<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, 1998 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)
626/585-6700
------------
(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 9, 1998
<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
Following is a table in which is shown the votes cast for, and
withheld from voting for, each nominee at the annual meeting of
shareholders of Wesco Financial Corporation ("Wesco") held May 27,
1998, at which meeting Wesco's shareholders reelected all of Wesco's
Directors:
<TABLE>
<CAPTION>
Favorable Votes
Name Votes Withheld
---- ----- --------
<S> <C> <C>
Charles T. Munger 6,923,643 15,894
Robert H. Bird 6,923,643 15,894
Carolyn H. Carlburg 6,925,183 14,354
William T. Caspers 6,923,543 15,994
James N. Gamble 6,922,973 16,564
Elizabeth Caspers Peters 6,923,473 16,064
David K. Robinson 6,923,396 16,141
</TABLE>
There were no 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
-2-
<PAGE> 3
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, 1998 By: /s/ Jeffrey L. Jacobson
--------------------------- ------------------------------------
Jeffrey L. Jacobson
Vice President and
Chief Financial Officer
(principal financial officer)
WESCO FINANCIAL CORPORATION
FINANCIAL STATEMENTS FILED WITH FORM 10-Q
FOR QUARTER ENDED JUNE 30, 1998
INDEX
<TABLE>
<CAPTION>
Pages
-----
<S> <C>
Condensed consolidated statement of income and
retained earnings -- six- and three-month periods
ended June 30, 1998 and June 30, 1997................................... 4
Condensed consolidated balance sheet --
June 30, 1998 and December 31, 1997..................................... 5
Condensed consolidated statement of cash flows -- six-month periods
ended June 30, 1998 and June 30, 1997................................... 6
Notes to condensed consolidated financial
statements.............................................................. 7-8
</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 Six Months Ended
................................................................... June 30, June 30, June 30, June 30,
................................................................... 1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Sales and service revenues ................................... $ 17,031 $ 16,975 $ 35,048 $ 34,499
Insurance premiums earned .................................... 3,871 3,161 7,315 5,466
Dividend and interest income ................................. 10,805 8,676 20,248 18,605
Realized gains on securities and
foreclosed properties ..................................... 58,108 -- 58,108 --
Other ........................................................ 263 272 489 570
--------- --------- --------- ---------
................................................................... 90,078 29,084 121,208 59,140
--------- --------- --------- ---------
Costs and expenses:
Cost of products and services sold ........................... 13,516 13,302 27,790 27,053
Insurance losses, loss adjustment and underwriting expenses... 2,314 860 4,269 1,063
Selling, general and administrative expenses ................. 2,823 2,702 5,584 5,470
Interest on notes payable .................................... 754 837 1,508 1,672
--------- --------- --------- ---------
................................................................... 19,407 17,701 39,151 35,258
--------- --------- --------- ---------
Income before income taxes ........................................ 70,671 11,383 82,057 23,882
Provision for income taxes ........................................ (23,345) (2,647) (25,864) (5,363)
--------- --------- --------- ---------
Net income ................................................... 47,326 8,736 56,193 18,519
Retained earnings -- beginning of period .......................... 449,752 356,761 442,914 348,936
Cash dividends declared and paid .................................. (2,029) (1,957) (4,058) (3,915)
--------- --------- --------- ---------
Retained earnings -- end of period ................................ $ 495,049 $ 363,540 $ 495,049 $ 363,540
========= ========= ========= =========
Amounts per capital share based on 7,119,807 shares
outstanding throughout each period:
Net income ................................................ $ 6.65 $ 1.23 $ 7.89 $ 2.60
========= ========= ========= =========
Cash dividends ............................................ $ .285 $ .275 $ .570 $ .550
========= ========= ========= =========
</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,
1998 1997
---------- ----------
<S> <C> <C>
ASSETS
Cash and cash equivalents ............................... $ 293,985 $ 10,687
Investments:
Securities with fixed maturities ..................... 137,534 279,697
Marketable equity securities ......................... 2,471,641 2,224,848
Excess of cost over net assets of acquired business ..... 29,730 30,121
Other assets ............................................ 41,767 42,759
---------- ----------
$2,974,657 $2,588,112
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Insurance losses and loss adjustment expenses ........... $ 40,986 $ 41,437
Income taxes payable, principally deferred .............. 859,970 733,488
Notes payable ........................................... 33,635 33,635
Other liabilities ....................................... 15,573 15,260
---------- ----------
Total liabilities .................................... 950,164 823,820
---------- ----------
Shareholders' equity:
Capital stock and capital in excess of par value ...... 30,439 30,439
Unrealized appreciation of investments, net of taxes... 1,499,005 1,290,939
Retained earnings ..................................... 495,049 442,914
---------- ----------
Total shareholders' equity ........................... 2,024,493 1,764,292
---------- ----------
$2,974,657 $2,588,112
========== ==========
</TABLE>
See notes beginning on page 7.
