Berkshire Hathaway 1995 Annual Meeting Transcript
Transcript of the 1995 Berkshire Hathaway Annual Meeting held on May 1, 1995 on Omaha, Nebraska:
(Click here to skip to the Q&A section)
(To see the full transcripts of all Berkshire Hathaway Annual Meetings on record, click here)
Meeting Start – Warren gives a short talk on how the meeting will be conducted
Morning. I’m Warren Buffett, the chairman of Berkshire Hathaway. And on my left is Charlie Munger, the vice chairman and my partner. And we’ll try to get him to say a few words at some point in the proceedings.
The format today is going to be just slightly different.
We have one item to…normally, we breeze through the meeting pretty fast, and we’ll do that, but we have one item of business on the preferred stock that I could tell caused some confusion with people. So, I’ll discuss that a little bit.
And if, before the vote on that, anybody would like to talk about the preferred issue, we’ll have any comments or questions at that time. And then we’ll breeze through the rest of the meeting, and then we’ll open it up. And I’ll have one announcement to make then, too.
And then after that, we’ll go for, maybe, close to noon. And feel free, earlier, anybody that would like to leave, you’re free to, obviously, at any time. Better form to do it while Charlie’s talking, as I’ve mentioned. And you’ll have to be quick.
But then we’ll have a break a little before noon for a few minutes, while a more orderly retreat can be conducted. And we’ll have buses outside to take you back to the hotels or to any of the commercial establishments that Berkshire’s involved in.
And then because so many of the…we have people here, at least based on the tickets reserved, from 49 of the 50 states. Only Vermont is absent. We have…but we have Alaska, we have a delegation from every place.
We have people from Australia, Israel, Sweden, France, the U.K., 40-some from Canada. So, a lot of people have come a long way. So, Charlie and I will stick around.
In fact, we’ll eat our lunch right up here. And we will…you don’t want to watch what we eat.
The…but the…well, we’ll stick around until perhaps as late as even 3 o’clock, but if the crowd gets below a couple of hundred, then we’ll feel we can cut it off.
But we do want to answer everyone’s questions. You people are part owners of the company.
And any question that relates to your ownership of Berkshire, we want to be able to give you a chance to ask.
And it’s tough because of the numbers of people here. I don’t know how many are in the other room. But there’re about 3,300, I believe, in this room. And we want to get to you…to all of you. So, that will come after the meeting.
Now, we’ve got a little business to take care of.
Introduction and election of directors
The meeting will come to order. And I’ll first introduce the directors of Berkshire, in addition to myself. They’re right down here. And if you’ll stand up when I give your name.
Susan T. Buffett.
These are names we found in the phone book, you can understand…
Malcolm Chace, III
And Walter Scott Jr.
Also with us today are partners in the firm of Deloitte and Touche, our auditors, Mr. Ron Burgess and Mr. Craig Christiansen (PH). They’re available to respond to appropriate questions you might have concerning their firm’s audit of the accounts of Berkshire.
Mr. Forrest Krutter is secretary of Berkshire. He will make a written record of the proceedings.
Mr. Robert M. Fitzsimmons has been appointed inspector of elections at this meeting. He will certify to the account of votes cast in the election for directors.
The named proxy holders for this meeting are Walter Scott Jr. and Marc Hamburg. Proxy cards have been returned through last Friday representing 998,258 Berkshire shares to be voted by the proxy holders as indicated on the cards.
That number of shares represents a quorum, and we will therefore directly proceed with the meeting. We will conduct the business of the meeting and then adjourn the formal meeting.
After that we’ll entertain questions you might have.
First order of business will be a reading of the minutes of the last meeting of shareholders. I recognize Mr. Walter Scott Jr. who will place a motion before the meeting.
Walter Scott Jr.:
I move that the reading of the minutes of the last meeting of the shareholders be dispensed with.
Do I hear a second?
I second the motion.
Do I hear a second?
I second the motion.
The motion has been moved and seconded. Are there any comments or questions? We’ll vote on the motion by voice vote. All of those in favor say, “Aye.”
Opposed? The motion is carried.
Does the secretary have a report of the number of Berkshire shares outstanding entitled to vote and represented at the meeting?
