Todd Combsand Ted Weschler.oew ved to he smar ty.helpful to Berkshire in erfect cultural fit.We hit he jckpot thes 01 oprorme the500by double-digit margns he dust as well. aged by each to almost $5 billion (so from the nenamTaTaaaaaabp Berkshirev porfolio long aer Charlie and I have left the scee.Youcn re y when they take over ·Berkshire' rend emnloyment totaled a record 288 462 (see 106 for details).up 17.604 from last 's"Big Fou Expres Coca-Cola IBM and Wells Fargo additional shares of Wells Fareo (our ownershin now is versus 76%at vearend 2011)and IBM (60% versus 5.5%).Meanwhile.stock repurchases at Coca-Cola and American Express raised our percentage ar equity in Coca-Cola grew from 8.8%to 8.9%and our interest at American Express from 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. efer and ion of a wonderful business to owning100%of a so-so business.Our flexibilty n capital allocation gives us a significant advantage over companies that limit themselves only to acquisitions they can operate. 。901a ad to s20 hillio But make no mistake:The $2.8 billion of earnings we do not report is every bit as valuable to us as what The a tain ed fo which ur share of eous.Over time we 26 and,even There was a lot of hand-wringing last year among CEOs who cried "uncertainty"when faced with capital ions (despite many of their businesses having enjoyed record f both earnings an a record $9. on previous high.Charlie and I love investing larg e sums in worthwhile saying.We instead heed the words from Gary Allan's new country songEvery Storm Runs Out of Rain. will almost cerainly set still another record for eapital expenditures America thought for Of course.the immediate future is uncertain:America has faced the while at other times they ig ust the at always exi the r ha 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 me in 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 take over. Š Berkshire’s yearend 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 yearend 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 yearend share count, our portion of the “Big Four’s” 2012 earnings amounted to $3.9 billion. In the earnings we report to you, however, we include only 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. Over time 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 yearend). 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). 5