-5-
<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,
1998 1997
--------- --------
<S> <C> <C>
Net cash flows from operating activities .............. $ 11,785 $ 15,910
--------- --------
Cash flows from investing activities:
Proceeds from sales and maturities of investments.. 283,244 40,175
Purchases of investments .......................... (8,982) (62,046)
Other, net ........................................ 1,309 3,892
--------- --------
Net cash flows from investing activities .............. 275,571 (17,979)
--------- --------
Cash flows from financing activities:
Payment of cash dividends ......................... (4,058) (3,915)
Other, net ........................................ -- (111)
--------- --------
Net cash flows from financing activities .............. (4,058) (4,026)
--------- --------
Increase (decrease) in cash and cash equivalents ...... 283,298 (6,095)
Cash and cash equivalents -- beginning of period ...... 10,687 23,039
--------- --------
Cash and cash equivalents -- end of period ............ $ 293,985 $ 16,944
========= ========
Supplementary information:
Interest paid during period ....................... $ 1,508 $ 1,675
========= ========
Income taxes paid, net, during period ............. $ 11,800 $ 6,217
========= ========
</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 1997 Form 10-K Annual Report for other
information deemed generally applicable to the condensed consolidated financial
statements.
NOTE 3
Effective as of the beginning of 1998, the Financial Accounting Standards Board
requires the reporting of comprehensive income, which comprises net income and
all other changes in net worth (other than additional investments by, or
distributions to, shareholders). Wesco's only type of comprehensive income other
than net income is the net change in a separate component of shareholders'
equity that reflects the unrealized appreciation of the consolidated group's
investments, less deemed applicable income taxes.
The following table sets forth the components of Wesco's consolidated
comprehensive income for the three- and six-month periods ended June 30, 1988
and 1997.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1998 1997 1998 1997
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net income ............................................. $ 47,326 $ 8,736 $ 56,193 $ 18,519
-------- --------- --------- ---------
Other comprehensive income --
Increase in unrealized appreciation of investments.. 2,596 402,447 320,483 404,282
Applicable income taxes ............................ (912) (141,042) (112,417) (141,944)
-------- --------- --------- ---------
1,684 261,405 208,066 262,338
-------- --------- --------- ---------
Comprehensive income ................................... $ 49,010 $ 270,141 $ 264,259 $ 280,857
======== ========= ========= =========
</TABLE>
-7-
<PAGE> 8
NOTE 4
Marketable equity securities of Wesco and its subsidiaries consist entirely of
common stocks. Following is a summary of these investments, in thousands of
dollars, with individual investments whose market values exceed ten percent of
consolidated shareholders' equity listed separately:
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
----------------------------- ----------------------------
Quoted Market Quoted Market
(Carrying) (Carrying)
Cost Value Cost Value
---------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Freddie Mac ........... $ 71,729 $1,355,400 $ 71,729 $1,207,814
The Coca-Cola Company.. 40,761 616,079 40,761 480,527
The Gillette Company... 40,000 364,000 40,000 321,402
Other ................. 32,038 136,162 125,723 215,105
---------- ---------- ---------- ----------
$ 184,528 $2,471,641 $ 278,213 $2,224,848
========== ========== ========== ==========
</TABLE>
-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 25 of its 1997 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
Wesco's shareholders' equity at June 30, 1998 was approximately $2.0
billion or $284.35 per share, up $.3 billion or $36.55 per share for the first
six months of 1998. This increase was due principally to unrealized appreciation
in market value of investments, which, under accounting convention, is credited
directly to shareholders' equity without being reflected in net income. Because
unrealized appreciation is based on current market quotations, which are subject
to fluctuation, the net gains ultimately realized could differ substantially
from recorded unrealized appreciation, which constituted 74% of shareholders'
equity at June 30, 1998, compared to 73% at December 31, 1997.
