Analysis of The 1972 BRK Shareholder Letter VFB

Analysis of the 1972 Berkshire Hathaway Shareholder Letter
 Financial Summary
 The 1972 Shareholder Letter
1. Drivers of 1972 ROE
2. No Additional Equity Capital Since 1965
3. Insurance Underwriting – Abnormally High Margins
4. Insurance Investing – Investment Leverage Declines
5. Financials – As Adjusted by S&C Messina
6. 1972 10-K
Note: Data presented are for calendar years ending in December except for 1965 and 1966 fiscal years, which ended on 10/2/1965 and 10/1/1966, respectively. Figures
for 1967 are for the 15 months ended 12/30/1967. Results through 1978 have been restated to reflect accounting changes in 1979 that required insurance companies to
carry equity securities at market value rather than the lower of cost or market. Adjustments have been made by S&C Messina to originally reported financials to
approximate such changes, accounting especially for unrealized gains and accompanying deferred tax liabilities at Berkshire’s insurance subsidiaries. Annual
percentage changes in book value per share match what Berkshire Hathaway reports today. Berkshire did not fully consolidate the income statement and balance sheet
of its insurance subsidiaries until the 1973 10-K filing. S&C Messina has fully consolidated the income statement and balance sheet of all insurance subsidiaries. Any
changes to figures shown in prior analyses are due to Berkshire’s retroactive reconciliation to GAAP standards of accounting or restated financials.
Copyright © 2015 By S&C Messina. All Rights Reserved.

Financial Summary
Drivers of % Change in Book Value Per Share
40%
35% 35.0%
30%
25% 25.0%
23.8%
20% 21.7%
20.3%
19.0%
15% 16.2% 16.4% 15.0%
10% 12.0%
11.0%
5% 5.0%
3.3%
0%
-5% -5.0%
-10%
-15% -15.0%
-20%
-25% -25.0%
1964 1965 1966 1967 1968 1969 1970 1971 1972
Textiles Net Earnings Incl. Extraordinary Textiles Investment Gains Insurance Underwriting
Insurance Investment Gains Insurance Other Incl. Adj. Banking Earnings Incl. Realized Gains, Other
Banking Other Equity Repurchases, Financing, Dividends, Other Change in Book Value Per Share (Total ROE %)
Balance Sheet Leverage: % of Shareholders' Equity

300%
275%
250%
225%
200%
175%
150%
125%
100%
75%
50%
25%
0%
Assets Liabilities Assets Liabilities Assets Liabilities Assets Liabilities Assets Liabilities Assets Liabilities Assets Liabilities Assets Liabilities Assets Liabilities
& Equity & Equity & Equity & Equity & Equity & Equity & Equity & Equity & Equity
1964 1965 1966 1967 1968 1969 1970 1971 1972
Textiles Insurance Banking Other Subsidiaries

Textiles Bonds Insurance Bonds Textiles Stocks (Cost) Insurance Stocks (Market)
Total Shareholders' Equity Other Liabilities Borrowed Debt Insurance Unearned Premium Reserves
Insurance Loss & LAE Reserves
2
Copyright © 2015 by S&C Messina. All Rights Reserved.
Financial summary:
As adjusted by S&C Messina to match restated figures (1)
Consolidated
% Change in Assets/ Liabilities/
Shareholders' % Change in shareholders' Shareholders' Shareholders'
Fiscal year ended, Assets Liabilities equity % Change in assets liabilities equity equity equity
10/3/1964 27,887,046 5,748,293 22,138,753 -29.3% -37.3% -26.9% 1.26x 0.26x
10/2/1965 28,222,387 3,702,273 24,520,114 1.2% -35.6% 10.8% 1.15x 0.15x
10/1/1966 32,896,178 3,401,258 29,494,920 16.6% -8.1% 20.3% 1.12x 0.12x
15-mths 12/30/1967 69,398,741 37,700,145 31,698,596 111.0% 1008.4% 7.5% 2.19x 1.19x
12/28/1968 78,317,182 40,589,074 37,728,108 12.9% 7.7% 19.0% 2.08x 1.08x
1/3/1970 94,764,457 51,173,325 43,591,132 21.0% 26.1% 15.5% 2.17x 1.17x
1/2/1971 112,899,233 64,088,234 48,810,999 19.1% 25.2% 12.0% 2.31x 1.31x
1/2/1972 158,305,354 101,474,993 56,830,361 40.2% 58.3% 16.4% 2.79x 1.79x
12/30/1972 176,727,412 107,580,411 69,147,001 11.6% 6.0% 21.7% 2.56x 1.56x
Note:
(1) Consolidated balance sheet figures include assets, liabilities and shareholders' equity of Textiles and Insurance subsidiaries. Balance sheets of Banking and Other subsidiaries, which are both
unconsolidated, are excluded; the value of investments in such unconsolidated subsidiaries are accounted for within Consolidated assets. Any changes in figures from prior analyses are due to
retroactive reconciliation to GAAP accounting.
Contribution to Consolidated ROE %
Textiles &
Textiles Insurance Total shareholders' Change in Textiles Change in Change in Insurance ROE %
shareholders' shareholders' equity incl. Change in Textiles BV/BOP Insurance book Insurance BV/BOP (excl. change in
Fiscal year ended, equity equity Banking and Other book value Consolidated BV value Consolidated BV share count)
10/3/1964 22,138,753 - 22,138,753 (8,140,137) -26.9% 0 0.0% -26.9%
10/2/1965 24,520,114 - 24,520,114 2,381,361 10.8% 0 0.0% 10.8%
10/1/1966 29,494,920 - 29,494,920 4,974,806 20.3% 0 0.0% 20.3%
15-mths 12/30/1967 21,283,856 10,414,740 31,698,596 (8,211,064) -27.8% 1,837,960 6.2% -21.6%
12/28/1968 23,450,286 14,277,822 37,728,108 2,166,430 6.8% 3,863,082 12.2% 19.0%
1/3/1970 8,473,691 14,988,037 43,591,132 (14,976,595) -39.7% 710,216 1.9% -37.8%
1/2/1971 8,279,762 19,392,329 48,810,999 (193,929) -0.4% 4,404,291 10.1% 9.7%
1/2/1972 1,291,305 34,163,378 56,830,361 (6,988,457) -14.3% 14,771,049 30.3% 15.9%
12/30/1972 1,581,843 45,833,736 69,147,001 290,538 0.5% 11,670,359 20.5% 21.0%
Valuation summary:
Total Consolidated % Outperformance
shareholders' % Change BRK % Change S&P 500 (underpformance)
Fiscal year ended, equity Shares outstanding BVPS (restated) % Change in BVPS BRK stock price stock price incl. dividends vs. S&P 500
10/3/1964 22,138,753 1,137,778 $19.46 3.3% $12.37 NA NA NA
10/2/1965 24,520,114 1,017,547 $24.10 23.8% $18.50 49.5% 10.0% 39.5%
10/1/1966 29,494,920 1,017,547 $28.99 20.3% $17.87 -3.4% -11.7% 8.3%
15-mths 12/30/1967 31,698,596 985,482 $32.17 11.0% $20.25 13.3% 30.9% -17.6%
12/28/1968 37,728,108 985,482 $38.28 19.0% $36.00 77.8% 11.0% 66.8%
1/3/1970 43,591,132 979,582 $44.50 16.2% $43.00 19.4% -8.4% 27.8%
1/2/1971 48,810,999 979,577 $49.83 12.0% $41.00 -4.7% 3.9% -8.6%
1/2/1972 56,830,361 979,569 $58.02 16.4% $74.00 80.5% 14.6% 65.9%
12/30/1972 69,147,001 979,569 $70.59 21.7% $80.00 8.1% 18.9% -10.8%
Adj. Textiles and Adj. Consolidated
Insurance net Adj. Consolidated net earnings Adj. Consolidated
Fiscal year ended, Total sales (1) earnings (2) net earnings (2) margin % EPS (2) P/E Market cap P/Restated BVPS
10/3/1964 49,982,830 125,586 125,586 0.3% $0.11 112.1x $14,079,267 0.64x
10/2/1965 49,300,685 2,271,232 2,271,232 4.6% $2.23 8.3x $18,824,272 0.77x
10/1/1966 49,372,328 2,595,695 2,595,695 5.3% $2.55 7.0x $18,184,247 0.62x
15-mths 12/30/1967 71,129,346 2,060,609 2,060,609 2.9% $2.09 9.7x $19,953,516 0.63x
12/28/1968 68,619,209 2,666,782 2,666,782 3.9% $2.71 13.3x $35,477,352 0.94x
1/3/1970 65,684,905 3,374,279 4,911,085 7.5% $5.01 8.6x $42,122,026 0.97x
1/2/1971 63,741,079 2,250,838 4,864,962 7.6% $4.97 8.3x $40,162,657 0.82x
1/2/1972 86,878,473 5,290,032 7,457,212 8.6% $7.61 9.7x $72,488,106 1.28x
12/30/1972 87,369,019 9,055,486 11,674,056 13.4% $11.92 6.7x $78,365,520 1.13x
Notes:
(1) Total sales include revenues from Textiles and Insurance. It does not include revenues from Banking and Other subsidiaries, which are both unconsolidated.
(2) Adjusted Consolidated net earnings include: (i) Textiles net earnings excluding investment gains & extraordinary items, (ii) Insurance net earnings excluding realized & unrealized gains
and (iii) Equity in Banking net earnings excluding realized gains.
Originally reported financials
% Change in % Change in BVPS Orig. vs. currently
Shareholders' shareholders' BVPS (orig. (per original reported change in
Fiscal year ended, Assets Liabilities equity equity Shares outstanding reported) financials) BVPS (bps)
10/3/1964 27,887,046 5,748,293 22,138,753 -26.9% 1,137,778 $19.46 3.3% 0 bps
10/2/1965 28,222,387 3,702,273 24,520,114 10.8% 1,017,547 $24.10 23.8% 0 bps
10/1/1966 32,896,178 3,401,258 29,494,920 20.3% 1,017,547 $28.99 20.3% 0 bps
15-mths 12/30/1967 39,940,590 8,397,655 31,542,935 6.9% 985,482 $32.01 10.4% (50) bps
12/28/1968 43,740,160 7,534,889 36,205,271 14.8% 985,482 $36.74 14.8% (420) bps
1/3/1970 56,556,537 12,638,477 43,918,060 21.3% 979,582 $44.83 22.0% 580 bps
1/2/1971 56,637,384 8,154,051 48,483,333 10.4% 979,577 $49.49 10.4% (160) bps
1/2/1972 69,289,564 13,120,699 56,168,865 15.9% 979,569 $57.34 15.9% (60) bps
12/30/1972 81,607,142 13,312,119 68,295,023 21.6% 979,569 $69.72 21.6% (10) bps
3
The 1972 Shareholder Letter
Buffett begins Berkshire’s 1972 shareholder letter by looking back at the progress made since BPL acquired
control of the company’s board in May 1965:
 “The increase in book value per share from $19.46 at fiscal year-end 1965 to $69.72 year-end amounts
to about 16.5% compounded annually.”1 Based on BVPS reported retroactively today by Berkshire (and
adjusted by S&C Messina), this increase is even higher, almost 17% compounded annually.
Originally reported financials

% Change in BVPS Orig. vs. currently Vs. currently
BVPS (orig. (per original reported change in % Change in BVPS reported change in
Fiscal year ended, reported) financials) BVPS (bps) Fiscal year ended, BVPS (adjusted) (adjusted) BVPS (bps)
10/3/1964 $19.46 3.3% 0 bps 10/3/1964 $19.46 3.3% 0 bps
10/2/1965 $24.10 23.8% 0 bps 10/2/1965 $24.10 23.8% 0 bps
10/1/1966 $28.99 20.3% 0 bps 10/1/1966 $28.99 20.3% 0 bps
15-mths 12/30/1967 $32.01 10.4% (50) bps 15-mths 12/30/1967 $32.17 11.0% 0 bps
12/28/1968 $36.74 14.8% (420) bps 12/28/1968 $38.28 19.0% 0 bps
1/3/1970 $44.83 22.0% 580 bps 1/3/1970 $44.50 16.2% 0 bps
1/2/1971 $49.49 10.4% (160) bps 1/2/1971 $49.83 12.0% 0 bps
1/2/1972 $57.34 15.9% (60) bps 1/2/1972 $58.02 16.4% 0 bps
12/30/1972 $69.72 21.6% (10) bps 12/30/1972 $70.59 21.7% 0 bps
Days: 3,010 Days: 3,010
Years (365.25 days/yr): 8.2 Years (365.25 days/yr): 8.2
BVPS CAGR: 16.7% BVPS CAGR: 16.9%
 “Since that time, no additional equity capital has been introduced into the business, either through cash
sale or through merger. On the contrary, some stock has been reacquired, reducing outstanding shares by
14%.”2 The fact that no new money was raised via equity offerings since 1964 is quite remarkable. The
growth in shareholder value without new injections of equity is proof of what a company with excess
capital can achieve when run by a top-notch capital allocator. We will touch upon this topic a little bit
later in section 2.
Fiscal year ended, Shares outstanding

