1997: Could Buffett explain more about the Salomon notes Berkshire owns?

AUDIENCE MEMBER: And, then, secondly, just clue us in a little bit more on the five-year discount notes that you did that were tied to the Salomon stock. And was that a way to unload it? Or just kind of give us a little more than what we saw in the annual.

WARREN BUFFETT: Well, that is simply an issue of Berkshire — by Berkshire — of 500 million, as you mention, of a very low-coupon note — low-interest rate note, too — that is convertible — or exchangeable — into Salomon stock anytime during the next five years.

And it’s a way of taking the capital out of that block of stock at a low-interest cost to use elsewhere, while retaining a limited portion of the upside in the Salomon stock.

And we just — we made that decision, whenever it was, six months ago or so, based on the thought that we might have some good opportunities at some point to use that money, and raising the money at a little over a one percent current cost, or a three percent cost to maturity — and we think the actual cost is likely to be close to the one percent — made sense for us.

We have never owned — I mean, we have the convertible preferreds of Champion, of US Airways, and of Salomon. And those are three industries — I don’t think we’ve ever owned an airline stock, common stock. I don’t think we’ve ever owned a paper company common stock. And we’ve only had a very limited amount of investment in the investment banking businesses.

Those are industries that we don’t feel that we’ve got the same kind of long-term economic advantage that we have in something like a Coke or a Gillette. So those are not natural places for us to be common shareholders. And the issuance of that exchangeable debt reflected that view.

Charlie?

CHARLIE MUNGER: I agree. (Laughter)