<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934. For the quarterly period ended September 30,
1994 or
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934. For the transition period from________________
to__________________
Commission file number 1-4720
WESCO FINANCIAL CORPORATION
(Exact name of Registrant as Specified in its Charter)
<TABLE>
<S> <C>
DELAWARE 95-2109453
----------------------------- ----------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
</TABLE>
301 East Colorado Boulevard, Suite 300, Pasadena, California 91101-1901
(Address of Principal Executive Offices)
(Zip Code)
818/585-6700
(Registrant's Telephone Number, Including Area Code)
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes_X___ No_____
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes_____ No_____
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. 7,119,807 as of November 13,
1994
<PAGE> 2
PART I. FINANCIAL INFORMATION
<TABLE>
<S> <C>
Item 1. Financial Statements
- ------- --------------------
The condensed consolidated financial statements of Wesco Financial Corporation, listed
in the accompanying index, are incorporated as an integral part of this report.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
- ------- --------------------------------------------------------------------------------------
See pages 10 through 14.
</TABLE>
PART II. OTHER INFORMATION
<TABLE>
<S> <C>
Item 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
(a) Exhibits - None
(b) Reports on Form 8-K - None
</TABLE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
<TABLE>
<S> <C> <C> <C>
WESCO FINANCIAL CORPORATION
Date: November 14, 1994 By:
------------------------ ----------------------------------
Jeffrey L. Jacobson
Vice President and
Chief Financial Officer
(principal financial officer)
</TABLE>
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<PAGE> 3
WESCO FINANCIAL CORPORATION
FINANCIAL STATEMENTS FILED WITH FORM 10-Q
FOR QUARTER ENDED SEPTEMBER 30, 1994
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
Condensed consolidated statement of income and
retained earnings - Nine- and three-month periods
ended September 30, 1994 and September 30, 1993 . . . . . . . . . . . 4
Condensed consolidated balance sheet -
September 30, 1994 and December 31, 1993 . . . . . . . . . . . . . . 5
Condensed consolidated statement of cash flows -
Nine-month periods ended September 30, 1994
and September 30, 1993 . . . . . . . . . . . . . . . . . . . . . . . 6
Notes to condensed consolidated financial
statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
</TABLE>
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<PAGE> 4
WESCO FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
(Dollar amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------- --------------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1994 1993 1994 1993
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Insurance premiums earned . . . . . . . . . . . $ -- $ 3,174 $ 1,078 $ 10,747
Sales and service revenues . . . . . . . . . . 15,707 14,899 47,997 48,795
Dividends and interest on investments
other than mortgage-backed securities . . . . 6,461 7,198 19,657 21,834
Interest on loans and
mortgage-backed securities . . . . . . . . . 608 2,127 2,057 6,993
Gains (losses), net, on sales of securities
and foreclosed property . . . . . . . . . . . (318) 65 323 1,779
Other . . . . . . . . . . . . . . . . . . . . . 314 398 1,409 1,451
-------- -------- -------- --------
22,772 27,861 72,521 91,599
-------- -------- -------- --------
Costs and expenses:
Insurance losses, loss adjustment
and underwriting expenses . . . . . . . . . . (1,633) 3,395 (231) 11,459
Cost of services and products sold . . . . . . 12,549 12,261 38,429 39,713
Selling, general and administrative
expenses . . . . . . . . . . . . . . . . . . 2,597 3,204 9,364 11,347
Interest on notes payable . . . . . . . . . . . 893 1,092 2,531 3,513
Interest on savings accounts . . . . . . . . . -- 1,700 -- 5,630
Loss on sale of New America Electric . . . . . -- -- -- 2,700
-------- -------- -------- --------
14,406 21,652 50,093 74,362
-------- -------- -------- --------
Income before income taxes and cumulative effect
of change in accounting for income taxes . . . 8,366 6,209 22,428 17,237
Income tax (provision) benefit . . . . . . . . . (1,614) (3,142) (3,731) (4,148)
-------- -------- -------- --------
Income before cumulative effect of
change in accounting for income taxes . . . . . 6,752 3,067 18,697 13,089
Cumulative effect of change in
accounting for income taxes . . . . . . . . . . -- -- -- 1,023
-------- -------- -------- --------
Net income . . . . . . . . . . . . . . . . . . 6,752 3,067 18,697 14,112
Retained earnings - beginning of period . . . . 295,047 281,264 286,591 273,566
Cash dividends declared and paid . . . . . . . . (1,745) (1,673) (5,234) (5,020)
