Berkshire Hathaway Inc. (BRK.A)

ASM 2009 Part 2

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May 2, 2009

Okay. Let's get back to work. I should mention one thing, because it's appeared in the press recently a bit. Our goal is to issue every quarterly report on the last Friday after the close prior to the expiration of the 40 day period after the end of a quarter that we have for reporting to the SEC. The SEC says 40 business days or 40 calendar days unless it ends on a weekend, 40 calendar days after the end of the quarter you have to file. If it comes on a weekend, then it's the Monday following that. That usually means, because we hold a meeting usually on the 1st Saturday in May, it usually means that the last Friday possible will be the day before the annual meeting. This year, because the meeting early on a calendar basis because of Saturday falling on May 2nd, the last Friday will fall on May 8th. And that is our policy, we like to get it out on a Friday afternoon if possible because we want people to have the whole weekend to read it before the market opens. It takes time to I think it takes time anyway to digest the report. And we'd like we don't want some headline to determine market prices. We want, as much as possible, a thorough reading of the report. So we will always, unless something comes up makes it unfeasible, we will issue our quarterly reports on the last Friday before the expiration of the 40 day period and that's what we'll do this quarter. And so we have not changed anything. I can tell you some preliminary figures which then we have to file an 8 ks on because any information I give you has to be in the public domain before the market opens. But what I call our operating earnings, which would be the earnings before any gains or losses from securities or derivatives or any other transactions of that sort. The operating earnings will be about after tax about $1,700,000,000 against $1,900,000,000 last year. And as I told you, we're lucky to be in this particular period, we're lucky to be in the insurance and utility business. They're relatively unaffected by the recession whereas most of our other businesses are anywhere from significantly to drastically affected by the recession. We had an underwriting profit in our insurance business that was a little larger than last year. Our float increased a couple of 1,000,000,000. That was primarily due to a transaction that was announced with Swiss Re, which occurred in March, in which they bought what's known as an adverse loss development cover and gave us CHF 2,000,000,000 for that. And that's a very, very long float. The probability is that we will not pay out on that probably for at least 15 years and maybe quite a bit longer. So that's long duration float. And that's what accounts for the $2,000,000,000 roughly $2,000,000,000 gain in float. The utility business, earnings are reported down somewhat, but there were 2 items that account for that. One is that on our Constellation Energy deal which blew up last year and we reported a significant gain on it, we got a bunch of Constellation stock and that is mark to market and goes through our income account every day in theory, but certainly every quarter and Constellation was down somewhat during the quarter. So that got charged against the utility earnings. And then a larger item was a payment and the final payment in terms of options that were issued 10 years ago, which had the effect of increasing Berkshire's interest in Mid America, which we like, but we wrote a check, a significant check with Mid America to buy out the options. And that got recorded as an expense in the Q1. But the utility earnings are more than satisfactory, but those two items in it. Then when you get into all of our other businesses, with just a couple of exceptions, those businesses are basically down. I mean, they're all getting hit to varying degrees by the recession. So, that's basically the operating earnings story. Our book value per share went down about 6% in the Q1, which is a combination of security and markets and the fact that the credit default swaps, which I'm the one responsible for writing them, that experience has turned worse even since I wrote the annual report in terms of bankruptcy. So that loss, a potential loss, we're actually stow funds ahead by a substantial margin, but that potential loss and I would say expectable loss is reflected in the Q1 figures. And of course, there's been some bounce back since March 31, but that's pretty much the story of the Q1. We ended the quarter with cash equivalents of about $22,700,000,000 excluding any cash at the utility or at the finance company operation. But we spent $3,000,000,000 of that the next day on a Dow Chemical Preferred. So we actually ended effectively, one day later, the quarter with a little less than 20 $1,000,000,000 in cash. We always keep a significant amount of cash at the parent company, not at the regulated subsidiary, so that whatever comes along, we're prepared for. And that's pretty much the story of the Q1, and I wouldn't be surprised I mean, I would I guess I would almost be surprised if the opposite happened if the world changed much, over the remainder of the year. I think that we will continue, barring some huge natural catastrophe. We will do quite well on insurance and we will do well in the utility operation and we won't do well in most of the other operations, but we will have significant operating earnings, which I mentioned is about $1,700,000,000 in the Q1. If you look at our operating earnings, dollars 1,000,000,000 or a little more that comes from Mid America and from our energy business, basically we're going to leave in that business. I mean, there's all kinds of opportunities to do things even within our present subsidiaries. There's lots of projects that promise decent returns. So you should not think of that 1,000,000,000 dollars or so as being available to us at the parent. It would be if we wanted it to be and wanted but it's a practical matter we're going to leave it all in. The rest of the earnings are available to us in cash, plus or minus any change in the float to do anything that's interesting that comes along. So that's an abbreviated summation of the Q1. We will put out the 10 Q next Friday after the close and we'll continue to follow that policy. With that, we'll go to Andrew. Excellent. This question actually comes, just came across the BlackBerry before lunch, from, what I think is an audience member. Josh Wolf of New York writes the following: BYD appears to be more like a venture capital speculative investment than a value investment. Would you both explain that investment, your logic behind it and your expectations for it? Yes. I'm going to turn that over to Charlie in just one second. But Charlie and I think there is no other kind of investment than a value investment. In other words, we don't know how anybody would invest in a non value investment. And so we've always been puzzled by the term value and saying that contrasts with growth or anything. Value relates to getting a lot for the expectable flow of cash in the future in terms of what you're laying out today. So we've always every time somebody characterizes us as value investors, we always ask them what other kind can there be. But Charlie is our team leader here on BYD and he gets very excited. So I may have to control him, but go to it, Charlie. Yes. Well, of course, BYD, although its founder is only 43 years old, is not some early stage venture capital company. BYD is one of the main manufacturers of the world of the rechargeable lithium battery and it achieved that position from a standing start at 0 under the leadership of the founder, Wan Chuan Fu. And they went on into cell phone components and developed a huge position. And and then finally, not satisfied with having worked a couple of miracles, Wan Jian Fu decided he would go into the automobile business. As nearly as I can tell, it was 0 experience in automobiles and from a standing start at 0 and with very little capital, he rapidly was able to create the best selling single model in China. And that's against competition that was Chinese joint ventures with all the major auto companies of the world, technological marvels who have more capital and so on. This is not some unproven, highly speculative activity. What it is, is a damn miracle. I warned you. And of course, Hong Kong has hired 17,000 engineering graduates And those engineering graduates are selected from a 1,300,000,000 people in China. And he's hiring at the top of the classes. And so you get a remarkable aggregation of human talent. And then you've got the basic quality of the Chinese people which when unfettered from the wrong kind of government, for instance, the wrong kind of emperor, the Chinese people succeed mightily when they came to this country as coolies, slaves. They would leave and soon be the most important people in the town. So this is a very talented group of people. And in a sense, this particular period may be the Chinese day. And of course, these batteries, these lithium batteries are totally needed in the future of the world. We need them in every utility company in America. We need them in every utility company in the world. And we have to use the direct power of the sun and we can't do that without marvelous batteries. And he's in the BYD is in the sweet spot on that stuff. And I know it looks like a miracle and it looks like Warren and I have gone crazy, but I don't think we have. Well, one of us at most. And that car you're going to see in the in the annex, I think they make everything in that car except the glass and the rubber. There may be a couple of small exceptions. That's unheard of. Whoever went into the automobile business and made every part and made it a bit and made the automobile a best selling thing. This is not normal. Mean, this is very unusual and I regard it as a privilege to be have Berkshire associated with a company that is trying to do so much that's so important for humanity when you get right down to it because it may be a small company but its ambitions are large and I don't want to bet against 17 1,000 Chinese engineers led by Wan Jianfu plus 100,000 more talented Chinese and a brand new area constructed the way they want it. I will be amazed if great things don't happen here. I don't think, given the size, it can be all that important to Berkshire financially. But I have never in my life been more felt more privileged to be associated with something than I feel about BYD. BYD was Charlie's last year. The Irish banks were mine. So he's the winner. BYD incidentally does $4,000,000,000 a year of business. I mean, so it is not a small business and it will probably get a lot larger. Let's go to the area 2. Hello, Mr. Buffett and Mr. Munger. My name is Dan Lewis. I'm from Chicago. My question has to do with the U. S. Dollar versus other major currencies. You spoke a little bit already about the government policy and its effect on inflation in the future. And just by itself, you think inflation would hurt the dollar, but obviously there's a lot of other factors at play. So I'm kind of interested in knowing your latest outlook on the dollar. I know you've been bearish, but given everything has been thrown up in the air in the last 6 months, how you think these various things will come together, trade deficit, budget deficits and how it will affect the dollar? Yes. It's pretty unpredictable. But the I will guarantee you that the dollar will buy less, you know, 5, 10, 20 years from now. And it may be it may buy very, very substantially less, but I don't know that obviously. But we are doing things that will hurt the purchasing power of the dollar. On the other hand, the same thing is happening in countries around the world. So it's very difficult to say whether the dollar versus the pound or the dollar versus the euro, etcetera, how that will behave because the British will run a deficit this year of 12.5 percent of GDP and even the Germans with their long time fear of inflation will probably run a deficit of 6.5 percent of GDP. So you've got governments around the world all electing to run, and I think properly so, electing to run very material deficits in some cases close to unprecedented except in wartime, electing to do that in order to offset this contraction of demand by their citizenry. And how that plays out in relative exchange rates, I can't tell you. How it will play out in terms of the value of their currencies purchasing power in the future versus now, I think, is fairly easy to say and that's that it's going to cause units of currency to buy a lot less over time. That isn't going to happen in the next year or 2 but that doesn't mean that markets won't start anticipating it at some point. And it's going to be a very, very interesting future. I mean, we are doing things that we haven't seen in the past and policymakers do not know the outcome of that. I don't know the outcome of it. You do know it will have consequences and you can bet on inflation. Charlie? Well, I was raised here in Omaha and I well remember the $0.02 1st class stamp and the $0.05 hamburger. And so in my life, there's been a lot of inflation. And in my life, I think I've had the most privileged era of all history in which to live. So a little inflation is not going to ruin the lives of any of us. The trick is to avoid the runaway inflation, and that is a problem Warren and I are going to quit claiming to the younger people. Here is a product though. 