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SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

(Mark One)

Commission file number 1-4720

WESCO FINANCIAL CORPORATION

301 East Colorado Boulevard, Suite 300, Pasadena, California 91101-1901

(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 o

     Indicate by check mark whether registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act.
Yes x No o

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 o No o

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 5, 2003

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PART I. FINANCIAL INFORMATION

     An evaluation was performed under the supervision and with the participation of the management of Wesco Financial Corporation (“Wesco”), including Charles T. Munger (Chief Executive Officer) and Jeffrey L. Jacobson (Chief Financial Officer), of the effectiveness of the design and operation of Wesco’s disclosure controls and procedures as of September 30, 2003. Based on that evaluation, Mr. Munger and Mr. Jacobson concluded that Wesco’s disclosure controls and procedures are effective in ensuring that information required to be disclosed by Wesco in reports it files or submits under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported as specified in the rules and forms of the Securities and Exchange Commission. There have been no material changes in Wesco’s internal controls over financial reporting or in other factors reasonably likely to affect the internal controls over financial reporting during the quarter ended September 30, 2003.

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PART II. OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K

               (a) Exhibits:

               (b) Reports on Form 8-K — Report dated August 8, 2003

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WESCO FINANCIAL CORPORATION

See notes beginning on page 7.

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WESCO FINANCIAL CORPORATION

See notes beginning on page 7.

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WESCO FINANCIAL CORPORATION

See notes beginning on page 7.

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WESCO FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands)
(Unaudited)

Note 1

     In management’s opinion, the condensed consolidated financial statements of Wesco Financial Corporation (“Wesco”) reflect all adjustments (all of them of a normal recurring nature, except as explained in Note 5) necessary to a fair statement of interim results in accordance with accounting principles generally accepted in the United States.

     Reference is made to the notes to Wesco’s consolidated financial statements appearing on pages 42 through 50 of its 2002 Form 10-K Annual Report for other information deemed generally applicable to the condensed consolidated financial statements.

     Wesco’s management does not believe that any accounting pronouncements issued to date by the Financial Accounting Standards Board and required to be adopted after September 30, 2003 will have a material effect on reported shareholders’ equity.

Note 2

     In January 2001, Wesco’s furniture rental subsidiary, CORT Business Services Corporation (“CORT”), formed a marketing subsidiary, Relocation Central Corporation (“Relocation Central”), which partially financed its start-up by issuing convertible notes primarily to unrelated parties. In February 2003, most note holders converted their notes into approximately 20% of Relocation Central’s common stock and retained an option to require CORT to purchase the shares in February 2004 for approximately $6,000. Relocation Central’s operations have been unprofitable to date. In recording the retirement of such notes in the first quarter of 2003, a $6,000 contingent liability related to the expected redemption of stock was included in other liabilities, and approximately $1,200 was recorded as additional paid-in capital. In July 2003, CORT negotiated an early buyout of the minority shareholders’ equity in Relocation Central. In recording the transaction, an additional $1,800 was credited to additional paid-in capital.

Note 3

     Following is a summary of available-for-sale securities with fixed maturities:

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     Following is a summary of available-for-sale marketable equity securities (all common stocks):

     There were no unrealized losses with respect to securities with fixed maturities or marketable equity securities at September 30, 2003 or December 31, 2002.

Note 4

     The following table sets forth Wesco“s consolidated comprehensive income for the three- and nine-month periods ended September 30, 2003 and 2002:

Note 5

     Federal and state environmental agencies have made claims relating to alleged contamination of soil and groundwater against Precision Brand Products (“PBP”), whose results, like those of its parent, Precision Steel Warehouse, Inc., are included in Wesco’s industrial segment, and various other businesses situated in a business park in Downers Grove, Illinois. PBP, along with the other businesses, has been negotiating remedial actions with various governmental entities. In addition, PBP and other parties have been named in several civil lawsuits, including lawsuits by and on behalf of area residents, relating to this matter. Precision Steel and PBP have notified their insurers relative to the claims and litigation. Inasmuch as the claims and lawsuits are in early stages of development, the ultimate cost of the claims, including defense costs, net of insurance recoveries, are difficult to estimate at this time. Nevertheless, in the quarter ended September 30, 2003, PBP recorded a provision of approximately $1,000 ($621 after income tax benefit), representing a preliminary estimate of its share of costs of remediation agreed to with governmental entities and other parties to date and related expenses. Management does not anticipate that the ultimate financial impact of such remediation and other legal matters will be material in relation to Wesco’s shareholders’ equity, although it believes that the effect on consolidated net income in any given period could be material.

