<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 March 31, 1995
or
[ ] Transition report pursuant to section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the transition period from to
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Commission file number 1-4720
WESCO FINANCIAL CORPORATION
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(Exact name of Registrant as Specified in its Charter)
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<S> <C>
DELAWARE 95-2109453
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(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
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(Address of Principal Executive Offices)
(Zip Code)
818/585-6700
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(Registrant's Telephone Number, Including Area Code)
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(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
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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
May 12, 1995
<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 8 through 11.
PART II. OTHER INFORMATION
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
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<S> <C>
Date: May 15, 1995 By:
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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 MARCH 31, 1995
INDEX
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<CAPTION>
Page
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<S> <C>
Condensed consolidated statement of income and
retained earnings -- Three-month periods
ended March 31, 1995 and March 31, 1994 . . . . . . . . . . . . . . 4
Condensed consolidated balance sheet --
March 31, 1995 and December 31, 1994 . . . . . . . . . . . . . . . 5
Condensed consolidated statement of cash flows --
Three-month periods ended March 31, 1995
and March 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . 6
Notes to condensed consolidated financial
statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
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<PAGE> 4
WESCO FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
(Dollar amounts in thousands)
(Unaudited)
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<CAPTION>
Three Months Ended
----------------------------
March 31, March 31,
1995 1994
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<S> <C> <C>
Revenues:
Insurance premiums earned........................................................... $ 8,532 $ 831
Sales and service revenues.......................................................... 17,659 16,449
Dividend and interest income........................................................ 17,507 7,395
Gains (losses) on sales of securities
and foreclosed property........................................................... (22) 251
Other............................................................................... 566 667
-------- --------
34,242 25,593
-------- --------
Costs and expenses:
Insurance losses, loss adjustment
and underwriting expenses......................................................... 2,933 1,036
Cost of services and products sold.................................................. 14,061 13,302
Selling, general and administrative expenses........................................ 2,627 3,100
Interest on notes payable........................................................... 844 851
-------- --------
20,465 18,289
-------- --------
Income before income taxes ........................................................... 13,777 7,304
Provision for income taxes............................................................ (3,411) (1,221)
-------- --------
Net income .......................................................................... 10,366 6,083
Retained earnings -- beginning of period.............................................. 298,586 286,591
Cash dividends declared and paid...................................................... (1,816) (1,744)
-------- --------
Retained earnings -- end of period.................................................... $307,136 $290,930
======== ========
Amounts per share based on 7,119,807 shares
outstanding throughout each period:
Net income........................................................................... $1.46 $ .85
===== =====
Cash dividends ...................................................................... $.255 $.245
===== =====
</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)
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<CAPTION>
March 31, Dec. 31,
1995 1994
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<S> <C> <C>
ASSETS
Cash and temporary cash investments............................... $ 4,184 $ 15,800
Investments:
Securities with fixed maturities............................... 179,338 183,089
Marketable equity securities................................... 821,552 696,261
Accounts receivable............................................... 8,799 6,501
Real estate held for sale......................................... 23,498 23,414
Property and equipment............................................ 14,286 14,279
Other assets...................................................... 28,092 22,417
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$1,079,749 $961,761
========== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Insurance losses and loss adjustment expenses..................... $ 40,503 $ 39,785
Income taxes payable, principally deferred........................ 232,804 191,858
Notes payable..................................................... 37,512 37,557
Other liabilities................................................. 12,289 14,414
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Total liabilities............................................. 323,108 283,614
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Shareholders' equity:
Capital stock and surplus....................................... 30,439 30,439
Unrealized appreciation of investments,
net of taxes................................................. 419,066 349,122
Retained earnings............................................... 307,136 298,586
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Total shareholders' equity.................................... 756,641 678,147
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$1,079,749 $961,761
========== ========
</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)
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<CAPTION>
Three Months Ended
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March 31, March 31,
1995 1994
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Net cash provided (used) by operating activities......................... $ 4,553 $(4,342)
-------- -------
Cash flows from investing activities:
Proceeds from maturities and redemptions of securities
with fixed maturities ................................... 1,526 9,349
Proceeds from sales of securities with fixed maturities.............. 5,267 --
Purchases of marketable equity securities............................ (20,688) --
Other, net........................................................... (413) (740)
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Net cash provided (used) by investing activities......................... (14,308) 8,609
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Cash flows from financing activities:
Repayment of short-term borrowings................................... -- (5,000)
Payment of cash dividends............................................ (1,816) (1,744)
Other, net........................................................... (45) (82)
-------- -------
Net cash used by financing activities.................................... (1,861) (6,826)
-------- -------
Decrease in cash, including temporary
cash investments..................................................... (11,616) (2,559)
Cash, including temporary cash investments --
beginning of period.................................................. 15,800 5,230
-------- -------
Cash, including temporary cash investments -- end of period.............. $ 4,184 $ 2,671
======== =======
Supplementary information:
Interest paid during period............................................ $ 179 $ 170
===== ======
Income taxes paid, net, during period.................................. $ 294 $5,712
===== ======
</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 35 through 45 of its 1994 Form 10-K Annual Report for other
information deemed generally applicable to the condensed consolidated financial
statements.
