##### Table of Contents





SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-K
 (Mark One)
 þ
    ANNUAL REPORT PURSUANT TO
    SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934  For the fiscal year ended
    December 31, 2007 or
  o
    TRANSITION REPORT PURSUANT TO
    SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934      WESCO FINANCIAL
    CORPORATION
 (Exact name of Registrant as
    Specified in its Charter)
  Delaware

95-2109453(State or Other Jurisdiction of
    Incorporation or organization)

(I.R.S. Employer Identification No.)301 East Colorado Boulevard, Suite 300,
    Pasadena, California

91101-1901(Address of Principal Executive
    Offices)

(Zip Code)   (Registrants Telephone
    Number, Including Area Code)
  Securities registered pursuant to
    section 12(b) of the Act:
  Title of Each Class

Name of Each Exchange on Which RegisteredCapital Stock, $1 par value

American Stock Exchange       (Title of Class)
   (Title of Class)
  o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. þ
    Large accelerated filer
    o

Accelerated filer
    þ

Non-accelerated
    filer o
    (Do not check if a smaller reporting company)

Smaller reporting
    company o   Rule 12b-2 o þ
        Parts ofTitle of Document

Form 10-KProxy Statement for 2008
    Annual Meeting of Shareholders

Part III. Items 10, 11, 12, 13 and 14  9




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TABLE OF CONTENTS  PART IITEM 1. BusinessItem 1A. Risk FactorsItem 1B. Unresolved Staff CommentsItem 2. PropertiesItem 3. Legal ProceedingsItem 4. Submission of Matters to a Vote of Security HoldersPART IIItem 5. Market for Registrants Common Equity, Related Shareholder Matters and Issuer Repurchases of Equity SecuritiesItem 6. Selected Financial DataItem 7. Managements Discussion and Analysis of Financial Condition and Results of OperationsItem 7A. Quantitative and Qualitative Disclosures About Market RiskItem 8. Financial Statements and Supplementary DataItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 9A. Controls and ProceduresMANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTINGItem 9B. Other InformationPART IIIItem 10. Directors, Executive Officers and Corporate GovernanceItem 11. Executive CompensationItem 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder MattersItem 13. Certain Relationships and Related Transactions, and Director IndependenceItem 14. Principal Accountant Fees and ServicesItem 15. Exhibits and Financial Statement SchedulesSIGNATURESEXHIBIT 21EXHIBIT 31.(A)EXHIBIT 31.(B)EXHBIIT 32.(A)EXHIBIT 32.(B)    Table of Contents  
 PART I
 
  ITEM 1.
    Business  GENERAL
    
    the insurance business, through Wesco-Financial Insurance
    Company (Wes-FIC), which was incorporated in 1985
    and engages in the property and casualty insurance business, and
    The Kansas Bankers Surety Company (KBS), which was
    incorporated in 1909, purchased by Wes-FIC in 1996 and provides
    specialized insurance coverages for banks;
    the furniture rental business, through CORT Business Services
    Corporation (CORT), which traces its national
    presence to the combination of five regional furniture rental
    companies in 1972 and was purchased by Wesco in 2000; and
    the steel service center business, through Precision Steel
    Warehouse, Inc. (Precision Steel), which was begun
    in 1940 and acquired by Wesco in 1979.        INSURANCE SEGMENT
    excess-of-loss
 10




