Shareholder Letter - 2012

Year	Book value change	S&P 500 with dividends	Relative result
1965	23.8	10.0	13.8
1966	20.3	(11.7)	32.0
1967	11.0	30.9	(19.9)
1968	19.0	11.0	8.0
1969	16.2	(8.4)	24.6
1970	12.0	3.9	8.1
1971	16.4	14.6	1.8
1972	21.7	18.9	2.8
1973	4.7	(14.8)	19.5
1974	5.5	(26.4)	31.9
1975	21.9	37.2	(15.3)
1976	59.3	23.6	35.7
1977	31.9	(7.4)	39.3
1978	24.0	6.4	17.6
1979	35.7	18.2	17.5
1980	19.3	32.3	(13.0)
1981	31.4	(5.0)	36.4
1982	40.0	21.4	18.6
1983	32.3	22.4	9.9
1984	13.6	6.1	7.5
1985	48.2	31.6	16.6
1986	26.1	18.6	7.5
1987	19.5	5.1	14.4
1988	20.1	16.6	3.5
1989	44.4	31.7	12.7
1990	7.4	(3.1)	10.5
1991	39.6	30.5	9.1
1992	20.3	7.6	12.7
1993	14.3	10.1	4.2
1994	13.9	1.3	12.6
1995	43.1	37.6	5.5
1996	31.8	23.0	8.8
1997	34.1	33.4	0.7
1998	48.3	28.6	19.7
1999	0.5	21.0	(20.5)
2000	6.5	(9.1)	15.6
2001	(6.2)	(11.9)	5.7
2002	10.0	(22.1)	32.1
2003	21.0	28.7	(7.7)
2004	10.5	10.9	(0.4)
2005	6.4	4.9	1.5
2006	18.4	15.8	2.6
2007	11.0	5.5	5.5
2008	(9.6)	(37.0)	27.4
2009	19.8	26.5	(6.7)
2010	13.0	15.1	(2.1)
2011	4.6	2.1	2.5
2012	14.4	16.0	(1.6)
Compounded Annual Gain - 1965-2012	19.7%	9.4%	10.3
Overall Gain - 1964-2012	586,817%	7,433%

Note: 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 500 in years when the index showed a negative return. Over the years, the tax costs would have caused the aggregate lag to be substantial.

BERKSHIRE HATHAWAY INC.

To the Shareholders of Berkshire Hathaway Inc.:

In 2012, Berkshire achieved atotal gain for its shareholders of $24.1 billion. We used $1.3 billion of that to repurchase our stock, which left us with an increase in net worth of $22.8 billion for the year. The per-share book value of both our Class A and Class B stock increased by 14.4%. Over the last 48 years (that is, since present managementtookover), book value has grown from $19 to $114,214, arateof 19.7% compounded annually.* A number of good things happened at Berkshire last year, but let s first get the bad news out of the way. Š When the partnership I ran took control of Berkshire in 1965, I could never have dreamed that a year in which we had again of $24.1 billion would be sub par, in terms of the comparison we present on the facing page. But subpar it was. For the ninth time in 48 years, Berkshire’s percentage increase in book value was less than the S&P’s percentage gain (a calculation that includes dividends as well as price appreciation). In eight of those nine years, it should be noted, the S&Phad a gain of 15% or more. We do better when the wind is in our face. To date we’ve never had a five-year period of underperformance, having managed 43 times to surpass the S&P over such a stretch. (The record is on page 103.) But the S&P has now had gains in each of the last four years, out pacing us over that period. If the market continues to advance in 2013, our streak of five- year wins will end. One thing of which you can be certain: Whatever Berkshire’s results, my partner Charlie Munger, the company’s Vice Chairman, and I will not change yardsticks. It’s our job to increase intrinsic business value–for which we use book value as a significantly understated proxy–at a faster rate than the market gains of the S&P. If we do so Berkshire’s share price, though unpredictable from year to year will itself out pace the S&Povertime. If we fail however, our management will bring no value to our investors, who themselves can earn S&Preturnsbybuyingalow-costindexfund. Charlie and Ibelievethegainin Berkshire’s intrinsic value will overtime likely surpass the S&Preturnsby a small margin. We’re confident of that because we have some outstanding businesses, a cadre of terrific operating managers and a shareholder oriented culture. Our relative performance, however, is almost certain to be better when the market is down or flat. In years when the market is particularly strong, expect us to fall short Š The second disappointment in 2012 was my inability to make a major acquisition. I pursued a couple of elephants, but came up empty-handed. * All per-share figures used in this report apply to Berkshire’s A shares. Figures for the B shares are 1/1500th of those shown for A.

Our luck however, changed early this year. In February, we agreed to buy 50% of a holding company that will own all of H. J. Heinz. The other half will be owned by a small group of investors led by Jorge Paulo Le mann arenowned Brazilian businessman and philanthropist. We couldn’t be in better company. Jorge Paulo is a long-time friend of mine and an extraordinary manager. His group and Berkshire will each contribute about $4 billion for common equity in the holding company. Berkshire will also invest $8 billion in preferred shares that pay a 9% dividend. The preferred has two other features that materially increase its value: at some point it will be redeemed at a significant premium price and the preferred also comes with warrants permitting us to buy 5% of the holding company’scommonstockforanominalsum. Our total investment of about $12 billion soaks up much of what Berkshire earned last year. But we still have plenty of cash and are generating more at a good clip. Soit’sbacktowork; Charlie and Ihaveagain donned our safari outfits and resumed our search for elephants. Now to some good news from 2012: Š Last year It old you that BNSF, Is car Lubrizol, Marmon Group and Mid American Energy our five most profitable non-insurance companies – were likely to earn more than $10 billion pre-tax in 2012. They delivered. Despite tepid U. S. growth and weakening economies throughout much of the world, our “powerhouse five”had aggregate earnings of $10.1 billion, about $600 million more than in 2011. Of this group only Mid American, then earning $393 million pre-tax was owned by Berkshire eight years ago. Subsequently, we purchased another three of the five on an all-cash basis. In acquiring the fifth, BNSF, we paid about 70% of the cost in cash, and for the remainder, issued shares that increased the amount outstanding by 6.1%. Consequently, the $9.7 billion gain in annual earnings delivered Berkshire by the five companies has been accompanied by only minor dilution. That satisfies our goal of not simply growing, but rather increasing per-share results Unless the U. S. economy tanks which we don’t expect–our powerhouse five should again deliver higher earnings in 2013. The five outstanding CEOs who run them will see to that. Š Though Ifailedtolandamajoracquisitionin 2012, the managers of our subsidiaries did far better. We had a record year for “bolt-on” purchases, spending about $2.3 billion for 26 companies that were melded into our existing businesses. These transactions were completed without Berkshire issuing any shares. Charlie and I love these acquisitions: Usually they are low-risk, burden headquarters not at all, and expand the scope of our proven managers. Š Our insurance operations shot the lights outlast year. While giving Berkshire $73 billion of free money to invest, they also delivered a $1.6 billion underwriting gain, the tenth consecutive year of profitable underwriting. This is truly having your cake and eating it too. GEICO led the way, continuing to gobble up market share without sacrificing underwriting discipline. Since 1995, when we obtained control, GEICO s share of the personal-auto market has grown from 2.5% to 9.7%. Premium volume meanwhile increased from $2.8 billion to $16.7 billion. Much more growth lies ahead. The credit for GEICO’s extraordinary performance goes to Tony Nicely and his 27,000 associates. And to that cast we should add our Gecko. Neither rainn or storm nor gloom of night can stop him; the little lizard just soldiers on, telling American show they can save big money by going to GEICO. com. When I count my blessings Icount GEICOtwice.

