<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
/X/ For the quarterly period ended June 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)
DELAWARE 95-2109453
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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 August 12,
1994
<PAGE> 2
PART I. FINANCIAL INFORMATION
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 9 through 13.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a vote of Security-Holders
At the annual meeting of shareholders of Wesco Financial
Corporation ("Wesco") held May 25, 1994, Wesco's
shareholders reelected all Wesco's Directors. Nominees
Charles T. Munger, Robert H. Bird, Carolyn H. Carlburg and
James N. Gamble each received 6,882,926 favorable votes
(6,613 against), William T. Caspers and Elizabeth Caspers
Peters each received 6,882,611 favorable votes (6,928
against), and David K. Robinson received 6,871,576
favorable votes (17,963 against). There were no votes
withheld, abstentions or broker non-votes. No other
matters were voted upon at the meeting.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - None
(b) Reports on Form 8-K - None
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.
WESCO FINANCIAL CORPORATION
Date: August 12, 1994 By: /s/ Jeffrey L. Jacobson
Jeffrey L. Jacobson
Vice President and
Chief Financial Officer
(principal financial officer)
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<PAGE> 3
WESCO FINANCIAL CORPORATION
FINANCIAL STATEMENTS FILED WITH FORM 10-Q
FOR QUARTER ENDED JUNE 30, 1994
INDEX
Page
Condensed consolidated statement of income and
retained earnings - Six- and three-month periods
ended June 30, 1994 and June 30, 1993 . . . . . . . . . . . . . . . 4
Condensed consolidated balance sheet -
June 30, 1994 and December 31, 1993 . . . . . . . . . . . . . . . . 5
Condensed consolidated statement of cash flows -
Six-month periods ended June 30, 1994
and June 30, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . 6
Notes to condensed consolidated financial
statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
-3-
<PAGE> 4
WESCO FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
(Dollar amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------ -----------------------------
June 30, June 30, June 30, June 30,
1994 1993 1994 1993
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Revenues:
Insurance premiums earned . . . . . . . . . . . . . $ 247 $ 4,043 $ 1,078 $ 7,573
Sales and service revenues . . . . . . . . . . . . 15,841 16,567 32,290 33,896
Dividends and interest on investments
other than mortgage-backed securities . . . . . . 6,610 7,294 13,196 14,636
Interest on loans and
mortgage-backed securities . . . . . . . . . . . 640 2,251 1,449 4,866
Gains on sales of securities
and foreclosed property . . . . . . . . . . . . . 390 -- 641 1,714
Other . . . . . . . . . . . . . . . . . . . . . . . 428 574 1,095 1,053
-------- -------- -------- --------
24,156 30,729 49,749 63,738
-------- -------- -------- --------
Costs and expenses:
Insurance losses, loss adjustment
and underwriting expenses . . . . . . . . . . . . . 366 4,237 1,402 8,064
Cost of services and products sold . . . . . . . . 12,578 13,271 25,880 27,452
Selling, general and administrative
expenses . . . . . . . . . . . . . . . . . . . . 3,814 4,500 6,928 8,143
Interest on notes payable . . . . . . . . . . . . . 640 1,212 1,477 2,421
Interest on savings accounts . . . . . . . . . . -- 1,855 -- 3,930
Loss on sale of New America Electric . . . . . . -- 2,700 -- 2,700
-------- -------- -------- --------
17,398 27,775 35,687 52,710
-------- -------- -------- --------
Income before income taxes and cumulative effect
of change in accounting for income taxes . . . . . 6,758 2,954 14,062 11,028
Income tax (provision) benefit . . . . . . . . . . . . . (896) 667 (2,117) (1,006)
-------- -------- -------- --------
Income before cumulative effect of
change in accounting for income taxes . . . . . . . 5,862 3,621 11,945 10,022
Cumulative effect of change in
accounting for income taxes . . . . . . . . . . . -- -- -- 1,023
-------- -------- -------- --------
Net income . . . . . . . . . . . . . . . . . . . . 5,862 3,621 11,945 11,045
Retained earnings - beginning of period . . . . . . . . 290,930 279,317 286,591 273,566
Cash dividends declared and paid . . . . . . . . . . . . (1,745) (1,674) (3,489) (3,347)
-------- -------- -------- --------
Retained earnings - end of period . . . . . . . . . . . . $295,047 $281,264 $295,047 $281,264
======== ======== ======== ========
Amounts per share based on 7,119,807 shares
outstanding throughout each period:
Income before cumulative effect of
change in accounting for income taxes $ .82 $ .51 $1.68 $1.41
Cumulative effect of change
in accounting for income taxes .-- .-- .-- .14
----- ----- ----- -----
Net income $ .82 $ .51 $1.68 $1.55
===== ===== ===== =====
Cash dividends . . . . . . . . . . . . . . . . . . $.245 $.235 $.490 $.470
===== ===== ===== =====
</TABLE>
See notes beginning on page 7. -4-
<PAGE> 5
WESCO FINANCIAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(Dollar amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