10/3/1964 1,137,778
10/2/1965 1,017,547
10/1/1966 1,017,547
15-mths 12/30/1967 985,482
12/28/1968 985,482
1/3/1970 979,582
1/2/1971 979,577
1/2/1972 979,569
12/30/1972 979,569
Change shares out.: -13.9%
 “While we anticipate a modest decrease in operating earnings during 1973, it seems clear that our
diversification moves of recent years have established a significantly higher base of normal earning
power.”3 Buffett is essentially saying that Berkshire has come to own a diverse array of core businesses,
which, in aggregate, were capable of generating a stable, normally recurring stream of earnings.
The first step in developing this foundation of stable earnings power was the acquisition of insurance
companies NICO/NF&M, as noted in the 1967 shareholder letter when Buffett wrote, “Our investment
in the insurance companies reflects a first major step in our efforts to achieve a more diversified base of
earning power.”4
1
Warren E. Buffett, Berkshire Hathaway Letters to Shareholders 1965-2014 (Berkshire Hathaway Annual Reports: 2014), p. 19.
2
Ibid.
3
Ibid.
4
Ibid., p. 8.
4
1. Drivers of 1972 ROE
Book value per share in 1972 grew 21.7% from $58.02 to $70.59 driven once again primarily by the
Insurance segment which chimed in with 21.4% ROE on a Consolidated basis.
However, relative to the prior year, underwriting profits in 1972 contributed a more meaningful bump
to Berkshire’s ROE with 7.5% or $4.3 million from Insurance underwriting and 13.9% or $7.9
million coming from Insurance investment gains.
Of this $7.9 million in Insurance investment gains, the majority came from $6.8 million of Insurance
net investment income, pre-tax.
Drivers of % Change in Book Value Per Share
40%
35% 35.0%
30%
25% 25.0%
23.8%
20% 21.7%
20.3%
19.0%
15% 16.2% 16.4% 15.0%
10% 12.0%
11.0%
5% 5.0%
3.3%
0%
-5% -5.0%
-10%
-15% -15.0%
-20%
-25% -25.0%
1964 1965 1966 1967 1968 1969 1970 1971 1972
Textiles Net Earnings Incl. Extraordinary Textiles Investment Gains Insurance Underwriting
Insurance Investment Gains Insurance Other Incl. Adj. Banking Earnings Incl. Realized Gains, Other
Banking Other Equity Repurchases, Financing, Dividends, Other Change in Book Value Per Share (Total ROE %)
Contributions from Berkshire’s other business segments to Consolidated ROE or growth in BVPS
were a wash. Most noticeably, $2.7 million or 4.8% ROE from Banking earnings including realized
gains and other items were offset by an up-streamed Banking dividend of $2.3 million or -4.1%
decline in book value.
Textiles earnings before interest income and expense amounted to $1.0 million, a high since 1969, as
the Textiles industry experienced an improvement. Including $0.6 of net interest expense, the Textiles
segment’s contribution to overall growth in ROE was $0.4 million or 0.8%.
The Insurance segment’s invested assets grew $17.8 million or 17% to $124.5 million in 1972, driven
primarily by growth in the value of its common stock investments. As shown below, the Insurance
segment’s common stock investments increased $12.9 million, representing 23% of the Insurance
division’s total invested assets, up from 15% of the invested portfolio the prior year.
5
12 months 12 months 12 months 12 months 12 months 12 months
Insurance Balance Sheet 12/31/1967 12/31/1968 12/31/1969 12/31/1970 12/31/1971 12/31/1972
Insurance assets:
Total bonds: amortized admitted value 24,780,942 30,200,981 31,835,043 51,609,294 84,079,023 88,148,480
Common stock of Blue Chip Stamps 0 0 0 0 4,128,225 11,287,396
Other common stocks 7,269,161 9,150,900 8,606,603 10,254,310 11,676,048 17,411,780
Total common stocks: authorized market value 7,269,161 9,150,900 8,606,603 10,254,310 15,804,273 28,699,176
Total preferred stocks: authorized market value 74,493 32,690 1,646,773 1,041,065 998,631 2,942,252
Real estate 1,058,212 1,026,105 1,005,061 986,490 1,312,772 1,674,114
Cash 513,460 597,667 787,932 812,474 4,563,077 3,044,367
Total Insurance invested assets 33,696,268 41,008,343 43,881,412 64,703,633 106,757,776 124,508,389
Total Consolidated assets stood at $176.7 million at fiscal year-end 1972, a 12% or $18.4 million
increase from $158.3 million the year before, driven mainly by an increase in Insurance assets
described above.
However, Consolidated asset leverage declined slightly from 2.8x in 1971 to 2.6x in 1972, as per the
chart below. In short, even though Berkshire’s Consolidated assets expanded in dollar terms,
Consolidated asset leverage declined slightly.
Balance Sheet Leverage: % of Shareholders' Equity
300%
275%
250%
225%
200%
175%
150%
125%
100%
75%
50%
25%
0%
Assets Liabilities Assets Liabilities Assets Liabilities Assets Liabilities Assets Liabilities Assets Liabilities Assets Liabilities Assets Liabilities Assets Liabilities
& Equity & Equity & Equity & Equity & Equity & Equity & Equity & Equity & Equity
1964 1965 1966 1967 1968 1969 1970 1971 1972
Textiles Insurance Banking Other Subsidiaries

Textiles Bonds Insurance Bonds Textiles Stocks (Cost) Insurance Stocks (Market)
Total Shareholders' Equity Other Liabilities Borrowed Debt Insurance Unearned Premium Reserves
Insurance Loss & LAE Reserves
The modest decline in Berkshire’s asset leverage can be explained primarily by the 12.8% decline in net
premiums written in the Insurance segment, per the table below. In other words, 1972 did not see a boost in new
investment assets funded by newly acquired Insurance liabilities on the balance sheet. Furthermore, year-end
Consolidated book value increased 21.7% from $56.8 million in 1971 to $69.1 million in 1972, indicating a rate
of growth in book value strongly outpacing the relative growth in Consolidated assets (+12%) and liabilities
(+6%) over the same time period.
Insurance Operating Statistics 12/31/1967 12/31/1968 12/31/1969 12/31/1970 12/31/1971 12/31/1972
Net premiums written 22,049,459 22,619,727 28,776,137 45,086,095 66,455,532 57,950,178
y-o-y growth % 2.6% 27.2% 56.7% 47.4% -12.8%
Add: BOP unearned premium reserve 6,472,498 8,048,172 8,051,105 11,569,374 17,482,957 25,516,268
Less: EOP unearned premium reserve 8,048,172 8,051,105 11,569,374 17,482,957 25,516,268 23,839,397
Adjustment 0 0 2,444,985 1
Premiums earned (NPW + BOP UPR - EOP UPR) 20,473,785 22,616,792 25,257,868 39,172,512 60,867,206 59,627,050
y-o-y growth % 10.5% 11.7% 55.1% 55.4% -2.0%
6
2. No Additional Equity Capital Since 1965
The below screenshots from the 10-Ks of 1965 and 1972 illustrate the quick, material evolution of
Berkshire’s corporate structure under Buffett’s helm. In less than 8 years, Berkshire transformed
from:
- A parent with a HoldCo (Berkshire Hathaway based in Massachusetts) housing a single, core
Textiles business to
- A parent HoldCo that not only held assets of the Textiles business but operated an Insurance
group via the ownership of B-H Securities Corp., which had 6 insurance subsidiaries under its
umbrella, and a Banking group via the ownership of the Illinois Bank and Trust Co. of
Rockford and its subsidiary and an assortment of 3 other “Insignificant Subsidiaries”.
1965:
1972:
5
Berkshire Hathaway Inc. (1965). Form 10-K 1965.
6
7
Ibid.
7
What is amazing about this transformation is that management accomplished it without any additional
capital injected by equity holders. Capital was creatively sourced and optimally reallocated such that,
as Buffett writes in the 1972 shareholder letter, “Eight years later, our 1972 operating earnings of
$11,116,256 represent a return many-fold higher than would have been produced had we continued to
devote our resources entirely to the textile business.”8
As discussed in the analyses of previous shareholder letters, such capital came from the liquidation of
PP&E and excess working capital in the Textiles business, the proceeds of which were reinvested in
marketable securities. Such marketable securities not only earned returns in their own right but served
as dry powder for opportune acquisitions to diversify away from the Textiles business. Buffett writes
about the results of these acquisitions and the prospects for future acquisitions, as follows, in the 1972
shareholder letter:
Our three major acquisitions of recent years have all worked out exceptionally well—
from both the financial and human standpoints. In all three cases, the founders were
major sellers and received significant proceeds in cash— and, in all three cases, the same
individuals, Jack Ringwalt [of NICO, NF&M], Gene Abegg [of Illinois National Bank &
Trust] and Vic Raab [of Home & Automobile Insurance], have continued to run the
businesses with undiminished energy and imagination which have resulted in further
improvement of the fine records previously established.
We will continue to search for logical extensions of our present operations, and also
for new operations which will allow us to continue to employ our capital effectively.
[details added in brackets]9
By acquiring companies that in turn generate their own excess capital, a virtuous cycle ensues where
excess capital begets more excess capital. Indeed, this is exemplified by NICO’s acquisition of Home
& Automobile Insurance, the start-up of multiple “home-state” insurance operations and the
movement of dividends from Banking operations to other entities under the Berkshire umbrella.
Below is an excerpt from the 1972 10-K which shows a $1.5 million “Contribution from parent” to
the Insurance business in 1972.
10
We can see that part of this $1.5 million contribution, part of the $2.5 million decline in the parent
(Textiles) company’s book value highlighted in blue below, was funded by the +$2.3 million
dividend from the Banking dividend, also highlighted in blue.
8
9
Ibid.
10
8
12 months
12/30/1972
Textiles BOP book value 1,291,305
Textiles net earnings excl. investment gains & extra. Items 999,726
Reduction in federal & foreign income taxes 0
Estimated loss on properties to be sold 0
Textiles other 0
Textiles earnings incl. extraordinary 999,726
Textiles investment gains (553,697)
Retirement of treasury stock 0
Dividends paid 0
Change in common stock out 0
Change in EOP less common stock in Treasury 0
Textiles equity repurchases, financing, dividends 0
Change in Textiles book value 446,029
Textiles EOP BV unadjusted for subsidiaries 1,737,334
Adjustment for unconsolidated Insurance subsidiaries 0
Adjustment for unconsolidated Bank subsidiary 0
Dividend from Bank subsidiary 2,344,609
Adj. for Other subsidiaries - insurance agency, 2 printing/publishing ops (orig. cost) 0
Other adjustments (2,500,100)
Textiles EOP book value 1,581,843
In addition to the excess capital generated by various businesses, Buffett availed himself of another
source of non-equity financing, specifically debt financing. The 1972 shareholder letter ends with the
description of a significant $20 million debt transaction with 20 banks, Berkshire’s largest debt
financing while under Buffett’s helm; closed in the spring of 1973, this loan was not reflected in
Berkshire’s 1972 fiscal year-end balance sheet:
On March 15, 1973, Berkshire Hathaway borrowed $ 20 million at 8% from twenty

institutional lenders. This loan is due March 1, 1993, with principal repayments
beginning March 1, 1979. From the proceeds, $ 9 million was used to repay our bank
loan and the balance is being invested in insurance subsidiaries. Periodically, we expect
that there will be opportunities to achieve significant expansion in our insurance business
and we intend to have the financial resources available to maximize such opportunities.11
Without a doubt, Buffett had big dreams for Berkshire’s burgeoning insurance enterprise.
11
9
3. Insurance Underwriting – Abnormally High Margins
While all business segments experienced better results in 1972, the biggest improvement came from
Insurance underwriting profits. According to Buffett, this level of underwriting profitability was
anomalous.
Buffett explains the reasons for such high profitability in the 1972 shareholder letter as follows:
…Due to an unusual convergence of favorable factors— diminishing auto accident

