extra percentage points of return.  I’ve never believed in risking what my family and friends
have and need in order to pursue what they don’t have and don’t need.

Besides, Berkshire has access to two low-cost, non-perilous sources of leverage that allow us to safely own
far more assets than our equity capital alone would permit:  deferred taxes and “float,” the funds of others
that our insurance business holds because it receives premiums before needing to pay out losses.  Both of
these funding sources have grown rapidly and now total about $45 billion.

Better yet, this funding to date has often been cost-free.  Deferred tax liabilities bear no interest.  And as
long as we can break even in our insurance underwriting the cost of the float developed from that operation
is  zero.    Neither  item,  of  course,  is  equity;  these  are  real  liabilities.  But  they  are  liabilities  without
covenants or due dates attached to them.  In effect, they give us the benefit of debt — an ability to have
more assets working for us — but saddle us with none of its drawbacks.

Of  course,  there  is  no  guarantee  that  we  can  obtain  our  float  in  the  future  at  no  cost.  But  we  feel  our
chances of attaining that goal are as good as those of anyone in the insurance business.  Not only have we
reached  the  goal  in  the  past  (despite  a  number  of  important  mistakes  by  your  Chairman),  our  1996
acquisition of GEICO, materially improved our prospects for getting there in the future.

A managerial “wish list” will not be filled  at  shareholder  expense.    We  will  not  diversify  by  purchasing
entire businesses at control prices that ignore long-term economic consequences to our shareholders.  We
will only do with your money what we would do with our own, weighing fully the values you can obtain by
diversifying your own portfolios through direct purchases in the stock market.

Charlie and I are interested only in acquisitions that we believe will raise the per-share intrinsic value of
Berkshire’s stock.  The size of our paychecks or our offices will never be related to the size of Berkshire’s
balance sheet.

We feel noble intentions should be checked periodically against results.  We test the wisdom of retaining
earnings by assessing whether retention, over time, delivers shareholders at least $1 of market value for
each $1 retained.  To date, this test has been met.  We will continue to apply it on a five-year rolling basis.
As our net worth grows, it is more difficult to use retained earnings wisely.

We continue to pass the test, but the challenges of doing so have grown more difficult.  If we  reach  the
point that we can’t create extra value by retaining earnings, we will pay them out and let our shareholders
deploy the funds.

7.

8.

9.

10.

We will issue common stock only when we receive as much in business value as we give.  This rule applies
to  all  forms  of  issuance  —   not  only  mergers  or  public  stock  offerings,  but  stock-for-debt  swaps,  stock
options, and convertible securities as well. We will not sell small portions of your company —  and that is
what the issuance of shares amounts to —  on a basis inconsistent with the value of the entire enterprise.

71

11.

12.

When we sold the Class B shares in 1996, we stated that Berkshire stock was not undervalued — and some
people found that shocking.  That reaction was not well-founded. Shock should have registered instead had
we issued shares when our stock was undervalued. Managements that say or imply during a public offering
that  their  stock  is  undervalued  are  usually  being  economical  with  the  truth  or  uneconomical  with  their
existing shareholders’ money:  Owners unfairly lose if their managers deliberately sell assets for 80¢ that
in fact are worth $1. We didn’t commit that kind of crime in our offering of Class B shares and we never
will.  (We did not, however, say at the time of the sale that our stock was overvalued, though many media
have reported that we did.)

You  should  be  fully  aware  of  one  attitude  Charlie  and  I  share  that  hurts  our  financial  performance:
Regardless of price, we have no interest at all in selling any good businesses that Berkshire owns. We are
also very reluctant to sell sub-par businesses as long as we expect them to generate at least some cash and
as  long  as  we  feel  good  about  their  managers  and  labor  relations.  We  hope  not  to  repeat  the  capital-
allocation  mistakes  that  led  us  into  such  sub-par  businesses.  And  we  react  with  great  caution  to
suggestions  that  our  poor  businesses  can  be  restored  to  satisfactory  profitability  by  major  capital
expenditures. (The projections will be dazzling and the advocates sincere, but, in the end, major additional
investment in a terrible industry usually is about as rewarding as struggling in quicksand.)  Nevertheless,
gin rummy managerial behavior (discard your least promising business at each turn) is not our style. We
would rather have our overall results penalized a bit than engage in that kind of behavior.

We continue to avoid gin rummy behavior.  True, we closed our textile business in the mid-1980’s after 20
years of struggling with it, but only because we felt it was doomed to run never-ending operating losses.
We have not, however, given thought to selling operations that would command very fancy prices nor have
we dumped our laggards, though we focus hard on curing the problems that cause them to lag.