Yes, I do. As indicated in the proxy statement that accompanied the notice of this meeting that was sent by first-class mail to all shareholders of record on March 7, 1995, being the record date for this meeting, there were 1,177,750 shares of Berkshire common stock outstanding, with each share entitled to one vote on motions considered at the meeting.
Of that number, 998,258 shares are represented at this meeting by proxies returned through last Friday.
Thank you. If a shareholder is present who wishes to withdraw a proxy previously sent in and vote in person on the two items of business provided for in the proxy statement, he or she may do so.
Also, if any shareholder that’s present has not turned in a proxy and desires a ballot in order to vote in person on these two items, you may do so. If you wish to do this, please identify yourself to meeting officials in the aisles who will furnish two ballots to you, one for each item.
Would those persons desiring ballots please identify themselves so we may distribute them?
Just raise your hand and you’ll get one.
The first item of business of this meeting is to elect directors. I now recognize Mr. Walter Scott Jr. to place a motion before the meeting with respect to election of directors.
Walter Scott Jr.:
I move that Warren E. Buffett, Susan T. Buffett, Howard G. Buffett, Malcolm G. Chase, III, Charles T. Munger and Walter Scott Jr. be elected as directors.
I second the motion.
It has been moved and seconded that Warren E. Buffett, Susan T. Buffett, Howard G. Buffett, Malcolm G. Chase, III, Charles T. Munger and Walter Scott Jr. be elected as directors. Are there any other nominations? There any discussion? You’re doing fine.
The nominations are ready to be acted upon. If there are shareholders voting in person, they should now mark their ballots on the election for directors and allow the ballots to be delivered to the inspector of election. Collect those, please.
Would the proxy holders please also submit to the inspector of elections, a ballot on the election of directors, voting the proxies in accordance with the instructions they’ve received?
Mr. Fitzsimmons, when you’re ready, you may give your report.
My report is ready. The ballot of the proxy holders received through last Friday cast not less than 996,892 votes for each nominee. That number far exceeds a majority of the number of shares outstanding.
The certification required by Delaware law regarding the precise count of the votes, including the votes cast in person at this meeting, will be given to the secretary to be placed with the minutes of this meeting.
Thank you, Mr. Fitzsimmons. Warren E. Buffett, Susan T. Buffett, Howard G. Buffett, Malcolm G. Chase, III, Charles T. Munger and Walter Scott Jr. Have been elected as directors.
Motion to Amend Berkshire’s certificate of incorporation to authorize its board of directors to issue preferred stock
The second item of business at this meeting is to consider the recommendation of the board of directors to amend the company’s certificate of incorporation.
The proposed amendment would add a provision to the certificate of incorporation authorizing the board of directors to issue up to one million shares of preferred stock in one or more series, with such preferences, limitations, and relative rights as the board of directors may determine.
Now, we discussed this some in the annual report. But I would say…and we’ll find out the exact number…but I think we probably had 11 or 12…maybe 12,000 or so shares voted against the proposal. And I think we had a couple thousand shares that abstained.
And since there really is no downside to the proposal, that indicated to me that I’d not done a very adequate job of explaining the logic of authorizing the preferred. So, I’d like to discuss that for a minute now.
And I’d also like anybody that would like to ask questions about it, they can do so now. We can talk about it later, too. But if you’d like to do it before the vote, that’d be fine.
The authorization is just that. It’s an authorization. It’s not a command to issue shares. It’s not a directive. It simply gives the directors of the company the ability, in a situation where it makes sense for the company to issue preferred shares, to do so.
Now, when we acquire businesses…and I’ll tell you about one when we’re through with this in a few minutes…when we acquire businesses, sometimes the seller of the business wants cash.
Sometimes they would like common stock.
And it’s certainly possible, as one potential seller did last year, that they wanted, in that case, a convertible preferred stock.
Now, from our standpoint, as long as the value of the consideration that we give equates, we really don’t care, aside from a question of tax basis we might obtain, but we —
In other economic respects, we don’t care what form of consideration we use, because we will equate the value of cash, versus a straight preferred, versus a convertible preferred, versus common stock, whatever it may be.