frequency, moderating accident severity, and an absence of major catastrophes—
underwriting profit margins achieved a level far above averages of the past or
expectations of the future.12
Such realistic, if not pessimistic, expectations about the prospects of the insurance business are rare
among insurance company executives even today. This is an unusual recognition by an executive who
understands that certain drivers of P&L of a business are beyond anyone’s control – especially in
commoditized, cyclical businesses where herd-like, irrational risk-taking is the norm.
One of the main drivers of underwriting profitability is competitor behavior; if competitors are
offering lower rates, you will lose customers. You cannot control the price your competitors offer, but
you can choose to play ball, matching or undercutting their rates, or wait until customers accept your
rates again – in an environment when competitors are overcharging or overly risk-adverse to make up
for the consequences (i.e. underwriting losses) of their past behavior. When things are going too well
in the insurance sector, or in other words, when a rising tide is lifting all boats, it is time to become
wary and be prepared for the tide to go out.
Buffett comments on this paradoxical recipe for success in the P&C insurance business as follows
from the 1972 shareholder letter:
Our exceptional underwriting profits during 1972 in the large traditional area of our
insurance business at National Indemnity present a paradox. They served to swell
substantially total corporate profits for 1972, but the factors which produced such profits
induced exceptional amounts of new competition at what we believe to be a non-
compensatory level of rates. Over-all, we probably would have retained better prospects
for the next five years if profits had not risen so dramatically this year.
Substantial new competition was forecast in our annual report for last year and we
experienced in 1972 the decline in premium volume that we stated such competition
implied. Our belief is that industry underwriting profit margins will narrow substantially
in 1973 or 1974 and, in time, this may produce an environment in which our historical
growth can be resumed. Unfortunately, there is a lag between deterioration of
underwriting results and tempering of competition. During this period we expect to
continue to have negative volume comparisons in our traditional operation. Our seasoned
management, headed by Jack Ringwalt and Phil Liesche, will continue to underwrite to
produce a profit, although not at the level of 1972, and base our rates on long-term
expectations rather than short-term hopes. Although this approach has meant dips
in volume from time to time in the past, it has produced excellent long-term results.
[emphasis added]13
One can see the pull-back in risk on 1972 and resultant drop in volume in the table below with net
written premiums declining -12.8% year-over-year and net premiums earned declining by 2.0%:
12
Ibid., p. 19.
13
Ibid., p. 20.
10
y-o-y growth % 2.6% 27.2% 56.7% 47.4% -12.8%
Adjustment 0 0 2,444,985 1
y-o-y growth % 10.5% 11.7% 55.1% 55.4% -2.0%
Looking at underwriting leverage achieved by Berkshire’s Insurance division in 1972 below, one can
see that underwriting leverage declined more than a full turn from 3.1x in 1971 to 1.7x, the lowest
since Berkshire entered the insurance business in 1967.
Underwriting leverage & ROE 12/31/1967 12/31/1968 12/31/1969 12/31/1970 12/31/1971 12/31/1972
Premiums earned 20,473,785 22,616,792 25,257,868 39,172,512 60,867,206 59,627,050
BOP Insurance shareholders' equity 8,576,780 10,414,740 14,277,822 14,988,037 19,392,329 34,163,378
Underwriting leverage (Premiums earned/BOP Insurance book value) 2.4x 2.2x 1.8x 2.6x 3.1x 1.7x
Underwriting profit (loss) - GAAP 875,481 568,705 770,909 (330,325) 1,409,227 4,284,148
Combined ratio - GAAP 95.7% 97.5% 96.9% 100.8% 97.7% 92.8%
Underwriting profit (loss) margin % - GAAP 4.3% 2.5% 3.1% -0.8% 2.3% 7.2%
Underwriting return on Insurance division shareholders' equity:

Total underwriting Insurance ROE % (Underw. leverage x Underw. margin) - GAAP 10.2% 5.5% 5.4% -2.2% 7.3% 12.5%
Underwriting return on Consolidated shareholders' equity:

BOP Consolidated shareholders' equity (Note: BOP Consolidated book value for 1967 is stated as of 10/1/66) 29,494,920 31,698,596 37,728,108 43,591,132 48,810,999 56,830,361
Underwriting leverage - Consolidated (Premiums earned/BOP Consolidated book value) 0.7x 0.7x 0.7x 0.9x 1.2x 1.0x
Total underwriting Consolidated ROE % (Underw. leverage x Underw. margin) - GAAP 3.0% 1.8% 2.0% -0.8% 2.9% 7.5%
The combined ratio was Berkshire’s Insurance division’s lowest ever at 92.8%, resulting in $4.3
million in underwriting profits. With a 7.2% underwriting profit, multiplied by underwriting leverage
of 1.7x, Insurance segment ROE in 1972 was 12.5%. On a Consolidated basis, underwriting profits
contributed to a 7.5% ROE.
Compared to the rest of the P&C industry, using A.M. Best’s calculation (which calculates expense
ratios on premiums written not earned), Berkshire’s Insurance division’s combined ratio of 93.7%
was 59 bps better than the industry’s 94.3%.
12/31/1967 12/31/1968 12/31/1969 12/31/1970 12/31/1971 12/31/1972
Berkshire's Insurance division's GAAP combined ratio - original calculation 95.7% 97.5% 96.9% 100.8% 97.7% 92.8%
Berkshire's Insurance division's statutory combined ratio - original calculation 98.0% 97.5% 100.6% 105.1% 99.8% 90.9%
Using A.M. Best calculation:
Total losses & LAE incurred 13,266,052 14,798,354 16,360,879 26,857,814 40,783,230 36,987,030
Loss ratio (calculation is same) 64.8% 65.4% 64.8% 68.6% 67.0% 62.0%
Net premiums written (Not: Premiums earned ) 22,049,459 22,619,727 28,776,137 45,086,095 66,455,532 57,950,178
Underwriting expenses incurred - GAAP 6,332,252 7,249,733 8,126,080 12,645,023 18,674,749 18,355,872
Expense ratio - GAAP (A.M. Best calculation) 28.7% 32.1% 28.2% 28.0% 28.1% 31.7%
Underwriting expenses incurred - statutory 6,804,954 7,250,612 9,049,739 14,296,179 19,991,711 17,208,216
Expense ratio - statutory (A.M. Best calculation) 30.9% 32.1% 31.4% 31.7% 30.1% 29.7%
Berkshire's Insurance division's GAAP combined ratio (A.M. Best calculation) 93.5% 97.5% 93.0% 96.6% 95.1% 93.7%
Berkshire's Insurance division's statutory combined ratio (A.M. Best calculation) 95.7% 97.5% 96.2% 100.3% 97.1% 91.7%
P&C industry underwriting ratios per A.M. Best industry data:
Industry loss & LAE ratio 68.7% 70.4% 72.2% 70.8% 67.5% 66.6%
Industry underwriting expense ratio 29.5% 29.1% 28.4% 27.6% 27.2% 27.7%
Industry combined ratio 98.2% 99.5% 100.6% 98.4% 94.7% 94.3%
Berkshire GAAP performance (underperformance) vs. P&C industry 469 bps 202 bps 759 bps 179 bps (40) bps 59 bps
Berkshire statutory performance (underperformance) vs. P&C industry 254 bps 201 bps 438 bps (187) bps (239) bps 257 bps
14
14
A.M. Best, 2014 Best’s Aggregates & Averages – Property/Casualty (A.M. Best: 2014), p. 368.
11
4. Insurance Investing – Investment Leverage Declines
Berkshire’s Insurance segment investment leverage declined meaningfully from 4.4x the prior year to 3.4x in
1972. Net investment income, pre-tax, ROA was 5.8%, matching the record achieved the prior year. On a
levered basis, this ROA pre-tax net investment income contributed to a healthy 19.8% ROE for the Insurance
segment.
As Buffett comments in the following excerpt from the 1972 letter, the dramatic increase in premiums written in
the past few years coincided with high prevailing interest rates, enabling Berkshire to lock in (for the next
several years) a healthy earnings stream from interest collected on bonds invested during this period.
Furthermore, most of these bonds had the benefit of being tax-exempt:
We were most fortunate to experience dramatic gains in premium volume from 1969
to 1971 coincidental with virtually record-high interest rates. Large amounts of investable
funds were thus received at a time when they could be put to highly advantageous use.
Most of these funds were placed in tax-exempt bonds and our investment income, which
has increased from $2,025,201 in 1969 to $6,755,242 in 1972, is subject to a low
effective tax rate.
Our bond portfolio possesses unusually good call protection, and we will benefit for
many years to come from the high average yield of the present portfolio. The lack of
current premium growth, however, will moderate substantially the growth in investment
income during the next several years. 15

Investment leverage & ROE 12/31/1967 12/31/1968 12/31/1969 12/31/1970 12/31/1971 12/31/1972
BOP total invested assets 27,421,528 33,696,268 41,008,343 43,881,412 64,703,633 106,757,776
EOP total invested assets 33,696,268 41,008,343 43,881,412 64,703,633 106,757,776 124,508,389
Avg. total invested assets 30,558,898 37,352,306 42,444,878 54,292,523 85,730,705 115,633,083
Investment leverage (Avg. invested assets/BOP Insurance book value) 3.6x 3.6x 3.0x 3.6x 4.4x 3.4x
Net investment income, pre-tax 1,279,364 1,612,059 2,025,201 2,870,173 4,973,628 6,755,242
Invest. yield ROA % (Net invest. inc./Avg. invest. assets) 4.2% 4.3% 4.8% 5.3% 5.8% 5.8%
Invest. inc. Insurance ROE % (Invest. leverage * Invest. yield ROA %) 14.9% 15.5% 14.2% 19.1% 25.6% 19.8%
Realized gains on investments 922,581 974,936 388,789 (301,167) 1,027,764 1,358,930

Realized gains ROA % (Realized gains/Avg. invested assets) 3.0% 2.6% 0.9% -0.6% 1.2% 1.2%
Realized gains Insurance ROE % 10.8% 9.4% 2.7% -2.0% 5.3% 4.0%
Less federal income taxes on realized gains (230,645) (268,107) (106,917) 0 (308,405) (430,344)
Implied tax rate 25.0% 27.5% 27.5% 0.0% 30.0% 31.7%
Realized gains, post-tax Insurance ROE % 8.1% 6.8% 2.0% -2.0% 3.7% 2.7%
Change in unrealized gains common & preferred stocks 118,300 1,822,901 (2,484,515) 909,157 489,903 272,118
Change in unrealized gains ROA % (Unrealized gains/Avg. invested assets) 0.4% 4.9% -5.9% 1.7% 0.6% 0.2%
Change in unrealized gains Insurance ROE% 1.4% 17.5% -17.4% 6.1% 2.5% 0.8%
Less change in deferred tax liabilities on unrealized gains (29,575) (455,725) 634,751 (254,564) (156,073) (81,635)
Deferred tax liability rate on unrealized gains (28% assumed in 1970 by S&C Messina) 25.0% 25.0% 25.5% 28.0% 31.9% 30.0%
Change in unrealized gains, post-DTL Insurance ROE % 1.0% 13.1% -13.0% 4.4% 1.7% 0.6%
Investment return on Insurance division shareholders' equity:

Total investment Insurance ROE, pre-tax 27.1% 42.3% -0.5% 23.2% 33.5% 24.5%
Total investment Insurance ROE, post-tax (Note: Investment income is pre-tax) 24.0% 35.4% 3.2% 21.5% 31.1% 23.0%
Investment return on Consoldiated shareholders' equity:

Investment leverage - Consolidated (Avg. invested assets/BOP Consolidated book value) 1.0x 1.2x 1.1x 1.2x 1.8x 2.0x
Total investment Consolidated ROE, pre-tax 7.9% 13.9% -0.2% 8.0% 13.3% 14.8%
Total investment Consolidated ROE, post-tax (note: investment income is pre-tax) 7.0% 11.6% 1.2% 7.4% 12.3% 13.9%
Including $1.4 million of realized gains and $0.5 million increase in unrealized gains, total Insurance pre-tax
ROE contribution from investment activities was 24.5% or 23.0% post-tax.
15
Warren E. Buffett, Berkshire Hathaway Letters to Shareholders 1965-2014 (Berkshire Hathaway Annual Reports: 2014), p. 20-21.
12
On a Consolidated basis, based on Berkshire’s Consolidated book value, Insurance investment asset leverage in
1972 reached another record high at 2.0x, surpassing the prior year record level of 1.8x.
As iterated earlier, Insurance investment activities were the biggest driver of the 21.7% increase in Consolidated
BVPS in 1972, contributing 13.9% ROE, surpassing the prior year record of 12.3% ROE.