6.5 ounces of this product 100 years ago cost a nickel plus a 2¢ deposit and it's hardly gone up in price at all. It's very interesting. Wheat hasn't gone up that much or oats or things of that sort. On the other hand, a newspaper that cost a penny 100 years ago costs a dollar now and they lose money turning it out. So it gets very uneven in terms of its impact. Carol? Warren and Charlie. This question, I got good many of these. This one comes from well, it comes from Mr. Kimpton. Kempton Lamb or Lamb Kempton, one of the 2, from Calgary, Canada. And the question is, how would you quantify the financial impact and damage of Berkshire losing its AAA credit rating, which increased the cost of capital of Berkshire, which was surely a competitive advantage for the company. And Warren, what are you doing actively to try to restore Berkshire's AAA rating? Do you think that Berkshire will be able to regain it? Well, it won't regain it soon because I don't think rating agencies will turn around like that even if they should. We have a AAA from Standard and Poor's, but it's provisional and they're going to look at it in about, I think they said about 12 months. Moody's affirmed the rating early in January, then we issued a bond at one point where it was, well, that was right after the rating changed. And actually, in terms of our credit default swaps, which isn't a metric you can use for credit acceptance, although I'll tell you in a second an interesting aspect of that, That spread came down actually. It makes very, very little difference in our borrowing costs. I mean, very little. And it never has incidentally. I mean, AAAs versus AAA, the spread has always been very small and people would argue in finance classes and all that, it wasn't worth paying the price to have a AAA because you didn't save that much on debt and it cost you in terms of return on equity. I never subscribed to that and I very much liked having a AAA from both Moody's and Standard and Poor's. I was disappointed when Moody's downgraded us. We didn't really think that was going to happen but it did. And it doesn't have any material effect on borrowing costs. It does cause us to lose some bragging rights around the world in terms of our insurance promise, although nobody ranks ahead of us, that's for sure. But it will not change back in a hurry. People don't make decisions in committees that they reverse very quickly. It's just not human nature. We're still a AAA in my mind and actually we're a AAA in Standard and Poor's mind till we hear something differently. We certainly think and we run it in a way that there can be no stronger credit than Berkshire. It's difficult for a rating agency if they have a checkbox system of ratios and such to measure something like the attitude of management toward creditors but I will assure you that Berkshire has a management that regards meeting its obligations as sacred and a lot more important than increasing earnings per share or anything of the sort. I mean, we have obligations to people in something like workers' compensation that go 50 years out in the future. I mean, this is somebody that's been injured severely and they get a check every month from Berkshire and that's a lot more important than whether we earn X or X plus a tenth or a couple of tenths percent on equity. And we conduct ourselves, we certainly try to conduct ourselves so that not only will people get those checks but they'll never have to even worry about getting those checks. And that's very difficult for a rating agency to quantify that attitude on the part of the management of Berkshire, but believe me, it exists. And I would say that the AAA change at Moody's is not it's not going to be material in the future of Berkshire, but it still irritates me. Charlie? Well, at least they showed a considerable independence. Who knows? That may have entered into it too. Yes. My attitude is quite philosophical. I think the next change at Moody's will be in the opposite direction. And I think that will happen because we deserve a higher rating and they're smart. So when Charlie and I disagree, and we do disagree a lot, we never argue, but we disagree. And Charlie, when it gets to the point where he really wants me to do something, like bye bye the BYD interest or something, he always says to me, well, he says, in the end, you'll see it my way because you're smart and I'm right. I will I can't resist pointing out one item that just may be a little technical to most of you, but there are some people here who will will find it quite interesting. And it actually even enters into credit ratings to the degree to the extent that credit default swaps enter into it. When we write a let's take an equity put option and we get paid for writing a $1,000,000,000 put, somebody pays us $150,000,000 We get the $150,000,000 of cash that day and we set up a liability for $150,000,000 the 1st day for the value or the that we our appraisal of what is going to cost us to meet that obligation. I mean, that's the market price for it. The other guy takes $150,000,000 out of his cash and sets up $150,000,000 receivable that day. Now these receivables and payables change over time. But the 1st day, no profit, no loss, just cash changing hands. 1 guy sets up an asset, the other guy we set up a liability. Now as the world has developed in the last couple of years, the value of that asset to the other fellow has increased on a mark to market basis. And he reports that through earnings. So his asset goes up, our liability goes up and we report that through earnings as a loss. But we've got the cash, And in the last couple of years, his auditors, his credit department has said, gee, you've got a receivable from Berkshire that comes due in 15 years and they don't have to post collateral So you have to go out and buy a credit default swap to protect yourself against that receivable going bad. Now that has two effects. A, he's laying out money every year to buy something that doesn't cost us anything but costs him real money. And the more he shows as a profit, the more of the credit insurance he has to buy, so the more money it costs him every year. And that has driven up the demand for credit default swaps at Berkshire which made for some crazy prices. So at one point, our credit default swaps were costing that guy 5% a year. So if he was showing, say a $200,000,000 asset, he was laying out $10 a year and he was going to have to lay it out for 15 years just because of his credit department's requirements. And it's made it very unpleasant for the people on the other side of our transactions, even though they keep writing up the profits. It doesn't cost us anything but it does result in a kind of a crazy market and the credit default swaps. I realize that that has not been a burning issue with many of you but it is an unusual it's something I didn't anticipate. And it explains why to some extent people may want to modify their contracts with us and if they want to modify them enough, we'll answer the phone. But in the meantime, we're sitting with the money. Let's go to Area 3. Jim Hatten, Cornhusker in Davenport, Iowa. On our drive over from Davenport, we noticed 2 rather large wind farms by Mid America Energy. And my question is when will be the return on investment of these wind farms and are Berkshire Hathaway looking at any other alternative energies? Yes, we're the largest in terms of owned capacity and wind in the country, I believe, of any utility. And Iowa has the greatest percentage of its electricity generated by wind. But of course, the wind only blows about 35% of the time in Iowa, something like that and we've got people here who can be more accurate than that. But So you can't count on it for your baseload or anything of the sort. But Iowa has been very, very receptive and I would argue progressive in encouraging us and we have encouraged them in return to bring in a lot of wind capacity. We are a net exporter of electricity in Iowa. Iowa is far more than self sufficient in our service area in terms of electric generation and I think that works to the benefit of the people of Iowa. And we have an arrangement with Iowa. As you may know, we have not increased our rates at all but for more than a decade now and that's been achieved by efficiencies. It's been achieved with wind generation. We have a return that's built in on that that's fair to us, fair to the people of Iowa. And part of that return comes in the form of a tax credit. I think it's $0.018 per kilowatt hour that is given to anybody in the United States that develops wind power generation. We love the idea of putting in more wind and we're doing it. We're doing it out at Pacific Corp. And I think we'll continue to be a leader. And one advantage we have over perhaps some people, is that we are a big taxpayer so that we don't have to worry about whether the tax credits are useful. I guess the tax credit can be sold also but we don't need to do that in our particular situation. So you'll see more and more wind generation by the Mid American companies. When we went into Pacific Corp out on the West Coast, the 6 states out there, they had virtually nothing, maybe nothing at all in wind generation and we've developed a lot and we've got more coming on. Charlie? Oh, I think in practically anything that makes sense in utilities, the Berkshire subsidiaries will be leaders. I think we can all be very proud of Mid America, and that's its 2 leaders. We're enormously proud of Mid America, and we will do a lot more in utilities over time. Constellation didn't work out. I wish it had, but we were back there. Constellation, we learned of their troubles on a Tuesday at noon. I mean, we saw it in the stock price and so on. Dave Sokol and Greg Abel were in Baltimore that evening with a firm all cash bid to solve Constellation's problems. And Constellation was likely to get downgraded within 48 hours, maybe 24 hours. And they would have had posting requirements in connection with various derivative transactions that they probably would not have met. I mean, they were facing bankruptcy. And we literally went from a phone call that Dave made to me at noon or 1 o'clock to handing them a firm bid that evening in Bolivar. And that's one of the advantages of Berkshire. That is a I think that's a durable competitive advantage. I think there are very few organizations that will act in that manner and that where you have the talent there that you feel as a CEO you can back them up with that kind of money without worrying about it. So that is a plus for a Berkshire even though it didn't work out in that case. We will do more in the utility business. Well, you bought a pipeline, didn't you, in about 2 hours? Yes. We did buy a pipeline and it's turned out very well. And in that particular case, the company DynaGE, this was back in 2002 or so, the company needed the money enormously. They'd gotten the pipeline from Enron. It was a very complicated transaction but they needed the money and we needed the Federal Trade Commission approval, the FTC approval on the deal as would anybody that was buying it. And we literally wrote a letter I wrote a letter to the commission and I said, you know, these guys need the money. They need it before the 30 day period is up and let us go through with us early and we'll do any damn thing you tell us subsequently. And Berkshire can make that kind of a transaction. We don't ask the lawyers before we do it or anything. We just do it. And that is an advantage and it was an advantage to Dynegy. It got them through a period that they would have I'm not sure they would have gotten through otherwise. So we can move fast when the time comes. But one of the reasons we can there's a couple of reasons we can move fast. A, we've always got the money and we've got a mental attitude toward that. But we also know we've got the managers that can deliver on the properties once we own them and that's a huge, huge advantage. China, we would be restricted by that ownership limitation, but it's very hard to imagine that we won't find more things to do in China over time. I mean, it's a huge market. We do a lot of things and some of those are exportable and there will also perhaps be opportunities