NOTE 3
Following is a summary of the changes in unrealized appreciation of
investments, net of deemed applicable income taxes, set forth separately in
shareholders' equity on the accompanying condensed consolidated balance sheet,
in thousands of dollars:
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<CAPTION>
Three Months Ended
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March 31, March 31,
1995 1994
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Balance at December 31, 1994 and
December 31, 1993.......................................... $349,122 $309,057
Net increase in unrealized appreciation.................... 107,773 24,454
Increase in deemed applicable income taxes................. (37,829) (9,504)
-------- --------
Balance at March 31, 1995 and
March 31, 1994............................................. $419,066 $324,007
======== ========
</TABLE>
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<PAGE> 8
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 28 of its 1994 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.
RESULTS OF OPERATIONS
Following is a breakdown of Wesco's consolidated net
(after-tax) income by business segment, in thousands of dollars:
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<CAPTION>
Three Months Ended
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March 31, March 31,
1995 1994
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Identified segments:
Insurance segment:
"Normal" net operating income................................ $ 8,983 $4,748
Securities gains (losses)................................... (14) 163
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Segment net income.......................................... 4,911
Industrial segment net income (all "normal" net operating).. 906 672
Net income from other than identified business segments
(all "normal" net operating).................................... 491 500
------- ------
Net income -- consolidated................................. $10,366 $6,083
======= ======
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<PAGE> 9
Insurance Segment
Following is a summary of the results of underwriting
and investing activities comprising the "normal" net operating income of
Wesco's wholly owned subsidiary, Wesco-Financial Insurance Company ("Wes-FIC"),
in thousands of dollars:
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<CAPTION>
Three Months Ended
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March 31, March 31,
1995 1994
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Premiums written ..................................... $ 5,427 $ 7,744
======= =======
Premiums earned....................................... $ 8,532 $ 831
======= =======
Underwriting gain (loss).............................. $ 5,599 $ (205)
Dividend and interest income ......................... 6,452 5,888
------- -------
Income before income taxes............................ 12,051 5,683
Provision for income taxes............................ (3,068) (935)
------- -------
"Normal" net operating income......................... $ 8,983 $ 4,748
======= =======
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As previously reported, Wes-FIC entered into the
super-catastrophe ("super-cat") reinsurance business in the first quarter of
1994, when National Indemnity Company ("NICO"), an insurance company subsidiary
of Berkshire Hathaway Inc. ("Berkshire"), Wesco's ultimate parent company,
retroceded to Wes-FIC from 10% to 20% of certain super-cat reinsurance
contracts (see Wesco's 1994 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, another wholly owned subsidiary of Wesco, in January
1994.
Premiums written in the quarters ended March 31, 1995 and
1994 related almost entirely to super-cat reinsurance. The decrease in
premiums written in the first quarter of 1995 from the volume reported for the
first quarter of 1994 was caused mainly by NICO's renewal in the current year
of only four of the six reinsurance contracts in which Wes-FIC participated in
1994. Management of Berkshire has reported that super-cat reinsurance pricing
has become less attractive due to competition from other companies that have
recently raised capital to enter the business.