Š Todd Combs and Ted Weschler our new investment managers, have proved to be smart, models of integrity, helpful to Berkshire in many ways beyond portfolio management, and a perfect cultural fit. We hit the jackpot with these two. In 2012 each outperformed the S&P 500 by double digit margins They left mein . the dust as well Consequently, we have increased the funds managed by each to almost $5 billion (some of this emanating from the pension funds of our subsidiaries). Todd and Ted are young and will be around to manage Berkshire’s massive portfolio long after Charlie and I have left the scene. You can rest easy when they takeover. Š Berkshire’s year-end employment totaled a record 288,462 (see page 106 for details), up 17,604 from last year. Our headquarters crew, however, remained unchanged at 24. No sense going crazy. Š Berkshire’s “Big Four investments American Express, Coca-Cola, IBM and Wells Fargo all had good years. Our ownership interest in each of these companies increased during the year. We purchased additional shares of Wells Fargo (our ownership now is 8.7% versus 7.6% at year-end 2011) and IBM (6.0% versus 5.5%). Meanwhile, stock repurchases at Coca-Cola and American Express raised our percentage ownership. Our equity in Coca-Cola grew from 8.8% to 8.9% and our interest at American Express from 13.0% to 13.7%. Berkshire’s ownership interest in all four companies is likely to increase in the future. Mae West had it right: “Too much of a good thing can be wonderful.” The four companies possess marvelous businesses and are run by managers who are both talented and shareholder oriented At Berkshire we much prefer owning a non controlling but substantial portion of a wonderful business to owning 100% of a so-so business. Our flexibility in capital allocation gives us a significant advantage over companies that limit themselves only to acquisitions they can operate. Going by our year-end share count, our portion of the “Big Four’s”2012 earnings amounted to $3.9 billion. In the earnings were port to you however, we includeonly the dividends we receive–about $1.1 billion. But make no mistake The $2.8 billion of earnings we do not report is every bit as valuable to us as what we record The earnings that the four companies retain are often used for repurchases – which enhance our share of future earnings–and also for funding business opportunities that are usually advantageous. Overtime we expect substantially greater earnings from these four investees. If we are correct, dividends to Berkshire will increase and, even more important, so will our unrealized capital gains (which, for the four, totaled $26.7 billion at year-end). Š There was a lot of hand wringing last year among CEOs who cried “uncertainty when faced with capital- allocation decisions (despite many of their businesses having enjoyed record levels of both earnings and cash). At Berkshire, we didn’t share their fears, instead spending a record $9.8 billion on plant and equipment in 2012, about 88% of it in the United States. That’s 19% more than we spent in 2011, our previous high. Charlie and I love investing large sums in worthwhile projects, whatever the pundits are saying. We instead heed the words from Gary Allan s new country song, “Every Storm Runs Out of Rain.” We will keep our foot to the floor and will almost certainly set still another record for capital expenditures in 2013. Opportunities abound in America.

A thought for my fellow CEOs: Of course, the immediate future is uncertain; America has faced the unknown since 1776. It’s just that sometimes people focus on the myriad of uncertainties that always exist while at other times they ignore them (usually because the recent past has been uneventful).

American business will do fine overtime. And stocks will dowell just as certainly, since their fate is tied to business performance. Periodic setbacks will occur yes, but investors and managers areinagamethat is heavily stacked in their favor. (The Dow Jones Industrials advanced from 66 to 11,497 in the 20th Century, astaggering 17,320% increase that materialized despite four costly wars, a Great Depression and manyrecessions. And don’t forget that shareholders received substantial dividends throughout the century aswell.) Since the basic game is so favorable, Charlie and Ibelieveit’saterriblemistaketotrytodanceinandout of it based upon the turn of tarot cards, the predictions of “experts,” or the ebb and flow of business activity. The risks of being out of the game are huge compared to the risks of being in it. My own history provides a dramatic example: Imademyfirst stock purchase in the spring of 1942 when the U. S. was suffering major losses throughout the Pacific war zone. Each day’s headlines told of more setbacks. Even so there was no talk about uncertainty; every American I knew believed we would prevail. The country’s success since that perilous time boggles the mind: Onan inflation adjusted basis, GDP per capita more than quadrupled between 1941 and 2012. Throughout that period, every tomorrow has been uncertain. America’sdestiny, however, has always been clear: ever increasing abundance. If you are a CEO who has some large, profitable project you are shelving because of short-term worries, call Berkshire. Let us unburden you.

In summary Charlie and I hope to build per-share intrinsic value by (1) improving the earning power of our many subsidiaries; (2) further increasing their earnings through bolt-on acquisitions; (3) participating in the growth of our investees; (4) re purchasing Berkshire shares when they are available at a meaningful discount from intrinsic value; and (5) making an occasional large acquisition. We will also try to maximize results for you by rarely, if ever, issuing Berkshire shares. Those building blocks rest ona rock-solid foundation. Acentury hence, BNSFand Mid American Energy will continue to play major roles in the American economy. Insurance, moreover, will always be essential for both businesses and individuals – and no company brings greater resources to that arena than Berkshire. As we view these and other strengths, Charlie and Ilikeyourcompany’sprospects.

Intrinsic Business Value

As much as Charlie and I talk about intrinsic business value, we cannot tell you precisely what that number is for Berkshire shares (or, for that matter, any other stock). In our 2010 annual report, however, we laid out the three elements – one of which was qualitative – that we believe are the keys to a sensible estimate of Berkshire’s intrinsic value. That discussion is reproduced in full on pages 104-105. Here is an update of the two quantitative factors: In 2012 our per-share investments increased 15.7% to $113,786, and our per-share pre-tax earnings from businesses other than insurance and investments also increased 15.7% to $8,085. Since 1970, our per-share investments have increased at a rate of 19.4% compounded annually, and our per-share earnings figure has grownata 20.8% clip. It is no coincidence that the price of Berkshire stock over the 42-year period has increased at a rate very similar to that of our two measures of value. Charlie and I like to see gains in both areas, but our strong emphasis will always be on building operating earnings.

Now, let’s examine the four major sectors of our operations. Each has vastly different balance sheet and income characteristics from the others. Lumping them together therefore impedes analysis. So we’ll present them as four separate businesses, which is how Charlie and I view them.

Insurance Let’s look first at insurance, Berkshire’s core operation and the engine that has propelled our expansion over the years Property casualty (“P/C”) insurers receive premiums upfront and pay claims later. In extreme cases, such as those arising from certain workers’ compensation accidents, payments can stretch over decades. This collect- now, pay-later model leaves us holding large sums – money we call “float” – that will eventually go to others. Meanwhile, we get to invest this float for Berkshire’s benefit. Though individual policies and claims come and go, the amount of float we hold remains quite stable in relation to premium volume. Consequently, as our business grows, so does our float. And how we have grown, as the following table shows:

Year Float (in $millions)

1970 $ 39 1980 237 1990 1,632 2000 27,871 2010 65,832 2012 73,125 Last year It old you that our float was likely to level of for even decline abitinthefuture. Our insurance CEOs set out to prove me wrong and did, increasing float last year by $2.5 billion. Inowexpectafurtherincrease in 2013. But further gains will be tough to achieve. On the plus side GEICO s float will almost certainly grow. In National Indemnity’s reinsurance division, however, we have a number of run-off contracts whose float drifts downward. If we do experience a decline in float at some future time, it will be very gradual – at the outside no more than 2% in any year If our premiums exceed the total of our expenses and eventual losses, we register an underwriting profit that adds to the investment income our float produces. When such a profit is earned, we enjoy the use of free money –and, better yet get paid for holding it. That’slikeyourtakingoutaloanandhavingthebankpayyouinterest. Unfortunately, the wish of all insurers to achieve this happy result creates intense competition, so vigorous in most years that it causes the P/C industry as a whole to operate at a significant underwriting loss. This loss, in effect, is what the industry pays to hold its float. For example State Farm, byfarthecountry’slargestinsureranda well-managed company besides, incurred an underwriting loss in eight of the eleven years ending in 2011. (Their financialsfor 2012 are not yet available.) There area lot of ways to lose money in insurance, and the industry never ceases searching for new ones. As noted in the first section of this report, we have now operated at an underwriting profit for ten consecutive years, our pre-tax gain for the period having totaled $18.6 billion. Looking ahead, I believe we will continuetounderwriteprofitablyinmostyears. If we do our float will be better than free money. So how does our attractive float affect the calculations of intrinsic value? When Berkshire’s book value is calculated, the full amount of our float is deducted as a liability, just as if we had to pay it out tomorrow and were unable to replenish it. But that’s an incorrect way to look at float, which should instead be viewed as a revolving fund. If float is both cost less and long enduring which Ibelieve Berkshire’s will be the true value of this liability is dramatically less than the accounting liability. A partial offset to this overstated liability is $15.5 billion of “goodwill”that is attributable to our insurance companies and included in book value asanas set. In effect this goodwill represents the price we paid for the float- generating capabilities of our insurance operations. The cost of the goodwill, however, has no bearing on its true value. For example, if an insurance business sustains large and prolonged underwriting losses, any goodwill asset carried on the books should be deemed valueless, whatever its original cost.