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##### Table of Contents




    A multi-year, quota-share arrangement, entered into in 2000
    through NICO, as intermediary without profit, for participation
    in a pool of certain property and casualty risks written by a
    large, unaffiliated insurer. For 2003 and through the
    contracts commutation (termination) in the latter part of
    2004, Wes-FIC participated to the extent of 6% in the pool. The
    terms of this arrangement were identical to those accepted by a
    member of the Berkshire Insurance Group, except as to the amount
    of the participation. As a result of the commutation of the
    contract, Wes-FIC is no longer liable for any claims or losses,
    or for adjustments to losses previously recorded, under the
    contract.
    Participation, since 2001, in several risk pools managed by a
    subsidiary of General Reinsurance Corporation, a Berkshire
    Insurance Group member, covering principally hull, liability and
    workers compensation exposures, relating to the aviation
    industry. In the more recent years, Wes-FICs participation
    has been as follows: for 2005, to the extent of 10% in the hull
    and liability pools and 5% of the workers compensation
    pool; for 2006, 12.5% of the hull and liability pools and 5% of
    the workers compensation pool; and for 2007, 16.67% in the
    hull and liability pools and 5% of the workers
    compensation pool. Another General Reinsurance Corporation
    subsidiary provides a portion of the upper- level reinsurance
    protection to these aviation risk pools, and therefore to
    Wes-FIC, on terms that could cause some conflict of interest
    under certain conditions, such as in settling a large loss.
    Wes-FICs exposure to detrimental effects, however, is also
    mitigated because a senior manager of NICO who represents the
    membership interests of Wes-FIC and unrelated pool members
    representing an additional 75% of the hull and liability pools
    and 90% of the workers compensation pool who have the same
    exposures to this potential conflict of interest, has access to
    information regarding significant losses and thus is able to
    address conflict issues that might arise.  property-casualty
   11




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##### Table of Contents



FURNITURE RENTAL
    SEGMENT
  rent-to-rent rent-to-own)
 12




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##### Table of Contents



rent-to-rent rent-to-own Rent-to-rent rent-to-rent month-to-month rent-to-own month-to-month
    
    expanding its commercial customer base;
    enhancing its ability to capture an increasing number of
    Internet customers through its on-line catalog and other web
    services;
    making selective acquisitions; and
    continuing to develop various products and services.       13




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##### Table of Contents



rent-to-rent rent-to-rent rent-to-own
      INDUSTRIAL SEGMENT
         14




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##### Table of Contents



off-the-shelf
      ACTIVITIES NOT
    IDENTIFIED WITH A BUSINESS SEGMENT
      AVAILABLE INFORMATION
  Forms 10-K, 10-Q 8-K,
 
  Item 1A.
    Risk
    Factors    An investment
    in Wesco is not an investment in Berkshire
    Hathaway.
    Wesco is
    dependent for its investment and all other capital allocation
    decisions on a few key people.
   15




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##### Table of Contents



Unless Wesco
    can reinvest a large amount currently invested in cash
    equivalents at attractive returns, future returns on
    shareholders equity will probably be less than those of
    the past.
    Wescos
    Wes-FIC subsidiary is dependent upon the Berkshire Insurance
    Group for its management and personnel, and for opportunities to
    participate with the Group in reinsurance contracts representing
    essentially the entirety of its reinsurance business, as well as
    a significant portion of its insurance business to
    date.
  and/or
  Wescos
    tolerance for risk in its insurance businesses may result in a
    high degree of volatility in periodic reported
    earnings.
     16




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##### Table of Contents



The degree of
    estimation error inherent in the process of estimating property
    and casualty insurance loss reserves may result in a high degree
    of volatility in periodic reported earnings.
    Wescos
    insurance subsidiaries investments are unusually
    concentrated.
    Each of
    Wescos operating businesses faces intense competitive
    pressures.
      rent-to-own
    In addition to
    the foregoing risk factors inherent in Wescos operations,
    Wescos shareholders face a market liquidity risk because
    the daily trading volume of Wescos shares on the American
    Stock Exchange is relatively low.
   17




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##### Table of Contents



Item 1B.
    Unresolved Staff
    Comments   
  Item 2.
    Properties      28-unit,
         
  Item 3.
    Legal
    Proceedings   
  Item 4.
    Submission of
    Matters to a Vote of Security Holders   18




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##### Table of Contents



PART II
 
  Item 5.
    Market for
    Registrants Common Equity, Related Shareholder Matters and
    Issuer Repurchases of Equity Securities     2007

2006Sales Price

Dividends

Sales Price

DividendsQuarter Ended

High

Low

Paid

High

Low

PaidMarch 31

$501

$433

$0.375

$411

$377

$0.365June 30

466

385

0.375

408

361

0.365September 30

409

375

0.375

437

367

0.365December 31

432

388

0.375

505

429

0.365$1.500





$1.460         Wesco Stock
    Performance Graph
    Comparison of
    Five Year Cumulative Return*
  