to buy more businesses there. We would have bought more than 10% of BYD if we could have but that's all that they wish to sell us. So we hope that comes about. In terms of the Chinese dollar holdings, you know, in a way, they can't get they can't get rid of of owning more dollar assets. I mean, the nature of it is if we're going to run a as we did a few years ago or a year or 2 ago, if we're going to run a $250,000,000,000 trade deficit with China, I mean, if they're going to send us goods and we want those goods to the tune of $250,000,000,000 more than we sell to them, they end up with $250,000,000,000 of little pieces of paper and they can convert those pieces of paper called U. S. Dollars. They can convert them into US real estate, into US stocks, US government bonds. They can do all kinds of things. They can even trade them to the French and get euros or something in exchange, but then the French have the problem. So the Chinese dollar assets are going to build as long as there's a significant trade surplus with China and then they have the choice of what to put those dollars into And they have elected so far to put a significant amount into US government bonds. And I think a major official about a month ago or so in China said he wasn't too happy about the prospect of what's going to happen in terms of the purchasing power of that money that's been put in US government bonds and I would say he's right. I mean, anybody that owns dollar obligations outside of this country is if they hold them a long time is going to get less back in the way of purchasing power than existed at the time that they took on those dollar obligations. And it's a major problem, not the world's worst problem, but it's a major problem for a finance minister or a government in China to decide what to do with this buildup that comes about because they are running a trade surplus. And they've set up the Chinese Investment Corp, which has a couple $100,000,000,000 in it in terms of deciding to make investments around the world. But it's an interesting question. If you may be the finance minister of China, what I would do with the trade surplus, the funds that came in because of the trade surplus. And I think I'll turn it over to Charlie and ask him what he would do if he were the Finance Minister of China. Well, I agree that is a very easy question. I would do exactly what they're doing. I think China has one of the most successful economic policies in the world and China has advanced more rapidly than the rest of the world and I would say their policies are exactly right. And their rate of advance is so great and so meaningful that if they lost a little bit of purchasing power on their dollar holdings, It's a trifle in the big scheme of things from the viewpoint of China. So I've got nothing but admiration for the way the Chinese have been running their own affairs. And they're going to be very hard to compete with all over the world and that is exactly the correct policy for China. That's the way you get ahead fast is to be very hard to compete with all over the world. So I think they're doing it exactly right and I think that the United States and China should be very friendly nations because we're joined at the hip. So you'd suggest they keep buying U. S. Treasuries that target no yield? Whatever they yield. They're not no yields because they can buy longer. Okay. We've got some advice for the Chinese government. Carol? In the past, you have stated that management should this question comes from Ingrid Hendershot. In the past, you have stated that management should be required after several years to do a postmortem on acquisitions it makes. Would you each provide us with your postmortem on Berkshire's largest acquisition, General Re? Yeah, I don't think I'll comment on General Re but I don't think we generally should make our postmortems public. I think that if we acquire we do believe in postmortems and we strongly believe in them and we think they're conducted at far too few companies. It's easy to propose a deal and it's much harder to account for it later on. And Charlie is a big fan of rubbing anybody's noses in their own problems. And it absolutely should be done. I don't think it necessarily should be made public. I don't think that you attract businesses by, and managers by pointing out even though you were the one that made the mistake as the acquirer in your projections, pointing out the short falls that may have occurred with the managers that are maybe doing a very good job to try and overcome the fact that you made a mistake in buying it in the 1st place. So I don't want to I wouldn't want to get into that. Gen Re has worked out well after a terrible, terrible start and I was dead wrong in 1998 when I bought it and thinking that it was the Gen Re of 15 years earlier, which had absolutely the premier reputation in the insurance world. And some practices in terms of reserving and underwriting had changed somewhat. But I'm happy to say that thanks to the combined work of Tad Montross who is with us here today and Joe that the yeah, Joe Brandon of course. But Joe and Tad, when they took over in what September of 2,001 actually, right about the time of the World Trade Center problem, they took after all of the problems. They went right after them reserving, underwriting, whatever it might be. And GenRe is the company now that I thought it was when I purchased it in 1998. So we're proud of them. It was a very tough job. Wasn't one that was going to get done by itself and that to some extent when you tighten up on an organization that has fallen into some lax ways, That is not an easy job. Both of them or each of them, they could have left for some other place and made just as much money, maybe more money, not had to face the problems that they faced at January, but they hung in there and now we have an organization that we feel terrific about and has a great future. Charlie? Well, I think that's right And but that's it's very important that you have an ability to turn your lemons into lemonade. And we were very, very lucky to have Joe and Ted to help us in the process. It wasn't pleasant and it wasn't pretty and it was very successful and it wasn't something that ordinary managers would have been at all likely to do. You had to be very tough minded to fix General Rhee and they really did fix it. When we do the post mortems, we in a sense are looking at our own handiwork. I mean, we make the decisions. It's not some strategy department someplace or vice president in charge of acquisitions or some management consultant that comes in and tells us we ought to buy this or that. We're looking at our decisions and that's very important and we talk about that And we've made some dumb decisions and most of them have been mine because I'm the guy that's sitting in Omaha making most of the decisions. But it would really be a mistake to discuss in public my dumb decisions which might reflect on some of the managers in some of the arenas. So we will not disclose those but we will tell you that there are dumb decisions made around Berkshire. The really brilliant decision in the General Re transaction was made by Joe Brandon. He was the one who decided that Berkshire should buy General Re and he caused the transaction and it wouldn't have happened, I think, if he hadn't been there. Would you agree with that? Yes, that's true. And Joe was the steward for the General Reis shareholders. We got a decent result and they got a fabulous result. So if capitalism has any heroes in that transaction, I chose the hero. Okay. Let's go to number 6. Yes, sir. Mr. Buffet, Mr. Munger, I'm Chuck Hosmer from California. And you mentioned earlier the union cooperation at the Buffalo Newspapers. Without the introduction of unions, how do you view contracts for other employees of BRK's subsidiaries? I'm just trying to think whether we have any contracts. I hope not. Yeah, we are not big believers in contracts. We hand people 100 of 1,000,000 or 1,000,000,000 of dollars in some cases to sell us their business. And the decision we have to make is are they going to have the same passion for the business after they hand us the stock certificate and we hand them the money? Are they going to have the same passion that they had beforehand? And if we're wrong on that, no contract is going to save us. We don't want relationships that are based on contracts. So I can't really think of a formal contract that we have. We have understandings about bonus arrangements and that sort of thing, and that's not that complicated with various managers. I mean we have the comp of the top person at each company is basically my responsibility, and we have all kinds of different arrangements because we have all kinds of different businesses. Some of our businesses' capital is an important factor in, so you have to put that in the comp arrangement. Some of it, capital doesn't mean a thing. Some of our businesses are very easy and very profitable. Some of them are very tough and it takes a genius to get a so so result. So we have a whole bunch of different arrangements on that, but we don't try to hold people by contracts and it wouldn't work. And we basically don't like engaging in them. So you're looking at a company that can you think of any contracts we have, Charlie? No. Our model is a seamless web of trust that's deserved on both sides. That's what we're aiming for. The Hollywood model where everyone has a contract and no trust is deserved on either side is not what we want at all. Yeah. We do not want to negotiate the size of the executive bathroom. That's not our game. Becky? This is a question from Edward Donahue from Belmont, Massachusetts. In the spirit of raising partnership value in these times, has Warren given any thought to spinning off as separate companies? My thinking is that some of these companies would sell at higher multiples to book value than Berkshire currently does. Further, where appropriate, consolidate companies with similar industries with the wish to save on management costs, administration and even potential selling costs? Yes, we will not be spinning off any companies. We had to. We were a bank holding company, believe it or not, at one time. We became 1 in 1969 and we were given 10 years to dispose of our bank, which was in Rockford, Illinois, and we did have an effective spin off of that. But if somebody comes around us and says, Gee, you've got a multiple of X and you're going to have a multiple of 1.5 times X for this subsidiary if you spin it off, We can't wait to throw them out of the office. It just doesn't interest us. We are not looking for something that gives a 1 month jump or something like that in market value. We've got a wonderful business. We want to continue it within Berkshire. We've got this ability within Berkshire, which is a real asset in terms of moving money around into various opportunities without tax consequences. They're part of a consolidated return. So if a See's Candy is a wonderful business, which it is, but it generates a lot of capital that can't be used effectively in that business. We can move it to some other business or buy other businesses with it. And we have a real advantage in allocation of capital that a shareholder basically can't do as tax efficiently as we can do it within the company. Plus, when we buy businesses from people, we make them a promise. They can lead our economic principles in the back of the annual report and they know that we're buying for keeps. It is a marriage that's going to last and we're not going to because we can get a higher multiple or something for a temporary period of time to spend something off. On top of it, there would be those other costs, but that's not the determining factor. It's a basic principle at Berkshire that we buy to keep and people can trust us to keep our word on that. Charlie? Yeah. So many of those spin offs because your market cap will be a little higher. Wall Street sells that stuff so they can get fees. It isn't really doing that much for anybody in the ordinary case. I suppose the one exception that could happen if the regulation was crazy enough, you know, you can imagine something that might cause Berkshire to go to 2 parts. But short of something like that, you're looking at what you're going to get. It was actually hurting some operation because regulation was focused in that and that tied in the hands of other companies in the Berkshire Group. We'd have to look at that. But as Charlie said, we have listened to presentation after presentation over a lot of years about by investment bankers basically saying if you just do this wonderful thing, the market will love you. And how much is conscious and how much is subconscious, we'll never know. But the one thing we do know is there's always a fee that accompanies it. Area 7. Good afternoon. Mike Nolan from Montclair, New