Fortunately, that’s not the case at Berkshire. Charlie and I believe the true economic value of our insurance goodwill–what we would happily pay to purchase an insurance operation producing float of similar quality–tobe far in excess of its historic carrying value. The value of our float is one reason – a huge reason – why we believe Berkshire’s intrinsic business value substantially exceeds its book value. Let me emphasize once again that cost-free float is not an outcome to be expected for the P/Cindustryasa whole: There is very little “Berkshire quality float existing in the insurance world. In 37 ofthe 45 years ending in 2011, the industry’s premiums have been inadequate to cover claims plus expenses. Consequently, the industry’s overall return on tangible equity has for many decades fallen far short of the average return realized by American industry, a sorry performance almost certain to continue. A further unpleasant reality adds to the industry’s dim prospects: Insurance earnings are now benefitting from “legacy” bond portfolios that deliver much higher yields than will be available when funds are reinvested during the next few years–and perhaps for many years beyond that. Today’s bond portfolios are, in effect wasting assets. Earnings of insurers will be hurt in a significant way as bonds mature and are rolled over.

Berkshire’s outstanding economics exist only because we have some terrific managers running some extraordinary insurance operations. Let me tell you about the major units. First by float size is the Berkshire Hathaway Reinsurance Group, run by Ajit Jain. Ajit insures risks that no one else has the desire or the capital to take on. His operation combines capacity, speed, decisiveness and, most important, brains in a manner unique in the insurance business. Yet he never exposes Berkshire to risks that are inappropriate in relation to our resources. Indeed, we are far more conservative in avoiding risk than most large insurers. For example if the insurance industry should experience a $250 billion loss from some mega catastrophe –a loss about triple anything it has ever experienced Berkshire asawholewouldlikelyrecordasignificantprofit for the year because it has so many streams of earnings. All other major insurers and re insurers would meanwhile be far in the red with some facing insolvency. From a standing start in 1985, Ajit has created an insurance business with float of $35 billion and a significant cumulative underwriting profit, afeat that no other insurance CEO has come close to matching. He has thus added a great many billions of dollars to the value of Berkshire. If you meet Ajit at the annual meeting, bow deeply.

We have another reinsurance powerhouse in General Re, managed by Tad Mont ross At bottom, a sound insurance operation needs to adhere to four disciplines. It must (1) understand all exposures that might cause a policy to incur losses; (2) conservatively assess the likelihood of any exposure actually causing a loss and the probable cost if it does; (3) set a premium that, on average, will deliver a profit after both prospective loss costs and operating expenses are covered; and (4) be willing to walk away if the appropriate premium can’t be obtained. Many insurers pass the first three tests and flunk the fourth. They simply can’t turn their back on business that is being eagerly written by their competitors. That old line, “The other guy is doing it, so we must as well,” spells trouble in any business, but none more so than insurance.

Tad has observed all four of the insurance commandments, and it shows in his results. General Re’shuge float has been better than cost-free under his leadership, and we expect that, on average it will continue to be. We are particularly enthusiastic about General Re’s international life reinsurance business, which has achieved consistent and profitable growth since we acquired the company in 1998.

Finally, there is GEICO, the insurer on which Icutmyteeth 62 years ago GEICO is run by Tony Nicely, who joined the company at 18 and completed 51 years of service in 2012. I rub my eyes when I look at what Tony has accomplished. Last year, it should be noted, his record was considerably better than is indicated by GEICO’s GAAP underwriting profit of $680 million. Becauseofachange in accounting rules at the beginning of the year, we recorded a charge to GEICO’s underwriting earnings of $410 million. This item had nothing to do with 2012s operating results changing neither cash, revenues, expenses nor taxes. In effect, the write down simply widened the already huge difference between GEICO’s intrinsic value and the value at which we carry it on our books. GEICO earned its underwriting profit, moreover, despite the company suffering its largest single loss in history. The cause was Hurricane Sandy, which cost GEICO more than three times the loss it sustained from Katrina, the previous record holder We insured 46,906 vehicles that were destroyed or damaged in the storm, a staggering number reflecting GEICO s leading market share in the New York metropolitan area. Last year GEICO enjoyed a meaningful increase in both the renewal rate for existing policyholders (“persist en cy”) and in the percentage of rate quotations that resulted in sales (“closures”). Big dollars ride on those two factors: A sustained gain in persist en cy of a bare one percentage point increases intrinsic value by more than $1 billion. GEICO’s gains in 2012 offer dramatic proof that when people check the company’s prices, they usually find they can save important sums. (Give usa try at 1-800-847-7536 or GEICO. com. Be sure to mention that you area shareholder; that fact will usually result in a discount.)

In addition to our three major insurance operations, we own a group of smaller companies, most of them plying their trade in odd corners of the insurance world. In aggregate these companies have consistently delivered an underwriting profit. Moreover, as the table below shows, they also provide us with substantial float. Charlie and I treasure these companies and their managers. Late in 2012, we enlarged this group by acquiring Guard Insurance, a Wilkes-Barre company that writes workers compensation insurance, primarily for smaller businesses. Guard’s annual premiums total about $300 million. The company has excellent prospects for growth in both its traditional business and newlines it has begun to offer Underwriting Profit Year end Float

(in millions) Insurance Operations 2012 2011 2012 2011 BHReinsurance… $ 304 $(714) $34,821 $33,728 General Re … 355 144 20,128 19,714 GEICO … 680* 576 11,578 11,169 Other Primary … 286 242 6,598 5,960 $1,625 $ 248 $73,125 $70,571 *Aftera $410 million charge against earnings arising from an industry-wide accounting change. Among large insurance operations, Berkshire’s impresses me as the best in the world. It was our lucky day when, in March 1967, Jack Ring walt sold us his two property casualty insurers for $8.6 million.

Regulated, Capital Intensive Businesses

We have two major operations, BNSF and Mid American Energy, that have important common characteristics distinguishing them from our other businesses. Consequently, we assign them their own section in this letter and split out their combined financial statistics in our GAAP balance sheet and income statement. A key characteristic of both companies is their huge investment in very long-lived, regulated assets, with these partially funded by large amounts of long-term debt that is not guaranteed by Berkshire. Our credit is in fact not needed because each business has earning power that even under terrible conditions amply covers its interest requirements. In last year’s tepid economy, for example, BNSF’s interest coverage was 9.6 x. (Our definition of coverage is pre-tax earnings interest not EB IT DA interest a commonly-used measure we view as deeply flawed.) At Mid American, meanwhile, two key factors ensure its ability to service debt under all circumstances: the company’s recession resistant earnings, which result from our exclusively offering an essential service, and its great diversity of earnings streams, which shield it from being seriously harmed by any single regulatory body. Everyday, our two subsidiaries power the American economy in major ways: Š BNSF carries about 15% (measured by ton-miles) of all inter-city freight, whether it is transported by truck, rail, water, air, or pipeline. Indeed, we move more ton-miles of goods than anyone else, a fact making BNSF the most important artery in our economy s circulatory system. BNSF also moves its cargo in an extraordinarily fuel efficient and environmentally friendly way, carryinga ton of freight about 500 mileson a single gallon of diesel fuel. Trucks taking on the same job guzzle about four times as much fuel. Š Mid American’s electric utilities serve regulated retail customers in ten states. Only one utility holding company serves more states. In addition, we are the leader in renewables: first, from astanding start nine years ago we now account for 6% ofthecountry’s wind generation capacity. Second, when we complete three projects now underconstruction, we will own about 14% of U. S. solar generation capacity. Projects like these require huge capital investments. Upon completion, indeed, our renewables portfolio will have cost $13 billion. We relish making such commitments if they promise reasonable returns – and on that front, we put a large amount of trust in future regulation. Our confidence is justified both by our past experience and by the knowledge that society will forever need massive investment in both transportation and energy. It is in the self-interest of governments to treat capital providers in a manner that will ensure the continued flow of funds to essential projects. And it is in our self-interest to conduct our operations in a manner that earns the approval of our regulators and the people they represent. Our managers must think today of what the country will need far down the road. Energy and transportation projects can take many years to come to fruition; agrowingcountrysimplycan’taffordtogetbehindthecurve. We have been doing our part to make sure that doesn’t happen. Whatever you may have heard about our country’s crumbling infrastructure in no way applies to BNSF or railroads generally. America’s rail system has never been in better shape, a consequence of huge investments by the industry. We are not however, resting on our laurels: BNSF will spend about $4 billion on the railroad in 2013, roughly double its depreciation charge and more than any railroad has spent in a single year.