   *
    It would be difficult to develop a peer group of companies
    similar to Wesco. The Company owns subsidiaries engaged in a
    number of diverse business activities of which the most
    important is the property and casualty insurance business and,
    accordingly, management has used the Standard and Poors
    Property-Casualty Insurance Index for comparative purposes.   19




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##### Table of Contents



Item 6.
    Selected
    Financial Data   December 31,2007

2006

2005

2004

2003Assets:Cash and cash equivalents

$
526,722

$
1,257,351

$
1,194,113

$
1,161,163

$
1,052,462Investments Securities with fixed maturities


38,600


81,861


74,441


94,299


167,390Marketable equity securities


1,919,425


1,040,550


884,673


759,658


754,634Accounts receivable


79,512


60,386


53,987


46,007


60,168Rental furniture


178,297


182,846


187,572


171,983


163,699Goodwill of acquired businesses


266,607


266,607


266,607


266,607


266,607Other assets


103,846


80,704


67,118


71,818


73,435Total assets

$
3,113,009

$
2,970,305

$
2,728,511

$
2,571,535

$
2,538,395Liabilities:Insurance losses and loss adjustment expenses Affiliated business

$
39,687

$
29,761

$
19,697

$
14,910

$
67,416Unaffiliated business


54,158


48,549


42,283


41,252


35,110Unearned insurance premiums Affiliated business


15,041


14,062


12,301


14,118


8,646Unaffiliated business


15,225


15,298


16,092


11,223


20,347Deferred furniture rental income and security deposits


19,947


20,440


22,204


20,358


19,835Accounts payable and accrued expenses


49,476


48,258


52,587


51,501


48,931Notes payable


37,200


38,200


42,300


29,225


12,679Income taxes payable, principally deferred


347,416


355,399


290,615


272,005


247,241Total liabilities

$
578,150

$
569,967

$
498,079

$
454,592

$
460,205Shareholders equity:Capital stock and additional paid-in capital

$
33,324

$
33,324

$
33,324

$
33,324

$
33,324Unrealized appreciation of investments, net of taxes


381,017


344,978


256,710


427,690


426,542Retained earnings


2,120,518


2,022,036


1,940,398


1,655,929


1,618,324Total shareholders equity

$
2,534,859

$
2,400,338

$
2,230,432

$
2,116,943

$
2,078,190Per capital share

$
356.03

$
337.14

$
313.27

$
297.33

$
291.89   20




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##### Table of Contents



Year Ended December 31,2007

2006

2005

2004


2003Revenues:Furniture rentals

$
327,671

$
324,300

$
303,485

$
275,378


$
275,949Sales and service revenues


129,861


139,058


141,749


139,130



130,301Insurance premiums earned Affiliated business


35,530


32,643


32,450


19,371



47,818Unaffiliated business


18,881


21,506


17,032


35,218



58,833Dividend and interest income


90,872


84,504


56,792


36,844



44,763Realized net investment gains


24,240





333,241






53,466Other


3,869


3,716


3,541


3,372



3,187630,924


605,727


888,290


509,313



614,317Costs and expenses:Cost of products and services sold


143,282


154,218


153,402


146,783



144,725Insurance losses and loss adjustment expenses Affiliated business


24,008


21,401


11,990


(2,251
)


34,599Unaffiliated business


4,269


9,944


9,482


22,209



27,703Insurance underwriting expenses Affiliated business


8,019


7,566


6,611


6,646



9,490Unaffiliated business


7,284


7,294


6,832


5,458



10,705Selling, general and administrative


280,728


265,327


262,594


261,434



278,090Interest expense


2,408


2,711


1,575


799



749469,998


468,461


452,486


441,078



506,061Income before income taxes and minority interest


160,926


137,266


435,804


68,235



108,256Income taxes


51,765


45,233


141,225


20,808



34,852Minority interest in net loss of subsidiary















(1,307
)Net income

$
109,161

$
92,033

$
294,579

$
47,427


$
74,711Amounts per capital share:Net income

$
15.33

$
12.93

$
41.37

$
6.66


$
10.49Cash dividends


1.50


1.46


1.42


1.38



1.34      
  Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations    OVERVIEW
   21