Implied tax rate 25.0% 27.5% 27.5% 0.0% 30.0% 31.7%


Another interesting thing to note, related to the Insurance segment’s investment activities is the break-out of its
investment in Blue Chip Stamps. As per the screenshot of the 1972 10-K below, $11.3 million or 39% of the
total $28.7 million of the Insurance group’s investment in common stocks constituted of its ownership of stock
in Blue Chip Stamps. This $11.3 million of Blue Chip Stamps common stock marked an increase from $4.1
million held on the books in 1971; note, common stocks are held at cost in 1972 and at market in 1971.
16
16
13
A footnote, shown below, from the 1972 10-K discusses the Blue Chip Stamp investment at length:
17
Note the significant amount of ownership of Blue Chip Stamps with 17% of common stock outstanding held by
Berkshire’s Insurance group by the end of 1972. Interestingly, See’s Candy Shops is run by a subsidiary of Blue
Chip Stamps. Furthermore, a major shareholder of Berkshire happens to be a major shareholder of Blue Chip
Stamps. These are details not discussed in the 1972 shareholder letter, but they might have been worth
mentioning as significant developments given the magnitude of the investment and potential conflict of interest
involved.
The 1972 10-K is the first annual filing to mention Blue Chip Stamps and See’s Candy Shops, both of which we
know will come to play significant roles in the evolution of the Berkshire.
17
Ibid.
14
5. Financials as Adjusted by S&C Messina
1964 1965 1966 1967 1968 1969 1970 1971 1972
Berkshire Hathaway 12 months 12 months 12 months 15 months 12 months 12 months 12 months 12 months 12 months
Fiscal Year Ended: 10/3/1964 10/2/1965 10/1/1966 12/30/1967 12/28/1968 1/3/1970 1/2/1971 1/2/1972 12/30/1972
($USD, except share count figures)
12 months 12 months 12 months 15 months 12 months 12 months 12 months 12 months 12 months
Consolidated Balance Sheet 10/3/1964 10/2/1965 10/1/1966 12/30/1967 12/28/1968 1/3/1970 1/2/1971 1/2/1972 12/30/1972
Total Textiles assets 27,887,046 28,222,387 32,896,178 29,681,511 30,985,175 21,112,168 16,433,813 14,412,004 14,893,962
Total Insurance assets - GAAP adj. 0 0 0 39,717,230 47,332,007 53,522,885 75,326,512 122,517,672 140,102,028
Investment in Bank subsidiary 0 0 0 0 0 18,868,404 19,877,908 20,116,846 20,472,590
Investment in Other subsidiaries 0 0 0 0 0 1,261,000 1,261,000 1,258,832 1,258,832
Total Consolidated assets 27,887,046 28,222,387 32,896,178 69,398,741 78,317,182 94,764,457 112,899,233 158,305,354 176,727,412
Total Textiles liabilities 5,748,293 3,702,273 3,401,258 8,397,655 7,534,889 12,638,477 8,154,051 13,120,699 13,312,119
Total Insurance liabilities - GAAP adj. 0 0 0 29,302,490 33,054,185 38,534,848 55,934,183 88,354,294 94,268,292
Total Consolidated liabilities 5,748,293 3,702,273 3,401,258 37,700,145 40,589,074 51,173,325 64,088,234 101,474,993 107,580,411
Total Textiles shareholders' equity 22,138,753 24,520,114 29,494,920 21,283,856 23,450,286 8,473,691 8,279,762 1,291,305 1,581,843
Total Insurance shareholders' equity - GAAP adj. 0 0 0 10,414,740 14,277,822 14,988,037 19,392,329 34,163,378 45,833,736
Total Bank shareholders' equity 0 0 0 0 0 18,868,404 19,877,908 20,116,846 20,472,590
Total Other Subsidiaries shareholders' equity 0 0 0 0 0 1,261,000 1,261,000 1,258,832 1,258,832
Total Consolidated shareholders' equity 22,138,753 24,520,114 29,494,920 31,698,596 37,728,108 43,591,132 48,810,999 56,830,361 69,147,001
Total Consolidated liabilities & shareholders' equity 27,887,046 28,222,387 32,896,178 69,398,741 78,317,182 94,764,457 112,899,233 158,305,354 176,727,412
EOP shares outstanding 1,137,778 1,017,547 1,017,547 985,482 985,482 979,582 979,577 979,569 979,569
Berkshire Hathaway book value per share $19.46 $24.10 $28.99 $32.17 $38.28 $44.50 $49.83 $58.02 $70.59
% Change in book value per share 3.3% 23.8% 20.3% 11.0% 19.0% 16.2% 12.0% 16.4% 21.7%

Consolidated Change in Shareholders' Equity 10/3/1964 10/2/1965 10/1/1966 12/30/1967 12/28/1968 1/3/1970 1/2/1971 1/2/1972 12/30/1972
Consolidated BOP book value 30,278,890 22,138,753 24,520,114 29,494,920 31,698,596 37,728,108 43,591,132 48,810,999 56,830,361
Shares outstanding BOP 1,607,380 1,137,778 1,017,547 1,017,547 985,482 985,482 979,582 979,577 979,569
Consolidated BOP BVPS $18.84 $19.46 $24.10 $28.99 $32.17 $38.28 $44.50 $49.83 $58.02
Textiles BOP book value 30,278,890 22,138,753 24,520,114 29,494,920 21,283,856 23,450,286 8,473,691 8,279,762 1,291,305
Textiles net earnings excl. investment gains & extra. Items 125,586 2,271,232 2,595,695 475,633 876,498 1,094,914 143,771 65,479 999,726
Reduction in federal & foreign income taxes 50,000 2,040,000 2,212,292 210,150 166,000 0 0 0 0
Estimated loss on properties to be sold (3,000,000) (300,000) 0 0 (332,319) (114,435) 218,488 0 0
Textiles other 0 0 0 226,097 0 0 0 0 0
Textiles earnings incl. extraordinary (2,824,414) 4,011,232 4,807,987 911,880 710,179 980,479 362,259 65,479 999,726
Textiles investment gains 0 7,974 166,819 132,761 1,456,251 3,247,319 (520,550) (513,612) (553,697)
Retirement of treasury stock 0 (2,967,714) (1,036,689) 0 0 0 0 0 0
Dividends paid 0 0 0 (101,755) 0 0 0 0 0
Change in common stock out 0 (2,348,010) (601,155) 0 0 0 0 0 0
Change in EOP less common stock in Treasury (5,315,723) 3,677,879 1,637,844 (577,170) 0 (240,000) (205) 0 0
Textiles equity repurchases, financing, dividends (5,315,723) (1,637,845) 0 (678,925) 0 (240,000) (205) 0 0
Change in Textiles book value (8,140,137) 2,381,361 4,974,806 365,716 2,166,430 3,987,798 (158,496) (448,133) 446,029
Textiles EOP BV unadjusted for subsidiaries 22,138,753 24,520,114 29,494,920 29,860,636 23,450,286 27,438,084 8,315,195 7,831,629 1,737,334
Adjustment for unconsolidated Insurance subsidiaries 0 0 0 (8,576,780) 0 0 0 0 0
Adjustment for unconsolidated Bank subsidiary 0 0 0 0 0 (18,778,555) 0 0 0
Dividend from Bank subsidiary 0 0 0 0 0 1,075,162 1,953,840 1,953,840 2,344,609
Adj. for Other subsidiaries - insurance agency, 2 printing/publishing ops (orig. cost) 0 0 0 0 0 (1,261,000) 0 0 0
Other adjustments 0 0 0 0 0 0 (1,989,273) (8,494,164) (2,500,100)
Textiles EOP book value 22,138,753 24,520,114 29,494,920 21,283,856 23,450,286 8,473,691 8,279,762 1,291,305 1,581,843
Insurance BOP book value 8,576,780 10,414,740 14,277,822 14,988,037 19,392,329 34,163,378
Insurance underwriting 875,481 568,705 770,909 (330,325) 1,409,227 4,284,148
Insurance investment gains 2,060,025 3,686,064 457,309 3,223,599 6,026,817 7,874,311
Insurance other incl. adjustments (1,097,546) (391,687) (518,002) 1,511,017 7,335,005 (488,100)
Change in Insurance book value 1,837,960 3,863,082 710,216 4,404,291 14,771,049 11,670,359
Insurance EOP book value 10,414,740 14,277,822 14,988,037 19,392,329 34,163,378 45,833,736
Bank BOP book value 18,778,555 18,868,404 19,877,908 20,116,846

Bank subsidiary earnings excl. realized gains 1,536,806 2,614,124 2,167,180 2,618,570
Bank subsidiary post-tax realized gains (371,795) 358,819 25,598 81,783
Dividend from Bank subsidiary (1,075,162) (1,953,840) (1,953,840) (2,344,609)
Shares issued 0 (9,600) 0 0
Reconciliation 0 1 0 0
Change in Bank book value 89,849 1,009,504 238,938 355,744
Bank EOP book value 18,868,404 19,877,908 20,116,846 20,472,590
Other subsidiaries BOP book value 1,261,000 1,261,000 1,258,832 1,258,832

Change in Other subsidiaries book value 0 0 0 0
Other subsidiaries EOP book value 1,261,000 1,261,000 1,258,832 1,258,832
Consolidated EOP book value 22,138,753 24,520,114 29,494,920 31,698,596 37,728,108 43,591,132 48,810,999 56,830,361 69,147,001
15
Consolidated ROE % 10/3/1964 10/2/1965 10/1/1966 12/30/1967 12/28/1968 1/3/1970 1/2/1971 1/2/1972 12/30/1972
Textiles earnings incl. extraordinary -9.3% 18.1% 19.6% 3.1% 2.2% 2.6% 0.8% 0.1% 1.8%
Textiles investment gains 0.0% 0.0% 0.7% 0.5% 4.6% 8.6% -1.2% -1.1% -1.0%
Equity repurchases, financing, dividends* 12.6% 5.7% 0.0% 1.2% 0.0% 2.9% -0.1% -13.4% -0.3%
Textiles 3.3% 23.8% 20.3% 4.7% 6.8% 14.1% -0.4% -14.3% 0.5%
Insurance underwriting 0.0% 0.0% 0.0% 3.0% 1.8% 2.0% -0.8% 2.9% 7.5%
Insurance investment gains 0.0% 0.0% 0.0% 7.0% 11.6% 1.2% 7.4% 12.3% 13.9%
Insurance other incl. adjustments 0.0% 0.0% 0.0% -3.7% -1.2% -1.4% 3.5% 15.0% -0.9%
Insurance 0.0% 0.0% 0.0% 6.2% 12.2% 1.9% 10.1% 30.3% 20.5%
Bank subsidiary earnings excl. realized gains 0.0% 0.0% 0.0% 0.0% 0.0% 4.1% 6.0% 4.4% 4.6%
Bank subsidiary post-tax realized gains 0.0% 0.0% 0.0% 0.0% 0.0% -1.0% 0.8% 0.1% 0.1%
Bank other incl. adjustments 0.0% 0.0% 0.0% 0.0% 0.0% -2.8% -4.5% -4.0% -4.1%
Bank 0.0% 0.0% 0.0% 0.0% 0.0% 0.2% 2.3% 0.5% 0.6%
% Change in Consolidated book value per share (Total ROE %) 3.3% 23.8% 20.3% 11.0% 19.0% 16.2% 12.0% 16.4% 21.7%
*Includes impact from share buybacks. 30.2% 13.1% 0.0% 3.5% 0.0% 0.7% 0.0% 0.0% 0.0%
Impact on ROE of share buybacks