In Matt Rose, at BNSF, and Greg Abel, at Mid American, we have two outstanding CEOs. They are extraordinary managers who have developed businesses that serve both their customers and owners well Each has my gratitude and each deserves yours. Here are the key figures for their businesses: Mid American (89.8% owned) Earnings (in millions) 2012 2011 U. K. utilities … $ 429 $ 469 Iowa utility … 236 279 Western utilities … 737 771 Pipelines … 383 388 Home Services … 82 39 Other (net) … 91 36 Operating earnings before corporate interest and taxes … 1,958 1,982 Interest … 314 336 Income taxes … 172 315 Net earnings … $ 1,472 $ 1,331 Earnings applicable to Berkshire … $ 1,323 $ 1,204

BNSF Earnings (in millions)

2012 2011 Revenues … $20,835 $19,548 Operating expenses … 14,835 14,247 Operating earnings before interest and taxes … 6,000 5,301 Interest (net) … 623 560 Income taxes … 2,005 1,769 Net earnings … $ 3,372 $ 2,972 Sharp-eyed readers will notice an incongruity in the Mid American earningstabulation. What in the world is Home Services, a real estate brokerage operation, doing in a section entitled “Regulated, Capital Intensive Businesses?” Well, its ownership came with Mid American when we bought control of that company in 2000. At that time, I focused on Mid American’s utility operations and barely noticed Home Services, which then owned only a few real estate brokerage companies. Since then, however, the company has regularly added residential brokers – three in 2012 – and now has about 16,000 agents in a string of major U. S. cities. (Our real estate brokerage companies are listed on page 107.) In 2012, our agents participated in $42 billion of home sales, up 33% from 2011. Additionally, Home Services last year purchased 67% of the Prudential and Real Living franchise operations, which together license 544 brokerage companies throughout the country and receive a small royalty on their sales. We have an arrangement to purchase the balance of those operations within five years. In the coming years, we will gradually rebrand both our franchisees and the franchise firms we own as Berkshire Hathaway Home Services. Ron Peltier has done an outstanding job in managing Home Services during a depressed period. Now, as the housing market continues to strengthen, we expect earnings to rise significantly.

Manufacturing, Service and Retailing Operations Our activities in this part of Berkshire cover the waterfront. Let’slook, though, at a summary balance sheet and earnings statement for the entire group. Balance Sheet 12 31 12 in millions)

Assets Liabilities and Equity

Cash and equivalents … $ 5,338 Notes payable … $ 1,454 Accounts and notes receivable … 7,382 Other current liabilities … 8,527 Inventory … 9,675 Total current liabilities … 9,981 Other current assets … 734 Total current assets… 23,129 Deferred taxes 4,907 Goodwill and other intangibles … 26,017 Term debt and other liabilities .. 5,826 Fixed assets … 18,871 Non controlling interests … 2,062 Other assets … 3,416 Berkshire equity … 48,657 $71,433 $71,433

Earnings Statement (in millions)

2012 2011* 2010 Revenues … $83,255 $72,406 $66,610 Operating expenses … 76,978 67,239 62,225 Interest expense … 146 130 111 Pre tax earnings … 6,131 5,037 4,274 Income taxes and non controlling interests … 2,432 1,998 1,812 Net earnings … $ 3,699 $ 3,039 $ 2,462 *Includes earnings of Lubrizolfrom September 16. Our income and expense data conforming to Generally Accepted Accounting Principles (“GAAP”) is on page 29. In contrast, the operating expense figures above are non-GAAP. In particular, they exclude some purchase accounting items, primarily the amortization of certain intangible assets. We present the data in this manner because Charlie and I believe the adjusted numbers more accurately reflect the real expenses and profits of the businesses aggregated in the table. I won’t explain all of the adjustments – some are small and arcane – but serious investors should understand the disparate nature of intangible assets: Some truly deplete over time while others never lose value. With software, for example, amortization charges are very real expenses. Charges against other intangibles such as the amortization of customer relationships, however, arise through purchase accounting rules and are clearly not real expenses. GAAP accounting draws no distinction between the two types of charges. Both, that is, are recorded as expenses when calculating earnings–even though from an investor s viewpoint they could not be more different. In the GAAP compliant figures we show on page 29, amortization charges of $600 million for the companies included in this section are deducted as expenses. We would call about 20% of these “real and indeed that is the portion we have included in the table above – and the rest not. This difference has become significant because of the many acquisitions we have made. “Non-real” amortization expense also looms large at some of our major investees. IBM has made many small acquisitions in recent years and now regularly reports “adjusted operating earnings an on GAAP figure that excludes certain purchase accounting adjustments. Analysts focus on this number, as they should

A “non real amortization charge at Wells Fargo, however, is not highlighted by the company and never, to my knowledge has been noted in analyst reports. The earnings that Wells Fargo reports are heavily burdened by an “amortization of core deposits” charge, the implication being that these deposits are disappearing at a fairly rapid clip. Yet core deposits regularly increase. The charge last year was about $1.5 billion. In no sense, except GAAP accounting, is this whopping charge an expense. And that ends today’s accounting lecture. Why is noone shouting “More, more?”

The crowd of companies in this section sell products ranging from lollipops to jet airplanes. Some of the businesses enjoy terrific economics, measured by earnings on un leveraged net tangible assets that run from 25% after-tax to more than 100%. Others produce good returns in the area of 12-20%. Afew, however, have very poor returns, a result of some serious mistakes I made in my job of capital allocation. More than 50 years ago, Charlie told me that it was far better to buy a wonderful business at a fair price than to buy a fair business at a wonderful price. Despite the compelling logic of his position, I have sometimes reverted to my old habit of bargain hunting with results ranging from tolerable to terrible. Fortunately, my mistakes have usually occurred when I made smaller purchases. Our large acquisitions have generally worked out well and, inafewcases, more than well Viewed as a single entity, therefore, the companies in this group are an excellent business. They employ $22.6 billion of net tangible assets and, on that base earned 16.3% after-tax. Of course, a business with terrific economics can be a bad investment if the price paid is excessive. We have paid substantial premiums to net tangible assets for most of our businesses, a cost that is reflected in the large figure we show for intangible assets. Overall, however, we are getting a decent return on the capital we have deployed in this sector. Furthermore, the intrinsic value of the businesses, in aggregate exceeds their carrying value byagoodmargin. Even so the difference between intrinsic value and carrying value in the insurance and regulated- industry segments is far greater. It is there that the huge winners reside.

Marmon provides an example of a clear and substantial gap existing between book value and intrinsic value. Let me explain the odd origin of this differential. Last year It old you that we had purchased additional shares in Marmon, raising our ownership to 80%(up from the 64% we acquired in 2008). I also told you that GAAP accounting required us to immediately record the 2011 purchase on our books at far less than what we paid. I’venowhadayeartothinkaboutthisweirdaccounting rule, but I’ve yet to find an explanation that makes any sense nor can Charlie or Marc Hamburg, our CFO, come up with one My confusion increases when Iam told that ifwehadn’talready owned 64%, the 16% we purchased in 2011 would have been entered on our books a tour cost. In 2012 and in early 2013, retroactive to year-end 2012) we acquired an additional 10% of Marmon and the same bizarre accounting treatment was required. The $700 million write-off we immediately incurred had no effect on earnings but did reduce book value and, therefore 2012s gain in net worth The cost of our recent 10% purchase implies a $12.6 billion value for the 90% of Marmon we now own. Our balance-sheet carrying value for the 90%, however, is $8 billion. Charlie and I believe our current purchase represents excellent value. If we are correct, our Marmon holding is worth at least $4.6 billion more than its carrying value Marmon is a diverse enterprise, comprised of about 150 companies operating in a wide variety of industries. Itslargestbusinessinvolvestheownershipoftankcarsthatareleasedtoavarietyofshippers, suchasoil and chemical companies. Marmon conducts this business through two subsidiaries, Union Tank Car in the U. S. and Proc or in Canada.

Union Tank Car has been around a long time, having been owned by the Standard Oil Trust until that empire was broken up in 1911. Look for its UTLXlogo on tank cars when you watch trains roll by. As a Berkshire shareholder, you own the cars with that insignia. Whenyouspota UTLXcar, puff out your chest a bit and enjoy the same satisfaction that John D. Rockefeller undoubtedly experienced as he viewed his fleet a century ago. Tank cars are owned by either shippers or lessors, not by railroads. At year-end Union Tank Car and Proc or together owned 97,000 cars having a netbook value of $4 billion. Anewcar, it should be noted, costs upwards of $100,000. Union Tank Car is also a major manufacturer of tank cars – some of them to be sold but most to be owned by it and leased out. Today, its order book extends well into 2014. At both BNSF and Marmon, we are benefitting from the resurgence of U. S. oil production. In fact, our railroad is now transporting about 500,000 barrels of oil daily, roughly 10% of the total produced in the “lower 48” (i. e. not counting Alaska and offshore). All indications are that BNSF’s oil shipments will grow substantially in coming years

Space precludes us from going into detail about the many other businesses in this segment. Company- specific information about the 2012 operations of some of the larger units appears on pages 76 to 79.