So, if the worry is that we will do something dumb in issuing the preferred stock, you should — that’s a perfectly valid worry. But you should worry just as much we’ll do something dumb in terms of using cash or common stock.
I mean, if we’re going to do something unintelligent, we can do it with a variety of instruments.
And we will not get more licentious in our behavior or anything simply because we have the preferred stock.
And the preferred stock may offer sellers of a business the chance to do a tax-free exchange with us. And they may not want common stock, because they may have an ownership situation where they don’t want to run the risk of common stock ownership. And that’s why our preferred is flexible as to terms.
Because we could give those people a straight preferred with a coupon that made it worth par at the time we issued it. And then they would know what their income would be for the next umpteen years. And that may be of paramount interest to them.
We could issue them an adjustable-rate preferred, which as money market conditions change, would also change its coupon. And then they would be sure of a constant principal value for the rest of their lifetimes. And one or both of those factors could be more important to one seller or another.
So that we simply have more forms of currency available to make acquisitions if we have the ability to issue various forms of preferred. Because a preferred stock, if it’s properly structured, allows for the possibility of a tax-free transaction with a seller. And that’s important to many sellers.
Now, in the end, many sellers will prefer cash, just as in the past. And probably most of the sellers that don’t want cash will want common stock. But we will have a preferred stock available.
We’re only authorizing a million shares because under Delaware law, there’s an annual…I think there’s an annual fee. I know there’s an initial fee. And I think there’s an annual fee that relates to the amount of shares authorized.
So, if we authorized a hundred million shares, we would be paying a larger annual fee, which is something Mr. Munger wouldn’t let me do.
So what we will do, if we issue this, we will issue…undoubtedly, we will issue some sub-shares so that the numbers of shares, for taxation purposes, is relatively limited.
But that we will issue sub-shares to make it easier to make change, essentially, in the market.
We may issue…if the occasion demands…we may issue a convertible preferred. But that convertible preferred would not be worth any more, at the time we issue it, than a straight preferred. We would adjust, in terms of the coupon, and the conversion price, and so on.
So we can equate various forms of currency to fit the desires of the seller of the business. And this is simply one more tool to do it. There’s no downside, like I say, unless we do something stupid.
And if we do something stupid with this, we would do something stupid with cash or whatever.
So it —we probably should’ve done this some time ago, but we never had a case of a seller wanting that form of currency before.
And so it just…and we always felt we could get it authorized promptly. But there’s no reason to lose a couple of months, if a transaction is pending, to call a meeting to get this on the books.
So, it’s simply one more tool.
And if there are…anybody that has any questions or comments on the preferred, like I say, you can hold them until later, but I’d be glad to have them before we have the vote. Do we have any?
Yeah, there’s a question over there. If you’ll wait just a second, we’ll get a microphone to you.
When you ask questions, now or later, if you’ll give your name and where you live, I’d appreciate it.
Hi, my name is Dr. Lawrence Wasser. I’m from New York.
My question is this. If you want to buy a business and the people in the business want cash, you have to have cash, cash that…you know, this kind of cash.
We’re familiar with it.
But it strikes me that the preferred isn’t really cash, it’s fiat currency. That is, it’s currency that we can create.
That’s true. It’s like common stock in that respect. It is the…it is a form — it is an alternate form of currency, and…but it is —
Just in terms of common stock, for example, assuming we had enough authorized, we have an unlimited ability to create currency. Now, if we created the wrong price, it dilutes the value of the old currency. But go ahead on.
Until we vote in the affirmative, which I’m sure that this group will probably do because of their confidence in you, but until we vote in the affirmative, it doesn’t exist.
That is correct. That would be true, incidentally, with common stock. If we had no more authorized common stock out than we had issued, we have, I think, a million and a half authorized.
But let’s assume that we’d issued all that we had authorized. Until more was authorized by the shareholders, there would…it would not be available to be issued.
But if more were authorized by the shareholders then isn’t it true that the value of the shareholders’ holding would be diluted?
Only if we receive less in value than we give. That’s the key to it.
I mean, if we issue $200 million worth of preferred and we receive a business that’s only worth 150 million, there’s no question you’re worse off than before. So are we, incidentally. But we’re all worse off.