-------- -------- -------- --------
Retained earnings - end of period . . . . . . . . $300,054 $282,658 $300,054 $282,658
======== ======== ======== ========
Amounts per share based on 7,119,807 shares
outstanding throughout each period:
Income before cumulative effect of
change in accounting for income taxes . . . . $.95 $.43 $2.63 $1.84
Cumulative effect of change
in accounting for income taxes . . . . . . . . .-- .-- .-- .14
---- ---- ----- ------
Net income . . . . . . . . . . . . . . . . . . . $.95 $.43 $2.63 $1.98
==== ==== ===== =====
Cash dividends paid . . . . . . . . . . . . . . . . $.245 $.235 $ .735 $ .705
====== ===== ====== ======
</TABLE>
See notes beginning on page 7.
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<PAGE> 5
WESCO FINANCIAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(Dollar amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Sept. 30, Dec. 31,
1994 1993
-------- --------
ASSETS
<S> <C> <C>
Cash and temporary cash investments . . . . . . . . . . . . . . . . . . . . . $ 13,190 $ 5,230
Investments:
Securities with fixed maturities . . . . . . . . . . . . . . . . . . . . . 186,699 202,126
Marketable equity securities . . . . . . . . . . . . . . . . . . . . . . . 700,124 639,958
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68,982 67,841
-------- --------
$968,995 $915,155
======== ========
</TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<S> <C> <C>
Insurance losses and loss adjustment expenses . . . . . . . . . . . . . . . . $ 41,395 $ 53,818
Income taxes payable, principally deferred . . . . . . . . . . . . . . . . . 193,454 180,722
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,643 37,896
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,710 16,632
-------- --------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 292,202 289,068
-------- --------
Shareholders' equity:
Capital stock, and surplus arising
from stock dividends . . . . . . . . . . . . . . . . . . . . . . . . . . 30,439 30,439
Unrealized appreciation of investments,
net of taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 346,300 309,057
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300,054 286,591
-------- --------
Total shareholders' equity . . . . . . . . . . . . . . . . . . . . . . . 676,793 626,087
-------- --------
$968,995 $915,155
======== ========
</TABLE>
See notes beginning on page 7.
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<PAGE> 6
WESCO FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollar amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
-------------------------
Sept. 30, Sept. 30,
1994 1993
--------- ---------
<S> <C> <C>
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . $ 8,104 $ 17,952
------- --------
Cash flows from investing activities -
Proceeds from maturities and redemptions of securities
with fixed maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,292 39,365
Purchases of securities with fixed maturities . . . . . . . . . . . . . . . . . . . . . (20,637) (10,395)
Proceeds from sales of marketable equity securities . . . . . . . . . . . . . . . . . . -- 3,599
Real estate loan originations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (1,471)
Principal collections on real estate loans . . . . . . . . . . . . . . . . . . . . . . 61 14,102
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,011 (5,336)
------- --------
Net cash provided by investing activities . . . . . . . . . . . . . . . . . . . . . . . . 15,727 39,864
------- --------
Cash flows from financing activities -
Net decrease in savings accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (32,346)
Short-term borrowings from parent . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 10,200
Repayment of short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . (10,385) (10,200)
Repayment of borrowings from Federal Home Loan Bank . . . . . . . . . . . . . . . . . . -- (16,900)
Payment of cash dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,234) (5,020)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (252) (241)
------- --------
Net cash used by financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . (15,871) (54,507)
------- --------
Increase in cash, including temporary
cash investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,960 3,309
Cash, including temporary cash investments -
beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,230 123,705
------- --------
Cash, including temporary cash investments - end of period . . . . . . . . . . . . . . . $13,190 $127,014
======= ========
Supplementary information:
Interest paid during period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,815 $ 8,928
======= ========
Income taxes paid during period . . . . . . . . . . . . . . . . . . . . . . . . . . . . $11,380 $ 3,125
======= ========
</TABLE>
See notes beginning on page 7.