Finance and Financial Products

This sector, our smallest, includes two rental companies, XTRA (trailers) and CORT (furniture), as well as Clayton Homes, the country’s leading producer and financer of manufactured homes. Aside from these 100%- owned subsidiaries, we also include in this category a collection of financial assets and our 50% interest in Berkadia Commercial Mortgage. We include Clayton in this sector because it owns and services 332,000 mortgages, totaling $13.7 billion. In large part, these loans have been made to lower and middle-income families. Nevertheless, the loans have performed well throughout the housing collapse, thereby validating our conviction that a reasonable down payment and a sensible payments to income ratio will ward off outsized foreclosure losses, even during stressful times. Clayton also produced 25,872 manufactured homes last year, up 13.5% from 2011. That output accounted for about 4.8% of all single-family residences built in the country, a share that makes Clayton America’s number one home builder. CORT and XTRA are leaders in their industries as well. Our expenditures for new rental equipment at XTRA totaled $256 million in 2012, more than double its depreciation expense. While competitors fret about today’s uncertainties, XTRA is preparing for tomorrow. Berkadia continues to do well. Our partners at Leucadia do most of the work in this venture, an arrangement that Charlie and Ihappilyembrace. Here’sthepre-tax earnings recap for this sector: 2012 2011 (in millions) Berkadia … $ 35 $ 25 Clayton … 255 154 CORT … 42 29 XTRA … 106 126 Net financial income* … 410 440 $848 $774 *Excludes capital gains or losses

Investments Below we show our common stock investments that at year-end had a market value of more than $1 billion.

Amounts in millions of dollars.

Shares	Company	Cost	Market
151,610,700	American Express Company 13.7	$1,287	$8,715
400,000,000	The Coca-Cola Company 8.9	$1,299	$14,500
24,123,911	Conoco Phillips 2.0	$1,219	$1,399
22,999,600	DIRECTV 3.8	$1,057	$1,154
68,115,484	International Business Machines Corp. 6.0	$11,680	$13,048
28,415,250	Moody’s Corporation 12.7	$287	$1,430
20,060,390	Munich Re 11.3	$2,990	$3,599
20,668,118	Phillips 66 3.3	$660	$1,097
3,947,555	POSCO 5.1	$768	$1,295
52,477,678	The Procter&Gamble Company 1.9	$336	$3,563
25,848,838	Sanofi 2.0	$2,073	$2,438
415,510,889	Tesco plc 5.2	$2,350	$2,268
78,060,769	U. S. Bancorp 4.2	$2,401	$2,493
54,823,433	Wal-Mart Stores, Inc. 1.6	$2,837	$3,741
456,170,061	Wells Fargo&Company	$8.7	$10,906
Total	Others	$7,646	$11,330

We continue to wind down the part of our derivatives portfolio that involved the assumption by Berkshire of insurance like risks. (Our electric and gas utility businesses, however, will continue to use derivatives for operational purposes.) New commitments would require us to post collateral and, with minor exceptions, we are unwilling to do that. Markets can behave in extraordinary ways, and we have no interest in exposing Berkshire to some out of the blue event in the financial world that might require our posting mountains ofcashonamoment’s notice. Charlie and I believe in operating with many redundant layers of liquidity, and we avoid any sort of obligation that could drain our cash in a material way. That reduces our returns in 99 years out of 100. But we will survive in the 100th while many others fail. And we will sleep well in all 100.

The derivatives we have sold that provide credit protection for corporate bonds will all expire in the next year. It’s now almost certain that our profit from these contracts will approximate $1 billion pre-tax. We also received very substantial sums upfront on these derivatives, and the “float attributable to them has averaged about $2 billion over their five-year lives. All told, these derivatives have provided a more than satisfactory result, especially considering the fact that we were guaranteeing corporate credits – mostly of the high-yield variety – throughout the financial panic and subsequent recession. In our other major derivatives commitment, we sold long-term puts on four leading stock indices in the U. S., U. K., Europe and Japan. These contracts were initiated between 2004 and 2008 and even under the worst of circumstances have only minor collateral requirements. In 2010 we unwound about 10% of our exposure at a profit of $222 million. The remaining contracts expire between 2018 and 2026. Only the index value at expiration date counts; our counter parties have no right to early termination. Berkshire received premiums of $4.2 billion when we wrote the contracts that remain outstanding. If all of these contracts had come due at year-end 2011, we would have had to pay $6.2 billion; the corresponding figure at year-end 2012 was $3.9 billion. With this large drop in immediate settlement liability, we reduced our GAAP liability at year-end 2012 to $7.5 billion from $8.5 billion at the end of 2011. Though it’s no sure thing, Charlie and I believe it likely that the final liability will be considerably less than the amount we currently carry on our books. In the meantime we can invest the $4.2 billion of float derived from these contracts as we see fit. We Buy Some Newspapers… Newspapers? During the past fifteen months, we acquired 28 daily newspapers at a cost of $344 million. This may puzzle you for two reasons. First, I have long told you in these letters and at our annual meetings that the circulation, advertising and profits of the newspaper industry overall are certain to decline. That prediction still holds. Second, the properties we purchased fell far short of meeting our oft-stated size requirements for acquisitions. We can address the second point easily. Charlie and I love newspapers and, if their economics make sense, will buy them even when they fall far short of the size threshold we would require for the purchase of, say, awidget company. Addressing the first point requires me to provide a more elaborate explanation, including some history. News, to put it simply is what people don’t know that they want to know. And people will seek their news – what’s important to them – from whatever sources provide the best combination of immediacy, ease of access, reliability, comprehensiveness and low cost. The relative importance of these factors varies with the nature of the news and the person wanting it. Before television and the Internet, newspapers were the primary source for an incredible variety of news, a fact that made them indispensable to a very high percentage of the population. Whether your interests were international, national, local, sports or financial quotations, your newspaper usually was first to tell you the latest information. Indeed, your paper contained so much you wanted to learn that you received your money s worth, even if only a small number of its pages spoke to your specific interests. Better yet, advertisers typically paid almost all of the product s cost, and readers rode their coat tails. Additionally, the ads themselves delivered information of vital interest to hordes of readers, in effect providing even more “news.” Editors would cringe at the thought, but for many readers learning what jobs or apartments were available, what supermarkets were carrying which weekend specials, or what movies were showing where and when was far more important than the views expressed on the editorial page.

In turn, the local paper was indispensable to advertisers. If Sears or Safeway built stores in Omaha, they requireda “megaphone”to tell the city s residents why their stores should be visited today. Indeed, big department stores and grocers vied to out shout their competition with multi-page spreads, knowing that the goods they advertised would fly off the shelves. With no other megaphone remotely comparable to that of the newspaper, ads sold themselves. As long as a newspaper was the only one in its community, its profits were certain to be extraordinary; whether it was managed well or poorly made little difference. (As one Southern publisher famously confessed, “I owe my exalted position in life to two great American institutions–nepotism and monopoly.”) Over the years, almost all cities became one-newspaper towns (or harbored two competing papers that joined forces to operate as a single economic unit). This contraction was inevitable because most people wished to read and pay for only one paper. When competition existed, the paper that gained a significant lead in circulation almost automatically received the most ads. That left ads drawing readers and readers drawing ads. Thissymbiotic process spelled doom for the weaker paper and became known as “survival of the fattest.” Now the world has changed. Stock market quotes and the details of national sports events are old news long before the presses begin to roll. The Internet offers extensive information about both available jobs and homes. Television bombards viewers with political, national and international news. In one area of interest after another, newspapers have therefore lost their “primacy.” And, as their audiences have fallen, so has advertising. (Revenues from “help wanted classified ads long a huge source of income for newspapers have plunged more than 90% in the past 12 years.) Newspapers continue to reign supreme, however, in the delivery of local news. If you want to know what’s going on in your town–whether the news is about the mayor or taxes or highschool football there is no substitute for a local newspaper that is doing its job. Areader’seyesmayglazeoveraftertheytakeinacoupleofparagraphs about Canadian tariffs or political developments in Pakistan; a story about the reader himself or his neighbors will be read to the end. Wherever there is a pervasive sense of community, a paper that serves the special informational needs of that community will remain indispensable to a significant portion of its residents. Even a valuable product, however, can self-destruct from a faulty business strategy. And that process has been underway during the past decade at almost all papers of size. Publishers – including Berkshire in Buffalo – have offered their paper free on the Internet while charging meaningful sums for the physical specimen. How could this lead to anything other than a sharp and steady drop in sales of the printed product? Falling circulation, moreover, makes a paper less essential to advertisers. Under these conditions, the “virtuous circle” of the past reverses. The Wall Street Journal went to a pay model early. But the main exemplar for local newspapers is the Arkansas Democrat Gazette published by Walter Hussman, Jr. Walter also adopted a pay format early, and over the past decade his paper has retained its circulation far better than any other large paper in the country. Despite Walter’s powerful example, it’s only been in the last year or so that other papers, including Berkshire’s, have explored pay arrangements. Whatever works best–and the answer is not yet clear–will be copied widely.