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Note 6

     Following is condensed consolidated financial information for Wesco, by business segment:

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WESCO FINANCIAL CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     Reference is made to Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations appearing on pages 21 through 29 of the Form 10-K Annual Report filed by Wesco Financial Corporation (“Wesco”) for the year 2002 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. Further, in reviewing the following paragraphs, attention is directed to the accompanying condensed consolidated financial statements.

FINANCIAL CONDITION

     Wesco’s shareholders’ equity at September 30, 2003 was approximately $2.01 billion ($282 per share), compared to $1.96 billion ($275 per share) at December 31, 2002, which included $363 million and $375 million, respectively, of after-tax unrealized appreciation in market value of investments. Because unrealized appreciation is recorded based upon current market quotations, gains or losses ultimately realized upon sale of investments could differ substantially from recorded unrealized appreciation.

     At September 30, 2003, Wesco’s consolidated cash and cash equivalents totaled $1,028.5 million, up from $349.8 million at December 31, 2002. The $678.7 million increase resulted primarily as a result of sales, maturities and early redemptions of longer-term fixed-income securities as well as operating cash flow from Wesco’s insurance businesses.

     Wesco’s management continues to believe that the Wesco group has adequate liquidity and financial resources to provide for contingent needs.

RESULTS OF OPERATIONS

     The following summary sets forth the contribution to Wesco’s consolidated net income (loss) of each business segment — insurance, furniture rental and industrial — as well as activities not considered related to such segments. (Amounts are in thousands, all after income tax effect.)

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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 results of segment operations, which represent essentially the combination of underwriting results with dividend and interest income. (Amounts are in thousands.)

     Premiums written for the third quarters of 2003 and 2002 included $27.3 million and $22.9 million written by Wes-FIC. Premiums written for the nine-month periods ended September 30, 2003 and 2002 included $51.8 million and $45.6 million written by Wes-FIC. The remainder for each period was attributable to KBS.

     Earned premiums for the third quarters of 2003 and 2002 included $26.8 million and $12.8 million attributable to Wes-FIC. Earned premiums for the first nine months of 2003 and 2002 included $73.2 million and $29.7 million attributable to Wes-FIC. The balance for each period was attributable to KBS.

     At September 30, 2003, Wes-FIC’s in-force reinsurance business consists principally of a contract that commenced in 2001 under which it participates in the reinsurance of several pools of assumed aviation risks, as well as a four-year contract for property and casualty exposures assumed from an unaffiliated insurer. The aviation pools are managed by a wholly owned insurance subsidiary of Berkshire Hathaway Inc. (“Berkshire”). Other Berkshire affiliates also participate in the aviation-risk pools, and Wes-FIC reinsures some of the risks borne by these Berkshire affiliates as well as some of the risks borne by non-Berkshire affiliated members. Wes-FIC assumes 10% of certain aviation risks of the pool for 2003 underwriting year versus 15.5% for the 2002 underwriting year.

     Earned premiums from the aviation contract in 2003 exceeded 2002 amounts by $2.2 million for the third quarter and $24.4 million for the first nine months. Amounts earned in 2003 include amounts earned from a portion of premiums written in 2002 when Wes-FIC’s participation rate was greater than the current rate. Premiums earned under the property and casualty contract reinsuring the unaffiliated insurer also increased for the 2003 periods in comparison with 2002 periods. Wes-FIC’s participation rate under this contract increased from 3.3% in 2002 to 6% in 2003.

     The underwriting gain for the quarter ended September 30, 2003 amounted to $4.4 million, versus $2.8 million for the third quarter of 2002. The underwriting gain for the first nine months of 2003 was $18.4 million, versus $4.0 million for the first nine months of 2002. The underwriting gains reported for the 2003 periods were principally attributable to Wes-FIC; its business benefited mainly from relatively low levels of

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aviation losses. In recent months, price competition has intensified in certain aviation markets. Consequently, the comparative level of business accepted by the pool in future periods may decline. The underwriting gains for the corresponding 2002 periods were attributable principally to KBS. Both Wes-FIC and KBS accept volatility in their underwriting results in the hope of achieving higher profitability over the long term.