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<PAGE> 7
WESCO FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1
In the opinion of management, all adjustments necessary to a fair statement of
the results of operations of Wesco Financial Corporation ("Wesco") and its
subsidiaries (consisting only of normal recurring accruals) are reflected in
the condensed consolidated financial statements.
NOTE 2
Reference is made to the notes to Wesco's consolidated financial statements
appearing on pages 33 through 41 of its 1993 Form 10-K Annual Report for other
information deemed generally applicable to the condensed consolidated financial
statements.
NOTE 3
Following is a summary of investments in securities with fixed maturities, in
thousands of dollars:
<TABLE>
<CAPTION>
September 30, 1994 December 31, 1993
------------------------------------ ------------------------------------
Estimated Estimated
Amortized Market Carrying Amortized Market Carrying
Cost Value Value Cost Value Value
--------- -------- -------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Mortgage-backed
securities . . . . . $ 34,674 $ 34,170 $ 34,170 $ 45,848 $ 46,359 $ 45,848
Preferred stocks . . . 135,000 132,150 132,150 135,000 158,150 135,000
State and
municipal bonds 14,244 15,068 15,068 21,278 22,305 21,278
Other . . . . . . . . . 5,323 5,311 5,311 -- -- --
-------- -------- -------- -------- -------- --------
$189,241 $186,699 $186,699 $202,126 $226,814 $202,126
======== ======== ======== ======== ======== ========
</TABLE>
At September 30, 1994, the estimated market values of securities with
fixed maturities contained $7.1 million of unrealized gains and $9.6 million of
unrealized losses. At December 31, 1993, there were unrealized gains of $27.7
million and unrealized losses of $3.0 million.
Investments in securities with fixed maturities, effective with the first
quarter of 1994, have been classified as available for sale, and accordingly
are carried at fair value, with the net unrealized gain or loss reported as a
component of shareholders' equity. At December 31, 1993, such investments were
classified as held to maturity and thus carried at amortized cost. The change
in classification of these investments, which has not been material in relation
to Wesco's reported financial condition, conforms Wesco's financial reporting
for such investments to its reporting for marketable equity securities.
-7-
<PAGE> 8
NOTE 4
Following is a summary of the changes in unrealized appreciation of
investments, net of deemed applicable income taxes, included in shareholders'
equity on the accompanying condensed consolidated balance sheet, in thousands
of dollars:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------ --------------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1994 1993 1994 1993
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Balance at beginning of period... $372,808 $110,347 $309,057 $107,709
Net increase (decrease)
in unrealized appreciation...... (40,468) 2,908 57,624 6,905
(Increase) decrease in deemed
applicable income taxes........ 13,960 (1,058) (20,381) (2,417)
-------- -------- -------- --------
Balance at end of period.......... $346,300 $112,197 $346,300 $112,197
======== ======== ======== ========
</TABLE>
Of the $234 million apparent increase in after-tax unrealized appreciation
between September 30, 1993 and September 30, 1994, approximately $189 million
resulted from Wesco's adoption of a new accounting pronouncement, SFAS No. 115,
as of 1993 yearend. Under SFAS No. 115, marketable equity securities of all
Wesco entities -- not just its insurance subsidiary, as previously -- are now
all carried at market value rather than stated at the lower of aggregate cost
or market. (See Notes 1 and 2 to Wesco's consolidated financial statements
appearing in its 1993 Form 10-K Annual Report for additional information.)
