<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, 1996 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)
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 12, 1996.
<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 12.
PART II. OTHER INFORMATION
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: November 13, 1996 By:
--------------------------- ---------------------------------
Jeffrey L. Jacobson
Vice President and
Chief Financial Officer
(principal financial officer)
-2-
<PAGE> 3
WESCO FINANCIAL CORPORATION
FINANCIAL STATEMENTS FILED WITH FORM 10-Q
FOR QUARTER ENDED SEPTEMBER 30, 1996
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
Condensed consolidated statement of income and
retained earnings -- nine- and three-month periods
ended September 30, 1996 and September 30, 1995 . . . . . . . . . . . . . . . . . 4
Condensed consolidated balance sheet --
September 30, 1996 and December 31, 1995 . . . . . . . . . . . . . . . . . . . . 5
Condensed consolidated statement of cash flows --
nine-month periods ended September 30, 1996
and September 30, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Notes to condensed consolidated financial
statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
</TABLE>
-3-
<PAGE> 4
WESCO FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF INCOME
AND RETAINED EARNINGS
(Dollar amounts in thousands except for amounts per share)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------- ------------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1996 1995 1996 1995
------- -------- -------- ---------
<S> <C> <C> <C> <C>
Revenues:
Sales and service revenues . . . . . . . . . . . . . . . . . . $ 15,709 $ 15,010 $ 48,248 $ 48,372
Insurance premiums earned . . . . . . . . . . . . . . . . . . 2,305 3 7,348 9,286
Dividend and interest income . . . . . . . . . . . . . . . . 8,937 7,589 24,890 22,772
Gains (losses), net, on sales of securities
and foreclosed property . . . . . . . . . . . . . . . . . . (192) 888 (152) 7,597
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 240 326 849 1,479
-------- -------- -------- --------
26,999 23,816 81,183 89,506
-------- -------- -------- --------
Costs and expenses:
Cost of products and services sold . . . . . . . . . . . . . . 12,497 12,194 38,550 38,883
Insurance losses, loss adjustment
and underwriting expenses . . . . . . . . . . . . . . . . . 1,069 96 2,939 1,492
Selling, general and administrative expenses . . . . . . . . . 2,571 3,076 7,818 8,706
Interest on notes payable . . . . . . . . . . . . . . . . . . 837 843 2,516 2,530
-------- --------- -------- --------
16,974 16,209 51,823 51,611
-------- -------- -------- --------
Income before income taxes . . . . . . . . . . . . . . . . . . . 10,025 7,607 29,360 37,895
Provision for income taxes . . . . . . . . . . . . . . . . . . . (2,222) (1,332) (6,414) (9,206)
------- -------- ------- -------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,803 6,275 22,946 28,689
Retained earnings -- beginning of period . . . . . . . . . . . . 337,234 317,369 325,864 298,586
Cash dividends declared and paid . . . . . . . . . . . . . . . . (1,888) (1,816) (5,661) (5,447)
-------- -------- -------- --------
Retained earnings -- end of period . . . . . . . . . . . . . . . $343,149 $321,828 $343,149 $321,828
======== ======== ======== ========
Amounts per share based on 7,119,807 shares
outstanding throughout each period:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.10 $ .88 $3.22 $4.03
===== ==== ==== ====
Cash dividends . . . . . . . . . . . . . . . . . . . . . . . . $.265 $.255 $.795 $.765
==== ==== ==== ====
</TABLE>
See notes starting on page 7.
-4-
<PAGE> 5
WESCO FINANCIAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(Dollar amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Sept. 30, Dec. 31,
1996 1995
-------- --------
<S> <C> <C>
ASSETS
Cash and temporary cash investments . . . . . . . . . . . . . . . . . . . . $ 17,347 $ 87,981
Investments:
Securities with fixed maturities . . . . . . . . . . . . . . . . . . . . 192,789 119,575
Marketable equity securities . . . . . . . . . . . . . . . . . . . . . . 1,377,232 1,102,221
Excess of cost over equity in net assets of subsidiary . . . . . . . . . . 31,093 ---
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57,483 55,950
---------- ----------
$1,675,944 $1,365,727
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Insurance losses and loss adjustment expenses . . . . . . . . . . . . . . . $ 46,032 $ 34,195
Income taxes payable, principally deferred . . . . . . . . . . . . . . . . 419,727 324,341
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,215 37,369
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,018 12,193
---------- ----------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 520,992 408,098
---------- ----------
Shareholders' equity:
Capital stock and surplus . . . . . . . . . . . . . . . . . . . . . . . 30,439 30,439
Unrealized appreciation of investments,
net of taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 781,364 601,326
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . 343,149 325,864
---------- ----------
Total shareholders' equity . . . . . . . . . . . . . . . . . . . . . . . 1,154,952 957,629
---------- ----------
$1,675,944 $1,365,727
========== ==========
</TABLE>
See notes starting on page 7.