Charlie and I believe that papers delivering comprehensive and reliable information to tightly-bound communities and having a sensible Internet strategy will remain viable for a long time. We do not believe that success will come from cutting either the news content or frequency of publication. Indeed, skimpy news coverage will almost certainly lead to skimpy readership. And the less than daily publication that is now being tried in some large towns or cities – while it may improve profits in the short term – seems certain to diminish the papers’ relevance over time. Our goal is to keep our papers loaded with content of interest to our readers and to be paid appropriately by those who find us useful, whether the product they view is in their hands or on the Internet.

Our confidence is buttressed by the availability of Terry Kroeger’s outstanding management group at the Omaha World-Herald, a team that has the ability to oversee a large group of papers. The individual papers, however, will be independent in their news coverage and editorial opinions. (I voted for Obama; of our 12 dailies that endorsed a presidential candidate 10 opted for Romney.) Our newspapers are certainly not insulated from the forces that have been driving revenues downward. Still, the six small dailies we owned throughout 2012 had unchanged revenues for the year aresult far superior to that experienced by big city dailies Moreover, the two large papers we operated throughout the year–The Buffalo News and the Omaha World-Herald – held their revenue loss to 3%, which was also an above-average outcome. Among newspapers in America’s 50 largest metropolitan areas, our Buffalo and Omaha papers rank near the top in circulation penetration of their home territories. This popularity is no accident: Credit the editors of those papers Margaret Sullivan at the News and Mike Reilly at the World-Herald — for delivering information that has made their publications indispensable to community interested readers. (Margaret, I regret to say, recently left us to join The New York Times, whose job offers are tough to turn down. That paper made a great hire, and we wish her the best.) Berkshire’s cash earnings from its papers will almost certainly trend downward overtime. Evenasensible Internet strategy will not be able to prevent modest erosion. Atourcost, however, I believe these papers will meet or exceed our economic test for acquisitions. Results to date support that belief. Charlie and I, however, still operate under economic principle 11 (detailed on page 99) and will not continue the operation of any business doomed to unending losses. One daily paper that we acquired in a bulk purchase from Media General was significantly unprofitable under that company’s ownership. After analyzing the paper’sresults, we saw no remedy for the losses and reluctantly shut it down. All of our remaining dailies, however, should be profitable for a long time to come. (They are listed on page 108.) At appropriate prices – and that means at a very low multiple of current earnings–we will purchase more papers of the type we like.

Amilestonein Berkshire’s newspaper operations occurred at year-end when Stan Lip sey retired as publisher of The Buffalo News. It’s no exaggeration forme to say that the News might now be extinct were it not for Stan. Charlie and Iacquiredthe News in April 1977. It was an evening paper, dominant on weekdays but lacking a Sunday edition. Throughout the country, the circulation trend was toward morning papers. Moreover, Sunday was becoming ever more critical to the profitability of metropolitan dailies. Withouta Sunday paper the News was destined to lose out to its morning competitor, which had a fat and entrenched Sunday product We therefore began to print a Sunday edition late in 1977. And then all hell broke loose. Our competitor sued us, and District Judge Charles Brie ant Jr. authored a harsh ruling that crippled the introduction of our paper. His ruling was later reversed after 17 longmonths–ina 3-0 sharp rebuke by the Second Circuit Court of Appeals. While the appeal was pending, we lost circulation, hemorrhaged money and stood in constant danger of going out of business. Enter Stan Lipsey, a friend of mine from the 1960s, who, with his wife had sold Berkshireasmall Omaha weekly. I found Stan to be an extraordinary newspaperman, knowledgeable about every aspect of circulation, production, sales and editorial. (He was a key person in gaining that small weekly a Pulitzer Prize in 1973.) So when I was in big trouble at the News, I asked Stan to leave his comfortable way of life in Omaha to take over in Buffalo. He never hesitated. Along with Murray Light, our editor Stan persevered through four years of very dark days until the News won the competitive struggle in 1982. Ever since, despite a difficult Buffalo economy, the performance of the News has been exceptional. Asbothafriendandasamanager, Stanis simply the best.

Dividends Anumberof Berkshire shareholders including some of my good friends would like Berkshiretopaya cash dividend It puzzles them that we relish the dividends we receive from most of the stocks that Berkshire owns but pay out nothing ourselves. Solet’sexaminewhendividendsdoanddon’tmakesenseforshareholders. A profitable company can allocate its earnings in various ways (which are not mutually exclusive). A company’s management should first examine reinvestment possibilities offered by its current business projects to become more efficient, expand territorially, extend and improve product lines or to otherwise widen the economic moat separating the company from its competitors. Iaskthemanagers of our subsidiaries to unending ly focus on moat widening opportunities, and they find many that make economic sense. But sometimes our managers misfire. The usual cause of failure is that they start with the answer they want and then work backwards to find a supporting rationale. Of course, the process is subconscious; that’s what makes it so dangerous. Your chairman has not been free of this sin. In Berkshire’s 1986 annual report, I described how twenty years of management effort and capital improvements in our original textile business were an exercise in futility. I wanted the business to succeed and wished my way into a series of bad decisions. (I even bought another New England textile company.) But wishing makes dreams come true only in Disney movies it’s poison in business. Despite such past miscues, our first priority with available funds will always be to examine whether they can be intelligently deployed in our various businesses. Our record $12.1 billion of fixed-asset investments and bolt- on acquisitions in 2012 demonstrate that this is a fertile field for capital allocation at Berkshire. And here we have an advantage Because we operate in so many areas of the economy, we enjoy a range of choices far wider than that open to most corporations. In deciding what to do, we can water the flowers and skip over the weeds. Even after we deploy hefty amounts of capital in our current operations, Berkshire will regularly generate a lot of additional cash. Our next step, therefore, is to search for acquisitions unrelated to our current businesses. Here our test is simple: Do Charlie and I think we can effect a transaction that is likely to leave our shareholders wealthier on a per-share basis than they were prior to the acquisition? I have made plenty of mistakes in acquisitions and will make more. Overall, however, our record is satisfactory, which means that our shareholders are far wealthier today than they would be if the funds we used for acquisitions had instead been devoted to share repurchase s or dividends. But, to use the standard disclaimer, past performance is no guarantee of future results. That’s particularly true at Berkshire: Because of our present size, making acquisitions that are both meaningful and sensible is now more difficult than it has been during most of our years. Nevertheless, a large deal still offers us possibilities to add materially to per-share intrinsic value. BNSF is a case in point: It is now worth considerably more than our carrying value. Had we instead allocated the funds required for this purchase to dividends or repurchases, you and I would have been worse off. Though large transactions of the BNSF kind will be rare, there are still some whales in the ocean. The third use of funds – repurchases – is sensible for a company when its shares sell at a meaningful discount to conservatively calculated intrinsic value. Indeed, disciplined repurchases are the surest way to use funds intelligently: It’s hard to go wrong when you’re buying dollar bills for 80¢ or less. We explained our criteria for repurchases in last year’s report and, if the opportunity presents itself, we will buy large quantities of our stock. We originally said we would not pay more than 110% of book value, but that proved unrealistic. Therefore, we increased the limit to 120% in December when a large block became available at about 116% of book value