June 30, Dec. 31,
1994 1993
-------- --------
ASSETS
<S> <C> <C>
Cash and temporary cash investments . . . . . . . . . . . . . . . . . . . . . $ 9,882 $ 5,230
Investments:
Securities with fixed maturities . . . . . . . . . . . . . . . . . . . . . 211,920 202,126
Marketable equity securities . . . . . . . . . . . . . . . . . . . . . . . 714,341 639,958
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71,348 67,841
---------- --------
$1,007,491 $915,155
========== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Insurance losses and loss adjustment expenses . . . . . . . . . . . . . . . . $ 47,366 $ 53,818
Income taxes payable, principally deferred . . . . . . . . . . . . . . . . . 207,909 180,722
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,728 37,896
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,194 16,632
========== ========
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 309,197 289,068
---------- --------
Shareholders' equity:
Capital stock, and surplus arising
from stock dividends . . . . . . . . . . . . . . . . . . . . . . . . . . 30,439 30,439
Unrealized appreciation of investments,
net of taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 372,808 309,057
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 295,047 286,591
---------- --------
Total shareholders' equity . . . . . . . . . . . . . . . . . . . . . . . 698,294 626,087
---------- --------
$1,007,491 $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>
Six Months Ended
-------------------
June 30, June 30,
1994 1993
------ ------
<S> <C> <C>
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,309 $ 10,279
-------- --------
Cash flows from investing activities -
Proceeds from maturities and redemptions of securities
with fixed maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,529 26,903
Proceeds from sales of marketable equity securities . . . . . . . . . . . . . . . . . . -- 3,534
Real estate loan originations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (1,471)
Principal collections on real estate loans . . . . . . . . . . . . . . . . . . . . . . . 22 10,456
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,167) (5,061)
-------- --------
Net cash provided by investing activities . . . . . . . . . . . . . . . . . . . . . . . . . 15,384 34,361
-------- --------
Cash flows from financing activities -
Net decrease in savings accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (21,254)
Short-term borrowings from parent . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 10,200
Repayment of short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . (10,385) --
Payment of cash dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,489) (3,347)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (167) (160)
-------- --------
Net cash used by financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . (14,041) (14,561)
-------- --------
Increase in cash, including temporary
cash investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,652 30,079
Cash, including temporary cash investments -
beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,230 123,705
-------- --------
Cash, including temporary cash investments - end of period . . . . . . . . . . . . . . . . $ 9,882 $153,784
======== ========
Supplementary information:
Interest paid during period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,860 $ 6,680
======== ========
Income taxes paid during period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,061 $ 2,719
======== ========
</TABLE>
See notes beginning on page 7.
-6-
<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>
June 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 . . . . $ 32,846 $ 32,357 $ 32,357 $ 45,848 $ 46,359 $ 45,848
Preferred stocks . . 135,000 159,690 159,690 135,000 158,150 135,000
State and
municipal bonds . . 18,892 19,873 19,873 21,278 22,305 21,278
-------- -------- -------- -------- -------- --------
$186,738 $211,920 $211,920 $202,126 $226,814 $202,126
======== ======== ======== ======== ======== ========
</TABLE>
Investments in securities with fixed maturities, effective with the first
quarter of 1994, are classified as available for sale, and accordingly carried
at fair value, with the net unrealized gain or loss included in 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 Six Months Ended
----------------------- ----------------------
June 30, June 30, June 30, June 30,
1994 1993 1994 1993
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Balance at beginning of period. . . $324,007 $114,959 $309,057 $107,709
Net increase (decrease)
in unrealized appreciation. . . . . 73,638 (6,989) 98,092 3,997
(Increase) decrease in deemed
applicable income taxes . . . . . . (24,837) 2,377 (34,341) (1,359)
-------- -------- -------- --------
Balance at end of period. . . . . . . $372,808 $110,347 $372,808 $110,347
======== ======== ======== ========
</TABLE>
Of the $262 million apparent increase in after-tax appreciation between
June 30, 1993 and June 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.)
