The Complete Financial History of Berkshire Hathaway By Adam Mead Audiobook Companion Audiobook Contents (Charts included from the chapters below) Chapter 1: Textile Conglomerate Chapter 2: 1955–1964 Chapter 3: 1965–1974 Chapter 4: 1975–1984 Chapter 5: 1985–1994 Chapter 6: 1995–2004 Chapter 7: 2005–2014 Chapter 8: The First iftyF Years: 1965–2014 Chapter 9: 2015–2019 Chapter 10: World’s Greatest Conglomerate Chapter 11: Afterward—Berkshire After Buffett vii Figure 1.1: Millions of spindles in place by year and location 40 35 30 25 millions) 20 15 Spindles (in 10 5 0 1914 1925 1938 United States New England Massachusetts Southern States Source: The Decline Of A Cotton Textile City (Wolfbein p. 161). 12 Chapter 1: Textile Conglomerate Table 1.1: Comparative operational data for Berkshire Fine Spinning Associates and Hathaway Manufacturing Berkshire Fine Spinning Hathaway Manufacturing 1934 Net revenues ($ millions) $16.3 $3.9 Equity capital ($ millions) $13.8 $2.1 # spindles 900,000 79,000 # looms 20,000 3,200 1939 Net revenues ($ millions) $18.4 $7.3 Equity capital ($ millions) $13.1 $2.2 # spindles 748,000 62,000 # looms 15,000 2,800 1935–1939 (average) Return on equity 0% 6.10% Profit margin 1.40% 2.10% Revenues/average equity1 $1.34 $3.15 Footnote: Revenues/average equity calculation is from 1936–39 because no data is available for 1935 for Hathaway Manufacturing. Note: No data on 1939 for BFS, but spindles/looms same in 1938 and 1940. Sources: Moody’s Industrial Manuals 1934-40 and author’s calculations. 13 Chapter 1: Textile Conglomerate Figure 1.2: Revenues at Berkshire Fine Spinning and Hathaway Manufacturing from 1940–1949 $70 $60 $50 $40 $30 Revenues (millions) $20 $10 $0 1940 1941 1942 1943 1944 1945 1946 1947 1948 1949 Berkshire Fine Spinning Hathaway Manufacturing Sources: Moody’s Industrial Reports and Berkshire Hathaway Annual Reports. Figure 1.3: Profit margins at Berkshire Fine Spinning and Hathaway Manufacturing from 1940–1949 20% 15% 10% Profit Margin 5% 0% 1940 1941 1942 1943 1944 1945 1946 1947 1948 1949 Berkshire Fine Spinning Hathaway Manufacturing Source: Moody’s Industrial Reports and Berkshire Hathaway Annual Reports. 15 Figure 1.4: Return on equity at Berkshire Fine Spinning and Hathaway Manufacturing from 1940–1949 50% 40% 30% Return on Equity 20% 10% 0% 1940 1941 1942 1943 1944 1945 1946 1947 1948 1949 Berkshire Fine Spinning Hathaway Manufacturing Sources: Moody’s Industrial Reports and Berkshire Hathaway Annual Reports. 16 Figure 1.5: Pro forma profit margin and return on equity for Berkshire Hathaway 1950–1955 15% 13% 10% 8% 5% 3% 0% 1950 1951 1952 1953 1954 1955 Profit Margin Return on Equity Sources: Moody’s Industrial Reports and Berkshire Hathaway Annual Reports. 17 Figure 1.6: Millions of active spindles by location 1940–1955 25 20 15 10 Millions ofActive Spindles 5 0 1940 1950 1955 United States New England Southern States Note: Active spindles are different than spindles in place. The former is a measure of usage; the latter is a measure of capacity. Source: Changes in American Textile Industry, Technical bulletin No. 1210. US Dept. Agriculture, Issued * Note that the term active spindles is a slightly different metric than spindles in place. The latter is a measure of capacity, whereas the former is a measure of usage. A more finely tuned measure of usages, active spindle hours, is also sometimes seen referenced. 