The…and that’s true if we give cash that’s worth more for a business than the business is worth. If we give 200 million of cash for a business that’s worth a 150 million, we are worse off.
We may not have issued a share of stock. But we have diluted the value of your stock if we do that.
As long as we get value received, in terms of whether…of cash, common stock, or preferred stock…then you are not diluted in terms of value. It’s an important point.
And obviously, a number of companies, as you may have…Charlie and I have commented about in reports and elsewhere…a number of companies, in our opinion, have issued common stock, particularly, which has a value greater than what they receive.
And…when they do that, they are running what I…what John Medlin of the Wachovia called a “chain letter in reverse.”
And that’s cost American shareholders a lot of money. I don’t think it’ll cost them any money at Berkshire. But it’s a perfectly valid worry for shareholders to have.
Because a management can build an empire just by issuing these little pieces of paper, which they feel don’t cost them anything.
I think Charlie had one story about that in the past. You want to comment on that, Charlie? No names basis, of course.
There was a particular bank where one of the officers wanted stock options, pointed out to the management that they could issue all these shares and it didn’t cost anything.
Now, imagine hiring a manager who thinks that way and paying them money…to behave like Judas in your very midst.
We have had conversations with managers…where they tell us how fortunate they feel because the stock is down and they can issue options cheaper.
Now, if they were issuing those to the third parties, you know, I’m not sure whether they’d have exactly the same attitude.
But we have no feeling that we’re getting richer when we issue shares. We have a feeling we’re getting richer when we get at least as much value in a business as the shares are worth that we issue. And we don’t intend to issue them under any other circumstances. But it’s a perfectly valid worry.
The second part of the question is that, obviously, with preferred issue, you have a situation where the common shareholder is…moves to the back of the line, as it were.
Why should the common shareholder in this room want to step to the back of the line if he’s at the front of the line now?
Well, it…but it’s also true if we buy a business for cash, and we…let’s say we borrow the money, the bank that we borrow the money from will come ahead of the common shareholder.
There’s no question. Any time you move…you engage in transactions that involve the capital structure, you are changing the potential for each part of the capital structure.
If you issue a lot of common and you’ve got some debt outstanding, you’ve generally improved the position of the debt.
And the question really becomes whether you think that the position of the common shareholder is improved by issuing either preferred stock, or perhaps borrowing a lot of money, to make an acquisition.
I mean, a couple of times in the history of Berkshire, we’ve borrowed money to buy something, to buy a business. And when we do that, we are placing a bank, or an insurance company, or whomever, ahead of the position of the common shareholder. We did that when we issued some debt a few years back.
And there’s a question of weighing whether the common shareholders are going to be better off by borrowing money. But borrowing money is not necessarily at all harmful to shareholders — although certainly, if it’s carried to excess, it is.
And the preferred is a form of quasi-borrowed money that does rank ahead of the common shareholder. But then, at the same time, we’re adding a business which we think is going to benefit the shareholder, if we issue that. So that’s the tradeoff.
My name is Matt Zuckerman. I’m from Miami, Florida.
My question is, it seems to me that there’s some requirement for shareholder votes if convertible stock…preferred stock…is issued beyond a certain limit. What are those limits?
There are no limits on the conversion term that we might do. But for example, if we were going to issue a convertible preferred…now we have no plans to do it, but it could happen. In fact, it might well happen this year.
The…we would…and the alternative, we’ll say, was giving somebody a hundred million dollars in cash for a business. If we were to issue a straight preferred, we would figure out what a hundred million dollars’ worth of a straight preferred would sell for, what coupon would be necessary.
And that would depend on call provisions and a few things. But for a triple-A credit like Berkshire, you know, it would be somewhere in the area of 7 percent or thereabouts. And then they would have no participation in the upside of the common.
If they wanted something that was sure to maintain its principal value, then you have to issue an adjustable-rate preferred that will keep its value around par.
That preferred might have an initial coupon of, say, 5 percent or something of the sort, because it has the ability to go up or down based on interest rates. But it would always be worth about par.
