TTI, Inc.

Charlie Munger — my partner and Berkshire’s vice chairman — and I run what has turned out to be a big business, one with 217,000 employees and annual revenues approaching $100 billion. We certainly didn’t plan it that way. Charlie began as a lawyer, and I thought of myself as a security analyst. Sitting in those seats, we both grew skeptical about the ability of big entities of any type to function well. Size seems to make many organizations slow-thinking, resistant to change and smug. In Churchill’s words: “We shape our buildings, and afterwards our buildings shape us.” Here’s a telling fact: Of the ten non-oil companies having the largest market capitalization in 1965 — titans such as General Motors, Sears, DuPont and Eastman Kodak — only one made the 2006 list. So I’ve taken the easy route, just sitting back and working through great managers who run their own shows. My only tasks are to cheer them on, sculpt and harden our corporate culture, and make major capital-allocation decisions. Our managers have returned this trust by working hard and effectively.

How to avoid getting into trouble with it, how to use it effectively, and what your attitude should be toward it. So, we’re looking forward to getting that out early next year. I’ll guarantee you that it will be a terrific program for teaching children and your grandchildren something about the subject of money. I also want to thank Bob Iger. Bob is up there. Bob runs Disney. He’s doing a terrific job, and — (Applause) I thought we could originally entice the “Desperate Housewives” into appearing simply by the chance to appear with Charlie. But after we made that appeal, we then went to Bob Iger and said, “See what you can do for us, Bob.” So thank you, Bob. Also in that section, I’d like to have a special introduction for the man that first taught Charlie and me something about the value of franchises and the advisability of buying great businesses instead of cheap businesses. WARREN BUFFETT: But what did happen, and which we announced last night — which was very important — the acquisition of a large, extremely well-managed, profitable, really extraordinary company called ISCAR. And up until October of last year, I knew nothing of ISCAR. I did not know about their extraordinary management. But I got a letter, and I got a letter from Eitan Wertheimer, and — maybe a page and a half, page and a quarter — and he told me something about this business. And sometimes character and talents sort of just jump off the page at me, and this was one of those letters, and it came from Israel. And I expressed an interest, after reading this letter, in getting together with Eitan. And not long thereafter, I met not only Eitan, but his CEO and president, a remarkable man named Jacob Harpaz; Danny Goldman, the CFO. And we met in Omaha. They subsequently met Charlie. And this all came to fruition yesterday when we signed a contract. Now we have — well, before I go on to this, maybe Charlie would like to say a word or two about ISCAR.

Turning to happier thoughts, we can report that Berkshire’s newest acquisitions of size, TTI and Iscar, led by their CEOs, Paul Andrews and Jacob Harpaz respectively, performed magnificently in 2007. Iscar is as impressive a manufacturing operation as I’ve seen, a view I reported last year and that was confirmed by a visit I made in the fall to its extraordinary plant in Korea. Tony, now 64, joined GEICO at 18. Every day since, he has been passionate about the company — proud of how it could both save money for its customers and provide growth opportunities for its associates. Even now, with sales at $12 billion, Tony feels GEICO is just getting started. So do I.

The most noteworthy of these acquisitions was Iscar’s late-November purchase of Tungaloy, a leading Japanese producer of small tools. Charlie and I continue to look with astonishment — and appreciation! — at the accomplishments of Iscar’s management. To secure one manager like Eitan Wertheimer, Jacob Harpaz or Danny Goldman when we acquire a company is a blessing. Getting three is like winning the Triple Crown. Iscar’s growth since our purchase has exceeded our expectations — which were high — and the addition of Tungaloy will move performance to the next level. MiTek, Benjamin Moore, Acme Brick, Forest River, Marmon and CTB also made one or more acquisitions during the year. CTB, which operates worldwide in the agriculture equipment field, has now picked up six small firms since we purchased it in 2002. At that time, we paid $140 million for the company. Last year its pre-tax earnings were $89 million. Vic Mancinelli, its CEO, followed Berkshire-like operating principles long before our arrival. He focuses on blocking and tackling, day by day doing the little things right and never getting off course. Ten years from now, Vic will be running a much larger operation and, more important, will be earning excellent returns on invested capital.

It should be noted that Berkshire’s buyback opportunities are limited because of its high-class investor base. If our shares were heavily held by short-term speculators, both price volatility and transaction volumes would materially increase. That kind of reshaping would offer us far greater opportunities for creating value by making repurchases. Nevertheless, Charlie and I far prefer the owners we have, even though their admirable buy-and-keep attitudes limit the extent to which long-term shareholders can profit from opportunistic repurchases. Last year, Paul Andrews died. Paul was the founder and CEO of TTI, a Fort Worth-based subsidiary of Berkshire. Throughout his life — in both his business and his personal pursuits — Paul quietly displayed all the qualities that Charlie and I admire. His story should be told.