18 Figure 1.7: Active spindles (usage) versus spindles in place (capacity), 1925–1955 40 End of Great Depression; Start of WWII (1939) 35 Start of the Great 100% Depression (1929) End of WWII (1945) 30 25 95% 20 90% 15 % Active Spindles Spindles in Place (in millions)(in Place in Spindles 10 85% 5 0 80% 1925 1935 1940 1945 1950 1955 Spindles in Place Active % 20 Figure 1.8: The Beginnings of Today’s Berkshire Hathaway, Inc. 8 1955 King Philip Mills (1871-1930) 7 1930 Berkshire Fine Spinning Valley Falls (1839-1929) King Philip and Parker Associates and Hathaway Coventry Co. (1864-1929) Mills merged into Berkshire Manufacturing merge to create 6 Fine Spinning Associates Berkshire Hathaway, Inc. Greylock Mills (1880-1929) Berkshire Cotton Mfg. (1889-1929) 5 Fort Dummer (1910-1929) 1929: Berkshire Fine Spinning 4 Associates, Inc. formed by Hargraves Mills (1888-1921) combination of Berkshire Cotton Manufacturing, Greylock Mills, 3 Valley Falls, Coventry, and Fort Parker Mills (1885-1930) Dummer mills. 2 1921: Hargraves merges Hathaway Manufacturing into Parker Mills (1889-1955) 1 1934: Purchased Warren Mfg. Co. mill at Warren, R.I. 0 1910 1915 1920 1925 1930 1935 1940 1945 1950 1955 1960 1965 Sources: Moody’s Manual reports and Massachusetts Corporate Card Files accessed via the Boston Public Library. Appendix Note: Source data for 1934–1945 are from Moody’s Industrial Manuals accessed via Mergent Online. Source data for 1946–1955 come from the first Berkshire Hathaway Annual Report for the combined entity. The reader should be aware that data for net income and equity don’t exactly match the sum of the constituent parts in years where there are both combined and individual data available. 22 Table 1.2: Berkshire Fine Spinning Associates and Hathaway Manufacturing Company, select data, 1945–1955 Berkshire Fine Spinning Associates 1955 1954 1953 1952 1951 1950 1949 1948 1947 1946 1945 Revenues ($ thousands) $60,987 $63,466 $50,912 $69,890 $68,445 $42,861 $36,043 Net income 3,141 4,099 3,570 14,358 12,842 5,690 1,814 Equity 45,193 44,262 41,691 42,530 32,444 19,187 15,294 Key Ratios Revenue growth (3.9%) 24.7% (27.2%) 2.1% 59.7% 18.9% 13.7% Conglomerate Textile Chapter 1: Revenues / avg. equity capital $1.40 $1.48 $1.31 $2.23 $3.07 $2.49 $2.40 Return on revenues (net margin) 5.2% 6.5% 7.0% 20.5% 18.8% 13.3% 5.0% Return on average equity 7.0% 9.5% 8.5% 38.3% 49.7% 33.0% 12.1% Hathaway Manufacturing Company 23 1955 1954 1953 1952 1951 1950 1949 1948 1947 1946 1945 Revenues ($ thousands) $21,227 $27,463 $19,749 $30,862 $26,158 $22,446 $27,288 $20,538 $14,997 $11,622 Net income (373) 482 (80) 1,836 1,702 1,312 2,858 1,949 952 328 Equity 11,012 11,490 11,608 10,968 9,732 8,629 7,892 5,597 3,867 3,166 Key Ratios Revenue growth (22.7%) 39.1% (36.0%) 18.0% 16.5% (17.7%) 32.9% 36.9% 29.0% (3.5%) Revenues / equity capital $1.89 $2.38 $1.75 $2.98 $2.85 $2.72 $4.05 $4.34 $4.27 $3.67 Return on revenues (net margin) (1.8%) 1.8% (0.4%) 6.0% 6.5% 5.8% 10.5% 9.5% 6.3% 2.8% Return on average equity (3.3%) 4.2% (0.7%) 