If we were to issue a convertible preferred, it might have a conversion price of, just to pick a figure, 28,000 or something of the sort, and a coupon well below the coupon on a straight preferred.
And so, whatever we did, they would equate out in our mind as to the value we were giving.
We’re not going to give 120 percent of X if we’re only willing to pay a hundred percent of X, just because the form of a deal changes.
But you may well see us issue, at some point…you may see us issue a convertible preferred.
You may see us issue a straight preferred. You may see us issue an adjustable-rate preferred. I hope we do something because I’d like, you know…
Yeah. Based on…
If we do it, we’ll think we’re better off.
Well, based on your past performance, I’m sure you’ll get more value than you give.
But in any case, it was my understanding that if the amount of shares issued for a conversion of a convertible issue were greater than 20 percent of the total amount of shares outstanding, then it would require a vote of the stockholders, under Delaware law. I
may be wrong.
I think it’s a stock exchange rule, isn’t it, Charlie?
You’re right about the rule, but…
It’s a New York Stock Exchange rule.
It’s a New York Stock Exchange rule. That would be $5 billion-plus of deal.
And, you know, we would love to make a $5 billion deal, but I don’t think we’re going to do it.
So I would say that the chances of any acquisition being large enough so that it requires a shareholder vote is probably slim.
But it isn’t because we wouldn’t be interested.
And you know, if we have one, we’ll be coming back to you… with the votes already in hand.
Are there any other questions on the preferred? We can talk more about it later, too. I just want to… oh, here we are. Sure.
Good morning, Mr. Buffett.
I’m Raina Di Costiloy from Chicago. I’m very proud to be here. And I’ve seen you grow so, that pretty soon we’re going to be out in a football field.
I think your explanation was very helpful. Because as I read this, and I’m sure many of the other lay folk, I didn’t understand what you…
(Warren said something but it was inaudible).
…what you were doing. And you mentioned the preferred stock. But in the prospectus, it’s not clear whether it would be the convertible preferred, the straight preferred. And you cleared that, answering a few other questions, but some of the people felt it
would dilute their stock.
Yeah. Well, I should’ve made that clear in the annual report. And I’m glad I’ve had this chance to do it today.
Anything else on the preferred? OK.
You don’t have to come back to the shareholders for a vote, after these shares are authorized, for the terms of it. And you’ve discussed this in terms of buying companies.
My question is, you yourself, through Berkshire Hathaway, own the preferred shares of several companies: Salomon, USAir, American Express.
Do those shareholders have to vote on the terms of the preferred shares that you bought for those companies? Or is that left at the board of directors’ decision level.
Could you clarify that point?
Go…excuse me, go ahead.
Could you clarify that point, please?
Yeah. We bought a…I think we’ve probably bought six issues of preferred directly from companies.
And since none of those triggered that New York Stock Exchange rule that we discussed earlier… and they could’ve if they’d been somewhat larger, but they didn’t…none of those deals had to be approved by the shareholders.
I think the only deal we’ve had with a company that had to be approved by the shareholders was when we bought the Cap Cities/ABC stock. Well, we bought early in 1986. I think it was approved by their shareholders in 1985.
But the only situations where it would’ve had to have been approved is if it triggered the New York Stock Exchange rule. And our purchases were not that large that they did that.
Any other questions? Yeah, there’s one more.
My name is Dale Vocawitz. I’m from Champagne, Illinois.
A recent issue of Barron’s indicated that it may be possible to issue a best of all possible worlds preferred, that being one where the dividend looks like interest to the issuer and is tax deductible.
And to the purchaser, it would qualify for the dividends received deduction. Do you think that structure might be possible with these shares?
Well, we haven’t thought about that. I know what you’re talking about on that, but I don’t think it would be possible.
For one thing, I don’t think you probably have a tax-free deal that way. Charlie, do you?
We probably wouldn’t try and be that cute.
I’ve got several quips in mind, but I think I’ll keep them to myself.
My guess is that that form does not work for a long time. I know what you’re talking about on it, but my guess is it doesn’t.
Some companies…then we’ll get on with this…but some companies care about the consideration they give in a deal, whether it’s cash, or preferred, or so on, because they care about the accounting treatment that they get.