Jersey. Until recently, the student loan business in the United States has been a very attractive and successful one. However, proposed changes coming out of Washington have thrown the industry into disarray. Could you comment on the industry, which is highly reliant on both faith, trust, as well as financing? And talk a little bit about the companies in this business? Yes. I don't know that much about it. Maybe Charlie does. No, I don't know this much about it either. There's been a fair amount of scandal in terms of the sales methods. Some of the companies in the field got awfully cozy with some of the university administrators and so on. It's been a long time since Charlie and I thought about getting a student loan. So we haven't checked the regulations too carefully on that one. But, we don't know a lot about it. I actually got approached, I guess it was about a year ago or a year and a half ago on the deal that fell through on Sallie Mae and I said at the time to the fellow that called me, I didn't understand it that well and it turned out to be a good thing I didn't. Andrew? Okay. This question comes from John McDonald and he asks, Warren, in your General Electric and Goldman Sachs Investments, do you think you've picked attractive businesses or simply attractive securities? Ben Graham's security analysis suggests that the most frightening things, an executive management can do is manage earnings, which it could be argued both of these firms do. What is your reaction to that? Well, I could say that I could argue that a very substantial percentage of American industry over the last 15 years at one time or another has managed earnings and I've witnessed it and argued against it and gotten no place. So I don't regard that as a malady that's limited in its experience. I don't know anything. I would not get into the specifics of those companies. I felt good about those companies in terms of the quality of the businesses they had and the quality of the management, but it was the terms primarily that caused us to make those deals. Those were made in a period when markets were in chaos and you should have gotten very good terms for committing money that very few people were either willing or in most cases able to commit major sums on short notice. And it took good terms in order for us to do it. And like I said, I'm not sure there was any second possibility in those cases. It was a really extraordinary period. We were happy to do it. I feel good about the deals obviously because we got a very good coupon. But considering the circumstances under which the deals were made, I don't think there was an alternative. So if they wanted $5,000,000,000 $3,000,000,000 respectively on those deals, I think we were the low bed in effect, but I also think we made very decent deals. And could we have done something better with the money at that time? I don't know. As I measured at that time, I could not find anything that liked better. It was the terms of deals overwhelmingly, although we obviously like the businesses. I know the managers, the CEOs of both companies very well and I think they are terrific people. I think they're smart people and I think they've been very straight with us, straight with us long before we made a deal with them. So we're very happy with those deals. Charlie? Yeah. Well, there's been a lot of criticism of investment banking in this arena, starting with that movie. But Berkshire itself has had marvelous services from all of its investment bankers, which is interesting. Think of what we'd be saying if we've been mistreated. We've done a lot of business with Goldman Sachs over the years and my experience goes back to when I was 10 years old and met Sydney Weinbergen, who was running the firm and was a legendary Wall Street. Well, he was Mr. Wall Street for a long, long time, and I was a friend of Gus Levy's. And Gus Levy also did some really nice things for us, including when we had a little nothing company called Diversified Retailing, which Charlie and I and Sandy Gottesman jointly formed, Gus came in on an underwriting of a $6,000,000 issue brought by New York securities, which he wouldn't have dreamt of coming in in that kind of a deal under most circumstances and he had Goldman Sachs join in at that time. So there've been a lot of things that have made for a very happy relationship with Goldman Sachs. I feel good about them. And of course, we do lots of business with General Electric. We've bought I don't know how many of those wind turbines from them, but GE is a very, very important American institution. We'll sell them a lot of things. We'll buy a lot of things from them and we'll make money on our investments. So that keeps me happy. Area 8. Hello, Mark Hoffman from San Diego, California. I just want to thank you for all your wisdom and advice over the years. I also like to thank the boys at the Blumkins, the Fernerfertramar, they gave us a great tour the other day. I'm from an organization called the EEO and they really showed us the culture at Berkshire and what you guys do. My question is, looking at the overall world economy, the Berkshire businesses are great, but my question is, is there underlying issues you see in the world economy like going off the gold standard 40 years ago and Fiat currency and countries of making money like crazy. If the Berkshire businesses are great, but the underlying economy is a problem, where do we go from there? What are the questions you're asking yourself about the world economy? Thanks. Yeah. There's always a lot of things wrong with the world. Unfortunately, it's the only world we've got. So we live with it and we deal with it. But the beauty of it is this system works very well. I don't have the faintest idea what's going to happen in business or markets in the next year or 2 years. But the one thing I know is that over time, people will live better and better in this country. We have a system that works. It unleashes human potential. I was just thinking, we have today about 35,000 people here. That was almost 1% of the population of the United States in the 1st census in 17/90, just a 100 groups like this and you were talking the whole country. If you look at the if we'd had this room filled back in 17/90 with 35,000 citizens of the United States, then they would have been just as smart as we were natively. They're like intelligence. They would have lived in a country with resources that obviously same fertile soil, the same temperature, the same minerals, all of that. So they were just as able as we are, but they weren't turning out anything like we turn out today. I mean, just look at how we live compared to those people several 100 years ago. So we have had a system that works. It unleashes human potential. And China went for a long time without a system that unleashed potential. Now they've got a system that's unleashing human potential. We haven't reached the end of that road by a long shot. I mean, we're just starting basically. We will have bad years in capitalism. I mean it overshoots in markets. It gets overcome by fear and greed and all of that sort of thing. But if you look at the 19th century, we had a civil war and we had 15 years or so of bad economic times spread out through that century. We had 6 panics as they called them in those days. In the 20th century we had a couple of great wars and we had plenty of recessions and we had the Great Depression. So, we have these interruptions in the progress of our society, but overall we move ahead and we not only move ahead, we move ahead at a pretty damn rapid rate when you think about it. I mean, when in the 20th century, we had a 7 for 1 improvement in in living and we did that, you know, we had slavery for a long time. We had blacks counted as free 5ths of a person. We didn't let women vote for 130 years or thereabouts. I mean, we were wasting human potential and we still are, but we were doing it more so for centuries. But we do keep moving forward in kind of fits and starts. And right now, we're sputtering somewhat in terms of the economy, but there's no question in my mind that there is enormous human potential and that at every period, every year we will meet, you can name a bunch of problems. I mean, it will happen, but the opportunities will win in the end. And your kids will live better than and, you live and your grandchildren will live better. And we will find more and more ways to find easier and better ways to do things that we haven't even dreamt of yet. Charlie? Well, now that I'm so close to the age of death, I find myself getting more cheerful about the economic future, which I'm not going to be here to enjoy. And what I find really cheerful is that we are plainly going to harness the direct energy of the sun and we're going to have electrical power all over the world and that's going to enable overpopulated countries to turn seawater into fresh and and it's going to eliminate a lot of the environmental problems and preserve more of the hydrocarbon resources for future needs as chemical feedstocks. What I see is a final breakthrough that solves the main technical problem of ban. And you can see it coming right over the horizon and, of course, Mid American and BYD will be participating in it. So I think it's usually a mistake to think only about your probable misfortunes. You should also think about what's good about your situation. What's good about our situation now is the main technical problem of mankind is about to be fixed. It's the you have enough energy, you can solve a lot of your other problems. He is getting more optimistic as he gets older. Carol? This is a question about Berkshire's investment in Swiss Re. Given that you have no control over Swiss Re's underwriting, how can you be comfortable with $2,600,000,000 invested in a relatively junior security in addition to the relatively sizable stock position you already have? Did the Gen Re acquisition's problems over the 1st several years you owned it not make you wary of the potential land mines in reinsurance? And isn't Swiss Re even more likely to continue to make mistakes given that you have no management control? Or has your insight into its underwriting culture since you entered into the quota share agreement increased your comfort level with the risks it is taking. You said in the past that Berkshire's float is worth as much or more than equity. Would you say the same about Swiss Re's float? About Swiss Re's what, Alan? Swiss Re's float. Oh, We have several arrangements with Swiss Re. 1 was engaged in a little over a year ago where we take 20% of their property casualty business, which is reinsurance business primarily over a 5 year period. Then we made a and that started about a year ago and then a month or 2 ago and at that time, we bought about 3% of Swiss Re's common. Then about a month ago, we invested CHF3 1,000,000,000 in a security which pays us 12% a year and which they can call after 2 years at 120% of its principal amount. And then if they haven't called it by the 3rd year, it becomes convertible at CHF 25 a share. The odds are probably pretty good that it will get called. And if it gets called, we'll be unhappy because the only reason they'll call us if it's advantageous for them to call it and just advantageous to us. But if it does get called, we will get 120% of par plus 12% a year for it. We are senior actually to the Swiss re equity of roughly CHF 20,000,000,000. So I would not regard it as a junior security. Swiss Re's problems of the last year or so have not come about in any way through their insurance underwriting. Their insurance underwriting has been fine over the years and we feel fine about having a 20% quota share in that and we feel fine about our investment. So I would regard they develop a large amount as many reinsurance companies do. They develop a large amount of float per dollar of premium volume. So we would expect that this 20% quota share that we've had for a year will develop a very significant amount of float relative to the $3,000,000,000 or so of premiums that it represents. And I think it will turn out to be attractive float. It will be attractive for us and it'll even be a little more attractive for Swiss Re because in effect they get the commission we pay them gives them a little override on that. I think like I say that the most likely thing is that our $3,000,000,000 position gets called. We also have that $2,000,000,000 or CHF2 1,000,000,000. If I've said dollar, I meant Swiss franc. CHF2 1,000,000,000 adverse loss cover. And what that says essentially is that if their reserves will say in the property casualty business at the end of 2,000 and were roughly CHF60 1,000,000,000. But once they paid out, these are not precise figures, but once they paid out 58,000,000,000, 2,000,000,000 less than their reserves that we pay the next 5,000,000,000 and like I say it's very