-5-
<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,
1996 1995
----------- ----------
<S> <C> <C>
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . $ 13,848 $ 13,596
------- -------
Cash flows from investing activities --
Acquisition THE of Kansas Bankers Surety Company, net of cash and . . . . . . . . . .
temporary cash investments acquired . . . . . . . . . . . . . . . . . . . . . . . (77,320) --
Proceeds from sales and maturities of investment securities . . . . . . . . . . . . . 46,959 49,951
Purchases of marketable equity securities . . . . . . . . . . . . . . . . . . . . . . -- (20,687)
Purchases of securities with fixed maturities . . . . . . . . . . . . . . . . . . . . (54,584) --
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,278 3,084
--------- --------
Net cash provided (used) by investing activities . . . . . . . . . . . . . . . . . . . . (78,667) 32,348
-------- -------
Cash flows from financing activities --
Payment of cash dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,661) (5,447)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (154) (140)
-------- --------
Net cash used by financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . (5,815) (5,587)
------- -------
Increase (decrease) in cash, including temporary
cash investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (70,634) 40,357
Cash, including temporary cash investments --
beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87,981 15,800
------- -------
Cash, including temporary cash investments -- end of period . . . . . . . . . . . . . . . $ 17,347 $ 56,157
====== =======
Supplementary information:
Interest paid during period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,850 $ 1,864
====== =======
Income taxes paid during period . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,101 $11,261
====== ======
</TABLE>
See notes starting 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 40 of its 1995 Form 10-K Annual Report for other
information deemed generally applicable to the condensed consolidated financial
statements.
NOTE 3
Following is a summary of marketable equity securities (all common stocks), in
thousands of dollars:
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
------------------------------- ----------------------------
Quoted Market Quoted Market
Cost (Carrying)Value Cost (Carrying) Value
--------- -------------------- ---------- --------------
<S> <C> <C> <C> <C>
Federal Home Loan Mortgage
Corporation . . . . . . . . . . . . . . . $ 71,729 $ 702,900 $ 71,729 $ 601,200
The Coca-Cola Company. . . . . . . . . . . . 40,761 366,585 40,761 267,508
The Gillette Company . . . . . . . . . . . . 40,000 230,800 40,000 166,800
American Express Company . . . . . . . . . . 20,687 29,956 20,687 26,799
Wells Fargo & Company . . . . . . . . . . . . 11,351 44,028 11,351 36,577
Other . . . . . . . . . . . . . . . . . . . . 2,914 2,963 2,914 3,337
-------- ---------- -------- ----------
$187,442 $1,377,232 $187,442 $1,102,221
======== ========== ======== ==========
</TABLE>
-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 condensed consolidated balance sheet, in thousands of dollars:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------------- ---------------------------------
Sept. 30, 1996 Sept. 30, 1995 Sept. 30, 1996 Sept. 30, 1995
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Balance at beginning of period . . . . . $692,095 $483,187 $601,326 $349,122
Net increase in unrealized
appreciation . . . . . . . . . . . . 137,398 40,902 277,112 247,235
Increase in deemed applicable
income taxes . . . . . . . . . . . . (48,129) (14,326) (97,074) (86,594)
-------- -------- -------- --------
Balance at end of period . . . . . . . . $781,364 $509,763 $781,364 $509,763
======== ======== ======== ========
</TABLE>
NOTE 5
Wesco's wholly owned subsidiary, Wesco-Financial Insurance Company ("Wes-FIC"),
on July 17, 1996, consummated the previously reported purchase of the capital
stock of The Kansas Bankers Surety Company ("KBS") for approximately $80 million
in cash. Inasmuch as the acquisition has been accounted for under the purchase
method, the results of operations of KBS have been included in Wesco's
consolidated financial statements beginning in the third quarter of 1996. The
$31.3 million excess of cost over Wes-FIC's equity in the net assets of KBS
acquired is being amortized over 40 years. Amortization of $0.2 million was
taken in the third quarter of 1996.
-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
18 through 26 of its 1995 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
At September 30, 1996, $781.4 million, or 67.7% of Wesco's shareholders'
equity, represented unrealized appreciation of investments. Unrealized
appreciation is credited directly to shareholders' equity, net of taxes,
without being reflected in earnings. Calculations are based on market
quotations, which are subject to fluctuation, or estimated fair values, and
accordingly the net gains ultimately realized could differ substantially from
recorded unrealized appreciation.
