To the Shareholders of Berkshire Hathaway Inc.: Berkshire earned $42.5 billion in 2020 according to generally accepted accounting principles (commonly called "GAAP"). The four components of that figure are $21.9 billion of operating earnings, $4.9 billion of realized capital gains, a $26.7 billion gain from an increase in the amount of net unrealized capital gains that exist in the stocks we hold and, finally, an $11 billion loss from a write-down in the value of a few subsidiary and affiliate businesses that we own. All items are stated on an after-tax basis. Operating earnings are what count most, even during periods when they are not the largest item in our GAAP total. Our focus at Berkshire is both to increase this segment of our income and to acquire large and favorably-situated businesses. Last year, however, we met neither goal: Berkshire made no sizable acquisitions and operating earnings fell 9%. We did, though, increase Berkshire's per-share intrinsic value by both retaining earnings and repurchasing about 5% of our shares. The two GAAP components pertaining to capital gains or losses (whether realized or unrealized) fluctuate capriciously from year to year, reflecting swings in the stock market. Whatever today's figures, Charlie Munger, my long-time partner, and I firmly believe that, over time, Berkshire's capital gains from its investment holdings will be substantial. As I've emphasized many times, Charlie and I view Berkshire's holdings of marketable stocks - at yearend worth $281 billion - as a collection of businesses. We don't control the operations of those companies, but we do share proportionately in their long-term prosperity. From an accounting standpoint, however, our portion of their earnings is not included in Berkshire's income. Instead, only what these investees pay us in dividends is recorded on our books. Under GAAP, the huge sums that investees retain on our behalf become invisible. What's out of sight, however, should not be out of mind: Those unrecorded retained earnings are usually building value - lots of value - for Berkshire. Investees use the withheld funds to expand their business, make acquisitions, pay off debt and, often, to repurchase their stock (an act that increases our share of their future earnings). As we pointed out in these pages last year, retained earnings have propelled American business throughout our country's history. What worked for Carnegie and Rockefeller has, over the years, worked its magic for millions of shareholders as well. Of course, some of our investees will disappoint, adding little, if anything, to the value of their company by retaining earnings. But others will over-deliver, a few spectacularly. In aggregate, we expect our share of the huge pile of earnings retained by Berkshire's non-controlled businesses (what others would label our equity portfolio) to eventually deliver us an equal or greater amount of capital gains. Over our 56-year tenure, that expectation has been met. 3 The final component in our GAAP figure - that ugly $11 billion write-down - is almost entirely the quantification of a mistake I made in 2016. That year, Berkshire purchased Precision Castparts ("PCC"), and I paid too much for the company. No one misled me in any way - I was simply too optimistic about PCC's normalized profit potential. Last year, my miscalculation was laid bare by adverse developments throughout the aerospace industry, PCC's most important source of customers. In purchasing PCC, Berkshire bought a fine company - the best in its business. Mark Donegan, PCC's CEO, is a passionate manager who consistently pours the same energy into the business that he did before we purchased it. We are lucky to have him running things. I believe I was right in concluding that PCC would, over time, earn good returns on the net tangible assets deployed in its operations. I was wrong, however, in judging the average amount of future earnings and, consequently, wrong in my calculation of the proper price to pay for the business. PCC is far from my first error of that sort. But it's a big one. Two Strings to Our Bow Berkshire is often labeled a conglomerate, a negative term applied to holding companies that own a hodge-podge of unrelated businesses. And, yes, that describes Berkshire - but only in part. To understand how and why we differ from the prototype conglomerate, let's review a little history. Over time, conglomerates have generally limited themselves to buying businesses in their entirety. That strategy, however, came with two major problems. One was unsolvable: Most of the truly great businesses had no interest in having anyone take them over. Consequently, deal-hungry conglomerateurs had to focus on so-so companies that lacked important and durable competitive strengths. That was not a great pond in which to fish. Beyond that, as conglomerateurs dipped into this universe of mediocre businesses, they often found themselves required to pay staggering "control" premiums to snare their quarry. Aspiring conglomerateurs knew the answer to this "overpayment" problem: They simply needed to manufacture a vastly overvalued stock of their own that could be used as a "currency" for pricey acquisitions. ("I'll pay you $10,000 for your dog by giving you two of my $5,000 cats.") Often, the tools for fostering the overvaluation of a conglomerate's stock involved promotional techniques and "imaginative" accounting maneuvers that were, at best, deceptive and that sometimes crossed the line into fraud. When these tricks were "successful," the conglomerate pushed its own stock to, say, 3x its business value in order to offer the target 2x its value. Investing illusions can continue for a surprisingly long time. Wall Street loves the fees that deal-making generates, and the press loves the stories that colorful promoters provide. At a point, also, the soaring price of a promoted stock can itself become the "proof" that an illusion is reality. 4 Eventually, of course, the party ends, and many business "emperors" are found to have no clothes. Financial history is replete with the names of famous conglomerateurs who were initially lionized as business geniuses by journalists, analysts and investment bankers, but whose creations ended up as business junkyards.