NOTE 5
Investments in securities with fixed maturities include 12,000 shares of
USAir Group, Inc. Series A Cumulative Convertible Preferred Stock ("USAir
Preferred Shares"). This investment, made in 1989 for $12 million, was part of
a $358 million investment in 358,000 shares in which other subsidiaries of
Berkshire Hathaway Inc., Wesco's ultimate parent ("Berkshire"), participated.
If not called or converted prior to August 7, 1999, the USAir Preferred Shares
are mandatorily redeemable by USAir Group, Inc. ("USAir") at $1,000 per share
($358 million in the aggregate, of which Wesco's share would be $12 million),
plus accrued dividends.
For the past five years USAir has incurred very significant losses. On
September 29, 1994, USAir announced that it was deferring the quarterly
dividend payment due September 30, 1994 on the USAir Preferred Shares. USAir
has publicly stated that its ability to survive in the low fare competitive
environment is contingent upon USAir's ability permanently to reduce its
operating costs through reductions in personnel costs and other cost saving
initiatives. USAir
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<PAGE> 9
management is currently engaged in discussions with the leadership of its
unionized employees to achieve its goal of reducing personnel costs. While
USAir's management has stated it is committed to reaching an agreement with the
labor groups, both the timing and the outcome of the negotiations are
uncertain.
Warren E. Buffett, Chairman of Berkshire, and Charles T. Munger, Vice
Chairman of Berkshire and Chairman of Wesco, currently serve as members of
USAir's board of directors. They have stated that they support USAir
management's cost reduction programs, which include employee concessions as
well as other initiatives. On June 15, 1994, they also stated that their
continued service as directors of USAir is dependent on USAir successfully
reaching a timely agreement with organized labor groups that, in their opinion,
provides USAir with sufficient labor cost savings which, when combined with
other cost reduction programs being implemented, would afford USAir a
reasonable opportunity to achieve profitability in a low fare competitive
environment. At this time Mr. Buffett and Mr. Munger continue to serve as
directors. However, they expect to determine whether to continue as directors
prior to Wesco's public release of its calendar 1994 earnings. Therefore, if
the cost reduction initiatives are not successfully negotiated by that time,
Wesco will make an appropriate charge to earnings reflecting the decline in the
value of Wesco's investment in the fourth quarter as required by SFAS 115. If
such a charge is made there will, however, be little or no impact on
shareholders' equity as Wesco's investment in USAir Preferred Shares is
currently carried at fair value, with the net after-tax unrealized loss
included in a separate component of shareholders' equity (see Note 3).
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<PAGE> 10
WESCO FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Reference is made to management's discussion and analysis of Wesco's
consolidated financial condition and results of operations appearing on pages
20 through 26 of its 1993 Form 10-K Annual Report for information deemed
generally appropriate to an understanding of the accompanying condensed
consolidated financial statements. The information set forth in the following
paragraphs updates such discussion.
FINANCIAL CONDITION
The financial condition of Wesco and its subsidiaries continues to be
sound and liquid.
In May 1994, Standard and Poor's Corporation raised its credit rating
on Wesco's $30 million of Notes due November 1999 from AA+ to AAA, its highest
rating, and also assigned its AAA claims-paying-ability rating to Wesco's
insurance subsidiary.