EOP BV 22,138,753 24,520,114 29,494,920 31,698,596 37,728,108 43,591,132 48,810,999 56,830,361 69,147,001
EOP BV/BOP BV (A) 73.1% 110.8% 120.3% 107.5% 119.0% 115.5% 112.0% 116.4% 121.7%
Shares out. EOP 1,137,778 1,017,547 1,017,547 985,482 985,482 979,582 979,577 979,569 979,569
EOP shares out./BOP shares out. (B) 141.3% 111.8% 100.0% 103.3% 100.0% 100.6% 100.0% 100.0% 100.0%
(A) * (B) 103.3% 123.8% 120.3% 111.0% 119.0% 116.2% 112.0% 116.4% 121.7%
(A) * (B) - 1 3.3% 23.8% 20.3% 11.0% 19.0% 16.2% 12.0% 16.4% 21.7%
ROE impact from change in shares out. (A) - (B) 30.2% 13.1% 0.0% 3.5% 0.0% 0.7% 0.0% 0.0% 0.0%
16
Textiles Balance Sheet 10/3/1964 10/2/1965 10/1/1966 12/30/1967 12/28/1968 1/3/1970 1/2/1971 1/2/1972 12/30/1972
Textiles assets
Textiles current assets:
Cash 920,089 775,504 628,721 835,301 1,605,600 1,792,835 1,351,567 962,010 1,953,858
Accounts receivable 7,450,564 7,422,726 8,114,240 7,571,694 7,563,123 6,397,021 3,916,332 5,099,853 4,054,676
Inventories 11,689,145 10,277,178 12,239,261 11,585,598 12,332,943 9,269,578 8,471,798 6,030,647 6,827,043
Prepaid insurance, taxes and other expense 190,563 196,391 131,428 223,554 199,501 344,725 200,341 110,290 92,250
Textiles current assets, excl. marketable securities 20,250,361 18,671,799 21,113,650 20,216,147 21,701,167 17,804,159 13,940,038 12,202,800 12,927,827
Textiles fixed income, commercial paper investments
Balance sheet value (cost):
Certificates of deposit 0 2,600,000 0 NA 0 0 0 0 0
MA Bay Transportation Authority 3.25% due 1/3/1967 0 0 999,560 NA 0 0 0 0 0
Boston, MA Temporary Note 3.47% due 11/1/1966 0 0 2,500,000 NA 0 0 0 0 0
Boston, MA Redevelopment Authority Note 3.35% due 1/20/1967 0 0 600,000 NA 0 0 0 0 0
Ford Motor Credit Co. 5.625% due 10/5/1966 0 0 249,844 NA 0 0 0 0 0
GMAC 5.625% due 10/13/1966 0 0 249,532 NA 0 0 0 0 0
Ford Motor Credit Co. 5.75% due 10/20/1966 0 0 199,393 NA 0 0 0 0 0
GMAC 6% due 2/21/1969 0 0 0 NA 1,087,717 0 0 0 0
GMAC 6.125% due 2/21/1969 0 0 0 NA 98,928 0 0 0 0
GMAC 6.25% due 2/21/1969 0 0 0 NA 148,515 0 0 0 0
U.S. Treasuries 0 0 0 NA 0 294,165 0 0 0
NA 0 300,000 0 NA 0 0 0 0 0
Textiles fixed income, CP balance sheet value 0 2,900,000 4,798,329 0 1,335,160 294,165 0 0 0
Textiles common stock investments
Balance sheet value (cost):
American Express Co. 0 0 0 NA 1,065,000 0 0 0 0
John Blair & Co. 0 0 48,825 NA 227,880 0 0 0 0
Crompton Company 0 0 0 NA 23,203 0 0 0 0
Walt Disney Productions 0 0 168,651 NA 290,669 0 0 0 0
Florida Gas Company 0 0 0 NA 6,504 0 0 0 0
Investors Diversified Services A 0 0 374,528 NA 1,162,456 0 0 0 0
Investors Diversified Services B 0 0 0 NA 14,962 0 0 0 0
Massachusetts Indemnity & Life Insurance Co. 0 0 55,462 NA 55,462 0 0 0 0
Rank Organization Ltd. 0 0 0 NA 37,977 0 0 0 0
Sperry & Hutchison Co. 0 0 0 NA 1,036,209 0 0 0 0
Wm. Wrigley, Jr. 0 0 0 NA 165,902 0 0 0 0
NA 0 0 0 NA 0 0 0 0 0
Textiles carrying value common stocks, at cost 0 0 647,466 3,825,077 4,086,224 0 0 0 0
Total Textiles marketable securities balance sheet value 0 2,900,000 5,445,795 3,825,077 5,421,384 294,165 0 0 0
Total Textiles current assets 20,250,361 21,571,799 26,559,445 24,041,224 27,122,551 18,098,324 13,940,038 12,202,800 12,927,827
Textiles fixed assets:
Properties, plant & equipment:
Properties comprising land, buildings, machinery & equip. 33,635,553 28,019,742 24,426,192 24,878,601 19,998,693 15,747,970 14,919,300 14,941,903 14,959,876
Less accumulated depreciation and amortization 21,853,689 19,593,163 18,119,666 19,238,314 16,136,069 12,734,126 12,425,525 12,732,699 12,993,741
Net PP&E 11,781,864 8,426,579 6,306,526 5,640,287 3,862,624 3,013,844 2,493,775 2,209,204 1,966,135
Less estimated loss on properties to be sold 4,210,621 1,809,132 0 0 0 0 0 0 0
Total carrying value of net PP&E 7,571,243 6,617,447 6,306,526 5,640,287 3,862,624 3,013,844 2,493,775 2,209,204 1,966,135
Mortgage notes receivable & other assets 65,442 33,141 30,207 0 0 0 0 0 0
Bank subsidiary 0 0 0 0 0 18,868,404 19,877,908 20,116,846 20,472,590
Insurance subsidiaries 0 0 0 10,259,079 12,754,985 15,314,965 19,064,663 33,501,882 44,981,758
Other subsidiaries - insurance agency, 2 printing/publishing ops (orig. cost) 0 0 0 0 0 1,261,000 1,261,000 1,258,832 1,258,832
Less adjustment for subsidiary investments 0 0 0 (10,259,079) (12,754,985) (35,444,369) (40,203,571) (54,877,560) (66,713,180)
Total Textiles assets 27,887,046 28,222,387 32,896,178 29,681,511 30,985,175 21,112,168 16,433,813 14,412,004 14,893,962
Textiles current liabilities:

