<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 June 30, 1995 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
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(Address of Principal Executive Offices)
818/585-6700
--------------------
(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 _______
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 14, 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 4. Submission of Matters to a Vote of Security-Holders
At the annual meeting of shareholders of Wesco Financial
Corporation ("Wesco") held May 17, 1995, Wesco's shareholders
reelected all Wesco's Directors. Nominees Charles T. Munger,
Robert H. Bird and Elizabeth Caspers Peters each received
6,881,410 favorable votes (23,596 against), Carolyn H. Carlburg,
William T. Caspers and James N. Gamble each received 6,879,410
favorable votes (25,596 against), and David K. Robinson received
6,879,168 favorable votes, (25,838 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 -- Exhibit 27 -- Financial Data Schedule
(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 14, 1995 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, 1995
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
Condensed consolidated statement of income and retained earnings --
six and three-month periods ended June 30, 1995 and June 30, 1994 . . . . . . 4
Condensed consolidated balance sheet --
June 30, 1995 and December 31, 1994 . . . . . . . . . . . . . . . . . . . . . . 5
Condensed consolidated statement of cash flows --
six-month periods ended June 30, 1995 and June 30, 1994 . . . . . . . . . . . 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 Six Months Ended
------------------------ -----------------------
June 30, June 30, June 30, June 30,
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Insurance premiums earned . . . . . . . . . . . . . $ 751 $ 247 $ 9,283 $ 1,078
Sales and service revenues . . . . . . . . . . . . 15,703 15,841 33,362 32,290
Dividend and interest income . . . . . . . . . . . 7,676 7,250 15,183 14,645
Gains, net, on sales of securities
and foreclosed property . . . . . . . . . . . . 6,731 390 6,709 641
Other . . . . . . . . . . . . . . . . . . . . . . . 587 428 1,153 1,095
-------- -------- -------- --------
31,448 24,156 65,690 49,749
-------- -------- -------- --------
Costs and expenses:
Insurance losses, loss adjustment
and underwriting expenses . . . . . . . . . . . (1,537) 366 1,396 1,402
Cost of services and products sold . . . . . . . . 12,628 12,578 26,689 25,880
Selling, general and administrative expenses . . . 3,003 3,604 5,630 6,704
Interest on notes payable . . . . . . . . . . . . . 843 850 1,687 1,701
-------- -------- -------- --------
14,937 17,398 35,402 35,687
-------- -------- -------- --------
Income before income taxes . . . . . . . . . . . . . 16,511 6,758 30,288 14,062
Provision for income taxes . . . . . . . . . . . . . (4,463) (896) (7,874) (2,117)
-------- -------- -------- --------
Net income . . . . . . . . . . . . . . . . . . . . . 12,048 5,862 22,414 11,945
Retained earnings -- beginning of period . . . . . . 307,136 290,930 298,586 286,591
Cash dividends declared and paid . . . . . . . . . . (1,815) (1,745) (3,631) (3,489)
-------- -------- -------- --------
Retained earnings -- end of period . . . . . . . . . $317,369 $295,047 $317,369 $295,047
======== ======== ======== ========
Amounts per share based on 7,119,807 shares
outstanding throughout each period:
Net income . . . . . . . . . . . . . . . . . . . . $ 1.69 $ .82 $ 3.15 $ 1.68
======== ======== ======== ========
Cash dividends . . . . . . . . . . . . . . . . . . $ .255 $ .245 $ .510 $ .490
======== ======== ======== ========
</TABLE>
See notes on page 7.