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day-to-day
    Financial
    Condition
      Results of
    Operations
     22




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##### Table of Contents



FINANCIAL CONDITION
        RESULTS OF OPERATIONS
    all after income tax effect
  Year Ended December 31,2007


2006

2005Insurance segment:Underwriting

$
7,040


$
5,164

$
11,798Investment income


65,207



58,528


39,068Furniture rental segment


20,316



26,884


20,676Industrial segment


915



1,211


1,198Nonsegment items other than investment gains


(73
)


246


5,233Realized investment gains


15,756






216,606Consolidated net income

$
109,161


$
92,033

$
294,579   after
 23




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##### Table of Contents



Insurance
    Segment
   Year Ended December 31,2007

2006

2005Insurance premiums written Reinsurance

$
35,346

$
35,710

$
29,054Primary


19,493


19,800


21,199Total

$
54,839

$
55,510

$
50,253Insurance premiums earned Reinsurance

$
34,998

$
33,323

$
28,338Primary


19,413


20,826


21,144Total


54,411


54,149


49,482Insurance losses, loss adjustment expenses and underwriting
    expenses


43,580


46,205


34,916Underwriting gain, before income taxes Reinsurance


2,158


2,538


6,857Primary


8,673


5,406


7,709Total


10,831


7,944


14,566Income taxes


3,791


2,780


2,768Underwriting gain

$
7,040

$
5,164

$
11,798        24




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25




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##### Table of Contents



Year Ended December 31,2007

2006

2005Investment income, before taxes

$89,716

$83,441

$55,889Income taxes

24,509

24,913

16,821Investment income, after taxes

$65,207

$58,528

$39,068          26




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##### Table of Contents



Furniture Rental
    Segment
    Year Ended December 31,2007

2006

2005Revenues:Furniture rentals

$
327,671

$
324,300

$
303,485Furniture sales


61,704


69,551


72,394Service fees


6,795


6,454


8,021396,170


400,305


383,900Cost of rentals, sales and fees


91,407


101,605


102,032Selling, general and administrative expenses


268,469


252,657


250,542Interest expense


2,408


2,711


1,575362,284


356,973


354,149Income before income taxes


33,886


43,332


29,751Income taxes


13,570


16,448


9,075Segment net income

$
20,316

$
26,884

$
20,676            27




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##### Table of Contents



Industrial
    Segment
    Year Ended December 31,2007

2006

2005Revenues, principally sales and services

$
61,361

$
63,053

$
61,334Income before income taxes

$
1,518

$
1,918

$
2,056Income taxes


603


707


858Segment net income

$
915

$
1,211

$
1,198          28




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##### Table of Contents



Unrelated to
    Business Segment Operations
             29




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##### Table of Contents



OFF-BALANCE SHEET
    ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS
      Payments DueTotal

2008

2009-2010

2011-2012

ThereafterNotes payable, including interest

$
37,540

$
37,340

$


$


$
200Operating lease obligations


103,852


25,925


40,709


23,006


14,212Payment of insurance losses and loss adjustment expenses*


93,845


22,341


29,447


18,899


23,158Purchase obligations, other than for capital expenditures


12,030


11,108


922





Purchase obligations for capital expenditures**


17,310


17,310








Other, principally deferred compensation


5,069


61


52


52


4,904Totals

$
269,646

$
114,085

$
71,130

$
41,957

$
42,474     *
    Amounts and timing of payments are significantly dependent on
    estimates. See Critical Accounting Policies and Practices below.**
    Principally, construction costs of MS Propertys luxury
    condominium development.  CRITICAL ACCOUNTING
    POLICIES AND PRACTICES
    Use of Estimates
    in Preparation of Financial Statements
   30




