Berkshire’s Performance vs. the S&P 500 Annual Percentage Change in Per-Share in Per-Share in S&P 500 Book Value of Market Value of with Dividends Year Berkshire Berkshire Included 1965 .................................................. 23.8 49.5 10.0 1966 .................................................. 20.3 (3.4) (11.7) 1967 .................................................. 11.0 13.3 30.9 1968 .................................................. 19.0 77.8 11.0 1969 .................................................. 16.2 19.4 (8.4) 1970 .................................................. 12.0 (4.6) 3.9 1971 .................................................. 16.4 80.5 14.6 1972 .................................................. 21.7 8.1 18.9 1973 .................................................. 4.7 (2.5) (14.8) 1974 .................................................. 5.5 (48.7) (26.4) 1975 .................................................. 21.9 2.5 37.2 1976 .................................................. 59.3 129.3 23.6 1977 .................................................. 31.9 46.8 (7.4) 1978 .................................................. 24.0 14.5 6.4 1979 .................................................. 35.7 102.5 18.2 1980 .................................................. 19.3 32.8 32.3 1981 .................................................. 31.4 31.8 (5.0) 1982 .................................................. 40.0 38.4 21.4 1983 .................................................. 32.3 69.0 22.4 1984 .................................................. 13.6 (2.7) 6.1 1985 .................................................. 48.2 93.7 31.6 1986 .................................................. 26.1 14.2 18.6 1987 .................................................. 19.5 4.6 5.1 1988 .................................................. 20.1 59.3 16.6 1989 .................................................. 44.4 84.6 31.7 1990 .................................................. 7.4 (23.1) (3.1) 1991 .................................................. 39.6 35.6 30.5 1992 .................................................. 20.3 29.8 7.6 1993 .................................................. 14.3 38.9 10.1 1994 .................................................. 13.9 25.0 1.3 1995 .................................................. 43.1 57.4 37.6 1996 .................................................. 31.8 6.2 23.0 1997 .................................................. 34.1 34.9 33.4 1998 .................................................. 48.3 52.2 28.6 1999 .................................................. 0.5 (19.9) 21.0 2000 .................................................. 6.5 26.6 (9.1) 2001 .................................................. (6.2) 6.5 (11.9) 2002 .................................................. 10.0 (3.8) (22.1) 2003 .................................................. 21.0 15.8 28.7 2004 .................................................. 10.5 4.3 10.9 2005 .................................................. 6.4 0.8 4.9 2006 .................................................. 18.4 24.1 15.8 2007 .................................................. 11.0 28.7 5.5 2008 .................................................. (9.6) (31.8) (37.0) 2009 .................................................. 19.8 2.7 26.5 2010 .................................................. 13.0 21.4 15.1 2011 .................................................. 4.6 (4.7) 2.1 2012 .................................................. 14.4 16.8 16.0 2013 .................................................. 18.2 32.7 32.4 2014 .................................................. 8.3 27.0 13.7 2015 .................................................. 6.4 (12.5) 1.4 Compounded Annual Gain – 1965-2015 ...................... 19.2% 20.8% 9.7% Overall Gain – 1964-2015 ................................. 798,981% 1,598,284% 11,355% Notes: Data are for calendar years with these exceptions: 1965 and 1966, year ended 9/30; 1967, 15 months ended 12/31. Starting in 1979, accounting rules required insurance companies to value the equity securities they hold at market rather than at the lower of cost or market, which was previously the requirement. In this table, Berkshire’s results through 1978 have been restated to conform to the changed rules. In all other respects, the results are calculated using the numbers originally reported. The S&P 500 numbers are pre-tax whereas the Berkshire numbers are after-tax.Ifa 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. 2 BERKSHIRE HATHAWAY INC. To the Shareholders of Berkshire Hathaway Inc.: Berkshire’s gain in net worth during 2015 was $15.4 billion, which increased the per-share book value of both our Class A and Class B stock by 6.4%. Over the last 51 years (that is, since present management took over), per-share book value has grown from $19 to $155,501, a rate of 19.2% compounded annually.* During the first half of those years, Berkshire’s net worth was roughly equal to the number that really counts: the intrinsic value of the business. The similarity of the two figures existed then because most of our resources were deployed in marketable securities that were regularly revalued to their quoted prices (less the tax that would be incurred if they were to be sold). In Wall Street parlance, our balance sheet was then in very large part “marked to market.” By the early 1990s, however, our focus had changed to the outright ownership of businesses, a shift that diminished the relevance of balance-sheet figures. That disconnect occurred because the accounting rules that apply to controlled companies are materially different from those used in valuing marketable securities. The carrying value of the “losers” we own is written down, but “winners” are never revalued upwards. We’ve had experience with both outcomes: I’ve made some dumb purchases, and the amount I paid for the economic goodwill of those companies was later written off, a move that reduced Berkshire’s book value. We’ve also had some winners – a few of them very big – but have not written those up by a penny. Over time, this asymmetrical accounting treatment (with which we agree) necessarily widens the gap between intrinsic value and book value. Today, the large – and growing – unrecorded gains at our “winners” make it clear that Berkshire’s intrinsic value far exceeds its book value. That’s why we would be delighted to repurchase our shares should they sell as low as 120% of book value. At that level, purchases would instantly and meaningfully increase per-share intrinsic value for Berkshire’s continuing shareholders. The unrecorded increase in the value of our owned businesses explains why Berkshire’s aggregate market- value gain – tabulated on the facing page – materially exceeds our book-value gain. The two indicators vary erratically over short periods. Last year, for example, book-value performance was superior. Over time, however, market-value gains should continue their historical tendency to exceed gains in book value. * 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. 3 The Year at Berkshire Charlie Munger, Berkshire Vice Chairman and my partner, and I expect Berkshire’s normalized earning power to increase every year. (Actual year-to-year earnings, of course, will sometimes decline because of weakness in the U.S. economy or, possibly, because of insurance mega-catastrophes.) In some years the normalized gains will be small; at other times they will be material. Last year was a good one. Here are the highlights: ‹ The most important development at Berkshire during 2015 was not financial, though it led to better earnings. After a poor performance in 2014, our BNSF railroad dramatically improved its service to customers last year. To attain that result, we invested about $5.8 billion during the year in capital expenditures, a sum far and away the record for any American railroad and nearly three times our annual depreciation charge. It was money well spent. BNSF moves about 17% of America’s intercity freight (measured by revenue ton-miles), whether transported by rail, truck, air, water or pipeline. In that respect, we are a strong number one among the seven large American railroads (two of which are Canadian-based), carrying 45% more ton-miles of freight than our closest competitor. Consequently, our maintaining first-class service is not only vital to our shippers’ welfare but also important to the smooth functioning of the U.S. economy. For most American railroads, 2015 was a disappointing year. Aggregate ton-miles fell, and earnings weakened as well. BNSF, however, maintained volume, and pre-tax income rose to a record $6.8 billion* (a gain of $606 million from 2014). Matt Rose and Carl Ice, the managers of BNSF, have my thanks and deserve yours. ‹ BNSF is the largest of our “Powerhouse Five,” a group that also includes Berkshire Hathaway Energy, Marmon, Lubrizol and IMC. Combined, these companies – our five most profitable non-insurance businesses – earned $13.1 billion in 2015, an increase of $650 million over 2014. Of the five, only Berkshire Hathaway