unlikely we would be paying out money before 15 years on that and if their reserves are accurate, we will pay out only the $2,000,000,000 So that was a transaction again that was made at a time when Swiss Re was under considerable pressure. They were under threat of downgrade in terms of ratings. And I met with the CEO, the then CEO of Swiss Re on a Sunday in Washington DC along with his investment advisor. And we arranged a transaction which their shareholders and their directors later approved. And I think we met their needs and I think we've got an attractive transaction. There's nothing wrong, we may prefer January, but there's nothing wrong with Swiss Re's underwriting. It did not cause any of the problems that they have now. That arose from something akin to the problems of AIG, although not remotely on the scale of AIG, but both in somewhat in financial products and somewhat on the asset side. It did not arise from underwriting. Charlie? Yes. If that's a terrible problem, we wish we had more of it. Area 9, please. I'm Vishali from the Philippines. My question is about compensation in a capital intensive subsidiary. Now I'm going to take the liberty to assume that the large number of bank failures were caused in a large part by incentive bias. If a Board of Directors makes a mistake with compensation, then the Board introduces incentive bias towards earnings manipulation. So bearing in mind rule number 1, which is don't lose money, and bearing in mind that it's okay to have losses in the short term if the moat is widened, then how do you develop a fair and intelligent compensation package for a manager of a subsidiary that requires a lot of capital? Well, you obviously, it's a very, very good question. It's one that Charlie and I have both thought about and we've been around so many crazy compensation systems that we spent a lot of time thinking about it and talking about it. In a capital intensive business, you have to have something that you have to have a factor in the compensation arrangement that includes a capital cost element. We have dozens and dozens of subsidiaries and we have different arrangements for different businesses because as you point out, an arrangement for a business that needs no capital like a See's Candy or a business wire or something of that sort has to be materially different than something that requires a lot of capital. We think we've got rational compensation systems. We agree with you that incentives are very important. I would say that I think your question implied a little bit that the board sets these things. The truth of the matter is at least over 40 years of experience and 19 boards that I've been on and observing behavior a lot of other places. Basically, the board has had relatively little effect on it. The CEO has managed in most cases and in a great many cases to be an important determinant of his own or her own usually his own compensation arrangement. They the human relations, first of all, they pick the comp committee, you know. So I have been on 1 comp committee out of 19 boards. I mean people are not looking for Dobermans, they're looking for Cocker Spaniels and then and they're looking for Cocker Spaniels that are waving, wagging their table. It's tails very friendly. CEOs spend a lot of time thinking about who's on their comp committee. The audit committee is less important but the comp committee, they think about plenty. And the comp committee meets every few months and the human relations vice president comes in who is responsible directly to the CEO and probably recommends a compensation consultant, and believe me, they don't go around looking for the ones that are going to upset the apple cart. So it's been a system that the CEO has dominated. And in my experience, boards have done very little in the way of really thinking through as an owner or as owners' representatives what the hell is the proper way to pay these people and how to incent them not only to do the right thing but also to incentivize them not to do the wrong thing. Charlie and I are fairly familiar with a company here in town, the Peter Kiewit Organization. And Pete Kiewit, I don't know, 50 years ago or more, figured out a very, very logical way to pay people in this business. And it wasn't rocket scientists and I'll guarantee he didn't consult with any compensation consultant on the subject. He just figured it out. And you would be able to figure out 1. I can figure out 1. But you have to understand that not every CEO wants a rational compensation system. Who wants rationality when irrationality pays off more? So it's a real problem getting people at the board level. I don't think there should be a comp committee. I think the board as a whole actually should thrash this sort of thing out so that you don't get some report from the comp committee and that's treated as holy writ because they've debated for a couple of hours the day before or supposedly and then come in and give some recommendation, everybody rubber stamps. I think it ought to be a subject of general discussion. I think it's very important how you compensate the CEO. I've said in our annual reports, choosing the right CEO, making sure they don't overreach and exercising independent judgment on major acquisitions or divestitures. If the Board does that right, you can forget about all this other checklist stuff. And if they don't get that right, the other doesn't make much difference. So I would say that it can be done. It's very difficult to have a system where somebody with the board thinking as owners or representing owners care as much about it as the guy on the other side who's getting compensated? I do think it's gotten better in recent years, but it started from a very low base. Charlie? Yeah. There are some counterintuitive conclusions in the field that are quite interesting. I would argue that a liberally paid Board of Directors in a big American public corporation is the liberal prey is counterproductive to good management of the company. There's a sort of a reciprocation. You keep raising me and I keep raising you and it gets very club like. And I think, by and large, the corporations of America would be managed better if the directors weren't paid at all. We're working toward that. Well, it is interesting because the SEC would define independent directors as they would question my independence if we would own 1,000,000,000 and 1,000,000,000 of dollars' worth of some security but we would sell them some ice cream at Dairy Queen or something of the sort. And to get real owners' representatives is very and knowledgeable because they've got to know business. They really have some business savvy. And the truth is if you get somebody that's getting 200,000 or 200,000 a year, 250,000 a year for being director of a company and they don't have that much income outside our net worth and they would just love to get one more directorship for another $200,000 they are very unlikely to sit there and argue with the CEO and say that the system is rigged in favor of incentive compensation or something of the sort. There is more baloney in the compensation arrangements, and now you have these 100 page proxy statements. If you take 100 pages to explain how you're paying the people of the place, something is wrong. We don't have a 100 page understandings or anything of the sort, but it's gotten gotten to be more and more of a game as it's gone along. And I would say that as Charlie that when compensation is a very important part of a director's well-being, you do not have an independent director. And the funny thing is the way its system has been arranged, those are the very people that tend to be regarded as the independent directors in most cases. It's way worse than practically anybody recognizes. Elihu Root, who was the ultimate good cabinet officer in the United States, used to have a saying that no man was fit to hold public office who wasn't perfectly willing to leave it at any time. And of course, the minute he left public office, he went right back to being the leading lawyer of the world. So he didn't have much to lose by. But the man who has a lot to lose from his office is going to be very loath to be an independent director. So the way we do it at Berkshire Hathaway is 1 10th of 1% of America and the way everybody else does it is silly. I love being up here with them. Becky. This is a question from Paula Sauer. And since Charlie seems to be getting more optimistic, maybe we should ask him this question first, and then Warren, you can try and top it. But Paula writes in, what's the worst case scenario you can imagine with respect to the insurance business? You mean ours or generally? I believe she means yours in particular. Yes. Well, the very worst case is some catastrophe where we lose quite a few 1,000,000,000 of dollars pretax. Even that, I don't think, significantly impairs the basic business in place. So I think we have a marvelous insurance business. I don't want to trade it for any other that I know. How about you, Warren? Yeah. No, it is a fabulous business. The worst I used to say we would probably pay 4% to 5% of the industry loss from any mega catastrophe. I'm not sure where Katrina finally came in. I don't know whether it was 60,000,000,000 or something in that area and we probably did play close to we were in that 4% to 5% range. We're lower than that probably right now. Not necessarily way lower, but if we had $100,000,000,000 catastrophe, we would probably play 3% to 4% of that currently so that you'd be talking 3 to 4,000,000,000. I think the worst situation that could occur is that we ran into so much inflation that people got very, very unhappy with anything that they had to buy in their daily life. This applies in the utility business too, but certainly like auto insurance and in effect that they expressed their outrage at inflationary increases and said let's nationalize the whole thing. I mean, that would be a huge asset that would disappear if that occurred. I don't think that's a high probability but if you're asking me to look at worst cases, that's probably the one I would come up with. Well, that happened. Auto insurance was nationalized somewhere. New Zealand or somewhere. If you want the absolute worst case, you found We nationalized to some extent the annuity business when we went into Social Security. I think it was a good thing. But when people get outraged enough about something, you've heard talk about the banks. I mean, when the public gets outraged, the politicians will respond. And wild inflation would be the most likely cause it seems to me of something like that. I don't think that's probable but something like that happening in auto insurance. It's a bill that most people pay every 6 months or even more frequently than that. And if they see that bill going up and they don't want to get rid of their car, they're going to get mad and utility customers are going to get very mad during inflation because they need to turn on the lights and they hate to see, those monthly bills going up. It's something they can't give up and it's very visible and the reaction will be to go to their political representatives and say do something about this. And one of the things they can do about it is just take it over. So very low probability event, but it's not non existent. Area 10? Gentlemen, Patrick O'Donohue from Cork in Ireland. I should start by saying I'm sorry you've had such a tough time in my otherwise wonderful little country. I love the Irish. We've got some good we've had great luck with the Irish. It was my mistake. Okay. Now I'd like to grow my investment in Berkshire Hathaway And I think we've established it's a wonderful company. So I'm left with a couple of other issues, which for a foreigner or maybe a little different for people domestically. The first of which is that any gains in Berkshire Hathaway may be wiped out by a slide in the dollar versus the euro. And we're talking long term investment here obviously. The second is perhaps you could discuss your global acquisitions which will reduce your dollar dependence and increase your foreign source income. I've lost a third. If you could discuss those. Sure. Yes. And if it comes to you, that'd be fine. Predicting the euro versus the dollar, I'm no good at. You did pretty well. You could if you wish. I'm not suggesting this at all but Eurodollar is an easy thing to hedge. I'm not recommending that. I'm just telling you that that is an option if you're worried about a major currency. It's hard to do with smaller country currencies but when you're talking the euro dollar thing, you can keep hedging that if you want to. But like I say, we don't normally do that sort of thing and that could be a pain in the neck to you. I would say in terms of Berkshire's earnings, we will just keep doing things that we think makes sense. Now, if we own over 