We  will  be  candid  in  our  reporting  to  you,  emphasizing  the  pluses  and  minuses  important  in  appraising
business value. Our guideline is to tell you the business facts that we would want to know if our positions
were  reversed.  We  owe  you  no  less.  Moreover,  as  a  company  with  a  major  communications  business,  it
would  be  inexcusable  for  us  to  apply  lesser  standards  of  accuracy,  balance  and  incisiveness  when
reporting on ourselves than we would expect our news people to apply when reporting on others. We also
believe candor benefits us as managers:  The CEO who misleads others in public may eventually mislead
himself in private.

At Berkshire you will find no “big bath” accounting maneuvers or restructurings nor any “smoothing” of
quarterly  or  annual  results.  We  will  always  tell  you  how  many  strokes  we  have  taken  on  each  hole  and
never  play  around  with  the  scorecard.  When  the  numbers  are  a  very  rough  “guesstimate,”  as  they
necessarily  must  be  in  insurance  reserving,  we  will  try  to  be  both  consistent  and  conservative  in  our
approach.

We  will  be  communicating  with  you  in  several  ways.  Through  the  annual  report,  I  try  to  give  all
shareholders  as  much  value-defining  information  as  can  be  conveyed  in  a  document  kept  to  reasonable
length.  We  also  try  to  convey  a  liberal  quantity  of  condensed  but  important  information  in  the  quarterly
reports  we  post  on  the  internet,  though  I  don’t  write  those  (one  recital  a  year  is  enough).  Still  another
important  occasion  for  communication  is  our  Annual  Meeting,  at  which  Charlie  and  I  are  delighted  to
spend  five  hours  or  more  answering  questions  about  Berkshire.  But  there  is  one  way  we  can’t
communicate:  on a one-on-one basis. That isn’t feasible given Berkshire’s many thousands of owners.

In  all  of  our  communications,  we  try  to  make  sure  that  no  single  shareholder  gets  an  edge:    We  do  not
follow the usual practice of giving earnings “guidance” or other information of value to analysts or large
shareholders. Our goal is to have all of our owners updated at the same time.

13.

Despite  our  policy  of  candor,  we  will  discuss  our  activities  in  marketable  securities  only  to  the  extent
legally required. Good investment ideas are rare, valuable and subject to competitive appropriation just as
good product or business acquisition ideas are. Therefore we normally will not talk about our investment
ideas.  This  ban  extends  even  to  securities  we  have  sold  (because  we  may  purchase  them  again)  and  to
stocks we are incorrectly rumored to be buying. If we deny those reports but say “no comment” on other
occasions, the no-comments become confirmation.

72

Though  we  continue  to  be  unwilling  to  talk  about  specific  stocks,  we  freely  discuss  our  business  and
investment  philosophy.  I  benefitted  enormously  from  the  intellectual  generosity  of  Ben  Graham,  the
greatest teacher in the history of finance, and I believe it appropriate to pass along what I learned from him,
even if that creates new and able investment competitors for Berkshire just as Ben’s teachings did for him.

AN ADDED PRINCIPLE

To the extent possible, we would like each Berkshire shareholder to record a gain or loss in market value
during his period of ownership that is proportional to the gain or loss in per-share intrinsic value recorded
by the company during that holding period. For this to come about, the relationship between the intrinsic
value and the market price of a Berkshire share would need to remain constant, and by our preferences at
1-to-1.  As  that  implies,  we  would  rather  see  Berkshire’s  stock  price  at  a  fair  level  than  a  high  level.
Obviously, Charlie and I can’t control Berkshire’s price. But by our policies and communications, we can
encourage informed, rational behavior by owners that, in turn, will tend to produce a stock price that is
also  rational.  Our  it’s-as-bad-to-be-overvalued-as-to-be-undervalued  approach  may  disappoint  some
shareholders.  We  believe,  however,  that  it  affords  Berkshire  the  best  prospect  of  attracting  long-term
investors who seek to profit from the progress of the company rather than from the investment mistakes of
their partners.

INTRINSIC VALUE

Now let’s focus on a term that I mentioned earlier and that you will encounter in future annual reports.

Intrinsic value is an  all-important  concept  that  offers  the  only  logical  approach  to  evaluating  the  relative
attractiveness of investments and businesses. Intrinsic value can be defined simply:  It is the discounted value of the
cash that can be taken out of a business during its remaining life.