-8-
<PAGE> 9
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 Six Months Ended
------------------ ------------------
June 30, June 30, June 30, June 30,
1994 1993 1994 1993
------ ------ ------ ------
<S> <C> <C> <C> <C>
Identified segments:
Insurance . . . . . . . . . . . . . . . . . . . $4,932 $3,134 $ 9,843 $ 7,364
Industrial . . . . . . . . . . . . . . . . . . 794 464 1,466 910
Financial . . . . . . . . . . . . . . . . . . -- 761 -- 1,597
Other than identified business segments . . . . . 136 (738) 636 151
------ ------ ------- -------
Income before cumulative effect of
change in accounting for income taxes . . . . . 5,862 3,621 11,945 10,022
Cumulative effect of change in
accounting for income taxes (adoption
of SFAS No. 109) . . . . . . . . . . . . . . -- -- -- 1,023
------ ------ ------- -------
Net income - consolidated . . . . . . . . . . . . $5,862 $3,621 $11,945 $11,045
====== ====== ======= =======
</TABLE>
-9-
<PAGE> 10
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 Six Months Ended
-------------------- --------------------
June 30, June 30, June 30, June 30,
1994 1993 1994 1993
------ ------ ------ ------
<S> <C> <C> <C> <C>
Premiums written . . . . . . . . . . . . . . . . . . . . . $1,084 $3,445 $ 8,828 $6,635
Premiums earned . . . . . . . . . . . . . . . . . . . . . . $ 247 $4,043 $ 1,078 $7,573
====== ====== ======= ======
Underwriting loss . . . . . . . . . . . . . . . . . . . . . $ (120) $ (207) $ (324) $ (507)
Dividend and interest income. . . . . . . . . . . . . . . . 5,978 3,811 11,865 7,679
------ ------ ------- ------
Income before income taxes. . . . . . . . . . . . . . . . . 5,858 3,604 11,541 7,172
Provision for income taxes . . . . . . . . . . . . . . . . (926) (470) (1,861) (939)
------ ------ ------- ------
Income before securities gains . . . . . . . . . . . . . . 4,932 3,134 9,680 6,233
Securities gains, net of taxes . . . . . . . . . . . . . -- -- 163 1,131
------ ------ ------- ------
Insurance segment net income . . . . . . . . . . . . . . . $4,932 $3,134 $ 9,843 $7,364
====== ====== ======= ======
</TABLE>
The increase in premiums written in the six months ended June 30, 1994
over the corresponding figure for the first six months last year was
attributable principally to Wes-FIC's entry into the super-catastrophe
("super-cat") reinsurance business in the first quarter. In February 1994 an
insurance company subsidiary of Berkshire Hathaway Inc., Wesco's ultimate
parent company, 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).
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.
Wes-FIC's net income for the second quarter and first six 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.
-10-
<PAGE> 11
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 Six Months Ended
--------------------- ---------------------
June 30, June 30, June 30, June 30,
1994 1993 1994 1993
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenues, principally sales
and services . . . . . . . . . . . . . . . . . . . . . $15,955 $16,688 $32,437 $34,042
======= ======= ======= =======
Income before income taxes . . . . . . . . . . . . . . . $ 1,317 $ 880 $ 2,428 $ 1,582
Provision for income taxes . . . . . . . . . . . . . . . (523) (420) (962) (716)
Minority interest in operating
loss of New America Electric . . . . . . . . . . . . . -- 4 -- 44
------- ------- ------- -------
Industrial segment net income . . . . . . . . . . . . . . $ 794 $ 464 $ 1,466 $ 910
======= ======= ======= =======
</TABLE>
Revenues of the industrial segment included $2,002,000 and $3,489,000
attributable to New America Electric in the second quarter and first six months
of 1993 versus none in the comparable periods of 1994. Had 1993 revenues not
included those of New America Electric, revenues of the industrial segment
would have increased $1,269,000 and $1,884,000 for the second quarter and first
six months of 1994.
Income before income taxes and net income were negatively impacted in the
second quarter and first six months of 1993 as a result of the inclusion of
the operating results of New America Electric. Had it not been for Wesco's
equity of $33,000 and $213,000 in New America Electric's operating losses in
those periods, the industrial segment would have reported net income of
$497,000 and $1,123,000, respectively.
The operations of Precision Steel appear to have been less affected by
recessionary economic conditions in 1994 than in 1993.
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.
-11-
<PAGE> 12
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 not had a significant effect on Wesco's
consolidated revenues and earnings.
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 Six Months Ended
----------------------- -----------------------
June 30, June 30, June 30, June 30,
1994 1993 1994 1993
------ ------ ------ ------
<S> <C> <C> <C> <C>
Dividend and interest income . . . . . . . . . . $1,106 $ 998 $ 2,522 $ 2,352
Interest expense . . . . . . . . . . . . . . . . (802) (502) (1,349) (975)
Realized gains on sales of
securities and foreclosed properties . . . . . 230 -- 230 --
Provision for losses on loans and
foreclosed properties . . . . . . . . . . . . (590) -- (590) --
Loss on sale of New America Electrical
Corporation . . . . . . . . . . . . . . . . . -- (1,617) -- (1,617)
Other items, net . . . . . . . . . . . . . . . . 192 383 (177) 391
------ ------- ------- -------
$ 136 $ (738) $ 636 $ 151
====== ======= ======= =======
</TABLE>
Interest expense was much higher in the second quarter and first six
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 second quarter and six-month periods ended June 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).
-12-
<PAGE> 13
* * * * *
Realized securities gains, recorded when appreciated securities are sold,
tend to fluctuate significantly from period to period. The amount of realized
gain 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
$163,000 and $1,131,000 in the first quarters of 1994 and 1993. 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 or benefits, expressed as
percentages of income before income taxes and cumulative effect of change in
accounting for income taxes amounted to a provision of 13.3% for the second
quarter of 1994, a benefit of 22.6% for the second quarter of 1993, and
provisions of 15.1% and 9.1% for the six-month periods ended June 30, 1994 and
1993.
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 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.
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