8%, for example, the Coca Cola. Coca Cola makes 80% or more of its money outside the United States. We own a lot of Procter and Gamble. They make a lot of their money outside of the United States. Their craft makes a lot of money out of the United States. So we have a lot of indirect sources of earnings and then we have a lot of direct sources of earnings outside the United States. SCAR makes most of its money. It makes money in the United States but makes a lot of money elsewhere. And we have other businesses like that. We do not have a predetermined goal at all of developing X percentage of our earnings here or there or that place. We just keep every day we go to work and we don't know whether the phone call will come from Israel or from Indiana in terms of a chance to invest some money. We want all of our subsidiaries to be looking at opportunities every place and some of them will find them abroad and some of them won't. So we are not heading any place in terms of sources of earnings. There are a lot of countries we feel comfortable with and we would be happy to put money into those countries. But we don't wake up in the morning saying that we would like to have more money in Germany or Spain or whatever or that we would want to take money out of those countries. And Charlie and me more. Yeah. People look at a modern liberal democracy and it's very easy to conclude that it's messy and full of defects. And I think that's a correct view but it's not at all clear to me that the messy defects that we have are worse than the messy defects of Europe. I am an agnostic about these things. There's plenty wrong and plenty right on both sides of the Atlantic. Okay. Andrew? So this question comes from 3 shareholders who happen to be employees of Berkshire Portfolio Companies. They've asked not to be named in the they asked the following question. They say, we are concerned with both the financial condition of the company and the stability of our jobs. Could you discuss your attitude towards the use of layoffs as a means of responding to short term downturns in company profits? Yes. These are investee companies or These are investee companies. Yes. And they're shareholders and employees. Yes. I wouldn't have a different attitude. I was just clarifying it. There's no question that business conditions can change such as to necessitate temporary or permanent layoffs. I mean, there's scales of businesses change. We're fortunate in a place like GEICO where our business is expanding. So we'll probably add at least, I would guess, 1,000 jobs net at a GEICO. But at the same time, we probably have close to half of our brick plants closed in the southwest because people just aren't building houses now. Now that business will come back and we'll rehire people. On the other hand, our textile business never came back and we employ fewer people at the Buffalo News than we did a year ago and we are not going to regain those or get back to previous levels. So there are some businesses that may permanently contract and you have to face up to that in terms of layoffs. There's other businesses that have severe cyclical type contractions and they are going to face significant layoffs. There are other businesses that are suffering a little bit during a period like this, but very little. And we will resist the idea of having layoffs. Nobody gets any joy out of it and generally you do it probably a little too late even because you keep hoping the business will bounce back up or something of the sort. But if the business changes in a material way, you better change your business model or somebody else will and you'll even have more changes facing you. On balance, we hope we get into businesses that don't face those kind of problems. But certainly in our construction related businesses we've had layoffs at Shaw. We've had layoffs at Johns Manville. We've had layoffs at Benjamin Moore. We've had layoffs at Acmebrick. And there's really no alternative. I mean, and our competitors all have had also. And in the textile business, we got into it in 1965. In the end, we laid off everybody. I mean, it contracted enormously before we got there. We tried all kinds of things and we finally gave up. Their capitalism is creative destruction and sometimes you're on the short end of that. This year, in terms of the businesses we have, our employment will probably be reduced even though GEICO will expand. It will not be reduced dramatically because it just hits in certain areas, but it will be reduced and our managers have to look at the reality of the current situation. Charlie? Yes. Some of our businesses have a shared hardship model where they don't lay off, at least not yet. And the businesses with that model tend to be very strongly placed economically. So I guess it shows that Benjamin Franklin was right when he said it's hard for an empty sack to stand upright. And so we are all over the map on that and so is all of industry. But I do think an ideal model would be a business so strong that it could operate in a shared hardship mode instead of the layoffs. Yes. Some are doing that where they give up hours and but of operations don't lend themselves to that very well either. So you Discar is operating that way. Yes, discar is operating that way. And in other cases, you basically have to close down whole plants. I mean, yes, that's just the nature of it. It's better. You really can't operate every plant at 50% and have it work as effectively as shutting down the least productive plants. In a world where you sometimes have to amputate a limb to stay alive, you can't expect that every business can stay exactly as it is. Okay, Area 11. Hi, Ralph Whitkin from Greenwich, Connecticut. I was first here in 1995, and I really appreciate the way handled this meeting. I've been to dozens of others, and I know you're not obligated to do this. And I thank you for it, both of you. My question is very similar to, if you was number 9 regarding executive compensation. Not so much your view on the compensation, but how we as shareholders can make some attempt to try to correct this and bring it back into some level of balance? Thank you. I had a senator call me just the other day and his constituents obviously are enraged about executive comp. Probably AIG really had a huge impact although you can take the Merrill's and all the rest of them also. But that story was huge with people and it was probably, in a certain sense, the outrage was disproportionate to what happened. But it doesn't make any difference. The people are enraged about it. So this senator called me and he said, you know, he was essentially saying, Tell me about a statute we can enact that will make my constituents happy about executive compensation. And my advice to them was they probably couldn't. And that the last time Congress got into this was in the early days of the Clinton administration when they passed a bill that said, as I remember, for the top five officers that you couldn't get deductibility for comp in excess of $1,000,000 annually unless it was tied to performance in some way. That was probably the most counterproductive piece of legislation that Congress has ever come up with, which is quite a statement to make in itself. The net result of that was that when the tax was imposed, of course, the stockholders paid it and the officer didn't. So it penalized the shareholder who was already getting penalized by the COP. It led to all kinds of arrangements that were designed to dance around this, which involved lots of lawyering and lots of consultants and lots of pages of proxy statements. The net effect which was to ratchet up compensation very dramatically. Compensation increased far more in my view because that was put on the books and otherwise. So I suggested to them that the first thing they should do is probably repeal that and say we were wrong and then figure out whether they should do something right. Well, that did not go over very well. So I would say that I've always proposed this. It never has gone anyplace but that won't stop me from continuing to propose it. All you need in this country is the top half dozen or so investment managers who manage we're talking on the most egregious cases, there's a lot of stuff about say on pay and everything, but half a dozen of them. They get lots of public. They wouldn't have to worry about getting their views out. The way they get big shots to change their behavior is to embarrass them, you know, basically and the press has great opportunities to do that and but they need the cooperation of the big investors. So if you've got 3 or 4 of the biggest investors, when the XYZ company comes out with some crazy plan to step up and just say, this is outrageous, it would change behavior and it would the directors don't like to look foolish. They don't like the names in the paper looking foolish. And you would see some real changes. I think that the legislation for it is going to be I just don't know how to write the stuff. I mean, you read the case recently at Chesapeake Energy, dollars 75,000,000 for kind of a resigning bonus. And there were some other things involved too. It just you wonder what people are thinking. You know what the CEO is thinking. I don't think you can write the statute that stops it. And like I say, the one they tried to write just screwed everything up royally. But I do think big institutions, if they spoke out, you'd only need 3 or 4 of them that spoke out jointly and they don't have to do it on every corporation at all. Just when it's egregious enough. But if they get a reputation for speaking out when it's egregious every now and then, it would act as I think there would be some restraining factor that might set in in Corporate America because the restraining factor is not there then and not there now. I mean, right now, every consultant comes in and brings along what the people that so called peer companies are making and nobody wants to say their CEO is in the bottom quartile or something. So they just keep comparing themselves to the higher quartiles and then they ratchet up from there and it's a game that works wonders. I call it the honor system. The shareholders have the honor and the executives have the system. Charlie? Yes. Well, I'm not too optimistic about fixing it from the big investor standpoint. The big investor groups contain many an investment manager making $20,000,000 a year for insignificant contributions. He's like a man in a glasshouse that starts throwing stones. And the public pension funds are dominated in many cases by left wing politicians and by labor unions who tend to have an agenda of their own that doesn't really relate to good management. So sometimes the cure is worse than the disease. Well, on that hopeful note, we'll move on to Carol. This is a question from Peter Poulson. He is spelled p o u l s o n. He says, when you acquire companies, they come equipped with managers. And in general, Berkshire has done a great job putting the right leaders in the right roles. But occasionally you have to hire someone for an executive spot. Please describe an interview that you might have with a prospective Berkshire Operating Executive. What do you look for? How do you evaluate a person's potential to become a great manager? Well, usually we hire people that have already proven they're great managers. I mean, when we buy a business a very high percentage of the time the management comes with it. When we buy a NASCAR, we get the group that's been knocking the ball out of the park for years years years. And the real question we have to ask ourselves is, you know, will they be with us in the future? Will they keep will they be feeling the same way the day after the deal as they did the day before the deal. And we've made occasional mistakes on that. But overall, that does come through. So we've had good luck with managers, not perfect and the toughest part is since we have no retirement age is when managers lose the abilities that they had at an earlier age and that it doesn't relate to it. There's no yardstick you can use up and down the line for that. So people age at least in business ability, they age in very different ways and at different paces and Charlie and I have the problem of figuring out sometimes when somebody does not have the same managerial ability that they had at an earlier time and then we have the responsibility for doing something about it and we hate it. By the way, we've been slow in those. We've been slow every time. We've been slow. If we really love the guy, we're really slow. We are far from ideal. Well, we had a manager, a wonderful I mean, the guy we both loved at Wesco and he got Alzheimer's. And we didn't want to face it. We finally did but it took us probably an extra year, year and a half, didn't it, Charlie? Sure. Yeah. It's the only part of my job that I don't like basically. I hate it