RESULTS OF OPERATIONS
Following is a breakdown of Wesco's consolidated net (after-tax)
income by business segment, in thousands of dollars:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------- ------------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1994 1993 1994 1993
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Identified segments:
Insurance . . . . . . . . . . . . . . . . . . $6,013 $1,337 $15,857 $ 8,701
Industrial . . . . . . . . . . . . . . . . . . 685 398 2,151 1,308
Financial . . . . . . . . . . . . . . . . . . -- 461 -- 2,058
Other than identified business segments . . . . . 54 871 689 1,022
------ ------ ------- -------
Income before cumulative effect of
change in accounting for income taxes . . . . 6,752 3,067 18,697 13,089
Cumulative effect of change in
accounting for income taxes (adoption
of SFAS No. 109) . . . . . . . . . . . . . . . -- -- -- 1,023
----- ----- ------ -------
Net income - consolidated . . . . . . . . . . . . $6,752 $3,067 $18,697 $14,112
====== ====== ======= =======
</TABLE>
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<PAGE> 11
Insurance Segment
Following is a summary of the results of underwriting and investing
activities of wholly owned Wesco-Financial Insurance Company ("Wes-FIC"), in
thousands of dollars:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------- -----------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1994 1993 1994 1993
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Premiums written (returned), net . . . . . . . . . . . . . $ (3) $ (259) $ 8,825 $ 6,376
====== ====== ======= =======
Premiums earned . . . . . . . . . . . . . . . . . . . . . . $ -- $3,174 $ 1,078 $10,747
====== ====== ======= =======
Underwriting gain (loss) . . . . . . . . . . . . . . . $1,632 $ (245) $ 1,308 $ (752)
Dividend and interest income . . . . . . . . . . . . . 6,029 3,733 17,894 11,412
------ ------ ------- -------
Income before income taxes . . . . . . . . . . . . . . 7,661 3,488 19,202 10,660
Provision for income taxes . . . . . . . . . . . . . . (1,649) (2,176) (3,509) (3,115)
------ ------ ------- -------
Income before securities gains . . . . . . . . . . . . 6,012 1,312 15,693 7,545
Securities gains, net of taxes . . . . . . . . . . . . 1 25 164 1,156
------ ------ ------- -------
Insurance segment net income . . . . . . . . . . . . . $6,013 $1,337 $15,857 $ 8,701
====== ====== ======= =======
</TABLE>
The increase in premiums written in the nine months ended September 30,
1994 over the corresponding figure for the first nine months last year was
attributable principally to Wes-FIC's entry into the super-catastrophe
("super-cat") reinsurance business in the first quarter of 1994. In February
1994 an insurance company subsidiary of Berkshire retroceded to Wes-FIC from
10% to 20% of certain super-cat reinsurance business (see Wesco's 1993 Form
10-K Annual Report for further details). Wes-FIC's entry into the business of
super-cat reinsurance followed a large increase in net worth due to its
absorption through merger of Mutual Savings and Loan Association ("Mutual
Savings"), another wholly owned subsidiary of Wesco, in January 1994 (see
financial segment below).
The net returned premiums for the third quarters of 1994 and 1993 were
attributable to refunds of insurance premiums in connection with a personal
lines reinsurance arrangement that terminated in mid-1993, offset by only a
small amount of direct insurance business written by Wes- FIC in each year's
third quarter.
Insurance premiums are recognized as earned revenues by Wes-FIC pro rata
over the term of the contract on all forms of insurance except for super-cat
reinsurance. Premiums on super-cat reinsurance are not recognized as earned
until the earlier of a loss occurrence or policy expiration, in order to avoid
premature recognition of underwriting profits. The super-cat reinsurance
contracts referred to above expire at various dates beginning in the first
quarter of 1995.
An underwriting loss has typically been reported by Wesco's insurance
segment in each quarterly and annual reporting period. The underwriting gain
reported for the third quarter and
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<PAGE> 12
first nine months of 1994 resulted mainly from a reduction of liabilities for
losses and loss expenses with respect to business written in earlier accounting
periods. Liabilities for losses and loss expenses are estimates and are
subject to estimation error; revisions of such estimates are reflected in
underwriting results of the current accounting period. The adjustment, while
possibly material to Wesco in terms of its effect on net income for the quarter
and nine-month periods ended September 30, 1994, is not significant in relation
to the cumulative insurance business previously written by Wes-FIC or in terms
of its effect on Wesco's net worth.
Wes-FIC's revenues and net income for the third quarter and first nine
months of 1994 benefited from its absorption of Mutual Savings, inasmuch as
dividend and interest income previously reported as revenue of Wesco's
financial segment is now included in Wes-FIC's revenues.