The calculation of intrinsic value, though, is not so simple. As our definition suggests, intrinsic value is an
estimate rather than a precise figure, and it is additionally an estimate that must be changed if interest rates move or
forecasts of future cash flows are revised. Two people looking at the same set of facts, moreover — and this would
apply  even  to  Charlie  and  me  —  will  almost  inevitably  come  up  with  at  least  slightly  different  intrinsic  value
figures. That is one reason we never give you our estimates of intrinsic value. What our annual reports do supply,
though, are the facts that we ourselves use to calculate this value.

Meanwhile,  we  regularly  report  our  per-share  book  value,  an  easily  calculable  number,  though  one  of
limited use. The limitations do not arise from our holdings of marketable securities, which are carried on our books
at  their  current  prices.  Rather  the  inadequacies  of  book  value  have  to  do  with  the  companies  we  control,  whose
values as stated on our books may be far different from their intrinsic values.

The disparity can go in either direction. For example, in 1964 we could state with certitude that Berkshire’s
per-share book value was $19.46. However, that figure considerably overstated the company’s intrinsic value, since
all of the company’s resources were tied up in a sub-profitable textile business. Our textile assets had neither going-
concern  nor  liquidation  values  equal  to  their  carrying  values.  Today,  however,  Berkshire’s  situation  is  reversed:
Now,  our  book  value  far  understates  Berkshire’s  intrinsic  value,  a  point  true  because  many  of  the  businesses  we
control are worth much more than their carrying value.

Inadequate though they are in telling the story, we give you Berkshire’s book-value figures because they
today  serve  as  a  rough,  albeit  significantly  understated,  tracking  measure  for  Berkshire’s  intrinsic  value.  In  other
words, the percentage change in book value in any given year is likely to be reasonably close to that year’s change
in intrinsic value.

You can gain some insight into the differences between book value and intrinsic value by looking at one
form  of  investment,  a  college  education.  Think  of  the  education’s  cost  as  its  “book  value.”    If  this  cost  is  to  be
accurate, it should include the earnings that were foregone by the student because he chose college rather than a job.

For this exercise, we will ignore the important non-economic benefits of an education and focus strictly on
its economic value. First, we must estimate the earnings that the graduate will receive over his lifetime and subtract
from  that  figure  an  estimate  of  what  he  would  have  earned  had  he  lacked  his  education.  That  gives  us  an  excess
earnings figure, which must then be discounted, at an appropriate interest rate, back to graduation day. The dollar
result equals the intrinsic economic value of the education.

73

Some graduates will find that the book value of their education exceeds its  intrinsic  value,  which  means
that whoever paid for the education didn’t get his money’s worth. In other cases, the intrinsic value of an education
will far exceed  its  book  value,  a  result  that  proves  capital  was  wisely  deployed.  In  all  cases,  what  is  clear  is  that
book value is meaningless as an indicator of intrinsic value.

THE MANAGING OF BERKSHIRE

I  think  it’s  appropriate  that  I  conclude  with  a  discussion  of  Berkshire’s  management,  today  and  in  the
future. As our first owner-related principle tells you, Charlie and I are the managing partners of Berkshire. But we
subcontract all of the heavy lifting in this business to the managers of our subsidiaries. In fact, we delegate almost to
the point of abdication: Though Berkshire has about 172,000 employees, only 16 of these are at headquarters.

Charlie  and  I  mainly  attend  to  capital  allocation  and  the  care  and  feeding  of  our  key  managers.  Most  of
these managers are happiest when they are left alone to  run their businesses, and that is customarily just how we
leave them. That puts them in charge of all operating decisions and of dispatching the excess cash they generate to
headquarters.  By  sending  it  to  us,  they  don’t  get  diverted  by  the  various  enticements  that  would  come  their  way
were they responsible for deploying the cash their businesses throw off. Furthermore, Charlie and I are exposed to a
much wider range of possibilities for investing these funds than any of our managers could find in his or her own
industry.

Most  of  our  managers  are  independently  wealthy,  and  it’s  therefore  up  to  us  to  create  a  climate  that
encourages  them  to  choose  working  with  Berkshire  over  golfing  or  fishing.  This  leaves  us  needing  to  treat  them
fairly and in the manner that we would wish to be treated if our positions were reversed.

As for the allocation of capital, that’s an activity both Charlie and I enjoy and in which we have acquired
some useful experience. In a general sense, grey hair doesn’t hurt on this playing field:  You don’t need good hand-
eye coordination or well-toned muscles to push money around (thank heavens). As long as our minds continue to
function effectively, Charlie and I can keep on doing our jobs pretty much as we have in the past.

On my death, Berkshire’s ownership picture will change but not in a disruptive way:  None of my stock
will have to be sold to take care of bequests and taxes; all of it will go to my wife, Susan, if she survives me, or to a
family  foundation  if  she  doesn’t.  In  either  event,  Berkshire  will  possess  a  controlling  shareholder  guided  by  the
same philosophy and objectives that now set our course.