but I pay a lot of money not to have to do it but occasionally it happens. Fortunately, it doesn't seem to happen that often. We find people who love their businesses. I love Berkshire. I go to work every day and I'm excited about it and we you can spot that in people. I mean I think most of you would probably realize that that's the way I feel about it and I realize that's the way the managers of our subsidiaries feel about it. I mean, Tony nicely went to work at GEICO when he was a teenager and he's as excited every day about GEICO as I may. I saw him yesterday at lunch and first thing he does is hand me the figure which he knows I'm waiting for. You know, Josie, we are up 505,000 and he carries it out all the way. Policyholders and I mean, I get excited about those numbers. He gets excited about them. We talk about state by state, whatever it may be. And you can't put that into somebody, but we do recognize it when it's there and we do our best to make sure that we don't do anything that dampens that in any way. Okay. Area 12. Good afternoon, Mr. Buffet, Mr. Munger. Jimmy Chong here from Dayton, Ohio. Mr. Buffet, in October of last year, you wrote in a New York Times op ed piece that you were moving your personal portfolio to 100% U. S. Equities. My question is, is that move complete? If not, are you still buying? And in addition to that, how would you rank the recent market downturn in terms of investing opportunities in stocks during your investment careers? Well, it's certainly not as dramatic as the 1974 period was. Stocks got much cheaper in 1974 than they are now, but you were also facing a different interest rate scenario. So you could say they really weren't that much cheaper. You could buy very good period I've ever seen for buying common equities. The country may not have been as much trouble then as we were back in September. I don't think it was but stocks were somewhat cheaper then. In the recent period, I bought some equities and then corporate bonds looked extraordinarily cheap. The spreads were very, very wide. So I bought some of those too. But the cheaper things get the better I like buying them. I mean if I was buying hamburgers at McDonald's the other day for X and they reduced the price to 90% of X tomorrow, not likely, but if they did, I'm happy. I don't think about what I paid yesterday for the hamburger. I think I'm going to be buying hamburgers the rest of my life. The cheaper they get, the better I like it. It. I'm going to be buying investments the rest of my life and I would much rather pay half of X than X and the fact that I paid X yesterday doesn't bother me if I get as long as I know the values in the business. So on a personal basis, I like lower prices. I realize that that's not the way all of you feel and when you wake up in the morning and look at quotes but it just makes sense that when things are on sale, that you should be more excited about buying them than otherwise. And lately, when I wrote that article at The Times, I did not predict what we're going to do because I never know what they're going to do. But I do know when you're starting to get a lot for your money and that's when I believe in buying. Charlie? Well, if stocks go off 40% on average, they're obviously closer to an attractive price than they were before. And of course, interest rates have gone down a lot recently, at least short term interest rates. It's nothing like 73.4. I knew when that happened that that was my time and my only time. I knew I was never going to get another trip to the bike counter like that one. Unfortunately, I had practically no money available, which is That's why it happens. That's why those times occur. So if I were you, I wouldn't wait for 1973. No, we don't try to pick bottoms or we don't have an opinion about where the stock market is going to go tomorrow or next week or next month. So to sit around and not do something that's sensible because you think there will be something even more attractive, that's just not our approach to it. Anytime we get a chance to do something that makes sense, we do it. And if it makes even more sense the next day and if we've got money, we may do more. And if we don't, you know that what can we do about it? So picking bottoms is basically not our game. Pricing is our game and that's not so difficult. Picking bottoms, I think, is probably impossible but when you start getting a lot for your money, you buy it. And as I say, after I wrote that, stocks did get cheaper, corporate bonds, the corporate bond market got very, very, very disorganized and we bought some fairly good sized pieces of bonds for Berkshire and I also bought a few little things for myself. But I spend 99% of my time thinking about Berkshire. That's a war. And by now, don't we have our small life insurance companies pretty well full of desirable debt instruments at 10%? We certainly have got a lot more of it than we had. We got a chance to buy some corporate bonds very, very cheaply, at least in my view, a few months back and we had money in life companies that can't be used in certain other areas and for which this was an ideal time to just barrel in. And any time we like to do something, we really like to do it. I mean, our idea is not to tiptoe into anything. So we buy them as fast as we can when prices are right. Yes. That bond thing didn't last very long but there were perfectly safe bonds that yielded 9% or more with very fancy call protection. And some of those bonds are up 20%, 25%. So the opportunities are frequently under Shell A when you're looking at Shell B. Yes. We try to look at all the Shells. Yes, EVA. We look at all the Shells. Yes. Becky? This question is from Jim Mitchell from Costa Mesa, California, who wants to know from both of you. He says, years ago, you taught us to beware of capital intensive businesses like electric utilities that may be overstating profits due to understating depreciation. Now that you are investing in utilities and gas pipelines, have you discovered earnings pretty much come about through a return on equity capital allowed by the, jurisdictions in which you operate. So, for example, if something like pension costs or something of a sort you get surprises on, you do get to earn that back over time. But you don't get any bonanzas either. So I would say the capital intensive businesses that scare me more are the ones outside of the utility field where you just pump in more money without knowing that you're going in a general way to get more or less within a range anyway a guaranteed return. So I do not have no way we get rich on our utility investments, but there's no way we get poor either and we get decent rates of return on the equity that we leave in it and we'll probably get those returns with or without inflation. Now inflation may diminish the value of getting an 11% or 12 percent return on equity if you get into very high rates of inflation. So in that sense, I'd agree with Jim who I know incidentally. He used to work with my daughter out there Century 21, is a good investor. But on balance, if you can find a good business that's not capital intensive, you're going to be better off than a capital intensive business over time. I mean, the world, they're hard to find, but the best businesses are the ones that don't require much capital and nevertheless make good money. They've got some moat protecting them other than the capital required as entry in the business that's protecting them. And if you can find those that are durable, you've got a great investment and one that will do the best in inflation, which as we mentioned earlier, seems fairly likely to come along. Charlie? Yes. Unfortunately, a lot of moats have been filling up with sand lately. The, you know, the daily newspaper, the network television station, all these castles with their lovely moats. The moats are filling up. Well, on that cheery note, we have time for just one more question. And Mark Hamburg, I believe you said there was somebody who wanted to finish this off. Mark, where are you? Right here. Right here, Warren. Okay. I can't I still can't see you, but I can It's right up in front. Right up in front. Okay. Good. I see it now. Hi, Warren. It's Alex from Boston. I just wondered if you could give us some advice on how we could improve the economy as we lead. What was your name? Alex from Boston. Well, the obvious thing to do is to do what our government tells us to do which is to go out and spend and as I mentioned, household formations are important to developing, to getting past this overbuild and residential construction. So this I don't know what that gives you any ideas or not but I think so. Mimi, you're my best friend. Would you be my wife? I have just 2 comments to make. Alex is my sister, Doris' grandson, my great nephew, and Mimi is terrific. So on that note, we'll end the meeting and we'll be back in 15 minutes for the Board meeting. Thank you. Okay. Now we're going to hold an annual meeting. The meeting will now come to order. I'm Warren Buffett, Chairman of the Board of Directors of the company. I welcome you to this 2009 Annual Meeting of Shareholders. I will first introduce the Berkshire directors that are present in addition to myself. We've got Charles Munger, Howard Buffett, Susan Decker, Bill Gates, David Gottesman, Charlotte Diamond, Don Keogh, Tom Murphy, Ron Olson and Walter Scott. Also with us today are partners in the firm of Deloitte and 2 char auditors. They are available to respond to appropriate questions you might have concerning the firm's audit of the accounts of Berkshire. Mr. Forrest Carter is Secretary of Berkshire. He will make a written record of the proceedings. Ms. Becky Amec has been appointed Inspector of Elections at this meeting. She will certify to the count of votes cast in the election for directors. The name proxy holders for this meeting are Walter Scott and Mark Hamburg. 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 accompany the notice of this meeting that was sent to all shareholders of record on March 4, 2009 being the record date for this meeting, there were 1,057,573 shares of Class A Berkshire Hathaway common stock outstanding with each share entitled to 1 vote on motions considered at the meeting and 14,749,861 shares of Class B Berkshire Hathaway common stock outstanding with each share entitled to onetwo hundredth of one vote. A motion is considered at the meeting. Of that number, 821,400 Class A Shares and 10,298,152 Class B Shares are represented at this meeting through proxies returned through Thursday evening, April 30. Thank you. That number represents a quorum and we will therefore directly proceed with the meeting. First order of business will be a reading of the minutes of the last meeting of shareholders. I recognize Mr. Walter Scott will place a motion before the meeting. I move that the reading of the minutes of the last meeting of the shareholders be dispensed with and the minutes be approved. Do I hear a second? Second. Motion has been moved and seconded. Are there any comments or questions? We will vote on this question by voice vote. All those in favor, say aye. Aye. Opposed? Motion is carried. The first item of business is to elect directors. If a shareholder is president who wishes to withdraw a proxy previously sent in and vote in person on the election of directors, he or she may do so. Also, if any shareholder of this president has not turned in a proxy and desires a ballot in order to vote in person, you may do so. If you wish to do this, please identify yourself to meeting officials in the aisles who will furnish a ballot to you. With those persons desiring ballots, please identify themselves so that we may distribute them. I now recognize Mr. Walter Scott to place a motion before the meeting with respect to election of directors. I move that Warren Buffett, Charles Munger, Howard Buffett, Susan Decker, William Gates, David Gottman, Charlotte Guyman, Donald Kio, Tom Murphy, Ron Olson and Walter Scott be elected as directors. Is there a second? It's been moved and seconded that Warren Buffet, Charles Munger, Howard Buffet, Susan Decker, William Gates, David Gottesman, Charlotte Guyman, Donald Keogh, Thomas Murphy, Ronald Olson and Walter Scott be elected as directors. Are there any other nominations? Is there any discussion? The nominations are ready to be acted upon. If there are any shareholders voting in person, they should now mark their ballots on the election of directors and allow the ballots to be delivered to the Inspector of Elections. Ms. Hammack, when you are ready, you may give your report. The ballot of the proxy holders in response to proxies that were received through last Thursday evening cast not less than 859,300 and 66 votes for each nominee. That number far exceeds the majority of the number of the total votes related to all Class A and Class B shares outstanding. The