Even if unrealized appreciation is ignored, 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:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------- ----------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net income from identified segments:
Insurance segment:
"Normal" net operating income . . . . . . . . . . . . $ 7,072 $5,279 $20,482 $21,239
Securities gains (losses) . . . . . . . . . . . . . . (115) 155 (115) 2,424
------- ------ ------- -------
Segment net income . . . . . . . . . . . . . . . . . 6,957 5,434 20,367 23,663
------- ------ ------- -------
Industrial segment net income
(all "normal" net operating income) . . . . . . . . 672 439 2,030 1,937
------- ------ ------- -------
Net income from other than identified
business segments:
"Normal" net operating income . . . . . . . . . . . . 174 402 549 1,180
Securities gains . . . . . . . . . . . . . . . . . . -- -- -- 1,909
------- ------ ------- -------
Nonsegment net income . . . . . . . . . . . . . . . . 174 402 549 3,089
------- ------ ------- -------
Net income -- consolidated . . . . . . . . . . . . . . . $ 7,803 $6,275 $22,946 $28,689
======= ====== ======= =======
</TABLE>
-9-
<PAGE> 10
Insurance Segment
Following is a summary of results of underwriting and investing
activities of the insurance segment, consisting of those of Wesco's wholly owned
subsidiary, Wesco-Financial Insurance Company ("Wes-FIC"), and, since July 1996,
The Kansas Bankers Surety Company ("KBS" -- see below), in thousands of dollars:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------- ---------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Premiums written . . . . . . . . . . . . . . . . . . $ 2,113 $ 381 $ 2,998 $ 5,808
======= ======= ======= =======
Premiums earned . . . . . . . . . . . . . . . . . . . $ 2,305 $ 3 $ 7,348 $ 9,286
======= ======= ======= =======
Underwriting gain (loss) . . . . . . . . . . . . . . $ 1,236 $ (174) $ 4,409 $ 7,713
Dividend and interest income . . . . . . . . . . . . 7,957 6,611 22,014 19,666
------- ------- ------- -------
Income before income taxes . . . . . . . . . . . . . 9,193 6,437 26,423 27,379
Provision for income taxes . . . . . . . . . . . . . (2,121) (1,158) (5,941) (6,140)
------- ------- ------- -------
"Normal" net operating income . . . . . . . . . . . . $ 7,072 $ 5,279 $20,482 $21,239
======= ======= ======= =======
</TABLE>
Wes-FIC purchased KBS in early July 1996, as further explained in Note
5 to the accompanying condensed consolidated financial statements. KBS, from its
headquarters in Topeka, Kansas, provides community banks throughout the
Midwestern United States with various insurance products, including fidelity
bonds, directors and officers liability insurance, and bank deposit guaranty
bonds which insure deposits in excess of FDIC coverage. Premiums written and
premiums earned by the insurance segment for the third quarter of 1996 were
attributable almost entirely to KBS.
As further explained in Wesco's 1995 Form 10-K Annual Report and prior
reports, Wes-FIC entered into the super-catastrophe ("super-cat") reinsurance
business in the first quarter of 1994, when National Indemnity Company
("NICO"), an insurance 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. 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.
Substantially all premiums written and premiums earned by the
insurance segment subsequent to Wes-FIC's entry into the super-cat reinsurance
business in 1994 and prior to the recent KBS acquisition related to super-cat
reinsurance. At about the time of Wes-FIC's entry into the business of
super-cat reinsurance, other insurers also infused much capital into that
business, with the result that the pricing of super-cat reinsurance, in terms of
premiums charged, became less attractive; and Berkshire's management stated that
its insurance subsidiaries would not knowingly write business at inadequate
rates. As a result, several super-cat reinsurance contracts in which Wes-FIC
participated in 1994 were not renewed in 1995; and, of the 1995 contracts, none
were renewed in the first nine months of 1996. Super-cat reinsurance premiums
written in 1996 represent Wes-FIC's participation to the extent of 3% in a
policy covering hurricane risk in Florida for a twelve-month period beginning
June 1, 1996, retroceded to Wes-FIC by National Fire & Marine Insurance Co.,
another of Berkshire's wholly owned insurance subsidiaries. Wes-FIC has also
accepted a 3% participation with NICO in a similar, but somewhat larger
super-cat hurricane policy whose coverage period begins in January 1997, at
which time written premiums will be recorded.
-10-
<PAGE> 11
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 decrease in premiums earned
by the insurance segment for the first nine months of 1996 compared to the
corresponding figure for 1995 was attributable principally to the reduction in
super-cat premiums written in 1995 from the level one year earlier. Insurance
premiums on all other forms of insurance are recognized as earned by Wes-FIC and
KBS pro rata over the term of the contract.
