Buffett Report Pokes Fun at California Tax System
In Berkshire Hathaway Inc.’s annual report released earlier this week, Warren E. Buffett, the Omaha investor and Berkshire chairman, told shareholders:
“In 1989 when I--a happy consumer of five cans of Cherry Coke daily--announced our purchase of $1 billion worth of Coca-Cola stock, I described the move as a rather extreme example of putting our money where my mouth was. On August 18 of last year, when I was elected interim chairman of Salomon Inc., it was a different story: I put my mouth where our money was.”
Buffett was referring to the scandal that forced the resignations of several top Salomon officers, including former Chairman John Gutfreund.
Buffett noted that Berkshire gained 39.6% in net worth during 1991 because of the dramatic rise in the price-earnings ratios of Coca-Cola and Gillette, in which the conglomerate holds major stakes.
Buffett’s letter, which has amassed a large following for its incisive business analysis and witty style, devoted special attention to the declining profitability of media companies. Berkshire owns the Buffalo News and is a major investor in Washington Post Co. and Capital Cities/ABC.
He concluded that “the economic strength of once-mighty media enterprises continues to erode as retailing patterns change and advertising and entertainment choices proliferate.” He added, however, that “media properties continue to have far better economic characteristics than those possessed by the average American business.”
Berkshire bought 31 million shares in Guinness during 1991, the first significant investment overseas. Buffett said Berkshire’s USAir investment carries a low valuation because of the risk that the “industry will remain unprofitable for virtually all participants.”
Finally, Buffett noted that Berkshire’s See’s Candies subsidiary is affected by a new California tax on snacks. Bemused by the state’s classifications of snack and non-snack items, he pointed out that Milky Way candy bars are snacks while Milky Way ice cream bars are non-snacks. “What--you are sure to ask--is the tax status of a melted Milky Way ice cream bar?”