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<PAGE> 5
WESCO FINANCIAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(Dollar amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
June 30, Dec. 31,
1995 1994
---------- --------
<S> <C> <C>
ASSETS
Cash and temporary cash investments . . . . . . . . . . . . . $ 41,861 $ 15,800
Investments:
Securities with fixed maturities . . . . . . . . . . . . . 148,744 183,089
Marketable equity securities . . . . . . . . . . . . . . . 923,408 696,261
Other assets . . . . . . . . . . . . . . . . . . . . . . . . 67,951 66,611
---------- --------
$1,181,964 $961,761
========== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Insurance losses and loss adjustment expenses . . . . . . . . $ 38,445 $ 39,785
Income taxes payable, principally deferred . . . . . . . . . 264,121 191,858
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . 37,465 37,557
Other liabilities . . . . . . . . . . . . . . . . . . . . . . 10,938 14,414
---------- --------
Total liabilities . . . . . . . . . . . . . . . . . . . 350,969 283,614
---------- --------
Shareholders' equity:
Capital stock and surplus . . . . . . . . . . . . . . . . . 30,439 30,439
Unrealized appreciation of investments, net of taxes . . . 483,187 349,122
Retained earnings . . . . . . . . . . . . . . . . . . . . . 317,369 298,586
---------- --------
Total shareholders' equity . . . . . . . . . . . . . . 830,995 678,147
---------- --------
$1,181,964 $961,761
========== ========
</TABLE>
See notes 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,
1995 1994
-------- --------
<S> <C> <C>
Net cash provided by operating activities . . . . . . . . . . . . . . . $ 8,535 $ 3,309
-------- --------
Cash flows from investing activities --
Proceeds from sales and maturities of investment securities . . . . . . 41,064 19,529
Purchases of marketable equity securities . . . . . . . . . . . . . . . (20,687) --
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 872 (4,145)
-------- --------
Net cash provided by investing activities . . . . . . . . . . . . . . . . 21,249 15,384
-------- --------
Cash flows from financing activities --
Repayment of short-term borrowings . . . . . . . . . . . . . . . . . . -- (10,385)
Payment of cash dividends . . . . . . . . . . . . . . . . . . . . . . . (3,631) (3,489)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (92) (167)
-------- --------
Net cash used by financing activities . . . . . . . . . . . . . . . . . . (3,723) (14,041)
-------- --------
Increase in cash, including temporary cash investments . . . . . . . . 26,061 4,652
Cash, including temporary cash investments -- beginning of period . . . 15,800 5,230
-------- --------
Cash, including temporary cash investments -- end of period . . . . . . $ 41,861 $ 9,882
======== ========
Supplementary information:
Interest paid during period . . . . . . . . . . . . . . . . . . . . . . $ 1,687 $ 1,860
======== ========
Income taxes paid during period . . . . . . . . . . . . . . . . . . . . $ 7,880 $ 10,061
======== ========
</TABLE>
See notes 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, 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, 1995 June 30, 1994 June 30, 1995 June 30, 1994
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Balance at beginning of period . . . $419,066 $324,007 $349,122 $309,057
Net increase in unrealized
appreciation . . . . . . . . . . 98,560 73,638 206,333 98,092
Increase in deemed applicable
income taxes . . . . . . . . . . (34,439) (24,837) (72,268) (34,341)
-------- -------- -------- --------
Balance at end of period . . . . . . $483,187 $372,808 $483,187 $372,808
======== ======== ======== ========
</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
very 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:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------ ------------------------
June 30, June 30, June 30, June 30,
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income from identified segments:
Insurance segment:
"Normal" net operating income . . . . . . . $ 6,977 $4,932 $15,960 $ 9,680
Securities gains . . . . . . . . . . . . . 2,283 -- 2,269 163
------- ------ ------- -------
Segment net income . . . . . . . . . . . . 9,260 4,932 18,229 9,843
------- ------ ------- -------
Industrial segment net income
(all "normal" net operating) . . . . . . . 592 794 1,498 1,466
------- ------ ------- -------
Net income from other than identified
business segments:
"Normal" net operating income . . . . . . . 287 136 778 636
Securities gains . . . . . . . . . . . . . 1,909 -- 1,909 --
------- ------ ------- -------
Nonsegment net income . . . . . . . . . . . 2,196 136 2,687 636
------- ------ ------- -------
Net income -- consolidated . . . . . . . . . . . $12,048 $5,862 $22,414 $11,945
======= ====== ======= =======
</TABLE>
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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:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
----------------------- -----------------------
June 30, June 30, June 30, June 30,
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Premiums written . . . . . . . . . . . . . . . . . . . $ -- $1,084 $ 5,427 $ 8,828
======= ====== ======= =======
Premiums earned . . . . . . . . . . . . . . . . . . . . . $ 751 $ 247 $ 9,283 $ 1,078
======= ====== ======= =======
Underwriting gain (loss) . . . . . . . . . . . . . . . . $ 2,288 $ (119) $ 7,887 $ (324)
Dividend and interest income . . . . . . . . . . . . . . 6,603 5,977 13,055 11,865
------- ------ ------- -------
Income before income taxes . . . . . . . . . . . . . . . 8,891 5,858 20,942 11,541
Provision for income taxes . . . . . . . . . . . . . . . (1,914) (926) (4,982) (1,861)
------- ------ ------- -------
"Normal" net operating income . . . . . . . . . . . . . . $ 6,977 $4,932 $15,960 $ 9,680
======= ====== ======= =======
</TABLE>
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 1994 and 1995 periods shown above have consisted
almost entirely of super-cat premiums received from NICO. The decrease in
premiums written in the 1995 periods from the volume of 1994 was caused mainly
by NICO's renewal in the first quarter of 1995 of only four of the six
reinsurance contracts in which Wes-FIC participated last year. No such business
was retroceded to Wes-FIC in the second quarter of the current year. 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.