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##### Table of Contents



Investments
  held-to-maturity, available-for-sale. available-for-sale
  Rental
    Furniture
    Revenue
    Recognition
      Losses and Loss
    Adjustment Expenses
         31




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##### Table of Contents



December, 31


December 31,2007


2006Case reserves


$58,160



$49,834IBNR reserves


35,685



28,476Gross liability before ceded reinsurance


93,845



78,310Ceded reserves


(23,502
)*


(11,628
)*Net reserves


$70,343



$66,682     *
    Represents principally, Wes-FICs proportionate share of
    reinsurance purchased by the aviation pools.  The techniques and processes employed in estimating loss
    reserves are differentiated between reinsurance and primary
    insurance.
  Reinsurance
     32




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##### Table of Contents



Primary insurance
  Goodwill
    Realized
    investment gains and losses
  other-than-temporary
 
  Item 7A.
    Quantitative and
    Qualitative Disclosures About Market Risk   33




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##### Table of Contents



EQUITY PRICE RISK
  Coca-Cola
        December 31, 2007

December 31, 2006Increase

Decrease

Increase

DecreaseMarket value of marketable equity securities As recorded

$1,919,425

$1,919,425

$1,040,550

$1,040,550Hypothetical

2,495,252

1,343,597

1,352,716

728,385Shareholders equity As recorded

2,534,859

2,534,859

2,400,338

2,400,338Hypothetical

2,909,147

2,160,571

2,603,245

2,197,430    34




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##### Table of Contents



INTEREST RATE RISK
      FORWARD-LOOKING
    STATEMENTS
  expects, anticipates, intends, plans,
    believes, estimates, may, could,
   
  Item 8.
    Financial
    Statements and Supplementary Data     Financial Statements

Page Number(s)Report of independent registered public accounting firm

39-40Consolidated balance sheet  December 31, 2007
    and 2006

41Consolidated statement of income  years ended
    December 31, 2007, 2006 and 2005

42Consolidated statement of cash flows  years ended
    December 31, 2007, 2006 and 2005

43Consolidated statement of changes in shareholders equity
    and comprehensive income  years ended
    December 31, 2007, 2006 and 2005

44Notes to consolidated financial statements

45-56    35




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##### Table of Contents



Financial Statement Schedule

Schedule Number

Page Number(s)Condensed financial information of Wesco December 31, 2007 and 2006, and years ended
    December 31, 2007, 2006 and 2005

I

57-58  
  Item 9.
    Changes in and
    Disagreements with Accountants on Accounting and Financial
    Disclosure   
  Item 9A.
    Controls and
    Procedures      Forms 10-Q
 
  MANAGEMENTS
    REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
  Rule 13a-15(f) Rule 13a-15(c) Internal
    Control  Integrated Framework
 36




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##### Table of Contents



Item 9B.
    Other
    Information   
  PART III
 
  Item 10.
    Directors,
    Executive Officers and Corporate Governance   
  Item 11.
    Executive
    Compensation   
  Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Shareholder Matters   
  Item 13.
    Certain
    Relationships and Related Transactions, and Director
    Independence   
  Item 14.
    Principal
    Accountant Fees and Services   
  Item 15.
    Exhibits and
    Financial Statement Schedules  Regulation S-K) Form 10-K
  Form 10-K Form 8-K No. 1-4720)
 37




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##### Table of Contents



38




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##### Table of Contents



SIGNATURES
    WESCO FINANCIAL
    CORPORATION
 By:

/s/ Charles T. MungerCharles T. Munger
    Chairman of the Board and President (principal executive officer)

February 27, 2008By:

/s/ Jeffrey L. JacobsonJeffrey L. Jacobson
    Vice President and Chief Financial Officer
    (principal financial and accounting officer)

February 27, 2008    /s/ Carolyn H. CarlburgCarolyn H. Carlburg
    Director

February 27, 2008/s/ Robert E. DenhamRobert E. Denham
    Director

February 27, 2008/s/ Robert T. FlahertyRobert T. Flaherty
    Director

February 27, 2008/s/ Peter D. KaufmanPeter D. Kaufman
    Director

February 27, 2008/s/ Charles T. MungerCharles T. Munger
    Director

February 27, 2008/s/ Elizabeth Caspers
    PetersElizabeth Caspers Peters
    Director