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. The increase in premiums earned in the first quarter of 1995 over
the comparable figure for the first quarter of 1994 was attributable to the
expiration in the first quarter of 1995 of five of the six super-cat
reinsurance contracts written in 1994. The underwriting gain reported for the
first quarter of 1995 was attributable to the recognition of earned premiums
without offsetting losses upon the expiration of the five super-cat
reinsurance contracts.
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<PAGE> 10
Industrial Segment
Following is a summary of the results of operations of
the industrial segment, whose operations comprise those of wholly owned
Precision Steel Warehouse, Inc. and its subsidiaries ("Precision Steel"),
in thousands of dollars:
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<CAPTION>
Three Months Ended
--------------------------
March 31, March 31,
1995 1994
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Revenues, principally sales
and services......................................... $17,699 $ 16,482
======= ========
Income before income taxes............................. $ 1,507 $ 1,111
Provision for income taxes............................. (601) (439)
------- --------
Industrial segment net income.......................... $ 906 $ 672
======= ========
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Industrial revenues increased $1.2 million
(approximately 7 percent) for the first quarter of 1995 over those reported for
the first quarter of 1994. This increase in revenues has been attributed
mainly to improvement in the industrial sector of the economy.
Income before income taxes and net income of Precision
Steel increased in the first quarter of the current year over the figures
reported for the first quarter last year due mainly to increased volume of
steel products sold and to improvement in the gross profit percentage from
19.1% of steel service revenues for the first quarter of 1994 to 20.4% for the
first quarter of 1995. This percentage figure typically fluctuates slightly
from period to period as a result of changes in product mix, price competition
among suppliers and at the retail level, and availability of favorable quantity
order prices on materials purchased.
Other Than Identified Business Segments
Earnings other than from identified business segments
include mainly (1) dividend and interest income from marketable securities and
cash equivalents owned outside the insurance subsidiary, and (2) rental income
from owned commercial real estate, reduced by (1) the costs associated with the
development and liquidation of foreclosed real estate and delinquent loans
formerly owned by the savings and loan subsidiary, (2) interest and other
corporate expenses, and (3) income taxes.
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<PAGE> 11
Realized securities gains and losses -- recorded through
earnings when securities are sold or market values are other than temporarily
impaired -- tend to fluctuate, sometimes 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,
particularly in view of the existence of substantial unrealized price
appreciation in Wesco's consolidated investment portfolio. Earnings for the
first quarter of 1995 included realized securities losses of $14,000, after
taxes, versus gains of $163,000, after taxes, for the first quarter of 1994.
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.
The respective income tax provisions, expressed as percentages of income before
income taxes amounted to 24.8% and 16.7% for the quarters ended March 31, 1995
and March 31, 1994.
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; potential large insurance losses resulting from
Wes-FIC's reinsurance operations; and the possible occurrence of other unusual
items.
-11-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<EXCHANGE-RATE> 1
<CASH> 4,184
<SECURITIES> 1,000,890
<RECEIVABLES> 19,643
<ALLOWANCES> (89)
<INVENTORY> 9,138
<CURRENT-ASSETS> 0
<PP&E> 29,303
<DEPRECIATION> (15,016)
<TOTAL-ASSETS> 1,079,749
<CURRENT-LIABILITIES> 0
<BONDS> 37,512
<COMMON> 7,120
0
0
<OTHER-SE> 749,521
<TOTAL-LIABILITY-AND-EQUITY> 1,079,749
<SALES> 17,659
<TOTAL-REVENUES> 34,242
<CGS> 14,061
<TOTAL-COSTS> 16,994
<OTHER-EXPENSES> 2,627
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 844
<INCOME-PRETAX> 13,777
<INCOME-TAX> (3,411)
<INCOME-CONTINUING> 10,366
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<NET-INCOME> 10,366
<EPS-PRIMARY> 1.46
<EPS-DILUTED> 1.46
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