Even if market prices of all Wesco group investments dropped suddenly
to original cost, the group would still be clearly viable.
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,
1998 1997 1998 1997
-------- ------ ------- -------
<S> <C> <C> <C> <C>
Insurance segment --
"Normal" net operating income ............ $ 8,872 $7,752 $16,790 $16,467
Realized securities gains ............... 37,770 -- 37,770 --
-------- ------ ------- -------
Segment net income ...................... 46,642 7,752 54,560 16,497
-------- ------ ------- -------
Industrial segment net income (all "normal"
net operating income) ................... 735 915 1,591 1,884
-------- ------ ------- -------
Net income (loss) other than from identified
business segments (all "normal" net
operating income or loss) .......... (51) 69 42 168
-------- ------ ------- -------
Consolidated net income .................... $ 47,326 $8,736 $56,193 $18,519
======== ====== ======= =======
</TABLE>
-9-
<PAGE> 10
Insurance Segment
The insurance segment comprises Wesco Financial Insurance Company
("Wes-FIC" ) and The Kansas Bankers Surety Company ("KBS"). Following is a
summary of the "normal" net operating income of the insurance segment, which
represents the combination of underwriting results with dividend and interest
income, less related income taxes (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------ ------------------------
June 30, June 30, June 30, June 30,
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Premiums written .............................. $ 3,409 $ 2,054 $ 11,695 $ 6,168
======== ======== ======== ========
Premiums earned ............................... $ 3,871 $ 3,161 $ 7,315 $ 5,466
======== ======== ======== ========
Underwriting gain ............................. $ 1,362 $ 2,106 $ 2,655 $ 4,013
Dividend and interest income .................. 10,256 7,959 19,051 17,117
-------- -------- -------- --------
11,618 10,065 21,706 21,130
Income tax provision .......................... (2,746) (2,313) (4,916) (4,663)
-------- -------- -------- --------
Insurance segment "normal" net operating income $ 8,872 $ 7,752 $ 16,790 $ 16,467
======== ======== ======== ========
</TABLE>
Premiums written and earned by the insurance group are reported net of
amounts ceded to reinsurers, and are credited for amounts returned by reinsurers
upon changes in contractual terms.
Premiums written for the first six months of 1998 included $9.7 million
attributable to KBS and $2.0 million attributable to Wes-FIC. Of those amounts,
$3.2 million and $0.2 million were written in the second quarter. Premiums
written for the first six months of 1997 included $4.5 million attributable to
KBS and $1.6 million attributable to Wes-FIC. Of those amounts, $2.0 million was
attributable to KBS in the second quarter and none to Wes-FIC for that quarter.
The increases in premiums written by KBS in 1998 were attributable to a
restructuring of KBS' reinsurance program effective January 1,1998, whereby it
canceled all reinsurance contracts in effect at that date and entered into new
contracts with other reinsurers covering a lower proportion of the risks
underwritten than previously. As a result of the reinsurance restructuring, KBS
(1) received and credited to premiums written in the first quarter of 1998 $2.6
million of unearned reinsurance premiums that had been deducted from premiums
written in prior years, and (2) reduced premiums ceded to reinsurers to about 5%
of gross premiums in 1998, compared to about 42% in 1997. Excluding the effects
of reinsurance transactions, premiums written by KBS for the second quarter and
first six months of 1998 actually decreased about 3% from last year's comparable
figures mainly as a result of the continued consolidation of midwestern banks
and the continuation of extremely competitive market conditions.
Premiums earned by the insurance segment for the 1998 six- and three-month
periods increased over those of the corresponding prior year periods due mainly
to KBS's restructuring of its reinsurance program, discussed above. The
restructuring drove KBS's premiums earned upward to $6.6 million for the first
six months of 1998, compared to $4.4 million for the first six months of 1997;
in each case KBS generated approximately one half in the second quarter.