          Dividend and interest income earned by the insurance segment declined for the third quarter and nine-month period ended September 30, 2003 from the corresponding prior year figures principally as proceeds from sales and paydowns of higher-yielding, long-term investments were reinvested in lower-yielding, short-term investments.

Furniture Rental Segment

     The furniture rental segment consists of CORT Business Services Corporation (“CORT”) and its subsidiary, Relocation Central Corporation (“Relocation Central”). Following is a summary of segment operating results. (Amounts are in thousands.)

     Reference is made to the discussion of the furniture rental business included in Item 1 of Wesco’s 2002 annual report on Form 10-K for information on Relocation Central, considered as still in a start-up phase, and whose operations generated pre-tax losses of $12.8 million for the year ended December 31, 2002 and $10.8 million for the year ended December 31, 2001. Following the acquisition of its largest competitor in December 2002, which brought to it mainly additional apartment locator fees and further geographical expansion, Relocation Central’s operating losses increased sharply. As explained in Note 2 to the accompanying condensed consolidated financial statements, there was an approximately 20% minority interest in Relocation Central’s equity from February through mid-July 2003, thereby reducing the impact of its losses on CORT.

     Relocation Central’s revenues, consisting of apartment locator fees, amounted to $4.5 million for the third quarter of 2003 and $1.7 million for the third quarter of 2002, and $12.9 million and $4.4 million for the respective nine-month periods. Costs incurred in generating those fees totaled $3.8 million for the 2003

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quarter and $2.6 million for the 2002 quarter, and $12.1 million and $7.3 million for the respective nine-month periods. Other operating expenses, including interest, totaled 3.7 million for the 2003 quarter and $2.0 million for the 2002 quarter, and $12.8 million and $5.7 million for the respective nine-month periods. Relocation Central’s loss before income taxes and minority interest was thus $3.0 million for the third quarter of 2003 compared to $2.9 million for the corresponding 2002 quarter, and $11.9 million and $8.6 million for the first nine months of 2003 and 2002.

     Excluding Relocation Central’s loss before income taxes and minority interest, furniture segment income before income taxes and minority interest was $0.1 million for the third quarter of 2003 versus $4.1 million for the comparable 2002 period, and $1.3 million for the first nine months of 2003 versus $15.8 million for the corresponding nine-month period of 2002. The following three paragraphs analyze and discuss these non-Relocation Central (i.e., CORT parent company) figures.

     Furniture rental revenues for the third quarter of 2003 declined $7.6 million, or 9.8%, from those of the third quarter of 2002, and $25.1 million, or 10.6%, for the first nine months. Apart from revenues from trade shows, a small acquisition and the sale of a rental operation in a small city in each period, rental revenues for the 2003 third quarter and first nine months declined approximately 12% from those reported for the third quarter and first nine months of 2002. The number of furniture leases currently in effect has continued on a downward trend begun in late 2000, reflecting weakness of the economy, notably in the high-technology sector. Also, per-unit rental increases introduced toward the end of 2002 have not yet resulted in improved rental revenues. Furniture sales revenues also decreased in the 2003 periods from those reported in 2002, 10.6% for the third quarter and 7.1% for the first nine months. Prices were reduced somewhat in 2002 in order to facilitate a reduction in used furniture inventories; recently, with reduced selling emphasis, prices have been restored.

     Cost of furniture rentals and sales amounted to 26.0% of related revenues for the quarter ended September 30, 2003 versus 27.8% for the comparable quarter of 2002, and 25.9% and 27.5% for the first nine months of 2003 and 2002. The improved cost percentages for the 2003 periods reflected improved furniture rental and selling prices as well as lower depreciation expense. Purchases of new product have been generally declining in recent years; rental furniture is depreciated under the declining balance method, whereby recorded depreciation is higher in the first year and declines in each successive year.

     Selling, general and administrative (“SG&A”) expenses of CORT at the parent company level were $64.6 million for the third quarter of 2003, down 1.8% from the $65.8 million incurred for the third quarter of 2002, and were $194.4 million for the first nine months of 2003, down 1.1% from the $196.5 million incurred for the first nine months of 2002. As efforts to integrate the operations of a furniture rental company acquired early in 2002 continue, further reductions in SG&A expenses are anticipated.

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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. (Amounts are in thousands.)