The underwriting gains reported by the insurance segment for the first
nine months of 1996 and 1995 were attributable mainly to the recognition by
Wes-FIC of earned premiums without offsetting losses upon the expiration of
various super-cat reinsurance contracts written in earlier periods. The
underwriting gain for the third quarter of 1996 reflects mainly the profitable
underwriting results of KBS since date of its acquisition, less amortization of
the excess of the purchase price paid by Wes-FIC over the net assets of KBS
acquired.
Industrial Segment
Following is a summary of the results of operations of the industrial
segment, consisting of those of wholly owned Precision Steel Warehouse, Inc. and
its subsidiaries ("Precision Steel"), in thousands of dollars:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------- ---------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1996 1995 1996 1995
--------- -------- ------- --------
<S> <C> <C> <C> <C>
Revenues, principally sales
and services . . . . . . . . . . . . . . . . . . $15,739 $15,039 $48,321 $48,470
======= ======= ======= =======
Income before income taxes . . . . . . . . . . . . . $ 1,111 $ 735 $ 3,367 $ 3,224
Provision for income taxes . . . . . . . . . . . . . (439) (296) (1,337) (1,287)
------- ------- ------- -------
Industrial segment net income . . . . . . . . . . . . $ 672 $ 439 $ 2,030 $ 1,937
======= ======= ======= =======
</TABLE>
Precision Steel's revenues for the third quarter of 1996 increased $0.7
million (approximately 5 percent) but were essentially unchanged for the first
nine months of the current year as compared with those reported for the
corresponding 1995 period. Pounds of steel products sold increased 15 percent
in the third quarter, and 2 percent for the first nine months of 1996 from the
comparable figures for the corresponding periods last year. Management of
Precision Steel attributes the revenue increase in this year's third quarter
generally to a continuation of the improvement in the industrial sector of the
economy that appeared to have begun in the second quarter.
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 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 20.5% and 18.8% for the third quarters of 1996
and 1995, and 20.1% and 19.6% for the corresponding nine-month periods.
-11-
<PAGE> 12
Other Than Identified Business Segments
"Normal" net operating income other than from identified business
segments includes mainly (1) dividend and interest income from marketable
securities and cash equivalents owned outside the insurance subsidiaries, 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.
"Normal" net operating income other than from identified business
segments typically fluctuates from period to period. The decreases in the
figures for the third quarter and first nine months of 1996 from the
corresponding prior year figures were due principally to a reduction in
tax-favored dividend income following the conversion to common stock and sale
in the second quarter last year of Wesco's entire investment in preferred
stock of Champion International Corporation and the redemption in the fourth
quarter last year of 20% of Wesco's investment in preferred stock of Salomon
Inc.
* * * * *
Realized gains and losses -- recorded when securities are sold or when
a decline in market value of an investment is considered to be other than
temporary -- tend to fluctuate, sometimes significantly, from period to period.
The amount of realized gain or loss 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. Consolidated earnings for the first
nine months of 1996 included securities losses of $0.1 million, after taxes,
realized in the third quarter. Consolidated earnings for the first nine months
of 1995 included securities gains of $4.3 million, after taxes, including $4.2
million, after taxes, realized in the second quarter on the disposition of the
Champion International Corporation preferred stock investment.
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 22.2% and 17.5% for the third quarters and 21.9% and
24.3% for the nine-month periods ended September 30, 1996 and September 30,
1995.
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 securities
gains and losses, and the possible occurrence of other unusual items. For
example, as explained elsewhere herein, Wesco's consolidated financial
statements reflect the acquisition of KBS early in this year's third quarter.
Shareholders' equity will be impacted not only to the extent unusual items
affect earnings, but also to reflect changes in unrealized appreciation of
investments, which is not reflected in earnings (see Financial Condition
above).
-12-
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000105729
<NAME> WESCO FINANCIAL CORPORATION
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 17,347
<SECURITIES> 1,570,021
<RECEIVABLES> 12,563
<ALLOWANCES> (95)
<INVENTORY> 9,431
<CURRENT-ASSETS> 0
<PP&E> 30,186
<DEPRECIATION> (16,909)
<TOTAL-ASSETS> 1,675,944
<CURRENT-LIABILITIES> 0
<BONDS> 37,215
0
0
<COMMON> 7,120
<OTHER-SE> 1,147,832
<TOTAL-LIABILITY-AND-EQUITY> 1,675,944
<SALES> 48,248
<TOTAL-REVENUES> 81,183
<CGS> 38,550
<TOTAL-COSTS> 41,489
<OTHER-EXPENSES> 7,818
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,516
<INCOME-PRETAX> 29,360
<INCOME-TAX> (6,414)
<INCOME-CONTINUING> 22,946
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,946
<EPS-PRIMARY> 3.22
<EPS-DILUTED> 3.22
</TABLE>