-9-
<PAGE> 10
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 increases in
recognition of earned premiums in the 1995 periods shown above over the
corresponding 1994 figures were attributable mainly to expiration of the six
super-cat policies discussed above.
An underwriting loss has typically been reported by Wes-FIC each year.
The underwriting gain reported for the six-month period ended June 30, 1995 was
attributable mainly to the recognition, in the first quarter, of earned
premiums without offsetting losses upon the expiration of the six super-cat
reinsurance contracts written in 1994. The factor principally responsible for
the underwriting gain reported for the second quarter of 1995 was a downward
revision of estimated liabilities for losses and loss expenses with respect to
business written in earlier years.
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:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
---------------------- ----------------------
June 30, June 30, June 30, June 30,
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues, principally sales and services . . . . . . . $15,732 $15,955 $33,431 $32,437
======= ======= ======= =======
Income before income taxes . . . . . . . . . . . . . . $ 982 $ 1,317 $ 2,489 $ 2,428
Provision for income taxes . . . . . . . . . . . . . . (390) (523) (991) (962)
------- ------- ------- -------
Industrial segment net income . . . . . . . . . . . . . $ 592 $ 794 $ 1,498 $ 1,466
======= ======= ======= =======
</TABLE>
Sales volume in terms of pounds of steel sold in the second quarter and
first six months of 1995 deceased by 10.6% and 4.9% from the volume of the
corresponding periods last year, due, it is believed, to a weakening of the
industrial sector of the economy. However, as a result of increases in the
proportion of sales of higher-priced products, overall revenues of the
industrial segment were relatively unchanged.
Income before income taxes and net income of Precision Steel typically
fluctuate from period to period for a number of reasons, including fluctuations
in sales volume and changes in
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<PAGE> 11
the gross profit percentage caused by changes in product mix, price competition
among suppliers and at the retail level, and availability of favorable quantity
order prices on materials purchased. The gross profit percentages were 19.6%
and 20.6% for the second quarters of 1995 and 1994, and 20.0% and 19.9% for the
corresponding six-month periods.
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.
* * * * *
Realized securities gains and losses -- recorded when securities are sold
or when market values are considered to be 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 present existence of substantial unrealized price
appreciation in Wesco's consolidated investment portfolio.
Consolidated earnings for the first six months of 1995 include realized
securities gains of $4,178,000, after taxes, and are net of after-tax losses
of $14,000 realized in the first quarter. Earnings for the first six months of
1994 include after-tax gains of $163,000, all realized in the first quarter.
The 1995 figure includes a gain of $4,192,000, after taxes, realized in the
second quarter by Wesco and its subsidiaries on conversion to common stock and
sale of their investment in cumulative convertible preferred stock of Champion
International Corporation.
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 27.0% and 13.3% for the second quarters and 26.0% and 15.1% for the
six-month periods ended June 30, 1995 and June 30, 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; and the
possible occurrence of other unusual items.
-11-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<EXCHANGE-RATE> 1
<CASH> 41,861
<SECURITIES> 1,072,152
<RECEIVABLES> 14,182
<ALLOWANCES> (95)
<INVENTORY> 9,937
<CURRENT-ASSETS> 0
<PP&E> 29,515
<DEPRECIATION> (15,293)
<TOTAL-ASSETS> 1,181,964
<CURRENT-LIABILITIES> 0
<BONDS> 37,465
<COMMON> 7,120
0
0
<OTHER-SE> 823,875
<TOTAL-LIABILITY-AND-EQUITY> 1,181,964
<SALES> 33,362
<TOTAL-REVENUES> 65,690
<CGS> 26,689
<TOTAL-COSTS> 28,085
<OTHER-EXPENSES> 5,130
<LOSS-PROVISION> 500
<INTEREST-EXPENSE> 1,687
<INCOME-PRETAX> 30,288
<INCOME-TAX> (7,874)
<INCOME-CONTINUING> 22,414
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,414
<EPS-PRIMARY> 3.15
<EPS-DILUTED> 3.15
</TABLE>