-10-
<PAGE> 11
The underwriting gains reported for the second quarters and six-month
periods ended June 30, 1998 and 1997 were attributable principally to the
profitable underwriting results of KBS, and are shown net of goodwill
amortization of $.2 million for each quarter. The decreases in underwriting
gains for the 1998 periods from the corresponding 1997 figures were attributable
mainly to (1) KBS's return of approximately $.6 million of ceding commissions to
reinsurers early in 1998 upon restructuring of its reinsurance program, and (2)
Wes-FIC's recognition of approximately $1.0 million of underwriting gain in the
second quarter of 1997 on expiring super-catastrophe reinsurance business.
Dividend and interest income earned by the insurance segment for the
second quarter and first six months of 1998 increased over the comparable prior
year figures due primarily to an increase in interest income resulting from the
presence of long-term zero-coupon obligations of the U.S. government in the
group's portfolio throughout most of the first half of 1998.
The income tax provision of the insurance segment generally fluctuates
somewhat as a percentage of its pre-tax income. These fluctuations have been
caused mainly by fluctuations in the relationship of substantially tax-exempt
components of income to total pre-tax income.
Industrial Segment
Following is a summary of the results of operations of the industrial
segment, consisting of the businesses of Precision Steel Warehouse, Inc. and its
subsidiaries (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------ ------------------------
June 30, June 30, June 30, June 30,
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues, principally sales
and services ............... $ 17,068 $ 17,030 $ 35,111 $ 34,586
======== ======== ======== ========
Income before income taxes ..... $ 1,244 $ 1,522 $ 2,642 $ 3,129
Income tax provision ........... (509) (607) (1,051) (1,245)
-------- -------- -------- --------
Industrial segment net income... $ 735 $ 915 $ 1,591 $ 1,884
======== ======== ======== ========
</TABLE>
Revenues of Precision Steel's businesses were approximately unchanged for
the second quarter of 1998 as compared with those of the second quarter of 1997,
but increased $.5 million, or 2%, for the first six months of 1998 over those
reported for the first six months of 1997. Sales volume, in terms of pounds of
steel products sold, was much stronger, having increased 8.4% for the second
quarter of 1998 and 9.5% for the first six months of 1998 over comparable 1997
volumes. Precision Steel's management attributes the increases in volume
generally to improvement in the industrial sector of the economy, and the much
lower relative increases in revenues to several factors including increased
competition and an increase in the proportion of sales of lower-priced items.
Income before income taxes and net income of Precision Steel's industrial
operations are dependent not only on revenues, but also on operating expenses
and the cost of products sold. The latter, as a percentage of revenues, amounted
to 79.4% and 78.4% for the second quarters of 1998 and 1997, and 79.3% and 78.4%
for the corresponding six-month periods. The cost percentage typically
fluctuates
-11-
<PAGE> 12
slightly from period to period as a result of changes in product mix and price
competition at the wholesale and retail levels.
Other Than Identified Business Segments
In the absence of nonoperating or unusual items such as securities gains
or losses, net income or loss other than from identified business segments
includes mainly (1) dividend and interest income from marketable securities and
cash equivalents owned outside the insurance segment 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 a savings and loan subsidiary and (2) interest and other
corporate expenses -- plus or minus income taxes related to such "normal"
nonsegment items. "Normal" net operating income or loss other than from
identified business segments typically fluctuates from period to period but is
not significant in amount.
* * * * *
Realized gains and losses -- which affect net income when securities are
sold or when a decline in market value of an investment is considered to be
other than temporary -- tend to fluctuate from period to period, sometimes
impacting reported net income significantly. 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.
(Wesco's shareholders' equity at June 30, 1998 contained $1.5 billion, or
$210.54 per share, of unrealized appreciation of investments, net of taxes --
about 74% of shareholders' equity, compared to 73% at December 31, 1997.)
Wesco's consolidated earnings for the first six months of 1998 included
realized gains of $37.8 million, after income taxes, all realized in the second
quarter. There were no realized gains or losses reported in the first six months
of 1997. The gains reported for 1998, although material in relation to Wesco's
1998 earnings, had only a minor impact on Wesco's total shareholders' equity:
Wesco's investments are carried at market value, and most of the gains had
already been reflected in the unrealized appreciation component of its
shareholders' equity.