certification required by Delaware law of the precise count of the votes, including the additional votes to be cast by the proxy holders in response to proxies delivered at this meeting as well as any cast in person at this meeting will be given to the secretary to be placed with the minutes of this meeting. Thank you, Ms. Amick. Warren Buffett, Charles Munger, Howard Buffett, Susan Decker, William Gates, David Gottesman, Charlotte Guyman, Donald Keogh, Thomas Murphy, Ronald Olson and Walter Scott have been elected as Directors. The next item of business is a motion put forth by Berkshire shareholder Joseph Petrosky. Mr. Petrosky's motion is set forth in the proxy statement and would request Berkshire Hathaway to prepare a sustainability report for shareholders. The directors have recommended that the shareholders vote against the proposal. We will now recognize, I believe it's Mr. Bilenis, Mr. Petrosky's representatives to present the motion. To allow all interested shareholders to present their views, I will ask Mr. Bilmes to limit his remarks to 5 minutes. The microphone at Zone 1 is available. Well, we go first to Mr. Bilanes. Thank you very much, Mr. Buffet. My name is Simon Villanes and I represent Mr. Joseph Petrosky, the shareholder who filed this year's resolution asking for a publication of a sustainability report. I will move that a shareholder resolution. Ms. Norma Meia Castellanos will then second the resolution and then I will ask for a preliminary count of the shares voted. As shareholders, we are proud that in so many ways, our company is a leader. A prime example is the emerging success story on the Klamath River. This may result in the largest river restoration project in US history and this makes economic sense for Pacificorp and for us as shareholders. However, when it comes to managing environmental and human rights risk and disclosing those risks to shareholders, our management is sadly a laggard. 2 respected proxy advisory firms, proxy governance and risk metrics, have advised shareholders to vote in favor of this resolution on the grounds that management badly lags other companies in disclosing these risks to shareholders. Last week, CalPERS, the California Retirement System, announced that it would vote close to half a $1,000,000,000 worth of stock in favor of this resolution. Consider the situation today with Russell, the subsidiary of Fruit of the Loom and a Berkshire Hathaway company. Collegiate licensed apparel, sweatshirt bearing university logos for instance, is a $5,000,000,000 a year market. Russell has admitted to repeatedly committing serious labor rights violations in Honduras And now over 50 universities including Hartford, Stanford and the entire University of California system have decided to terminate Russell's license to make clothing bearing their college logos. This particular sweatshirt I'm holding up right here is University of North Carolina. This was made in a Berkshire Hathaway factory but the university has since ended that licensing agreement. The treatment, the management of Russell through its actions has put $5,000,000,000 of potential business at risk. The management of Berkshire Hathaway should provide proper disclosure of that risk to us, the shareholders in this company. Now, I'll pass over to Ms. Meia Castellanos. She is a sewing machine operator who worked in the factory in Honduras that is the center of these problems And after she has spoken, I will ask for a preliminary vote count for this resolution. I used to work as a sewing machine operator at the factory, Jerseys de Honduras. In 2006, when Fruit of the Loom bought my factory, conditions got much worse. Fruit of the Loom began to consolidate personnel in order to save more on rent. This created many conditions in the factory that caused health problems for workers, such as pain in our backs being caused by the heat from the sewing machines, which were now pressed into our backs because of the limited space. The close proximity also made it very dangerous in the case of an emergency evacuation. In part because of the overcrowding as well, the ventilation was so poor that it caused many respiratory illnesses, including lung cancer. Even the filtered water was dirty. We work from 6:30 in the morning until 5:30 at night, with only 15 minutes for lunch. Our wages were too low to afford childcare and the management refused to provide on-site childcare even though it was required by Honduran law. Because of all of this, we decided to organize to compel management to clean up our factory. In retaliation, Russell illegally fired 145 workers for organizing a union. After we finally legally established our union, Russell said that because of the union, they would close down the factory and leave the workers to starve. And this is when we started to receive death threats. They would leave me notes and illustrations in the bathroom and at my workstation, threatening to cut off my head. Finally, Russell Athletic did follow through with their threat and shut down the factory in January of this year. Now Russell has been claiming that they will help us find new jobs, but instead they have blacklisted us, preventing us from finding work elsewhere. This is why so many universities have stopped doing business with Russell, and why this has become such a problem for Berkshire Hathaway. And therefore, I second this resolution and urge that shareholders vote in favor. Thank you. Okay. I'd like to ask, John Holland, the CEO of Fruit of the Loom, to respond to the comments, just made and after which we will act on the motion. First, I need to give you a little background. Russell was a public company listed on the New York Stock Exchange prior to the time that we acquired them in August of 2,006. The acquisition consisted of 47 facilities with a little over 14,000 workers. And as we began to get involved with the Russell operations and how they were conducted to integrate those into our operations, we found that there were a couple of plants in Honduras that had some problems. And we began, we acknowledged the problems and we began immediately to remedy these problems. A little later, we had a letter from the WRC, the Workers Rights Commission indicating that there had been some abuses of the employees and that some had been terminated because they were involved in union activities. We were unaware of the union activities and we investigated the abuses, but we thought it best to contact an independent third party organization to do an audit. And we contacted the Free Labor Association, which is kind of a worldwide organization that's grouped with a group of businesses and the leading universities in the US to try to make certain that workers' rights are adhered to on a worldwide basis. We asked them to conduct the audit and they conducted the audit. And all of the abuses that we had been charged with, they said through the independent audit they were nonexistent. But they did tell us that there were 2 supervisors who had conducted some abusive language with the employees and also that it was very likely that some employees might have been terminated due to their union activity. So as a result, they gave us a list of items that they would like us to follow to remedy the situation. The supervisors as well as the management of the facilities were eliminated and we have started immediately, progressively to implement all of the recommendations of the Free Labour Association's independent audit. And part of that was that the workers that they felt might have been terminated due to union activities that we reinstate the workers. The plant had not been organized at that point So we voluntarily engaged the union and acknowledged them and accepted the union and we rehired all of the workers that we could locate into a facility that was across the street from this particular plant. And since then, we have followed all of the recommendations of the Free Labor Association and they have a monitoring process. And after about 3 months, there was another audit by the Free Labor Association and the Workers Rights Commission, which is another related organization, And they said that the activity that we engaged in, they were very well pleased with the progress. And as I've said previously, we acknowledged the union and began negotiations. There was approximately 48 issues that they wanted to discuss and we reached agreement on 24 of those. And we the union even agreed that we had had very good relationships, that we had approached the negotiations openly and fairly. There were some other points that they wanted to move up to arbitration on, remediation that we could not agree on. And by that time, the time had passed till we reached the mid year of 2,008 when the recession on the apparel industry the facilities. One of those was the Jersey's de Honduras plant that they have referred to. And there was a total of 12,780 employees involved in the plant closures. And out of that group, about 310 people, which has been acknowledged by the union, that were union employees because in Honduras, under the laws there, only 30 people are required to form a union and be acknowledged as a union. And up until that time, there had been no indications of any issues that have been brought up by the union that were not solved. Now beyond that, I would like to tell you a little about how we conduct business worldwide in our plants. We have been in Honduras since 1993. All of our plants are air conditioned, excellent ventilation in all of those facilities. Our wages in those plants are 26% on the average above the minimums in Honduras. We offer 11 paid holidays. We have paid vacations. We have free life insurance. We have a doctor and nurse in each one of those facilities. And the reference to the filtered water when we acquired that plant, that particular plant had its own filtration systems, which was different from all of our other plants, which we used bottled water. We immediately had that water tested. Although there was some discoloration, it was tested as pure, but we immediately shut down the filtration system and went the bottled water that we have in the other plants. We have paid maternity leaves. We have a breastfeeding hour. We celebrate the employee birthdays in fact, and also that we have a Children's Day. And that I think our benefits, I'm proud to tell you, I think are far and above any that you'll find in most other apparel facilities throughout the world. And there have been no death threats. We have tried to conduct our business with honesty, integrity, and quite frankly, I've been with this company. I'm in my 48th year, and I would tell you that I am very proud of how we operate our particular plants. We have met with a number of the leading universities to try to tell the other side of the story. We've invited those presidents of the universities and the administration to come to see for themselves what our plant facilities are like, and we've had 2 acceptances that were down this past week, the representatives from Princeton and also from the University of Arizona, and we welcome putting all of this into an open spotlight. We also have a website that's www. Russellsocialresponsibility.com that all of this activity that we're responding to the recommendations of the Fair Labor Association is posted on that website. It's there for the world to see and we continued Fair Labor Association has a 3 step process of continued monitoring and then they do independent audits periodically to see what our progress is, United States. We have a very strong position to be able to do this. We have a very strong position to If there are any shareholders voting in person, they should now mark their ballots on the motion and allow the ballots to be delivered to the Inspector of Election. Ms. Amec, when you're ready, you may give your report. My report is ready. The ballot of the proxy holders in response to the proxies that were received through last Thursday evening cast 49,251 votes for the motion and 702,963 votes against the motion. As the number of votes against the motion exceeds a majority of the number of votes related to all Class A and Class B shares outstanding, the motion has failed. The certification required by Delaware law of the precise count of the votes will be given to the secretary to be placed with the minutes of this meeting. Thank you, Ms. Amick. The proposal fails. Does anyone have any further business to come before this meeting before we adjourn? If not, I recognize Mr. Scott to place a motion before the meeting. I move that this meeting be adjourned. Is there a second? Motion to adjourn has been made and seconded. We will vote by voice. Is there any discussion? If not, all in favor, say aye. Opposed say no. The meeting is adjourned and I hope to see you next year. Thank you.

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