February 27, 2008   REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
      Internal Control  Integrated Framework
 39




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##### Table of Contents



Internal Control  Integrated Framework
  
   40




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##### Table of Contents



WESCO FINANCIAL
    CORPORATION
    CONSOLIDATED BALANCE SHEET(Dollar amounts in
    thousands)
  December 31,2007

2006ASSETSCash and cash equivalents

$
526,722

$
1,257,351Investments:Securities with fixed maturities


38,600


81,861Marketable equity securities


1,919,425


1,040,550Accounts receivable


79,512


60,386Rental furniture


178,297


182,846Goodwill of acquired businesses


266,607


266,607Other assets


103,846


80,704$
3,113,009

$
2,970,305LIABILITIES AND SHAREHOLDERS EQUITYInsurance losses and loss adjustment expenses Affiliated business

$
39,687

$
29,761Unaffiliated business


54,158


48,549Unearned insurance premiums Affiliated business


15,041


14,062Unaffiliated business


15,225


15,298Deferred furniture rental income and security deposits


19,947


20,440Accounts payable and accrued expenses


49,476


48,258Notes payable


37,200


38,200Income taxes payable, principally deferred


347,416


355,399578,150


569,967Shareholders equity:Capital stock, $1 par value  authorized,
    7,500,000 shares; issued and outstanding,
    7,119,807 shares


7,120


7,120Additional paid-in capital


26,204


26,204Accumulated other comprehensive income


381,017


344,978Retained earnings


2,120,518


2,022,036Total shareholders equity


2,534,859


2,400,338$
3,113,009

$
2,970,305   See notes to consolidated financial statements.
 41




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##### Table of Contents



WESCO FINANCIAL
    CORPORATION
    CONSOLIDATED STATEMENT OF INCOME(Dollar amounts in thousands
    except for amounts per share)
  Year Ended December 31,2007

2006

2005Revenues:Furniture rentals

$
327,671

$
324,300

$
303,485Sales and service revenues


129,861


139,058


141,749Insurance premiums earned Affiliated business


35,530


32,643


32,450Unaffiliated business


18,881


21,506


17,032Dividend and interest income


90,872


84,504


56,792Realized investment gains


24,240





333,241Other


3,869


3,716


3,541630,924


605,727


888,290Costs and expenses:Cost of products and services sold


143,282


154,218


153,402Insurance losses and loss adjustment expenses Affiliated business


24,008


21,401


11,990Unaffiliated business


4,269


9,944


9,482Insurance underwriting expenses Affiliated business


8,019


7,566


6,611Unaffiliated business


7,284


7,294


6,832Selling, general and administrative expenses


280,728


265,327


262,594Interest expense


2,408


2,711


1,575469,998


468,461


452,486Income before income taxes and minority interest


160,926


137,266


435,804Income taxes


51,765


45,233


141,225Net income

$
109,161

$
92,033

$
294,579Amounts per capital share based on 7,119,807 shares
    outstanding throughout each year:Net income

$
15.33

$
12.93

$
41.37Cash dividends


1.50


1.46


1.42   See notes to consolidated financial statements.
 42




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##### Table of Contents



WESCO FINANCIAL
    CORPORATION
    CONSOLIDATED STATEMENT OF CASH FLOWS(Dollar amounts in
    thousands)
  Year Ended December 31,2007


2006


2005Cash flows from operating activities:Net income

$
109,161


$
92,033


$
294,579Adjustments to reconcile net income with net cash flows from
    operating activities Gross profit on sale of rental furniture


(22,678
)


(25,468
)


(24,955
)Investment gains


(24,240
)






(333,241
)Depreciation and amortization


41,515



41,732



38,887Change in liabilities for insurance losses and loss adjustment
    expenses Affiliated business