At  that  juncture,  the  Buffett  family  will  not  be  involved  in  managing  the  business,  only  in  picking  and
overseeing the managers who do. Just who those managers will be, of course, depends on the date of my death. But
I can anticipate what the management structure will be:  Essentially my job will be split into two parts, with one
executive becoming responsible for investments and another, who will be CEO, for operations. If the acquisition of
new businesses is in prospect, the two will cooperate in making the decisions needed. Both executives will report to
a board of directors who will be responsive to the controlling shareholder, whose interests will in turn be aligned
with yours.

Were we to need the management structure I have just described on an immediate basis, our directors know
who I would recommend for both posts.  All candidates currently work for Berkshire and are people in whom I have
total confidence.

I will continue to keep the directors posted on the succession issue.  Since Berkshire stock will make up
virtually my entire estate and will account for a similar portion of the assets of either my wife or the foundation for a
considerable period after my death, you can be sure that I have thought through the succession question carefully.
You can be equally sure that the principles we have employed to date in running Berkshire will continue to guide
the managers who succeed me.

Lest  we  end  on  a  morbid  note,  I  also  want  to  assure  you  that  I  have  never  felt  better.  I  love  running

Berkshire, and if enjoying life promotes longevity, Methuselah’s record is in jeopardy.

Warren E. Buffett
Chairman

74

BERKSHIRE HATHAWAY INC.

COMMON STOCK

General

Berkshire  has  two  classes  of  common  stock  designated  Class  A  Common  Stock  and  Class  B  Common  Stock.
Each share of Class A Common Stock is convertible, at the option of the holder, into 30 shares of Class B Common
Stock.  Shares of Class B Common Stock are not convertible into shares of Class A Common Stock.

Stock Transfer Agent

Wells Fargo Bank, N.A., P. O. Box 64854, St. Paul, MN 55164-0854 serves as Transfer Agent and Registrar for
the  Company’s  common  stock.    Correspondence  may  be  directed  to  Wells  Fargo  at  the  address  indicated  or  at
wellsfargo.com/shareownerservices.  Telephone inquiries should be directed to the Shareowner Relations Department
at  1-877-602-7411  between  7:00  A.M.  and  7:00  P.M.  Central  Time.    Certificates  for  re-issue  or  transfer  should  be
directed to the Transfer Department at the address indicated.

Shareholders  of  record  wishing  to  convert  Class  A  Common  Stock  into  Class  B  Common  Stock  may  contact
Wells  Fargo  in  writing.    Along  with  the  underlying  stock  certificate,  shareholders  should  provide  Wells  Fargo  with
specific written instructions regarding the number of shares to be converted and the manner in which the Class B shares
are to be registered.  We recommend that you use certified or registered mail when delivering the stock certificates and
written instructions.

If  Class  A  shares  are  held  in  “street  name,”  shareholders  wishing  to  convert  all  or  a  portion  of  their  holding

should contact their broker or bank nominee.  It will be necessary for the nominee to make the request for conversion.

Shareholders

Berkshire had approximately 7,200 record holders of its Class A Common Stock and 14,500 record holders of its
Class B Common Stock at March 3, 2004.  Record owners included nominees holding at least 450,000 shares of Class
A Common Stock and 7,500,000 shares of Class B Common Stock on behalf of beneficial-but-not-of-record owners.

Price Range of Common Stock

Berkshire’s Class A and Class B Common Stock are listed for trading on the New York Stock Exchange, trading
symbol: BRK.A and BRK.B.  The following table sets forth the high and low sales prices per share, as reported on the
New York Stock Exchange Composite List during the periods indicated:

2003

2002

Class A

Class B

Class A

Class B

High
$73,005
75,500
76,400
84,700

Low
$60,600
64,305
70,900
75,150

High
$2,437
2,514
2,549
2,824

Low
$2,015
2,141
2,367
2,496

High
$74,900
78,500
75,900
75,000

Low
$69,000
66,500
59,600
67,800

High
$2,499
2,620
2,530
2,500

Low
$2,285
2,215
1,925
2,244

First Quarter
Second Quarter
Third Quarter
Fourth Quarter

Dividends

Berkshire has not declared a cash dividend since 1967.

75

BERKSHIRE HATHAWAY INC.