Notes payable - banks 2,500,000 0 0 2,000,000 2,000,000 1,500,000 1,500,000 0 0
Accounts payable & accrued expenses 2,391,490 2,877,841 3,236,164 5,433,556 4,256,530 3,585,666 1,727,956 3,305,390 3,235,859
Accrued wages & salaries NA NA NA NA NA 192,699 93,965 0 0
Accrued interest NA NA NA NA NA 25,957 22,528 0 0
Accrued payroll taxes NA NA NA NA NA 121,378 170,395 0 0
Accrued state & local taxes 365,112 441,951 165,094 322,799 637,059 1,321,477 247,907 174,009 434,960
Social security & withholding taxes payable 491,691 382,481 0 0 0 0 0 0 0
Total Textiles current liabilities 5,748,293 3,702,273 3,401,258 7,756,355 6,893,589 6,747,177 3,762,751 3,479,399 3,670,819
Textiles long-term debt:
Bank debt - prime rate +50 bps, 6/30/1972 0 0 0 0 0 5,250,000 3,750,000 9,000,000 9,000,000
7 1/2% subordinated debentures 0 0 0 641,300 641,300 641,300 641,300 641,300 641,300
Total Textiles liabilities 5,748,293 3,702,273 3,401,258 8,397,655 7,534,889 12,638,477 8,154,051 13,120,699 13,312,119
Common stock 8,036,900 5,688,890 5,087,735 5,087,735 5,087,735 5,087,735 5,087,735 5,087,735 5,087,735
Retained earnings 19,417,576 20,469,068 24,407,185 16,773,291 18,939,721 4,203,126 4,009,402 (2,979,055) (2,688,517)
Common stock & retained earnings 27,454,476 26,157,958 29,494,920 21,861,026 24,027,456 9,290,861 9,097,137 2,108,680 2,399,218
Less common stock in treasury at cost 5,315,723 1,637,844 0 577,170 577,170 817,170 817,375 817,375 817,375
Total Textiles shareholders' equity 22,138,753 24,520,114 29,494,920 21,283,856 23,450,286 8,473,691 8,279,762 1,291,305 1,581,843
Total Textiles liabilities & shareholders' equity 27,887,046 28,222,387 32,896,178 29,681,511 30,985,175 21,112,168 16,433,813 14,412,004 14,893,962
17
Textiles Income Statement 10/3/1964 10/2/1965 10/1/1966 12/30/1967 12/28/1968 1/3/1970 1/2/1971 1/2/1972 12/30/1972
Sales 49,982,830 49,300,685 49,372,328 50,655,561 46,002,417 40,427,037 24,568,567 26,011,267 27,741,969
Cost of sales 47,382,337 42,478,984 42,195,572 47,023,524 41,321,747 36,136,869 22,220,315 23,445,423 23,655,273
Gross profit 2,600,493 6,821,701 7,176,756 3,632,037 4,680,670 4,290,168 2,348,252 2,565,844 4,086,696
Selling, general & administrative expenses 2,072,822 2,135,038 2,328,142 3,015,272 3,110,628 2,847,453 2,304,407 2,467,177 2,606,126
Operating income 527,671 4,686,663 4,848,614 616,765 1,570,042 1,442,715 43,845 98,667 1,480,570
Other income (deductions), net 0 0 0 0 0 0 0 0 0
Other income: 0 0 0 0 0 0 0 0 0
Sundry, misc. other income 0 161,386 150,337 82,284 34,456 19,652 0 0 0
Total other income 0 161,386 150,337 82,284 34,456 19,652 0 0 0
Other deductions:
Idle plant expense 226,025 240,109 97,689 0 0 0 0 0 0
Bad debts 0 120,000 0 0 0 0 0 0 0
State income taxes 0 170,000 0 0 0 0 0 0 0
Sundry, misc. other charges 126,060 6,708 63,567 5,089 0 0 0 0 0
Total other deductions 352,085 536,817 161,256 5,089 0 0 0 0 0
Total other income (deductions), net (352,085) (375,431) (10,919) 77,195 34,456 19,652 0 0 0
Textiles pre-tax earnings before investments 175,586 4,311,232 4,837,695 693,960 1,604,498 1,462,367 43,845 98,667 1,480,570
Dividends on marketable securities 0 0 0 181,517 223,024 62,744 0 0 0
Interest on marketable securities 0 41,737 166,819 112,626 131,558 53,055 60,285 81,273 30,027
Dividend & interest income 0 41,737 166,819 294,143 354,582 115,799 60,285 81,273 30,027
Interest on long-term debt 0 0 0 20,044 47,746 49,197 47,833 0 0
Interest on note payable - bank 0 0 0 146,000 254,106 566,483 528,992 0 0
Other interest 0 33,763 0 56,971 61,035 56,661 0 0 0
Amortization of bond discount 0 0 0 1,326 3,196 3,891 4,010 0 0
Interest expense & other 0 33,763 0 224,341 366,083 676,232 580,835 594,885 583,724
Net dividends & interest income (expense) 0 7,974 166,819 69,802 (11,501) (560,433) (520,550) (513,612) (553,697)
Textiles earnings excl. realized gains & unconsolidated subsidiaries 175,586 4,319,206 5,004,514 763,762 1,592,997 901,934 (476,705) (414,945) 926,873
Implied tax rate 28.5% 47.2% 44.8% 28.6% 45.7% 40.7% 21.0% -8.0% 51.9%
Provision for federal & foreign income taxes 50,000 2,040,000 2,242,000 218,327 728,000 367,453 (99,926) 33,188 480,844
Textiles earnings post-tax excl. realized gains & unconsolidated subsidiaries 125,586 2,279,206 2,762,514 545,435 864,997 534,481 (376,779) (448,133) 446,029
Textiles post-tax realized gains (FIFO) 0 0 0 62,959 1,467,752 3,807,752 0 0 0
Textiles net earnings excl. unconsolidated subsidiaries 125,586 2,279,206 2,762,514 608,394 2,332,749 4,342,233 (376,779) (448,133) 446,029
Equity in post-tax earnings from unconsolidated subsidiaries:
Insurance subsidiaries earnings excl. realized gains 0 0 0 1,270,699 1,789,402 2,278,229 2,051,873 5,221,862 8,051,657
Bank subsidiary earnings excl. realized gains 0 0 0 0 0 1,536,806 2,614,124 2,167,180 2,618,570
Other subsidiaries earnings excl. realized gains (not included) 0 0 0 0 0 0 0 0 0
Total post-tax earnings from unconsolidated subsidiaries 0 0 0 1,270,699 1,789,402 3,815,035 4,665,997 7,389,042 10,670,227
Less: Total post-tax earnings from unconsolidated subsidiaries 0 0 0 (1,270,699) (1,789,402) (3,815,035) (4,665,997) (7,389,042) (10,670,227)
Equity in post-tax realized gains from unconsolidated subsidiaries:
Insurance subsidiaries post-tax realized gains 0 0 0 411,600 706,504 281,751 (301,047) 719,025 928,119
Bank subsidiary post-tax realized gains 0 0 0 0 0 (371,795) 358,819 25,598 81,783
Other subsidiaries post-tax realized gains (not included) 0 0 0 0 0 0 0 0 0
Total post-tax realized gains from unconsolidated subsidiaries 0 0 0 411,600 706,504 (90,044) 57,772 744,623 1,009,902
Less: Total post-tax realized gains from unconsolidated subsidiaries 0 0 0 (411,600) (706,504) 90,044 (57,772) (744,623) (1,009,902)
Textiles net earnings excl. extraordinary items 125,586 2,279,206 2,762,514 608,394 2,332,749 4,342,233 (376,779) (448,133) 446,029
Extraordinary items:
Reduction in federal & foreign income taxes 50,000 2,040,000 2,212,292 210,150 166,000 0 0 0 0
Loss on liquidation of mill properties, net taxes 0 0 0 0 (332,319) (114,435) 218,488 0 0
Total extraordinary items 50,000 2,040,000 2,212,292 210,150 (166,319) (114,435) 218,488 0 0
Textiles net earnings incl. extraordinary items 175,586 4,319,206 4,974,806 818,544 2,166,430 4,227,798 (158,291) (448,133) 446,029
18
Textiles Change in Shareholders' Equity 10/3/1964 10/2/1965 10/1/1966 12/30/1967 12/28/1968 1/3/1970 1/2/1971 1/2/1972 12/30/1972
BOP common stock 8,036,900 8,036,900 5,688,890 5,087,735 5,087,735 5,087,735 5,087,735 5,087,735 5,087,735
BOP retained earnings 22,241,990 19,417,576 20,469,068 24,407,185 16,773,291 18,939,721 4,203,126 4,009,402 (2,979,055)
BOP less common stock in Treasury 0 5,315,723 1,637,844 0 577,170 577,170 817,170 817,375 817,375
BOP Textiles shareholders' equity 30,278,890 22,138,753 24,520,114 29,494,920 21,283,856 23,450,286 8,473,691 8,279,762 1,291,305
Balance at beginning of period retained earnings 22,241,990 19,417,576 20,469,068 24,407,185 16,773,291 18,939,721 4,203,126 4,009,402 (2,979,055)
Adjustments (for less taxes deemed payable by MA state) 0 0 0 226,097 0 0 0 0 0
At restated 22,241,990 19,417,576 20,469,068 24,633,282 16,773,291 18,939,721 4,203,126 4,009,402 (2,979,055)
Textiles post-tax earnings excl. unconsolidated subsidiaries 125,586 2,279,206 2,762,514 608,394 2,332,749 4,342,233 (376,779) (448,133) 446,029
Unconsolidated subsidiaries 0 0 0 0 0 0 0 0 0
Textiles net earnings excl. extraordinary items 125,586 2,279,206 2,762,514 608,394 2,332,749 4,342,233 (376,779) (448,133) 446,029
Add back: provision for federal & foreign income taxes 50,000 2,040,000 2,242,000 218,327 728,000 367,453 (99,926) 33,188 480,844
Adjust for: reduction in federal & foreign income taxes, net 0 0 (29,708) (8,177) (562,000) (367,453) 99,926 (33,188) (480,844)
Loss on liquidation of mill properties, net taxes 0 0 0 0 (332,319) (114,435) 218,488 0 0
Textiles net earnings incl. extraordinary items 175,586 4,319,206 4,974,806 818,544 2,166,430 4,227,798 (158,291) (448,133) 446,029
Retirement of treasury stock 0 (2,967,714) (1,036,689) 0 0 0 0 0 0
Estimated loss on properties to be sold (3,000,000) (300,000) 0 0 0 0 0 0 0
Dividends paid 0 0 0 (101,755) 0 0 0 0 0
Purchase of insurance businesses 0 0 0 (8,576,780) 0 0 0 0 0
Purchase of bank business 0 0 0 0 0 (18,778,555) 0 0 0
Purchase of other subsidiaries - insurance agency, 2 printing/publishing ops (orig. cost) 0 0 0 0 0 (1,261,000) 0 0 0
Dividends from bank business 0 0 0 0 0 1,075,162 1,953,840 1,953,840 2,344,609
Adjustments 0 0 0 0 0 0 (1,989,273) (8,494,164) (2,500,100)
EOP retained earnings 19,417,576 20,469,068 24,407,185 16,773,291 18,939,721 4,203,126 4,009,402 (2,979,055) (2,688,517)
EOP common stock 8,036,900 5,688,890 5,087,735 5,087,735 5,087,735 5,087,735 5,087,735 5,087,735 5,087,735
EOP retained earnings 19,417,576 20,469,068 24,407,185 16,773,291 18,939,721 4,203,126 4,009,402 (2,979,055) (2,688,517)
EOP less common stock in Treasury 5,315,723 1,637,844 0 577,170 577,170 817,170 817,375 817,375 817,375
EOP Textiles shareholders' equity 22,138,753 24,520,114 29,494,920 21,283,856 23,450,286 8,473,691 8,279,762 1,291,305 1,581,843
19
Textiles Operating Statistics 10/3/1964 10/2/1965 10/1/1966 12/30/1967 12/28/1968 1/3/1970 1/2/1971 1/2/1972 12/30/1972
Y-O-Y growth:
Sales -1.2% -1.4% 0.1% 2.6% -9.2% -12.1% -39.2% 5.9% 6.7%
Gross profit NA 162.3% 5.2% -49.4% 28.9% -8.3% -45.3% 9.3% 59.3%
Operating income NMF 788.2% 3.5% -87.3% 154.6% -8.1% -97.0% 125.0% 1400.6%
Textiles post-tax realized gains (FIFO) NMF NMF NMF NMF 2231.3% 159.4% -100.0% NMF NMF
Textiles net earnings excl. extraordinary items NMF 1714.9% 21.2% -78.0% 283.4% 86.1% -108.7% 18.9% -199.5%
Textiles net earnings incl. extraordinary items NMF 2359.9% 15.2% -83.5% 164.7% 95.2% -103.7% 183.1% -199.5%
Shares outstanding 1,137,778 1,017,547 1,017,547 985,482 985,482 979,582 979,577 979,569 979,569
Textiles net earnings excl. extraordinary items $0.11 $2.24 $2.71 $0.62 $2.37 $4.43 ($0.38) ($0.46) $0.46
Extraordinary items, net of tax, per share $0.04 $2.00 $2.17 $0.21 ($0.17) ($0.12) $0.22 $0.00 $0.00
Textiles net earnings per share $0.15 $4.24 $4.89 $0.83 $2.20 $4.32 ($0.16) ($0.46) $0.46
Margins:
Sales 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales 94.8% 86.2% 85.5% 92.8% 89.8% 89.4% 90.4% 90.1% 85.3%
Gross profit 5.2% 13.8% 14.5% 7.2% 10.2% 10.6% 9.6% 9.9% 14.7%
Selling, general & administrative expenses 4.1% 4.3% 4.7% 6.0% 6.8% 7.0% 9.4% 9.5% 9.4%
Operating income 1.1% 9.5% 9.8% 1.2% 3.4% 3.6% 0.2% 0.4% 5.3%
Other income (deductions), net
Idle plant expense
Bad debts 0.0% 0.2% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
State income taxes 0.0% 0.3% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Amortization of bond discount 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Sundry, misc. other charges 0.3% 0.0% 0.1% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Total other deductions 0.7% 1.1% 0.3% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Total other income (deductions), net 0.0% 0.3% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Textiles pre-tax earnings before investments 0.4% 8.7% 9.8% 1.4% 3.5% 3.6% 0.2% 0.4% 5.3%
Dividends on marketable securities 0.0% 0.0% 0.0% 0.4% 0.5% 0.2% 0.0% 0.0% 0.0%
Interest on marketable securities 0.0% 0.1% 0.3% 0.2% 0.3% 0.1% 0.2% 0.3% 0.1%
Dividend & interest income 0.0% 0.1% 0.3% 0.6% 0.8% 0.3% 0.2% 0.3% 0.1%
Interest on long-term debt 0.0% 0.0% 0.0% 0.0% 0.1% 0.1% 0.2% 0.0% 0.0%
Interest on note payable - bank 0.0% 0.0% 0.0% 0.3% 0.6% 1.4% 2.2% 0.0% 0.0%
Other interest 0.0% 0.1% 0.0% 0.1% 0.1% 0.1% 0.0% 0.0% 0.0%
Interest expense & other 0.0% 0.1% 0.0% 0.4% 0.8% 1.7% 2.4% 2.3% 2.1%
Net dividends & interest income (expense) 0.0% 0.0% 0.3% 0.1% 0.0% -1.4% -2.1% -2.0% -2.0%
Textiles earnings excl. realized gains & unconsolidated subsidiaries 0.4% 8.8% 10.1% 1.5% 3.5% 2.2% -1.9% -1.6% 3.3%
Provision for federal & foreign income taxes 0.1% 4.1% 4.5% 0.4% 1.6% 0.9% -0.4% 0.1% 1.7%
Textiles earnings post-tax excl. realized gains & unconsolidated subsidiaries 0.3% 4.6% 5.6% 1.1% 1.9% 1.3% -1.5% -1.7% 1.6%
Textiles post-tax realized gains (FIFO) 0.0% 0.0% 0.0% 0.1% 3.2% 9.4% 0.0% 0.0% 0.0%
Textiles net earnings excl. unconsolidated subsidiaries 0.3% 4.6% 5.6% 1.2% 5.1% 10.7% -1.5% -1.7% 1.6%
Equity in post-tax earnings from unconsolidated subsidiaries:
Insurance subsidiaries earnings excl. realized gains 0.0% 0.0% 0.0% 2.5% 3.9% 5.6% 8.4% 20.1% 29.0%
Bank subsidiary earnings excl. realized gains 0.0% 0.0% 0.0% 0.0% 0.0% 3.8% 10.6% 8.3% 9.4%
Other subsidiaries earnings excl. realized gains (not included) 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Total post-tax earnings from unconsolidated subsidiaries 0.0% 0.0% 0.0% 2.5% 3.9% 9.4% 19.0% 28.4% 38.5%
Less: Total post-tax earnings from unconsolidated subsidiaries 0.0% 0.0% 0.0% -2.5% -3.9% -9.4% -19.0% -28.4% -38.5%
Equity in post-tax realized gains from unconsolidated subsidiaries:
Insurance subsidiaries post-tax realized gains 0.0% 0.0% 0.0% 0.8% 1.5% 0.7% -1.2% 2.8% 3.3%
Bank subsidiary post-tax realized gains 0.0% 0.0% 0.0% 0.0% 0.0% -0.9% 1.5% 0.1% 0.3%
Other subsidiaries post-tax realized gains (not included) 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Total post-tax realized gains from unconsolidated subsidiaries 0.0% 0.0% 0.0% 0.8% 1.5% -0.2% 0.2% 2.9% 3.6%
Less: Total post-tax realized gains from unconsolidated subsidiaries 0.0% 0.0% 0.0% -0.8% -1.5% 0.2% -0.2% -2.9% -3.6%
Textiles net earnings excl. extraordinary items 0.3% 4.6% 5.6% 1.2% 5.1% 10.7% -1.5% -1.7% 1.6%
Reduction in federal & foreign income taxes 0.1% 4.1% 4.5% 0.4% 0.4% 0.0% 0.0% 0.0% 0.0%
Loss on liquidation of mill properties, net taxes 0.0% 0.0% 0.0% 0.0% -0.7% -0.3% 0.9% 0.0% 0.0%
Total extraordinary items 0.1% 4.1% 4.5% 0.4% -0.4% -0.3% 0.9% 0.0% 0.0%
Textiles net earnings incl. extraordinary items 0.4% 8.8% 10.1% 1.6% 4.7% 10.5% -0.6% -1.7% 1.6%
20
Insurance Balance Sheet 12/31/1967 12/31/1968 12/31/1969 12/31/1970 12/31/1971 12/31/1972
Insurance assets:
Total bonds: amortized admitted value 24,780,942 30,200,981 31,835,043 51,609,294 84,079,023 88,148,480
Common stock of Blue Chip Stamps 0 0 0 0 4,128,225 11,287,396
Other common stocks 7,269,161 9,150,900 8,606,603 10,254,310 11,676,048 17,411,780
Total common stocks: authorized market value 7,269,161 9,150,900 8,606,603 10,254,310 15,804,273 28,699,176
Total preferred stocks: authorized market value 74,493 32,690 1,646,773 1,041,065 998,631 2,942,252
Real estate 1,058,212 1,026,105 1,005,061 986,490 1,312,772 1,674,114
Cash 513,460 597,667 787,932 812,474 4,563,077 3,044,367
Total Insurance invested assets 33,696,268 41,008,343 43,881,412 64,703,633 106,757,776 124,508,389
Premium balances 2,222,775 2,818,118 4,251,710 4,072,027 7,131,037 6,892,288
Reinsurance recoverable 791,374 342,923 607,068 304,400 440,396 277,741
Accrued interest 376,347 484,366 544,351 898,223 1,500,148 1,629,176
Amounts due from sales of securities 446,219 3,170 743,113 98,350 206,513 0
Federal income taxes recoverable 0 0 320,742 258,479 0 0
Other assets 73,030 35,295 63,625 50,944 506,406 552,855
Total Insurance assets - statutory 37,606,013 44,692,215 50,412,021 70,386,056 NA NA
Equity in UPR, estimated as % of reserve 2,414,452 2,415,331 3,338,990 4,990,146 6,771,656 5,624,000
Statement value of bonds over market value (214,218) (87,501) (668,294) 0 0 0
Reserve for reinsurance w/ unauthorized companies 57,493 44,823 13,183 1,690 0 0
Non-admitted assets 152,346 165,562 221,008 262,685 0 0
Total Insurance assets - GAAP 40,016,086 47,230,430 53,316,908 75,640,577 123,313,932 139,484,449
Insurance liabilities & shareholders' equity