They want…they usually want pooling treatment rather than purchase accounting treatment. I won’t get into that here. I know it’s going to disappoint you, but I won’t get into that here.
Although I may in the next annual report.
And that is of absolutely no consequence to us. We care not a wit about the accounting treatment that we receive. We feel that we have a shareholder body that’s intelligent enough to understand the economic reality of a transaction.
And that by playing various games, in terms of how we try to structure it, and maybe flow part of the purchase price back through the income statement or anything of the sort, which is done… that’s not something that we care about at all.
We would rather do whatever makes the most sense for us and for the seller, and then explain to you whatever accounting peculiarities may arise out of the transaction. And that probably differentiates us from most companies. And it probably helps us make a deal, occasionally.
(This part of the audio was inaudible) …really.
OK, now I can hear you fine.
OK. And I was wondering, will there be any opportunity for shareholders who may find the preferred issue preferable, for any number of reasons, to participate in that?
Well, if we issued a preferred and it became actively traded…let’s say it was a company with many shareholders instead of a few. Obviously, that would be something that any new or present shareholder could make a decision on whether they preferred that
issue than others.
We could, but have no plans of doing it and I don’t see it happening, we could offer to exchange preferred for present common.
And it’s conceivable a few people would have an interest, but the…most people have self selected in terms of the kind of security they want to own in terms of owning Berkshire common.
So it’s unlikely they would want to switch into a preferred, because they would…we wouldn’t have a premium of value, it would just be an alternative security.
We could do that, though. I mean, and it would probably be a tax-free deal.
We have no plans of doing that, but it’s something that if we ever thought that enough people might want, we could offer it. But no one would be obliged to take it. It’s a good question.
OK? We’ll move on.
Is there a motion to adopt the board of directors’ recommendation?
Walter Scott Jr.:
I move the adoption of the amendment to the fourth article of the certificate of corporation as set forth in exhibit A of the company’s proxy statement for this meeting.
Is there a second?
I second the motion.
Motion’s been made and seconded to adopt the proposed amendment to certificate of incorporation. Any further discussion?
We are ready to act upon the motion. If there are any shareholders voting in person, they should now mark their ballot on the proposed amendment to the certificate of incorporation and allow the ballots to be delivered to the inspector of election.
Collecting a few there. Would the proxy holders please also submit to the inspector of elections a ballot on the proposed amendment voting the proxies in accordance with the instructions they have received?
We’ll wait just a second here.
Mr. Fitzsimmons, when you’re ready you may give your report.
My report is ready. The ballot of the proxy holders received through last Friday cast lot…not less than 928,889 in favor of the proposed amendment to the certificate of incorporation.
That number far exceeds the majority of the number of all shares outstanding. The certification required by Delaware law regarding the precise count of the votes, including the votes cast in person at this meeting, will be given to the secretary to be placed with the minutes of this meeting.
Thank you, Mr. Fitzsimmons. The amendment to the certificate of incorporation as set forth in exhibit A to the proxy statement for this meeting is approved.
After adjournment of the business meeting, I will respond to questions that you may have that relate to the businesses of Berkshire, but do not call for any action at this meeting.
Does anyone have any further business to come before this meeting before we adjourn? If not, I recognize Walter Scott Jr. to place a motion before the meeting.
Walter Scott Jr.:
I move this meeting be adjourned.
I second the motion.
Motion to adjourn has been made and seconded. We will vote by voice. Any discussion? If not, all in favor say, “Aye.”
All opposed say, “No.” The meeting is adjourned.
Warren talks about Berkshire’s acquisition of Helzberg’s Diamonds
Now, I’d like to tell you about one thing that…since the annual report… that some of you probably read about in the papers, but maybe not all of you have heard about.
Just shortly after the annual report was issued, we completed a transaction with Helzberg’s Diamonds, with Barnett Helzberg, who’s here today. Barnett, would you stand up, please? All right. There he is. Give him a hand.
You may be interested in how it came about, because Barnett attended two of the last three meetings of Berkshire. He had a few shares in an IRA account, and he was here last year.