9,926



10,064



4,787Unaffiliated business


5,609



6,266



1,031Change in unearned insurance premiums Affiliated business


979



1,761



(1,817
)Unaffiliated business


(73
)


(794
)


4,869Change in income taxes payable


(27,075
)


17,014



110,656Other, net


(10,765
)


(10,141
)


6,605Net cash flows from operating activities


82,359



132,467



101,401Cash flows from investing activities:Purchases of securities with fixed maturities


(29,106
)


(42,804
)


(24,368
)Purchases of equity securities


(826,826
)


(18,856
)


(51,886
)Purchases of rental furniture


(73,809
)


(80,151
)


(97,297
)Proceeds from redemptions and maturities of securities with
    fixed maturities


74,195



34,465



29,676Proceeds from sales of securities with fixed maturities










11,577Proceeds from sales of rental furniture


61,704



70,189



72,000Proceeds from sales of equity securities


25,126







Additions to condominium construction in process


(26,059
)


(14,905
)


(9,029
)Other, net


(6,534
)


(2,672
)


(2,089
)Net cash flows from investing activities


(801,309
)


(54,734
)


(71,416
)Cash flows from financing activities:Borrowings (repayments), net, under revolving credit facility


(1,000
)


(4,100
)


13,100Repayment of notes payable










(25
)Payment of cash dividends


(10,679
)


(10,395
)


(10,110
)Net cash flows from financing activities


(11,679
)


(14,495
)


2,965Increase (decrease) in cash and cash equivalents


(730,629
)


63,238



32,950Cash and cash equivalents  beginning of year


1,257,351



1,194,113



1,161,163Cash and cash equivalents  end of year

$
526,722


$
1,257,351


$
1,194,113Supplementary disclosures:Interest paid during year

$
2,309


$
2,589


$
481Income taxes paid, net, during year


79,011



28,484



34,648   See notes to consolidated financial statements.
 43




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##### Table of Contents



WESCO FINANCIAL
    CORPORATION
    CONSOLIDATED STATEMENT OF CHANGES IN
    SHAREHOLDERS EQUITY
    AND COMPREHENSIVE INCOME(Dollar amounts in
    thousands)
  Year Ended December 31,2007


2006


2005Capital Stock:Balance at beginning and end of year

$
7,120


$
7,120


$
7,120Additional Paid-in Capital:Balance at beginning and end of year

$
26,204


$
26,204


$
26,204Retained Earnings:Balance at beginning of year

$
2,022,036


$
1,940,398


$
1,655,929Net income


109,161



92,033



294,579Cash dividends declared and paid


(10,679
)


(10,395
)


(10,110
)Balance at end of year

$
2,120,518


$
2,022,036


$
1,940,398Accumulated Other Comprehensive Income:Unrealized appreciation of investments

$
55,132


$
136,038


$
(263,026
)Applicable income taxes


(19,093
)


(47,770
)


92,046Other comprehensive income


36,039



88,268



(170,980
)Accumulated other comprehensive income at beginning of year


344,978



256,710



427,690Accumulated other comprehensive income at end of year

$
381,017


$
344,978


$
256,710Comprehensive Income:Net income

$
109,161


$
92,033


$
294,579Other comprehensive income


36,039



88,268



(170,980
)Total comprehensive income

$
145,200


$
180,301


$
123,599   See notes to consolidated financial statements.
 44




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##### Table of Contents



WESCO FINANCIAL
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
  (Dollar amounts in thousands except for amounts per share)
  Note 1.
    Significant
    Accounting Policies and Practices  Nature of
    operations, basis of consolidation, and presentation
      Accounting
    pronouncements not yet in effect
    Use of estimates
    in preparation of financial statements
    Cash
    equivalents
   45




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##### Table of Contents



Investments
  held-to-maturity, available-for-sale. available-for-sale
  other-than-temporary
  Accounts
    receivable
    Rental
    furniture
    Goodwill of
    acquired businesses
    Inventories
  last-in, first-in,
  Dollar amounts in thousands
    except for amounts per share
 46