Industrial Segment
Following is a summary of the results of operations of the industrial
segment, whose operations have included those of wholly owned Precision Steel
Warehouse, Inc. and its subsidiaries ("Precision Steel") and, until its
business assets were sold on July 1, 1993, approximately 80%-owned New America
Electrical Corporation ("New America Electric"), in thousands of dollars:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------- -----------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1994 1993 1994 1993
-------- --------- -------- --------
<S> <C> <C> <C> <C>
Revenues, principally sales
and services . . . . . . . . . . . . . . . . . . . $15,717 $14,937 $48,154 $48,979
======= ======= ======= =======
Income before income taxes . . . . . . . . . . . . . $ 1,146 $ 707 $ 3,574 $ 2,327
Provision for income taxes . . . . . . . . . . . . . (461) (309) (1,423) (1,025)
Minority interest in operating
loss of New America Electric . . . . . . . . . . . -- -- -- 6
------- ------- ------- -------
Industrial segment net income . . . . . . . . . . . . $ 685 $ 398 $ 2,151 $ 1,308
======= ======= ======= =======
</TABLE>
Revenues of the industrial segment for the nine months ended September
30, 1993 included $3,489,000 attributable to New America Electric through June
30. Disregarding the New America Electric revenues, revenues increased
$2,664,000 for the nine-month periods and $780,000 for the three-month periods
shown in the summary, all attributable to Precision Steel.
Income before income taxes and net income for the first nine months of
1993 were negatively impacted as a result of the inclusion of the operating
results of New America Electric. Had it not been for Wesco's equity of
$213,000 in New America Electric's operating loss in that period, the
industrial segment would have reported net income of $1,521,000 for last year's
first nine months.
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<PAGE> 13
The improvement in the results of operations of Precision Steel appears to
be attributable to improvement in the industrial segment of the economy.
Financial Segment
Prior to 1994, the financial segment included revenues and expenses of
Mutual Savings as well as revenues and expenses of other Wesco entities that,
although not directly connected with an identified business segment, were more
closely associated with the savings and loan business than any of Wesco's other
businesses.
In October 1993, Mutual Savings discontinued as a regulated savings and
loan association, and, effective January 1, 1994, it merged into Wes-FIC (see
Wesco's 1993 Form 10-K Annual Report for further details). As a result, (1)
several traditional items of revenue and expense - notably interest income on
loans and interest expense on savings accounts - have partially or wholly
disappeared, with the remaining items transferred to the insurance segment, and
(2) the expenses of other Wesco entities previously included in the financial
segment, which have become relatively insignificant, are now classified
separately (i.e., not included in a business segment).
In conjunction with its discontinuance as a regulated savings and loan
association, Mutual Savings disposed of its savings deposits and most of its
real estate loans (see Wesco's 1993 Form 10-K Annual Report for further
details). Although the disposition has affected several items of revenue and
expense, as noted above, it has also benefited Wesco's consolidated earnings
through a reduction in operating expenses.
Other Than Identified Business Segments
Following is a summary of net (after-tax) earnings items not identified
with business segments, in thousands of dollars:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------- --------------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1994 1993 1994 1993
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Dividend and interest income . . . . . . . . . $1,252 $1,190 $3,774 $3,542
Interest expense . . . . . . . . . . . . . . . (794) (505) (2,143) (1,480)
Realized gains (losses) on sales of
foreclosed properties . . . . . . . . . . . (188) -- 42 --
Provision for losses on loans and
foreclosed properties . . . . . . . . . . . -- -- (590) --
Loss on sale of New America Electrical
Corporation . . . . . . . . . . . . . . . . -- -- -- (1,617)
Other items, net . . . . . . . . . . . . . . . (216) 186 (394) 577
------ ------ ------ ------
$ 54 $ 871 $ 689 $1,022
====== ======= ====== =======
</TABLE>
-13-
<PAGE> 14
Interest expense was much higher in the third quarter and first nine
months of 1994 than in the comparable periods of 1993 as a result of
intercompany borrowings made late in 1993 principally to facilitate the
transfer of loans and foreclosed properties to Wesco's newly formed real estate
subsidiary, MS Property Company ("MSPC").
