1996: Why doesn't Berkshire report its look-through earnings in the annual report?

AUDIENCE MEMBER: Good afternoon. My name is Bill Guerra (PH). I’m from the San Francisco Bay area. I’ve owned your shares for many years and appreciate the good job you’ve done.

However, in this year’s chairman’s letter — you developed a concept a few years ago called look-through earnings.

WARREN BUFFETT: Right.

AUDIENCE MEMBER: And I failed to see that this year. And I’m wondering if that no longer is a valid concept or why you refrained from showing the data?

WARREN BUFFETT: Yeah. That’s a good question. I should have actually covered that in the annual report, in terms of mentioning — because I’ve talked about it, and we’ll talk about it in the future.

And we do have a goal on look-through earnings of $2 billion in the year 2000. And that’s going to be adjusted upward to allow for the fact there are more shares outstanding. It’ll be the same basic goal.

But there were two reasons that it was skipped this year. And like I said, I should’ve mentioned it.

One was it was the longest letter we’ve ever had. And having that section in there would’ve elongated it even a bit more. And that, coupled with the fact — and this is the important part of it — we had major changes in our — the composition of the company — immediately after the end of the year.

So, our Capital City stock disappeared. At the time it disappeared, we didn’t know whether it was going into cash, or all Disney stock, or a combination.

We had the acquisition of the other half of GEICO where, even now, the accounting treatment isn’t clear. And I felt that —

The look-through earnings last year were fine. But I felt that, by the time I got through explaining all of the adjustments you would have to make for the transactions then pending, that adding it to the — to already the longest letter I’ve written, would’ve slowed things down a lot and not been particularly helpful.

It will be back in this year, this upcoming report, and future reports, because it’s a very important concept. And it’s something that we’re focused on.

It’s just that last year’s number — it would’ve been a mess by the time I got through trying to explain it.

You know, I normally — the accounting stuff, I know, puts a lot of you to sleep. But believe me, it isn’t so much fun writing it either. (Laughter)

So, I skipped it this year. We’ll have it next year. And the number would’ve been OK last year, but there would’ve been a lot of asterisks attached.