And shortly after this meeting, I was back in New York City. And I was crossing the street at 58th Street, right near the Plaza Hotel on 5th Avenue. And a woman said, “Mr. Buffett,” and I turned around.
And she came up, and she said she’d attended the annual meeting last year…or a few days ago…and said that she enjoyed it.
And I said, “That’s terrific,” and I started to cross again.
And Barnett had been about 30 or 40 feet away. I didn’t know him, and he had heard this woman. So, he said the same thing. And I turned around. And we shook hands. First time I’d met him, and he said, “You know,” he said, “I might have a business you’d be interested in.”
And I get that all the time, so…
So I said, “Well, why don’t you write me?” And a time went by, and I got a letter from Barnett.
And he’d been thinking about doing something with the business his father had started in 1950, and based in Kansas City that whole time. And he’d been exploring various avenues.
But probably, in some part because of his background as Berkshire shareholder, he had some specific interest in the company becoming associated with Berkshire. He cared very much about the company having a permanent home.
He cared very much about it having an environment in which it could grow and be run autonomously and be based in Kansas City. And he wanted to receive something in exchange… that he was happy to own for the rest of his life.
And so, we worked out a transaction shortly…just very shortly after the annual report went to press.
And so now Berkshire, as of 12:01, I guess, yesterday morning, the deal closed. There’s this waiting period because of the Hart-Scott-Rodino Act and a few other things.
The transaction closed. And now Berkshire is the owner of Helzberg’s Diamonds, which has roughly 150 stores around, perhaps, 26 or 27 states. I’m not sure the exact number. And mostly in malls, although some others. It’s been enormously successful.
Barnett brought in Jeff Comment, who formerly ran Wanamaker’s about eight years ago, I guess it is.
And the company has both expanded in its traditional format…it’s gone with a new format recently, which has been very successful.
It is…in its position in the jewelry industry, it tends to compete with a Zales or Gordon’s, but it does a far, far better job.
Their sales, per store, on roughly equivalent square footage, will be very close to double what competitors achieve.
It’s got a magnificent morale, and organizational structure. And the people…Barnett was very generous with people in making the sale. He took it out of his own pocket to treat people right because they’d done such a terrific job over the years.
And I think you’ll see Helzberg’s become a very big factor in Berkshire over time. And it just shows you what can come out of these annual meetings. So, the rest of you, you know, do your stuff.
So anyway, that is an acquisition that was made for…largely for common stock. It did not involve preferred, and…because Barnett preferred common.
And…but different people have different needs. And sometimes there’s a group of shareholders that can have different priorities. And that’s the reason we want to have various currencies.
If we had not been able to use common stock, we would not have made this transaction, because Barnett has been in no hurry to write a large check to the government. And we can help him in that respect with a common stock deal.
So anyway, we’re glad to have Helzberg’s become part of Berkshire. I wouldn’t be surprised if we have another announcement or two in the next year before we have the next meeting. I hope so. But there’s no guarantees.
Now we’re going to turn the meeting open for questions. We’ll do it as we’ve done before. We’ve got this room divided into six zones. And if you will raise your hand, the monitor in that…in your zone will recognize you. And we’ll keep going around.
We will not go to a second person in any zone until we’ve exhausted all those who have yet to ask their first question. We have…we also have a zone in the overflow room. So, there’ll be a total of seven.
And we’ll just keep going around, if you’ll identify yourself, please. And we’ll be delighted to answer your questions. And the more, the better. So, we’ll start with zone 1.
Q&A – Morning Session
(Click on a link below to skip to a particular topic)
- Why Warren put two of his family members on Berkshire’s board.
- Warren declines to comment on Chrysler.
- How Warren calculates how much to charge Berkshire’s managers for the incremental capital they keep on their business.
- The two only reasons for buying insurance.
- The competitive advantage of Berkshire’s insurance businesses.
- Can Buffett’s investment principles be used to evaluate high-tech companies?
- You don’t have to make it back the way you lost it.
- Warren and Charlie doesn’t consider the concepts of market value added or economic value added when evaluating a business.
- How Warren and Charlie sees derivatives.
- The future of Salomon.
- Warren talks about Phil Carret.
- The future of American Express.