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 33.0% and 23.3% for the quarters ended June 30, 1998 and June 30,
1997, and 31.5% and 22.5% for the six-month periods then ended.
Consolidated revenues, expenses and net income reported for any period are
not necessarily indicative of future revenues, expenses and net income 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. In
addition, consolidated revenues, expenses and net income from operations are
expected to be much more volatile than they were prior to Wes-FIC's entry into
the super-catastrophe reinsurance business.
-12-
<PAGE> 13
Shareholders' equity is impacted not only to the extent unusual items
affect earnings, but also to reflect changes in unrealized appreciation of
investments, which are not reflected in net income.
* * * * *
For convenience, we repeat the following paragraph which appeared on page
25 of Wesco's 1997 10-K Annual Report:
Many computer systems used today may be unable to interpret data
correctly after December 31, 1999 because they allow only two digits
to indicate the year in a date. Wesco and its subsidiaries have been
engaged in (1) assessing this "Year 2000" issue as it relates to their
businesses, including their electronic and other interactions with
banks, vendors, customers and others, and (2) developing and
implementing solutions. Management currently anticipates that the
project will be completed in a timely manner, and will not have a
material adverse impact on the operations of Wesco or its
subsidiaries, or on Wesco's consolidated financial results or
financial condition. However, Wesco's consolidated financial results
could be adversely affected if one or more of the companies in which
it has material investments were materially adversely affected by the
Year 2000 issue.
Wesco's management has been informed by managements of its operating
units that each unit has completed assessment of Year 2000 problems potentially
impacting the unit's operations and is in process of implementing solutions in a
timely manner. It should be noted that even if one or more of these units were
not completely ready at the start of 2000 to continue operations in the usual
manner, the detrimental effect would not, in the opinion of Wesco's management,
significantly impact Wesco's consolidated results of operations.
Insofar as the investee companies and Wesco's principal bank are
concerned, Wesco's assessment of its Year 2000 exposure has been limited to
review of SEC-mandated disclosures in shareholder reports, augmented by contact
with representatives of the principal bank and Freddie Mac, the major investee.
In each case, Wesco has been informed that the outside entity is aware of the
Year 2000 issue and is in process of assessing the situation and developing and
implementing solutions in a timely manner. If one or more of Wesco's investees
were not fully prepared at the start of 2000, Wesco's financial results and
financial condition could be adversely impacted, and Wesco will continue to
monitor their progress; however, even if, as a result, the overall market value
of Wesco's investments dropped to original cost -- an extremely unlikely,
worst-case scenario -- in the opinion of Wesco's management, Wesco and its
operating units would still be clearly viable.
* * * * *
Certain representations of management set forth in the foregoing
discussion and analysis beginning on page 9 constitute forward-looking
statements as contrasted with statements of historical fact. Forward-looking
statements include statements which are predictive in nature, or which depend
upon or refer to future events or conditions, or which include words such as
expects, anticipates, intends, plans, believes, estimates, may, or could, or
which involve hypothetical events. For example, the preceding paragraphs on Year
2000 exposure contain several forward-going statements. Forward-going statements
are based on information currently available and are subject to various risks
and uncertainties that could cause actual events or results to differ materially
from those characterized as being likely or possible to occur.
-13-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 293,985
<SECURITIES> 2,609,175
<RECEIVABLES> 11,911
<ALLOWANCES> (91)
<INVENTORY> 10,312
<CURRENT-ASSETS> 0
<PP&E> 29,886
<DEPRECIATION> (17,124)
<TOTAL-ASSETS> 2,974,657
<CURRENT-LIABILITIES> 0
<BONDS> 33,635
0
0
<COMMON> 7,120
<OTHER-SE> 2,017,373
<TOTAL-LIABILITY-AND-EQUITY> 2,974,657
<SALES> 35,048
<TOTAL-REVENUES> 121,208
<CGS> 27,790
<TOTAL-COSTS> 32,059
<OTHER-EXPENSES> 5,584
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,508
<INCOME-PRETAX> 82,057
<INCOME-TAX> (25,864)
<INCOME-CONTINUING> 56,193
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 56,193
<EPS-PRIMARY> 7.89
<EPS-DILUTED> 7.89
</TABLE>
