u8Zcc
u8Zcc
u8Zcc
You also want an ePaper? Increase the reach of your titles
YUMPU automatically turns print PDFs into web optimized ePapers that Google loves.
Š<br />
While Charlie and I search for elephants, our many subsidiaries are regularly making bolt-on acquisitions.<br />
Last year, we contracted for 25 of these, scheduled to cost $3.1 billion in aggregate. These transactions<br />
ranged from $1.9 million to $1.1 billion in size.<br />
Charlie and I encourage these deals. They deploy capital in activities that fit with our existing businesses<br />
and that will be managed by our corps of expert managers. The result is no more work for us and more<br />
earnings for you. Many more of these bolt-on deals will be made in future years. In aggregate, they will be<br />
meaningful.<br />
Š<br />
Last year we invested $3.5 billion in the surest sort of bolt-on: the purchase of additional shares in two<br />
wonderful businesses that we already controlled. In one case – Marmon – our purchases brought us to the<br />
100% ownership we had signed up for in 2008. In the other instance – Iscar – the Wertheimer family<br />
elected to exercise a put option it held, selling us the 20% of the business it retained when we bought<br />
control in 2006.<br />
These purchases added about $300 million pre-tax to our current earning power and also delivered us $800<br />
million of cash. Meanwhile, the same nonsensical accounting rule that I described in last year’s letter<br />
required that we enter these purchases on our books at $1.8 billion less than we paid, a process that<br />
reduced Berkshire’s book value. (The charge was made to “capital in excess of par value”; figure that one<br />
out.) This weird accounting, you should understand, instantly increased Berkshire’s excess of intrinsic<br />
value over book value by the same $1.8 billion.<br />
Š<br />
Š<br />
Our subsidiaries spent a record $11 billion on plant and equipment during 2013, roughly twice our<br />
depreciation charge. About 89% of that money was spent in the United States. Though we invest abroad as<br />
well, the mother lode of opportunity resides in America.<br />
In a year in which most equity managers found it impossible to outperform the S&P 500, both Todd<br />
Combs and Ted Weschler handily did so. Each now runs a portfolio exceeding $7 billion. They’ve earned<br />
it.<br />
I must again confess that their investments outperformed mine. (Charlie says I should add “by a lot.”) If<br />
such humiliating comparisons continue, I’ll have no choice but to cease talking about them.<br />
Todd and Ted have also created significant value for you in several matters unrelated to their portfolio<br />
activities. Their contributions are just beginning: Both men have Berkshire blood in their veins.<br />
Š<br />
Š<br />
Berkshire’s yearend employment – counting Heinz – totaled a record 330,745, up 42,283 from last year.<br />
The increase, I must admit, included one person at our Omaha home office. (Don’t panic: The<br />
headquarters gang still fits comfortably on one floor.)<br />
Berkshire increased its ownership interest last year in each of its “Big Four” investments – American<br />
Express, Coca-Cola, IBM and Wells Fargo. We purchased additional shares of Wells Fargo (increasing<br />
our ownership to 9.2% versus 8.7% at yearend 2012) and IBM (6.3% versus 6.0%). Meanwhile, stock<br />
repurchases at Coca-Cola and American Express raised our percentage ownership. Our equity in Coca-<br />
Cola grew from 8.9% to 9.1% and our interest in American Express from 13.7% to 14.2%. And, if you<br />
think tenths of a percent aren’t important, ponder this math: For the four companies in aggregate, each<br />
increase of one-tenth of a percent in our share of their equity raises Berkshire’s share of their annual<br />
earnings by $50 million.<br />
5