17.7% 18.5% 15.9% 42.4% 41.2% 27.1% 10.7% Table 1.3: Berkshire Fine Spinning Associates and Hathaway Manufacturing Company, select data, 1934–1944 Berkshire Fine Spinning Associates 1944 1943 1942 1941 1940 1939 1938 1937 1936 1935 1934 Revenues ($ thousands) $31,696 $38,679 $37,772 $28,747 $18,163 $18,442 $14,351 $19,389 $18,951 $16,031 $16,335 Net income 1,602 1,724 1,907 1,852 592 284 (517) 1,418 73 (1,228) 209 Equity 14,766 14,638 14,311 14,035 13,173 13,098 13,094 13,611 13,629 12,635 13,825 Key Ratios Revenue growth (18.1%) 2.4% 31.4% 58.3% (1.5%) 28.5% (26.0%) 2.3% 18.2% (1.9%) Revenues / avg. equity capital $2.16 $2.67 $2.67 $2.11 $1.38 $1.41 $1.07 $1.42 $1.44 $1.21 Return on revenues (net margin) 5.1% 4.5% 5.0% 6.4% 3.3% 1.5% (3.6%) 7.3% 0.4% (7.7%) Return on average equity 10.9% 11.9% 13.5% 13.6% 4.5% 2.2% (3.9%) 10.4% 0.6% (9.3%) 24 Hathaway Manufacturing Company 1944 1943 1942 1941 1940 1939 1938 1937 1936 1935 1934 Revenues ($ thousands) $12,045 $12,409 $11,949 $7,796 $7,329 $7,307 $3,889 $8,470 $6,985 Unknown $3,937 Net income 278 250 378 259 246 230 (19) 177 253 (0) 54 Equity 2,988 2,766 2,572 2,356 2,350 2,219 2,059 2,193 2,118 1,953 2,072 Key Ratios Revenue growth (2.9%) 3.8% 53.3% 6.4% 0.3% 87.9% (54.1%) 21.3% Revenues / equity capital $4.19 $4.65 $4.85 $3.31 $3.21 $3.42 $1.83 $3.93 $3.43 Return on revenues (net margin) 2.3% 2.0% 3.2% 3.3% 3.4% 3.1% (0.5%) 2.1% 3.6% Return on average equity 9.7% 9.4% 15.4% 11.0% 10.8% 10.8% (0.9%) 8.2% 12.4% 0.0% Table 1.4: Berkshire Fine Spinning Associates and Hathaway Manufacturing Company, pro forma combined, select data, 1945–1955 1955 1954 1953 1952 1951 1950 1949 1948 1947 1946 1945 Revenues ($ thousands) $65,498 $66,929 $86,414 $68,293 $91,849 $89,625 $73,358 $97,177 $88,982 $57,858 $47,665 Net income 301 660 2,921 99 6,175 7,008 5,031 17,722 16,193 6,868 2,142 Equity 51,400 53,354 55,153 54,990 57,524 55,359 51,670 51,756 38,868 24,878 18,459 Key Ratios Conglomerate Textile Chapter 1: Revenue growth (2.1%) (22.5%) 26.5% (25.6%) 2.5% 22.2% (24.5%) 9.2% 53.8% 21.4% 9.0% Revenues / equity capital $1.27 $1.25 $1.57 $1.24 $1.60 $1.62 $1.42 $1.88 $2.29 $2.33 $2.58 Return on revenues (net margin) 0.5% 1.0% 3.4% 0.1% 6.7% 7.8% 6.9% 18.2% 18.2% 11.9% 4.5% Return on average equity 0.6% 1.2% 5.3% 0.2% 10.9% 13.1% 9.7% 39.1% 50.8% 31.7% 11.8% 25 Table 1.5: Berkshire Fine Spinning Associates and Hathaway Manufacturing Company, pro forma combined, select data, 1934–1944 1944 1943 1942 1941 1940 1939 1938 1937 1936 1935 1934 Revenues ($ thousands) $43,740 $51,088 $49,721 $36,543 $25,492 $25,749 $18,240 $27,859 $25,936 $20,272 Net income 1,880 1,974 2,286 2,111 838 514 (536) 1,595 326 (1,229) 263 Equity 17,754 17,404 16,883 16,390 15,523 15,317 15,153 15,804 15,747 14,588 15,897 Key Ratios Revenue growth (14.4%) 2.7% 36.1% 43.4% (1.0%) 41.2% (34.5%) 7.4% Revenues / equity capital $2.46 $2.94 $2.94 $2.23 $1.64 $1.68 $1.20 $1.76 Return on revenues (net margin) 4.3% 3.9% 4.6% 5.8% 3.3% 2.0% (2.9%) 5.7% Return on average equity 10.7% 11.5% 13.7% 13.2% 5.4% 3.4% (3.5%) 10.1% 2.2% (8.1%) Table 2.1: Decade snapshot: Pre-Buffett years 1954* 1964 Business: Textile manufacturing Textile manufacturing Key managers: Chairman: John H.