But never forget: In repurchase decisions, price is all-important Value is destroyed when purchases are made above intrinsic value. The directors and Ibelievethatcontinuingshareholdersarebenefittedinameaningful way by purchases up to our 120% limit. And that brings us to dividends. Here we have to make a few assumptions and use some math. The numbers will require careful reading, but they are essential to understanding the case for and against dividends. So bear with me We’ll start by assuming that you and Iaretheequalownersofabusinesswith $2 million of net worth. The business earns 12% on tangible net worth – $240,000 – and can reasonably expect to earn the same 12% on reinvested earnings. Furthermore, there are outsiders who always wish to buy into our business at 125% of net worth. Therefore, the value of what we each own is now $1.25 million. You would like to have the two of us shareholders receive one-third of our company’s annual earnings and have two-thirds be reinvested. That plan, you feel, will nicely balance your needs for both current income and capital growth. So you suggest that we pay out $80,000 of current earnings and retain $160,000 to increase the future earnings of the business. In the first year, your dividend would be $40,000, and as earnings grew and the one- third payout was maintained, so too would your dividend. In total, dividends and stock value would increase 8% each year (12% earned on net worthless 4% of net worth paid out). After ten years our company would have a net worth of $4 317 850 the original $2 million compounded at 8%) and your dividend in the upcoming year would be $86,357. Each of us would have shares worth $2,698,656 (125% of our half of the company’s net worth). And we would live happily ever after – with dividends and the value of our stock continuing to grow at 8% annually. There is an alternative approach, however, that would leave us even happier. Under this scenario, we would leave all earnings in the company and each sell 3.2% of our shares annually. Since the shares would be sold at 125% of book value, this approach would produce the same $40,000 of cash initially, a sum that would grow annually. Call this option the “sell off approach Under this “sell-off” scenario, the net worth of our company increases to $6,211,696 after ten years ($2 million compounded at 12%). Because we would be selling shares each year, our percentage ownership would have declined, and, after ten years, we would each own 36.12% of the business. Even so, your share of the net worth of the company at that time would be $2,243,540. And, remember, every dollar of net worth attributable to each of us can be sold for $1.25. Therefore, the market value of your remaining shares would be $2,804,425, about 4% greater than the value of your shares if we had followed the dividend approach. Moreover, your annual cash receipts from the sell-off policy would now be running 4% more than you would have received under the dividend scenario. Voila! – you would have both more cash to spend annually and more capital value. This calculation, ofcourse, assumes that our hypothetical company can earn an average of 12% annually on net worth and that its shareholders can sell their shares for an average of 125% of book value. To that point, the S&P 500 earns considerably more than 12% on net worth and sells at a price far above 125% of that net worth. Both assumptions also seem reasonable for Berkshire, though certainly not assured. Moreover, on the plus side there also is a possibility that the assumptions will be exceeded. If they are the argument for the sell-off policy become seven stronger. Over Berkshire’s history admittedly one that won’t come close to being repeated –the sell-off policy would have produced results for shareholders dramatically superior to the dividend policy. Aside from the favorable math, there are two further – and important – arguments for a sell-off policy. First, dividends impose a specific cash-out policy upon all shareholders. If, say,40% of earnings is the policy, those who wish 30% or 50% will be thwarted. Our 600,000 shareholders cover the waterfront in their desires for cash. It is safe to say, however, that a great many of them – perhaps even most of them – are in a net-savings mode and logically should prefer no payment at all.

The sell off alternative, on the other hand, lets each shareholder make his own choice between cash receipts and capital build-up. One shareholder can elect to cash out, say, 60% of annual earnings while other shareholders elect 20% or nothing at all. Of course, a shareholder in our dividend paying scenario could turn around and use his dividends to purchase more shares. But he would take a beating in doing so: He would both incur taxes and also pay a 25% premium to get his dividend reinvested. (Keep remembering, open-market purchases of the stock take place at 125% of book value) The second disadvantage of the dividend approach is of equal importance: The tax consequences for all tax paying shareholders are inferior –usually far inferior –to those under the sell-off program. Under the dividend program, all of the cash received by shareholders each year is taxed whereas the sell-off program results in tax on only the gain portion of the cash receipts. Let me end this math exercise – and I can hear you cheering as I put away the dentist drill – by using my own case to illustrate how a shareholder’s regular disposals of shares can be accompanied by an increased investment in his or her business. For the last seven years, I have annually given away about 41⁄ 4% ofmy Berkshire shares. Through this process, my original position of 712,497,000 B-equivalent shares (split adjusted) has decreased to 528,525,623 shares. Clearly my ownership percentage of the company has significantly decreased. Yet my investment in the business has actually increased: The book value of my current interest in Berkshire considerably exceeds the book value attributable to my holdings of seven years ago. (The actual figures are $28.2 billion for 2005 and $40.2 billion for 2012.) In other words, I now have far more money working for me at Berkshire even though my ownership of the company has materially decreased. It’s also true that my share of both Berkshire’s intrinsic business value and the company’s normal earning power is far greater than it was in 2005. Over time, I expect this accretion of value to continue – albeit in a decidedly irregular fashion – even as I now annually give away more than 41⁄ 2% of my shares (the increase having occurred because I’ve recently doubled my lifetime pledges to certain foundations).

Above all, dividend policy should always be clear, consistent and rational. A capricious policy will confuse owners and drive away would be investors Phil Fisher put it wonderfully 54 years ago in Chapter 7 of his Common Stocks and Uncommon Profits, a book that ranks behind only The Intelligent Investor and the 1940 edition of Security Analysis in the all-time-best list for the serious investor. Phil explained that you can successfully runa restaurant that serves hamburgers or, alternatively, one that features Chinese food. But you can’t switch capriciously between the two and retain the fans of either. Most companies pay consistent dividends, generally trying to increase them annually and cutting them very reluctantly. Our “Big Four” portfolio companies follow this sensible and understandable approach and, in certain cases, also repurchase shares quite aggressively. We applaud their actions and hope they continue on their present paths. We like increased dividends, and we love repurchase s at appropriate prices. At Berkshire, however, we have consistently followed a different approach that we know has been sensible and that we hope has been made understandable by the paragraphs you have just read. We will stick with this policy as long as we believe our assumptions about the book-value buildup and the market-price premium seem reasonable. If the prospects for either factor change materially for the worse, we will reexamine our actions.

The Annual Meeting The annual meeting will be held on Saturday, May 4th at the Century Link Center. Carrie Sova will be in charge. (Though that’s a new name, it’s the same wonderful Carrie as last year; she got married in June to a very lucky guy) All of our headquarters group pitches into help her the whole affair is a homemade production, and I couldnt be more proud of those who put it together.

The doors will open at 7 a. m., and at 7:30 we will have our second International Newspaper Tossing Challenge. The target will be the porch of a Clayton Home, precisely 35 feet from the throwing line. Last year I successfully fought off all challengers. But now Berkshire has acquired a large number of newspapers and with them came much tossing talent (or so the throwers claim). Come see whether their talent matches their talk. Better yet, join in The papers will be 36 to 42 pages and you must fold them yourself (no rubber bands At 8:30, a new Berkshire movie will be shown. An hour later, we will start the question and answer period, which (with a break for lunch at the Century Link’sstands) will last until 3:30. After a short recess Charlie and I will convene the annual meeting at 3:45. If you decide to leave during the day s question periods, please do so while Charlie is talking. The best reason to exit, ofcourse, is to shop We will help you do so by filling the 194 300 square foot hall that adjoins the meeting area with products from dozens of Berkshire subsidiaries. Last year you did your part, and most locations racked up record sales. In a nine hour period we sold 1,090 pairs of Just in boots (that’sapairevery 30 seconds), 10,010 pounds of See’s candy, 12,879 Quikut knives (24 knives per minute) and 5,784 pairs of Wells Lamont gloves alwaysahotitem. But you can do better. Remember: Anyone who says money can’t buy happiness simplyhasn’tshoppedatourmeeting. Last year, Brooks, our running shoe company, exhibited for the first time and ran up sales of $150,000. Brooks is on fire: Its volume in 2012 grew 34%, and that was on top of a similar 34% gain in 2011. Thecompany’s management expects another jump of 23% in 2013. We will again have a special commemorative shoe to offer at the meeting On Sunday at 8 a. m., we will initiate the “Berkshire 5 K,”a race starting at the Century Link. Full details for participating will be included inthe Visitor’s Guide that you will receive with your credentials for the meeting. We will have plenty of categories for competition, including one for the media. (It will be fun to report on their performance.) Regretfully, I will forego running; someone has to man the starting gun. I should warn you that we have a lot of home-grown talent. Ted Weschler has run the marathon in 3:01. Jim Weber, Brooks dynamic CEO, is another speedster witha 3:31 best. Todd Combs specializes in the triathlon, but has been clocked at 22 minutes in the 5 K. That, however, is just the beginning: Our directors are also fleet of foot (that is some of our directors are). Steve Burke has run an amazing 2:39 Boston marathon. (It’s a family thing; his wife, Gretchen, finished the New York marathon in 3:25.) Charlotte Guyman’s best is 3:37, and Sue Decker crossed the tape in New York in 3:36. Charlie did not return his questionnaire. GEICO will have a booth in the shopping area, staffed by a number of it stop counselors from around the country. Stop by for a quote. In most cases, GEICO will be able to give you a shareholder discount (usually 8%). This special offer is permitted by 44 of the 51 jurisdictions in which we operate. (One supplemental point: The discount is not additive if you qualify for another, such as that given certain groups.) Bring the details of your existing insurance and checkout whether we can save you money. For at least half of you, Ibelievewecan. Be sure to visit the Bookworm. It will carry about 35 books and DVDs, including a couple of new ones. Carol Loomis, who has been invaluable tome in editing this letter since 1977, has recently authored Tap Dancing to Work: Warren Buffett on Practically Everything. She and I have cosigned 500 copies, available exclusively at the meeting. The Outsiders, by William Thorndike, Jr., is an outstanding book about CEOs who excelled at capital allocation. It has an insightful chapter on our director, Tom Murphy, overall the best business manager I’ve ever met. I also recommend The Clash of the Cultures by Jack Bogle and Laura Rittenhouse’s Investing Between the Lines. Should you need to ship your book purchases, a shipping service will be available nearby. The Omaha World-Herald will again have a booth, offering a few books it has recently published. Red- blooded Husker fans is there any Nebraska n who isn tone?–will surely want to purchase Unbeatable. It tells the story of Nebraska football during 1993-97, agoldenerainwhich Tom Osborne steams went 60-3.

