伯克希尔·哈撒韦 1966 年股东信

Title: 1966 Letter

December 2, 1966

To the Stockholders of Berkshire Hathaway Inc.:

For your information, we have highlighted the financial information for fiscal 1966 in comparison with the five preceding years on the facing page.

In this letter we will discuss in some detail the following areas:

1. Operating Conditions — 1966

2. Survey of Operations 1961-1966

3. Maintenance of Financial Condition

4. Dividends

OPERATING CONDITIONS — 1966

Sales

Although total sales of $49.4 million were very close to last years, there were significant changes in the product mix. The Synthetic Division sales dropped in dollar volume, but this was offset by a corresponding increase in Home Fabrics sales. The Box Loom Division sales showed some gain, but this was offset by a drop in sales of our King Philip D Division.

The sales picture for the last half of 1966 was one of generally depressed markets. Heavy imports of yarn dyed goods plus a change in styling trends caused loss of sales and depressed prices in our Box Loom Division. Overproduction of acetate fabrics plus importation of nylon fabrics brought more looms into competition with us in our Synthetic Division. The combination of imports and increased domestic production depressed prices of plain polyester/cotton blends. We estimate that this development will cause looms to swing back on to cotton goods and thereby adversely affect our sales position on lawns woven at King Philip D Division.

The negative factors, which prevailed in the last quarter of our 1966 fiscal year, contributed to our decision to avoid inventory buildup by shutting down the Box Loom and Synthetic Divisions in New Bedford for the week of October 9, 1966. Inasmuch as the textile market has not, at this writing, shifted to a more active level, further cutbacks in production may be necessary to avoid inventory buildup.

New Products

The growth of our Home Fabrics Division over the past few years is, in large part, due to our development of both new products and new application of old products. In the past year, we have increased our expenditures for development so as to provide fabrics that will yield more stable prices and volumes.

Labor

In early 1966, we signed a contract with the Textile Workers Union of America AFL-CIO for three years ending April 15, 1969. This contract covers wages and benefits with no reopening clause.

Plant and Equipment

We have spent approximately $970,000 for purchase and installation of new equipment in order to lower costs, improve quality, and increase our manufacturing flexibility.

During fiscal 1966, we disposed of the remainder of our unused property.

Income Tax Payments

All but a small portion of our tax carryforward has been used as of the end of fiscal 1966. We therefore will incur income tax liability with respect to future earnings.

SURVEY OF OPERATIONS OCTOBER 1, 1960 — OCTOBER 1, 1966

As one might expect, in a business as highly cyclical as the textile business, the past decade for Berkshire Hathaway has been a recurring story of a period of earnings followed by a period of relatively heavy losses. The past year has been a significant one in this history because, not only was 1966 a year of profitable operations, but, also, it witnessed the restoration of our financial strength to the level that existed at the end of 1960. You will recall that the heavy losses of the years 1957 and 1958 had not yet been fully recouped by the profitable operations of the years 1959 and 1960, when our business was again hit with a three-year period of loss operations.

Not only did our financial condition in these years suffer from the inroads created by these losses, but it also had to absorb the impact of our heavy capital expenditure program of the early 1960s.

The following table summarizes the change in the net worth position of Berkshire Hathaway, Inc. during the past six years:

You will note that while dividends exceeded net earnings during this six-year period, the major reason for the 22% decrease in net worth has been the repurchase by the Company of its own stock, pursuant to a program whereby the Companys outstanding shares have been reduced to 1,017,547 shares—a 37% reduction compared with the shares outstanding on October 1, 1960. This decrease in outstanding shares has been appropriate, considering the reduction in scale of the Companys operations due to closing of unprofitable mills.

The benefit to the present stockholders of this program of share repurchases is indicated, in part, by the fact that net worth per share of the Companys outstanding common stock on October 1, 1966 was $28.99, compared with $23.37 six years previously.

In the year ended October 1, 1960, our sales totaled $62.6 million, whereas in 1966, they totaled $49.4 million, a decrease of approximately 21%. This corresponds to the 22% decrease in total net worth. The fact that the Company is now achieving approximately the same net worth turnover as existed at the beginning of this six-year period is again some indication of the restoration of its strength.

MAINTENANCE OF FINANCIAL CONDITION

It has always been among the goals of Berkshire Hathaway to maintain a strong financial condition. Indeed, it has been this practice that has enabled the Company to survive in the light of the highly cyclical nature of its business. The present strength of the Companys financial condition is demonstrated by its $23,158,187 of working capital at October 1, 1966. This figure is about equal to the Companys working capital on October 1, 1960 although on a per share basis, because of the reduction in the number of shares through repurchasing, our working capital is now $22.76 compared with $14.41 six years ago.

In addition to the cyclical nature of our business, there are other reasons why a strong financial condition is advisable. As you have been advised previously, the Company has been searching for suitable acquisitions within, and conceivably without, the textile field. Although to date none has been successfully concluded, we continue to have an active interest in such acquisitions. The present state of the money market, in which funds are virtually unobtainable for acquisition purposes, makes it imperative that we have available the liquid assets with which to consummate such acquisitions, should the hoped-for opportunities present themselves. Present uncertainties such as war, tax rates and decreased level of business activity also all combine to emphasize the continuing need for a strong financial condition.

A second area in which substantial investment may be necessary is our fast-growing Home Fabrics Division. Home Fabrics sales have nearly doubled in the past three years. Should a corresponding increase be attained in the coming years, we may be called upon to invest up to $7 million in additional inventory and receivables.

Finally, the threat of technological change is ever present in the textile field. We have an investment of $24.4 million ($6.3 million after accrued depreciation) in plant and equipment. This is an investment which the textile machinery industry is constantly striving to render obsolete. An important change at any level of our manufacturing process could require major capital expenditures at tomorrows replacement prices. We shall continue to weigh most carefully the possible rewards and risks of any capital expenditure program. However, should we decide that it is in our best interests to make capital expenditures, we must be in a financial position to do so. Sufficient working capital would be particularly necessary if the advent of important cost-cutting equipment coincided with a period of depressed textile earnings, making outside capital difficult or impossible to obtain.

It is these considerations which caused the Company at year end to include in its working capital $5.4 million of marketable securities, composed of short-term municipal bonds, commercial paper and common stock. Because of the uncertainties in knowing when the Company may be called upon to produce substantial sums of cash, and the possibility that this might not occur for a considerable period of time, your directors have felt that we should be as zealous to achieve a realistic return on this portion of our capital as we are on the other funds that are at the time invested in plant, inventories, receivables, etc. Accordingly, it is the present intention of the directors to proceed toward the interim investment of a major portion of these funds in marketable common stocks. This should hold promise not only of greater income than can be achieved through alternative investment possibilities in the field of non-equity marketable securities, but also provides us with the opportunity to participate in earnings derived outside of our textile business, even if only temporarily and indirectly.

DIVIDENDS

This restoration of the Companys financial position now permits a dividend policy reflecting the distribution to our stockholders of a reasonable proportion of current after-tax earnings. Such a policy, however, must be consistent with the need for preserving the strength of our present financial position.

To implement this policy, a dividend of 10 per share was declared on November 14, 1966, payable January 3, 1967 to stockholders of record on December 2, 1966.

Malcolm G. Chace, Jr.

Kenneth V. Chace
President

[Letter written by Warren E. Buffett]