Liabilities:
Unearned premium reserves 8,048,172 8,051,105 11,569,374 17,482,957 25,516,268 23,839,397
Losses & loss adjustment (LAE) expenses 15,194,540 18,550,235 21,448,566 29,758,739 52,990,625 60,275,018
Mortgage & contract payable on rental property 46,520 37,351 28,182 19,014 9,845 58,995
Funds held under reinsurance treaties 757,651 1,043,065 1,299,056 1,909,652 1,025,737 957,845
Contingent commissions 886,500 510,300 417,000 331,728 268,151 369,152
Other expenses 76,420 85,269 93,515 134,622 347,788 210,833
Taxes, licenses, & fees 485,200 534,241 563,728 781,218 908,500 567,914
Federal income taxes 207,045 238,521 0 0 1,002,500 3,141,149
Federal income taxes deferred 0 0 0 0 3,742,611 3,214,084
Agents' & policyholders' deposits 387,951 405,581 473,178 940,979 787,429 540,742
Excess stat. loss reserves 628,411 428,811 97,707 5,554 0 0
Amounts due for purchase of securities 1,880,923 1,297,292 1,057,799 1,894,590 1,331,182 674,123
Other liabilities 82,820 57,385 26,206 25,672 140,160 53,906
Total Insurance liabilities - statutory 28,682,153 31,239,156 37,074,311 53,284,725 NA NA
Excess BI liab. & comp. statutory & voluntary reserve over case basis (628,411) (428,810) (97,707) (5,554) 0 0
Less federal income taxes applicable to est. equity in UPR & unrealized gains 1,196,861 1,736,227 1,685,382 2,527,587 0 0
Total Insurance liabilities - GAAP 29,250,603 32,546,573 38,661,986 55,806,758 88,070,796 93,903,158
Insurance capital stock & surplus:

Common stock $10/share 2,500,000 4,000,000 4,000,000
Common stock $100/share 1,000,000 2,000,000 2,500,000
Capital paid up 1,900,000 2,500,000 3,000,000 3,500,000 6,000,000 6,500,000
Paid-in surplus 351,250 351,250 351,250 1,851,250 7,851,250 9,851,250
Net surplus 6,672,610 10,601,809 9,986,460 11,750,081 21,391,886 29,230,041
Total Insurance shareholders' equity (policyholders' surplus) - statutory 8,923,860 13,453,059 13,337,710 17,101,331 NA NA
Total adj. to Insurance shareholders' equity - GAAP 1,841,623 1,230,798 1,317,212 2,732,488 0 0
Total Insurance shareholders' equity - GAAP 10,765,483 14,683,857 14,654,922 19,833,819 35,243,136 45,581,291
Total Insurance liabilities & shareholders' equity - statutory 37,606,013 44,692,215 50,412,021 70,386,056 NA NA
Total Insurance liabilities & shareholders' equity - GAAP 40,016,086 47,230,430 53,316,908 75,640,577 123,313,932 139,484,449
Adjustments to Insurance assets to reconcile w/ reported (298,856) 101,577 205,977 (314,065) (796,260) 617,579
Total Insurance assets - GAAP adj. 39,717,230 47,332,007 53,522,885 75,326,512 122,517,672 140,102,028
Adjustments to Insurance liabilities to reconcile w/ reported 51,887 507,612 (127,138) 127,425 283,498 365,134
Total Insurance liabilities - GAAP adj. 29,302,490 33,054,185 38,534,848 55,934,183 88,354,294 94,268,292
Total Insurance shareholders' equity - GAAP adj. 10,414,740 14,277,822 14,988,037 19,392,329 34,163,378 45,833,736
Total Insurance shareholders' equity - GAAP 10,765,483 14,683,857 14,654,922 19,833,819 35,243,136 45,581,291
Adjustments to reflect figure reported by Berkshire (506,404) (1,928,872) 660,043 (769,156) (1,741,254) (599,533)
EOP total insurance segment value (unadjusted for post-tax unrealized gains) 10,259,079 12,754,985 15,314,965 19,064,663 33,501,882 44,981,758
Unrealized gains common & preferred stocks 207,548 2,030,449 (454,066) 455,091 944,994 1,217,112
Less: deferred taxes on unrealized gains (51,887) (507,612) 127,138 (127,425) (283,498) (365,134)
Total Insurance shareholders' equity attributable to Berkshire 10,414,740 14,277,822 14,988,037 19,392,329 34,163,378 45,833,736
NICO at original purchase value 7,001,585

NF&M at original purchase value 1,575,195
Value of insurance segment at original purchase price March 1967 8,576,780
21
Insurance Income Statement 12/31/1967 12/31/1968 12/31/1969 12/31/1970 12/31/1971 12/31/1972
Adjustment 0 0 2,444,985 1
Total losses & LAE incurred 13,266,052 14,798,354 16,360,879 26,857,814 40,783,230 36,987,030
Underwriting profit before underwriting expenses 7,207,733 7,818,438 8,896,989 12,314,698 20,083,976 22,640,020
Commissions & brokerage 5,054,536 5,296,608 6,955,967 10,995,200 15,331,620 12,305,064
Salaries & other compensation 600,843 743,067 819,644 1,182,607 1,667,167 2,125,645
Taxes, licenses & other fees 556,346 578,464 688,364 886,085 1,325,562 1,136,177
Other underwriting expenses 593,229 632,473 585,764 1,232,287 1,667,362 1,641,330
Increase in pre-paid acquisition costs (472,702) (879) (923,659) (1,651,156) (1,316,962) 1,147,656
Underwriting expenses incurred 6,332,252 7,249,733 8,126,080 12,645,023 18,674,749 18,355,872
Combined ratio - GAAP (1 - U/W profit / Premiums earned) 95.7% 97.5% 96.9% 100.8% 97.7% 92.8%
Less: Increase in pre-paid acquisition costs (472,702) (879) (923,659) (1,651,156) (1,316,962) 1,147,656
Underwriting profit (loss) - statutory 402,779 567,826 (152,750) (1,981,481) 92,265 5,431,804
Combined ratio - statutory (1 - U/W profit / Premiums earned) 98.0% 97.5% 100.6% 105.1% 99.8% 90.9%
Interest on bonds 976,780 1,265,202 1,614,582 2,320,228 4,429,701 5,899,570
Dividends on stocks 303,156 351,503 402,798 561,879 595,041 829,930
Real estate income 117,198 168,969 198,966 195,233 221,085 310,951
Other investment income 14,485 0 0 0 0 0
Investment income 1,411,619 1,785,674 2,216,346 3,077,340 5,245,827 7,040,451
Investment expense incurred 132,255 173,615 191,145 207,167 272,199 285,209
Profit from underwriting & investment income - GAAP 2,154,845 2,180,764 2,796,110 2,539,848 6,382,855 11,039,390
Operating ratio (incl. net investment income) - GAAP 89.5% 90.4% 88.9% 93.5% 89.5% 81.5%
Other income 68 0 0 98 53,910 (222,283)
Other expense 44,611 6,049 18,552 0 0 0
Income before federal income taxes & realized gains on investments 2,110,302 2,174,715 2,777,558 2,539,946 6,436,765 10,817,107
Implied tax rate 24.9% 17.7% 17.9% 17.0% 18.8% 25.5%
Less federal income taxes 288,974 383,966 20,501 (276,567) 625,647 2,816,437
Less federal income taxes on increase in est. equity in UPR 236,352 465 477,692 709,446 586,565 (55,090)
Net income before realized gains on investments - GAAP basis 1,584,976 1,790,284 2,279,365 2,107,067 5,224,553 8,055,760
Implied tax rate 25.0% 27.5% 27.5% 0.0% 30.0% 31.7%
Less federal income taxes on realized gains 230,645 268,107 106,917 0 308,405 430,344
Total Insurance net income - GAAP 2,276,912 2,497,113 2,561,237 1,805,900 5,943,912 8,984,346
Reconciliation to SAP net income:

Total Insurance net income - GAAP 2,276,912 2,497,113 2,561,237 1,805,900 5,943,912 8,984,346
Add: Increase in pre-paid acquisition costs (472,702) (879) (923,659) (1,651,156) (1,316,962) 1,147,656
Less: Federal income taxes on increase in est. equity in unearned premium reserve 236,352 465 477,692 709,446 586,565 (55,090)
Net income - statutory basis 2,040,562 2,496,699 2,115,270 864,190 5,213,515 10,076,912

Insurance Change in Shareholders' Equity 12/31/1967 12/31/1968 12/31/1969 12/31/1970 12/31/1971 12/31/1972
Change in capital paid up 0 600,000 500,000 500,000 2,500,000 500,000
Change in paid-in surplus 0 0 0 1,500,000 6,000,000 2,000,000
Other insurance income, taxes (569,869) (390,480) (516,745) (432,781) (1,158,302) (2,983,630)
Net realized gains, post-tax 691,936 706,829 281,872 (301,167) 719,359 928,586
Change in unrealized gains 118,300 1,822,901 (2,484,515) 909,157 489,903 272,118
Change in deferred tax liabilities on unrealized gains (29,575) (455,725) 634,751 (254,564) (156,073) (81,635)
Stock dividend 0 (600,000) (500,000) 0 0 0
Increase in pre-paid acquisition costs 472,702 879 923,659 1,651,156 1,316,962 (1,147,656)
Adjustments (Berkshire ownership % etc.) (1,000,379) (2,085) (924,917) (1,707,358) (1,323,655) 1,143,186
EOP Insurance shareholders' equity 10,414,740 14,277,822 14,988,037 19,392,329 34,163,378 45,833,736
22
y-o-y growth % 2.6% 27.2% 56.7% 47.4% -12.8%
Adjustment 0 0 2,444,985 1
y-o-y growth % 10.5% 11.7% 55.1% 55.4% -2.0%
Ratios as % of premiums earned:
Premiums earned (NPW + BOP UPR - EOP UPR) 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Total losses & LAE incurred 64.8% 65.4% 64.8% 68.6% 67.0% 62.0%
Underwriting profit before underwriting expenses 35.2% 34.6% 35.2% 31.4% 33.0% 38.0%
Commissions & brokerage 24.7% 23.4% 27.5% 28.1% 25.2% 20.6%
Salaries & other compensation 2.9% 3.3% 3.2% 3.0% 2.7% 3.6%
Taxes, licenses & other fees 2.7% 2.6% 2.7% 2.3% 2.2% 1.9%
Other underwriting expenses 2.9% 2.8% 2.3% 3.1% 2.7% 2.8%
Increase in pre-paid acquisition costs -2.3% 0.0% -3.7% -4.2% -2.2% 1.9%
Underwriting expenses incurred 30.9% 32.1% 32.2% 32.3% 30.7% 30.8%
Underwriting profit (loss) - GAAP 4.3% 2.5% 3.1% -0.8% 2.3% 7.2%
Combined ratio - GAAP (1 - U/W profit / Premiums earned) 95.7% 97.5% 96.9% 100.8% 97.7% 92.8%
Less: Increase in pre-paid acquisition costs -2.3% 0.0% -3.7% -4.2% -2.2% 1.9%
Underwriting profit (loss) - statutory 2.0% 2.5% -0.6% -5.1% 0.2% 9.1%
Combined ratio - statutory (1 - U/W profit / Premiums earned) 98.0% 97.5% 100.6% 105.1% 99.8% 90.9%
Interest on bonds 4.8% 5.6% 6.4% 5.9% 7.3% 9.9%