OPERATING COMPANIES

Company

Employees

Company

Employees

Acme Building Brands
Adalet (1)
Altaquip (1)
Ben Bridge Jeweler
Benjamin Moore
Berkshire Hathaway Homestate Companies
Berkshire Hathaway Reinsurance Division
Borsheim’s Jewelry
The Buffalo News
CalEnergy (2)
Campbell Hausfeld (1)
Carefree of Colorado (1)
Central States Indemnity Co.
Clayton Homes, Inc.
Cleveland Wood Products (1)
CORT Business Services
CTB International
Dairy Queen
Douglas/Quikut (1)
Fechheimer Brothers
FlightSafety International
France (1)
Fruit of the Loom
Garan
GEICO
General Re Corporation
H. H. Brown Shoe Group
Halex (1)
Helzberg’s Diamond Shops
HomeServices of America (2)
Johns Manville
Jordan’s Furniture
Justin Brands

2,877
145
212
720
2,819
191
23
228
1,005
585
967
242
266
7,136
109
2,700
1,160
2,201
86
1,173
3,175
204
23,900
4,700
21,390
3,610
1,408
183
2,646
3,228
8,125
1,162
997

Kansas Bankers Surety Company
Kern River Gas Transmission Company (2)
Kingston (1)
Kirby (1)
Larson-Juhl
McLane Company
Meriam Instrument (1)
MidAmerican Energy Company (2)
MidAmerican Energy Holdings Company
MiTek Inc.
National Indemnity Companies
Nebraska Furniture Mart
NetJets
Northern Natural Gas (2)
Northern and Yorkshire Electric (2)
Northland (1)
The Pampered Chef
Precision Steel Warehouse
Other Scott Fetzer Companies
See’s Candies
Shaw Industries
Stahl (1)
Star Furniture
United Consumer Finance Company (1)
United States Liability Insurance Group
Wayne Water Systems (1)
Wesco Financial Corp.
Western Enterprises (1)
Western Plastics (1)
R. C. Willey Home Furnishings
World Book (1)
XTRA
Operating Companies total

Corporate Office

16
169
282
566
1,810
14,461
59
3,159
723
1,362
622
2,907
4,467
1,038
2,539
148
919
205
136
2,000
29,755
310
756
218
372
190
7
364
162
2,450
211
         760
172,716

           15.8

  172,731.8

(1) A Scott Fetzer Company
(2) A MidAmerican Energy Holdings Company

76

                                                          
BERKSHIRE HATHAWAY INC.

DIRECTORS 

WARREN E. BUFFETT,
Chairman and CEO of Berkshire

CHARLES T. MUNGER,
Vice Chairman of Berkshire

SUSAN T. BUFFETT

HOWARD G. BUFFETT,
President of Buffett Farms and BioImages, a photography

and publishing company.

MALCOLM G. CHACE,
Chairman of the Board of Directors of BankRI, a 

community bank located in the State of Rhode Island.

DAVID S. GOTTESMAN,
Senior Managing Director of First Manhattan Company, an

investment advisory firm.

CHARLOTTE GUYMAN,
Chairman of Finance Committee of the Board of Directors

of UW Medicine, an academic medical center.

DONALD R. KEOUGH,
Chairman of Allen and Company Incorporated, an investment

banking firm.

THOMAS S. MURPHY,
Former Chairman of the Board and CEO of Capital

Cities/ABC.

RONALD L. OLSON,
Partner of the law firm of  Munger, Tolles & Olson LLP.

WALTER SCOTT, JR.,
Chairman of Level 3 Communications, a successor to certain
businesses of Peter Kiewit Sons’ Inc. which is engaged in
telecommunications and computer outsourcing.

OFFICERS

WARREN E. BUFFETT,  Chairman and CEO

CHARLES T. MUNGER,  Vice Chairman

MARC D. HAMBURG,  Vice President, Treasurer

DANIEL J. JAKSICH,  Controller

FORREST N. KRUTTER,  Secretary

REBECCA K. AMICK,
 Director of Internal Auditing

JERRY W. HUFTON,
 Director of Taxes

MARK D. MILLARD,
 Director of Financial Assets

Letters  from  Annual  Reports  (1977  through  2003),  quarterly  reports,  press  releases  and  other  information
about Berkshire may be obtained on the Internet at berkshirehathaway.com. Berkshire’s 2004 quarterly reports are
scheduled to be posted on the Internet on May 7, August 6 and November 5.  Berkshire’s 2004 Annual Report is
scheduled to be posted on the Internet on March 1, 2005.

A  three  volume  set  of  compilations  of  letters  (1977  through  2000)  is  available  upon  written  request
accompanied  by  a  payment  of  $35.00  to  cover  production,  postage  and  handling  costs.  Requests  should  be
submitted to the Company at 3555 Farnam St., Suite 1440, Omaha, NE 68131.