Berkshire now enjoys $138 billion of insurance "float" - funds that do not belong to us, but are nevertheless ours to deploy, whether in bonds, stocks or cash equivalents such as U.S. Treasury bills. Float has some similarities to bank deposits: cash flows in and out daily to insurers, with the total they hold changing very little. The massive sum held by Berkshire is likely to remain near its present level for many years and, on a cumulative basis, has been costless to us. That happy result, of course, could change - but, over time, I like our odds. I have repetitiously - some might say endlessly - explained our insurance operation in my annual letters to you. Therefore, I will this year ask new shareholders who wish to learn more about our insurance business and "float" to read the pertinent section of the 2019 report, reprinted on page A-2. It's important that you understand the risks, as well as the opportunities, existing in our insurance activities. Our second and third most valuable assets - it's pretty much a toss-up at this point - are Berkshire's 100% ownership of BNSF, America's largest railroad measured by freight volume, and our 5.4% ownership of Apple. And in the fourth spot is our 91% ownership of Berkshire Hathaway Energy ("BHE"). What we have here is a very unusual utility business, whose annual earnings have grown from $122 million to $3.4 billion during our 21 years of ownership. I'll have more to say about BNSF and BHE later in this letter. For now, however, I would like to focus on a practice Berkshire will periodically use to enhance your interest in both its "Big Four" as well as the many other assets Berkshire owns. ************ Last year we demonstrated our enthusiasm for Berkshire's spread of properties by repurchasing the equivalent of 80,998 "A" shares, spending $24.7 billion in the process. That action increased your ownership in all of Berkshire's businesses by 5.2% without requiring you to so much as touch your wallet. Following criteria Charlie and I have long recommended, we made those purchases because we believed they would both enhance the intrinsic value per share for continuing shareholders and would leave Berkshire with more than ample funds for any opportunities or problems it might encounter. In no way do we think that Berkshire shares should be repurchased at simply any price. I emphasize that point because American CEOs have an embarrassing record of devoting more company funds to repurchases when prices have risen than when they have tanked. Our approach is exactly the reverse. Berkshire's investment in Apple vividly illustrates the power of repurchases. We began buying Apple stock late in 2016 and by early July 2018, owned slightly more than one billion Apple shares (split-adjusted). Saying that, I'm referencing the investment held in Berkshire's general account and am excluding a very small and separately-managed holding of Apple shares that was subsequently sold. When we finished our purchases in mid-2018, Berkshire's general account owned 5.2% of Apple. Our cost for that stake was $36 billion. Since then, we have both enjoyed regular dividends, averaging about $775 million annually, and have also - in 2020 - pocketed an additional $11 billion by selling a small portion of our position. Despite that sale - voila! - Berkshire now owns 5.4% of Apple. That increase was costless to us, coming about because Apple has continuously repurchased its shares, thereby substantially shrinking the number it now has outstanding. 6 But that's far from all of the good news. Because we also repurchased Berkshire shares during the 212 years, you now indirectly own a full 10% more of Apple's assets and future earnings than you did in July 2018. This agreeable dynamic continues. Berkshire has repurchased more shares since yearend and is likely to further reduce its share count in the future. Apple has publicly stated an intention to repurchase its shares as well. As these reductions occur, Berkshire shareholders will not only own a greater interest in our insurance group and in BNSF and BHE, but will also find their indirect ownership of Apple increasing as well. The math of repurchases grinds away slowly, but can be powerful over time. The process offers a simple way for investors to own an ever-expanding portion of exceptional businesses. And as a sultry Mae West assured us: "Too much of a good thing can be . . . wonderful." Business acquisitions Our long-held acquisition strategy is to acquire businesses that have consistent earning power, good returns on equity and able and honest management. Financial results attributable to business acquisitions are included in our Consolidated Financial Statements beginning on their respective acquisition dates. In July 2020, Berkshire Hathaway Energy ("BHE") reached a definitive agreement with Dominion Energy, Inc. ("Dominion") to acquire substantially all of Dominion's natural gas transmission and storage business. On October 5, 2020, BHE and Dominion also agreed, as permitted under the acquisition agreement, to provide for the acquisition of all originally agreed upon businesses, except for certain pipeline assets (the "Excluded Assets") and entered into a second acquisition agreement with respect to the Excluded Assets. The acquisition of the Dominion businesses, other than the Excluded Assets, was completed on November 1, 2020 and included more than 5,400 miles of natural gas transmission, gathering and storage pipelines, about 420 billion cubic feet of operated natural gas storage capacity and partial ownership of a liquefied natural gas export, import and storage facility ("Cove Point"). Under the terms of the second acquisition agreement, BHE agreed to acquire the Excluded Assets for approximately $1.3 billion in cash. The closing of this second acquisition is subject to receiving necessary regulatory approvals and other customary closing conditions and is expected to occur during the first half of 2021. The cost of the acquisition completed on November 1, 2020, was approximately $2.5 billion after post-closing adjustments as provided in the agreement. The preliminary fair values of identified assets acquired and liabilities assumed and residual goodwill are summarized as follows (in millions). Property, plant and equipment $ 9,254 Goodwill 1,732 Other 2,376 Assets acquired $ 13,362 Notes payable and other borrowings $ 5,615 Other 1,317 Liabilities assumed 6,932 Noncontrolling interests 3,916 Net assets $ 2,514 As part of this acquisition, BHE acquired an indirect 25% economic interest in Cove Point, consisting of 100% of the general partnership interest and 25% of the limited partnership interests. We concluded that Cove Point is a VIE and that we have the power to direct the activities that most significantly impact its economic performance as well as the obligation to absorb losses and receive benefits which could be significant to Cove Point. Therefore, we treat Cove Point as a consolidated subsidiary. The noncontrolling interests in the preceding table is attributable to the limited partner interests held by third parties.

Please answer the following four (4) questions in your initial response:

"Berkshire Hathaway Inc. has reported that they have $44.7 billion in cash (including cash equivalents) on their balance sheet. In addition, the company has $90.3 billion in US Treasury Bills, and $20.4 billion in short-term investments in fixed maturity securities"

1. What does this statement mean to you?
2. Why does Berkshire have so much cash? How did they amass this amount?
3. Is having all this liquidity a good thing for its stakeholders?
4. What is the right amount of cash which Berkshire should retain on their balance sheet