- Warren’s thoughts on the stock option accounting rule.
- No plan to send out video or transcript of annual meetings to shareholders.
- Borsheim’s sales during Berkshire’s annual meeting is increasing every year.
- Warren and Charlie’s succession plan.
- You don’t need to know the exact value of a company.
- Warren will be waiting patiently until good opportunities appear.
- How Warren plans to use Berkshire’s $3 billion float. To read more about what float is, click here.
- Warren doesn’t feel threatened by Beardstown Ladies. To read more about the Beardstown Ladies, click here.
- Fundamental rules of economics Warren uses to make money for Berkshire.
- How to value Berkshire’s subsidiaries.
- Warren and Charlie is more interested in knowing bad news.
- The 2nd edition is the best edition of Ben Graham’s “Security Analysis”.
- Warren doesn’t really like to sell any company that Berkshire owns.
- Book value is virtually not a consideration at all when Warren evaluates a company.
- First questions Warren asks himself when evaluating a company.
Q&A – Afternoon Session
(Click on a link below to skip to a particular topic)
- Why Warren is investing in banks despite their higher prices.
- Warren’s timetable in writing a book about his career and philosophy.
- Would Coca-Cola and Gillette shareholders benefit if the two companies stopped paying dividends.
- Why employees of Salomon are being paid so much.
- Warren prefers to have no cash at all times.
- The newspaper business is still exceptionally good but not as good as it was before.
- Warren hasn’t been on the board of a company where the CEO proposed a hostile takeover.
- Warren thinks of himself as being “sort of a hundred percent Ben Graham and a hundred percent Phil Fisher”.
- Why Charlie is selling Berkshire shares.
- Avoid companies with confusing accounting schemes.
- How Berkshire is competing with Lloyd’s of London in the reinsurance business.
- Berkshire will keep retaining its money as long as it’s able to create more than a dollar of market value for each dollar retained.
- Warren doesn’t think his growing popularity is distracting him from running Berkshire.
- Geico’s decreasing return on equity.
- Warren and Charlie doesn’t comment on purchases and sales of securities or ownership.
- Warren’s Berkshire shirt was a gift and not available to shareholders.
- Phil Carret is “probably” a little too young for Mrs. B.
- Warren and Charlie will do anything that makes sense for Berkshire.
- Warren comments on the Helzberg acquisition.
- How Warren calculates Berkshire’s intrinsic value.
- Why Berkshire’s share price went up 25% in a short period of time.
- There’s no chance Berkshire will be in a business that Warren doesn’t understand.
- Warren and Charlie has no plan to teach by taking apprentices or opening a school.
- Warren hasn’t changed in 10 years.
- What determines how much cash Berkshire’s subsidiaries should send back to Omaha.
- Foreign exchange baffles Warren.
- Small stock bargains still exist, but Berkshire doesn’t invest in them anymore.
- You can’t protect yourself against lawsuits, but Berkshire probably had less litigation than any company of comparable market value.
- In operating a business, you have to figure out what you’re good at and who you really can offer something special to.
- Forces that causes return on equity to regress to the mean over time.
- How being under Berkshire increases a subsidiary’s return on capital.
- You don’t need to have great mathematical ability to be a great investor.
- What makes Wells Fargo better than other banks.
- There’s no magic about whether shareholder equity is positive or negative.
- The nature of the credit card business.
- The permanence and durability of the banking franchise.
- Warren is reluctant to comment on the “moat” of Berkshire’s holdings.
- Charlie admits he frequently speaks in a way that works with an in-group, but wouldn’t necessarily work everywhere else.
- America’s national debt is not as frightening as it appears to be.
- Is Berkshire continuing to buy more shares in Coca-Cola.
- Warren is asked whether it’s better to buy more shares in Berkshire or hire a money manager.
- Warren and Charlie likes people who are candid.
- Why some investors seem to be willing to accept below-average results.
- Future earnings is more important than current earnings.
- Investing in USAir was a mistake.
- Charlie’s book recommendations.
- Warren and Charlie has no plan to split Berkshire’s stock.
End of Q&A
Click here to see the full transcripts of all Berkshire Hathaway Annual Meetings on record.
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