Other items, net, include rental income, net of expenses, associated with
MSPC's office building, which is used by Wesco but primarily leased to outside
tenants; expenses relating to real estate held for sale; and general and
administrative expenses of Wesco and MSPC. The main reason for the decrease in
other items, net -- for the three- and nine-month periods ended September 30,
1994, from the comparable 1993 figures -- is the inclusion in 1994 of various
expenses previously charged against the financial segment (e.g., expenses
associated with foreclosed properties and delinquent loans).
* * * * *
Realized securities gains and losses -- recorded through earnings when
securities are sold or values are other than temporarily impaired (see Note 5
to the accompanying condensed consolidated financial statements) -- tend to
fluctuate significantly from period to period. The amount of realized gain or
loss for any period has no predictive value, and variations in amount from
period to period have no practical analytical value, given the traditional
existence of substantial unrealized price appreciation in Wesco's consolidated
investment portfolio. Realized securities gains, after taxes, amounted to
$164,000 for the nine months ended September 30, 1994, including $1,000 and
$163,000 realized in the third and first quarters, versus $1,156,000 for the
first nine months of 1993, including $25,000 and $1,131,000 realized in the
third and first quarters. No securities gains were realized in the second
quarter of either year.
Wesco's effective consolidated income tax rate typically fluctuates from
period to period for various reasons, such as the inclusion in consolidated
revenues of significant, varying amounts of dividend income from preferred and
common stocks, which is substantially exempt from income taxes, and, beginning
in 1993, the effects of changes in income tax rates as described in Note 6 to
the consolidated financial statements appearing in Wesco's 1993 Form 10-K
Annual Report. The respective income tax provisions, expressed as percentages
of income before income taxes and cumulative effect of change in accounting for
income taxes amounted to 19.3% and 50.6% for the third quarters of 1994 and
1993, and 16.7% and 24.1% for the first nine months of the respective years.
Consolidated revenues, expenses and earnings reported in any period are
not necessarily indicative of future revenues, expenses and earnings, in that
they are subject to significant variations in amount and timing of gains and
losses from disposition or writedown of securities, foreclosed properties and
other assets and liabilities, the possible occurrence of other unusual items,
the effects of changes in rates of income taxes, and the effects of changes in
the nature of Wesco's operations.
-14-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S FINANCIAL STATEMENTS AND RELATED NOTES CONTAINED IN FORM 10-Q AS
FILED HEREWITH, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS AND RELATED NOTES.
</LEGEND>
<CIK> 0000105729
<NAME> WESCO FINANCIAL CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> QTR-3
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-1-1994
<PERIOD-END> SEP-30-1994
<EXCHANGE-RATE> 1
<CASH> 13,190
<SECURITIES> 886,823
<RECEIVABLES> 15,743
<ALLOWANCES> 102
<INVENTORY> 9,612
<CURRENT-ASSETS> 0
<PP&E> 28,275
<DEPRECIATION> 14,428
<TOTAL-ASSETS> 968,995
<CURRENT-LIABILITIES> 0
<BONDS> 37,643
<COMMON> 0
0
7,120
<OTHER-SE> 669,673
<TOTAL-LIABILITY-AND-EQUITY> 968,995
<SALES> 47,997
<TOTAL-REVENUES> 72,521
<CGS> 38,429
<TOTAL-COSTS> 38,198
<OTHER-EXPENSES> 8,364
<LOSS-PROVISION> 1,000
<INTEREST-EXPENSE> 2,531
<INCOME-PRETAX> 22,428
<INCOME-TAX> 3,731
<INCOME-CONTINUING> 18,697
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,697
<EPS-PRIMARY> 2.63
<EPS-DILUTED> 2.63
</TABLE>