If you area big spender–or aspire to become one–visit Signature Aviation on the east side of the Omaha airport between noon and 5:00 p. m. on Saturday. There we will have a fleet of Net Jets aircraft that will get your pulse racing Come by bus leave by private jet. Livealittle. 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. Airlines have sometimes jacked up prices for the Berkshire weekend. If you are coming from far away, compare the cost of flying to Kansas City versus Omaha. The drive between the two cities is about 21⁄ 2 hours, and it may be that you can save significant money, particularly if you had planned to rent a car in Omaha. Spend the savings with us. At Nebraska Furniture Mart, located on a 77-acre site on 72nd Street between Dodge and Pacific, we will again be having “Berkshire Weekend” discount pricing. Last year the store did $35.9 million of business during its annual meeting sale, an all-time record that makes other retailers turn green. To obtain the Berkshire discount, you must make your purchases between Tuesday, April 30th and Monday, May 6th inclusive, and also present your meetingcredential. The period s special pricing will even apply to the products of several prestigious manufacturers that normally have ironclad rules against discounting but which, in the spirito four 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., NFMishavingapicnic to which you are all invited. At Borsheims we will again have two shareholder only events. The first will be a cocktail reception from 6 p. m. to 9 p. m. on Friday, May 3rd. The second the main gala will beheld on Sunday, May 5th, from 9 a. m. to 4 p. m. On Saturday, we will be open until 6 p. m. In recent years, our three-day volume has far exceeded sales in all of December, normallyajeweler’sbestmonth. Around 1 p. m. on Sunday, I will begin clerking at Borsheims Last year my sales totaled $1.5 million. This year Iwon’tquituntil Ihit $2 million. Because I need to leave well before sundown, I will be desperate to do business. Come take advantage of me. Ask for my “Crazy Warren”price. We will have huge crowds at Borsheims throughout the weekend. For your convenience, therefore, shareholder prices will be available from Monday, April 29th through Saturday, May 11th. During that period, please identify yourself as a shareholder by presenting your meeting credentials or a brokerage statement that shows you area Berkshire holder. On Sunday, in them all outside of Borsheims ablindfolded Patrick Wolff, twice U. S. chess champion will take on all comers – who will have their eyes wide open – in groups of six. Nearby, Norman Beck, a remarkable magician from Dallas, will bewilder onlookers. Additionally, we will have Bob Hamman and Sharon Os berg two of the world’s top bridge experts, available to play bridge with our shareholders on Sunday afternoon. Don’t play them for money Gorat’sand Piccolos will again be open exclusively for Berkshire shareholders on Sunday, May 5th. Both will be serving until 10 p. m., with Gorat’sopeningat 1 p. m. and Piccolos opening at 4 p. m. These restaurants are my favorites and I will eat at both of them on Sunday evening Remember: To make a reservation at Gorat’s, call 402-551-3733 on April 1st (but not before) and at Piccolo’scall 402-342-9038. At Piccolo’s, order a giant root beer float for dessert. Only sissies get the small one. (I once saw Bill Gates polish off two of the giant variety after a full course dinner that’swhen Iknewhewouldmakeagreatdirector.) We will again have the same three financial journalists lead the question and answer period at the meeting, asking Charlie and me questions that shareholders have submitted to them by e-mail. The journalists and their e-mail addresses are Carol Loomis, of Fortune, who maybe emailed atc loomis@fortunemail. com; Becky Quick, of CNBC, at Berkshire Questions@cnbc. com, and Andrew Ross Sorkin, of The New York Times, atarsorkin@nytimes. com.

From the questions submitted, each journalist will choose the six he or she decides are the most interesting and important. The journalists have told me your question has the best chance of being selected if you keep it concise, avoid sending it in at the last moment, make it Berkshire related and include no more than two questions in any email you send them. (In your email, let the journalist know if you would like your name mentioned if your question is selected.) Last year we had a second panel of three analysts who follow Berkshire. All were insurance specialists, and shareholders subsequently indicated they wanted a little more variety. Therefore, this year we will have one insurance analyst, Cliff Gallant of Nomura Securities. Jonathan Brandt of Ruane, Cunniff&Gold far b will join the analyst panel to ask questions that deal with our non-insurance operations. Finally–to spice things up–we would like to add to the panel a credential ed bear on Berkshire, preferably one who is short the stock. Not yet having a bear identified, we would like to hear from applicants. The only requirement is that you bean investment professional and negative on Berkshire. The three analysts will bring their own Berkshire specific questions and alternate with the journalists and the audience in asking them. Charlie and I believe that all shareholders should have access to new Berkshire information simultaneously and should also have adequate time to analyze it, which is why we try to issue financial information after the market closeona Friday and why our annual meeting is held on Saturdays. We do not talk one-on-one to large institutional investors or analysts. Our hope is that the journalists and analysts will ask questions that will further educate shareholders about their investment. Neither Charlie nor I will get so much as a clue about the questions to be asked We know the journalists and analysts will come up with some tough ones, and that’s the way we like it. All told, we expect at least 54 questions, which will allow for six from each analyst and journalist and 18 from the audience. If there is some extra time, we will take more from the audience. Audience questioners will be determined by drawings that will take place at 8:15 a. m. at each of the 11 microphones located in the arena and main overflow room.

For good reason, I regularly extol the accomplishments of our operating managers. They are truly All- Stars, who run their businesses as if they were the only asset owned by their families. I believe their mindset to be as shareholder oriented as can be found in the universe of large publicly owned companies. Most have no financial need to work the joy of hitting business “home runs means as much to them as their paycheck. Equally important, however, are the 23 men and women who work with meat our corporate office (all on one floor which is the way we intend to keep it!). This group efficiently deals with a multitude of SEC and other regulatory requirements, filesa 21,500-page Federal income tax return as well as state and foreign returns, responds to countless shareholder and media inquiries, gets out the annual report, prepares for the country’s largest annual meeting, coordinates the Board s activities and the list goes on and on. They handle all of these business tasks cheerfully and with unbelievable efficiency, making my life easy and pleasant Their efforts go beyond activities strictly related to Berkshire: Last year they dealt with 48 universities (selected from 200 applicants) who sent students to Omaha for a Q&A day with me. They also handle all kinds of requests that I receive, arrange my travel, and even get me hamburgers for lunch. No CEO has it better; I truly do feel like tap dancing to work everyday. This home office crew, along with our operating managers, has my deepest thanks and deserves yours as well. Come to Omaha–the cradle of capitalism–on May 4th and chime in March 1,2013 Warren E. Buffett

Chairman of the Board