Dividends on stocks 1.5% 1.6% 1.6% 1.4% 1.0% 1.4%
Real estate income 0.6% 0.7% 0.8% 0.5% 0.4% 0.5%
Other investment income 0.1% 0.0% 0.0% 0.0% 0.0% 0.0%
Investment income 6.9% 7.9% 8.8% 7.9% 8.6% 11.8%
Investment expense incurred 0.6% 0.8% 0.8% 0.5% 0.4% 0.5%
Net investment income, pre-tax 6.2% 7.1% 8.0% 7.3% 8.2% 11.3%
Profit from underwriting & investment income - GAAP 10.5% 9.6% 11.1% 6.5% 10.5% 18.5%
Operating ratio (incl. net investment income) - GAAP 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Other income 0.0% 0.0% 0.0% 0.0% 0.1% -0.4%
Other expense 0.2% 0.0% 0.1% 0.0% 0.0% 0.0%
Income before federal income taxes & realized gains on investments 10.3% 9.6% 11.0% 6.5% 10.6% 18.1%
Implied tax rate 24.9% 17.7% 17.9% 17.0% 18.8% 25.5%
Less federal income taxes 1.4% 1.7% 0.1% -0.7% 1.0% 4.7%
Less federal income taxes on increase in est. equity in UPR 1.2% 0.0% 1.9%
Net income before realized gains on investments - GAAP basis 7.7% 7.9% 9.0% 5.4% 8.6% 13.5%
Realized gains on investments 4.5% 4.3% 1.5% -0.8% 1.7% 2.3%
Implied tax rate 25.0% 27.5% 27.5% 0.0% 30.0% 31.7%
Less federal income taxes on realized gains 1.1% 1.2% 0.4% 0.0% 0.5% 0.7%
Total Insurance net income - GAAP 11.1% 11.0% 10.1% 4.6% 9.8% 15.1%
Reconciliation to SAP net income:
Total Insurance net income - GAAP 11.1% 11.0% 10.1% 4.6% 9.8% 15.1%
Add: Increase in pre-paid acquisition costs -2.3% 0.0% -3.7% -4.2% -2.2% 1.9%
Less: Federal income taxes on increase in est. equity in unearned premium reserve 1.2% 0.0% 1.9% 1.8% 1.0% -0.1%
Net income - statutory basis 10.0% 11.0% 8.4% 2.2% 8.6% 16.9%
23
Underwriting leverage & ROE 12/31/1967 12/31/1968 12/31/1969 12/31/1970 12/31/1971 12/31/1972
Premiums earned 20,473,785 22,616,792 25,257,868 39,172,512 60,867,206 59,627,050
Underwriting leverage (Premiums earned/BOP Insurance book value) 2.4x 2.2x 1.8x 2.6x 3.1x 1.7x
Combined ratio - GAAP 95.7% 97.5% 96.9% 100.8% 97.7% 92.8%
Underwriting profit (loss) margin % - GAAP 4.3% 2.5% 3.1% -0.8% 2.3% 7.2%
Underwriting return on Insurance division shareholders' equity:

Total underwriting Insurance ROE % (Underw. leverage x Underw. margin) - GAAP 10.2% 5.5% 5.4% -2.2% 7.3% 12.5%
Underwriting return on Consolidated shareholders' equity:

Underwriting leverage - Consolidated (Premiums earned/BOP Consolidated book value) 0.7x 0.7x 0.7x 0.9x 1.2x 1.0x
Total underwriting Consolidated ROE % (Underw. leverage x Underw. margin) - GAAP 3.0% 1.8% 2.0% -0.8% 2.9% 7.5%


Implied tax rate 25.0% 27.5% 27.5% 0.0% 30.0% 31.7%


24
12 months 12 months 12 months 12 months
Bank Balance Sheet 12/31/1969 12/31/1970 12/31/1971 12/31/1972
Cash & due from banks 19,917,661 15,156,585 17,832,686 22,111,475

Investment securities:
U.S. gov't obligations 11,227,704 15,128,838 12,633,150 10,614,548
Obligations of states & political subdivisions 36,005,053 36,626,896 42,884,431 50,162,736
Other securities 210,000 210,000 5,864,759 7,778,900
Total investment securities 47,442,757 51,965,734 61,382,340 68,556,184
Loans 47,962,992 50,840,852 54,031,811 59,618,025
Total invested assets 115,323,410 117,963,171 133,246,837 150,285,684
Bank premises & equipment 1,825,164 1,624,221 1,522,546 1,360,892
Accrued interest receivable & other assets 1,040,477 1,738,877 1,252,113 1,750,315
Bank assets adjustment 1,672,895 1,664,515 1,612,043 1,603,637
Total Bank assets 119,861,946 122,990,784 137,633,539 155,000,528
Bank liabilities & capital accounts:

Demand deposits 58,237,471 52,478,179 51,208,396 55,129,900
Time deposits 41,317,347 49,095,130 64,639,857 77,558,396
Total deposits 99,554,818 101,573,309 115,848,253 132,688,296
Accrued taxes & other expenses 638,453 679,122 813,769 886,645
Total Bank liabilities 100,193,271 102,252,431 116,662,022 133,574,941
Reserve for loan losses 800,271 860,445 854,671 1,024,601
Common stock 2,000,000 2,000,000 5,000,000 5,000,000
Surplus 5,000,000 5,000,000 5,000,000 5,000,000
Undivided profits 9,119,509 10,137,393 7,503,803 7,867,953
Reserved for contingencies 1,001,000 1,001,000 1,001,000 1,001,000
Reserve for asset re-evaluation 75,000 75,000 0 0
Bank shareholders' equity adjustment 1,672,895 1,664,515 1,612,043 1,603,637
Total Bank shareholders' equity (capital accounts) 18,868,404 19,877,908 20,116,846 20,472,590
Total Bank liabilities & shareholders' equity (capital accounts) 119,861,946 122,990,784 137,633,539 155,072,132

Bank Income Statement 12/31/1969 12/31/1970 12/31/1971 12/31/1972
Interest & fees on loans 3,820,358 4,079,889 4,006,094 4,134,013

Income on federal funds sold 392,335 316,798 109,271 109,905
Interest & dividends on:
U.S. gov't obligations 1,003,301 580,266 708,058 598,308
Obligations of states & political subdivisions 1,154,524 1,718,516 2,093,649 2,677,138
Other securities 0 0 227,684 524,229
Bank interest income 6,370,518 6,695,469 7,144,756 8,043,593
Interest expense on deposits 1,694,877 2,028,709 2,732,651 3,418,746
Interest expense on federal funds purchased 12,538 3,573 1,632 3,137
Bank interest expense 1,707,415 2,032,282 2,734,283 3,421,883
Bank net interest income 4,663,103 4,663,187 4,410,473 4,621,710
Non-interest revenues:
Trust department 342,976 280,038 336,362 385,389
Service charges on deposit accounts 219,891 151,551 137,345 127,258
Other 247,796 403,999 306,616 411,413
Total Bank non-interest revenues 810,663 835,588 780,323 924,060
Total Bank revenues 5,473,766 5,498,775 5,190,796 5,545,770
Non-interest expenses:
Salaries 1,159,126 1,298,380 1,351,500 1,366,702
Pensions, profit sharing & other employee benefits 113,551 151,391 137,717 238,618
Net occupancy expense of bank premises 301,557 358,468 329,305 314,221
Equipment rentals, depreciation & maintenance 260,087 271,978 288,761 264,366
Provision for loan losses 61,600 51,790 35,900 36,900
Other 558,132 661,286 720,702 644,882
Total Bank non-interest expenses 2,454,053 2,793,293 2,863,885 2,865,689
Bank income before taxes, securities gains (losses) & extra. items 3,019,713 2,705,482 2,326,911 2,680,081
Implied tax rate 34.4% 17.9% 4.7% 0.0%
Current 1,060,974 454,407 121,000 1,331
Deferred (21,884) 29,599 (12,288) (1,685)
Total applicable income taxes 1,039,090 484,006 108,712 (354)
Bank income before securities gains (losses) & extra. items 1,980,623 2,221,476 2,218,199 2,680,435
Securities gains (losses) (788,879) 367,296 35,201 156,066
Implied tax rate 52.8% 48.6% 25.6% 46.4%
Applicable income taxes 416,528 (178,592) (9,000) (72,351)
Bank securities gains (losses) post-tax (372,351) 188,704 26,201 83,715
Bank income before extraordinary items 1,608,272 2,410,180 2,244,400 2,764,150
Tax benefit received from Parent 0 633,000 0 0
Bank net income 1,608,272 3,043,180 2,244,400 2,764,150
25
Bank Change in Shareholders' Equity 12/31/1969 12/31/1970 12/31/1971 12/31/1972
Common stock BOP 2,000,000 2,000,000 2,000,000 5,000,000

Surplus BOP 5,000,000 5,000,000 5,000,000 5,000,000
Undivided profits BOP 8,764,531 9,119,509 10,137,393 7,503,803
Reserve for contingencies BOP 1,001,000 1,001,000 1,001,000 1,001,000
Reserve for asset re-evaluation BOP 75,000 75,000 75,000 0
Total Bank capital accounts BOP 16,840,531 17,195,509 18,213,393 18,504,803
Adjusted for purchase price 1,938,024 1,672,895 1,664,515 1,612,043
Total Bank shareholders' equity BOP 18,778,555 18,868,404 19,877,908 20,116,846
Common stock BOP 2,000,000 2,000,000 2,000,000 5,000,000
Transfer to common stock related to stock dividend 0 0 3,000,000 0
Common stock EOP 2,000,000 2,000,000 5,000,000 5,000,000
Surplus BOP 5,000,000 5,000,000 5,000,000 5,000,000
Transfer to common stock related to stock dividend 0 0 (3,000,000) 0
Transfer to surplus 0 0 3,000,000 0
Surplus EOP 5,000,000 5,000,000 5,000,000 5,000,000
Reserve for contingencies BOP 1,001,000 1,001,000 1,001,000 1,001,000
Change in reserve contingencies 0 0 0 0
Reserve for contingencies EOP 1,001,000 1,001,000 1,001,000 1,001,000
Reserve for asset re-evaluation BOP 75,000 75,000 75,000 0
Transfer to undivided profits 0 0 (75,000) 0
Reserve for asset re-evaluation EOP 75,000 75,000 0 0
Undivided profits BOP 8,764,531 9,119,509 10,137,393 7,503,803
Deductions 0 0 0 0
Bank net income 1,608,272 3,043,180 2,244,400 2,764,150
Excess of loan loss provision over allowable for tax purposes, net of tax 0 0 18,668 0
Other 0 0 28,342 0
Cash dividends (100,000 shares) (1,175,000) (2,000,000) (2,000,000) (2,400,000)
Provision post-tax for loan losses from undivided profits (78,294) (25,296) 0 0
Transfer to surplus 0 0 (3,000,000) 0
Transfer to undivided profits 0 0 75,000 0
Undivided profits EOP 9,119,509 10,137,393 7,503,803 7,867,953
Common stock EOP 2,000,000 2,000,000 5,000,000 5,000,000
Surplus EOP 5,000,000 5,000,000 5,000,000 5,000,000
Undivided profits EOP 9,119,509 10,137,393 7,503,803 7,867,953
Reserve for contingencies EOP 1,001,000 1,001,000 1,001,000 1,001,000
Reserve for asset re-evaluation EOP 75,000 75,000 0 0
Adjusted for purchase price 1,938,024 1,672,895 1,664,515 1,612,043
Bank shareholders' equity adjustment (265,129) (8,380) (52,472) (8,406)
Total Bank capital accounts EOP 18,868,404 19,877,908 20,116,846 20,472,590
26
6. 1972 10-K
 1972 10-K, fiscal year end 12/30/1972

 See attachment
27

Analysis of The 1972 BRK Shareholder Letter VFB

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Analysis of the 1972 Berkshire Hathaway Shareholder Letter

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Balance Sheet Leverage: % of Shareholders' Equity

Textiles Insurance Banking Other Subsidiaries

Originally reported financials

Fiscal year ended, Shares outstanding

Change shares out.: -13.9%

Textiles Insurance Banking Other Subsidiaries

On March 15, 1973, Berkshire Hathaway borrowed $ 20 million at 8% from twenty

…Due to an unusual convergence of favorable factors— diminishing auto accident

Underwriting return on Insurance division shareholders' equity:

Underwriting return on Consolidated shareholders' equity:

12 months 12 months 12 months 12 months 12 months 12 months

Realized gains on investments 922,581 974,936 388,789 (301,167) 1,027,764 1,358,930

Investment return on Insurance division shareholders' equity:

Investment return on Consoldiated shareholders' equity:

Realized gains on investments 922,581 974,936 388,789 (301,167) 1,027,764 1,358,930

Investment return on Insurance division shareholders' equity:

Investment return on Consoldiated shareholders' equity:

12 months 12 months 12 months 15 months 12 months 12 months 12 months 12 months 12 months

Bank BOP book value 18,778,555 18,868,404 19,877,908 20,116,846

Other subsidiaries BOP book value 1,261,000 1,261,000 1,258,832 1,258,832

Impact on ROE of share buybacks

Textiles current liabilities:

Insurance liabilities & shareholders' equity

Insurance capital stock & surplus:

NICO at original purchase value 7,001,585

Reconciliation to SAP net income:

12 months 12 months 12 months 12 months 12 months 12 months

Interest on bonds 4.8% 5.6% 6.4% 5.9% 7.3% 9.9%

Underwriting return on Insurance division shareholders' equity:

Underwriting return on Consolidated shareholders' equity:

12 months 12 months 12 months 12 months 12 months 12 months

Realized gains on investments 922,581 974,936 388,789 (301,167) 1,027,764 1,358,930

Investment return on Insurance division shareholders' equity:

Investment return on Consoldiated shareholders' equity:

Cash & due from banks 19,917,661 15,156,585 17,832,686 22,111,475

Bank liabilities & capital accounts:

12 months 12 months 12 months 12 months

Interest & fees on loans 3,820,358 4,079,889 4,006,094 4,134,013

Common stock BOP 2,000,000 2,000,000 2,000,000 5,000,000

 1972 10-K, fiscal year end 12/30/1972

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