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##### Table of Contents



Capitalized
    Construction Costs
    Revenue
    recognition
          Losses and loss
    adjustment expenses
        Dollar amounts in thousands
    except for amounts per share
 47




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##### Table of Contents



Income
    taxes
          Note 2.
    Investments    December 31, 2007

December 31, 2006Estimated Fair



Estimated FairAmortized Cost

(Carrying) Value

Amortized Cost

(Carrying) ValueMortgage-backed securities

$
33,564

$
34,573

$
39,173

$
39,799Other, principally U.S. government obligations


3,914


4,027


42,070


42,062$
37,478

$
38,600

$
81,243

$
81,861     Dollar amounts in thousands
    except for amounts per share
 48




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##### Table of Contents



Estimated FairAmortized Cost

(Carrying) ValueDue in 2008

$
3,914

$
4,027Mortgage-backed securities


33,564


34,573$
37,478

$
38,600     December 31, 2007

December 31, 2006Fair (Carrying)



Fair (Carrying)Cost

Value

Cost

ValueThe Procter & Gamble Company

$
424,367

$
525,283

$
424,367

$
459,820The
    Coca-Cola
    Company


40,761


442,208


40,761


347,670Wells Fargo & Company


382,779


381,698


25,189


93,992Kraft Foods Incorporated


325,816


326,300





Other


161,528


243,936


20,687


139,068$
1,335,251

$
1,919,425

$
511,004

$
1,040,550       December 31,

December 31,

December 31,2007

2006

2005Realized investment gains

$
24,240

$


$
333,255Realized investment losses








(14
)$
24,240

$


$
333,241     Note 3.
    Accounts
    Receivable    December 31,


December 31,2007


2006Trade accounts receivable

$
81,442


$
62,971Allowance for uncollectible accounts


(1,930
)


(2,585
)$
79,512


$
60,386   Dollar amounts in thousands
    except for amounts per share
 49




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##### Table of Contents



Note 4.
    Rental
    Furniture    December 31,


December 31,2007


2006Cost of rental furniture

$
277,672


$
278,177Less accumulated depreciation


(99,375
)


(95,331
)$
178,297


$
182,846   Note 5.
    Goodwill      Note 6.
    Insurance Losses
    and Loss Adjustment Expenses Payable    Dollar amounts in thousands
    except for amounts per share
 50




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##### Table of Contents



2007

2006

2005Gross liabilities at beginning of year

$78,310

$61,980

$56,162Less ceded liabilities*

(11,628)

(6,142)

(1,880)Net balance at beginning of year

66,682

55,838

54,282Incurred losses recorded during year For current year

35,392

30,923

21,507For all prior years

(7,115)

422

(35)Total incurred losses

28,277

31,345

21,472Payments made during year For current year

9,255

7,925

7,234For all prior years

15,362

12,576

12,682Total payments

24,617

20,501

19,916Net liabilities at end of year

70,343

66,682

55,838Plus ceded liabilities*

23,502

11,628

6,142Gross liabilities at end of year

$93,845

$78,310

$61,980     *
    Represents principally, Wes-FICs proportionate share of
    reinsurance purchased by the aviation pools.    Note 7.
    Notes Payable and
    Other Contractual Obligations    December 31,2007

2006Revolving credit facility

$37,000

$38,000Other

200

200$37,200

$38,200     Dollar amounts in thousands
    except for amounts per share
 51




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##### Table of Contents



Note 8.
    Income
    Taxes    December 31,2007

2006Deferred tax liabilities, relating to Appreciation of investments

$205,911

$186,553Cost basis differences in investments

116,368

116,368Other items

43,150

40,004365,429

342,925Deferred tax assets

(21,483)

(20,353)Net deferred tax liabilities

343,946

322,572Taxes currently payable

3,470

32,827Income taxes payable

$347,416

$355,399     2007

2006


2005Federal

$
50,165

$
43,251


$
141,406State


1,600


1,982



(181
)Provision for income taxes

$
51,765

$
45,233


$
141,225Current

$
50,272

$
46,871


$
38,816Deferred


1,493


(1,638
)


102,409Provision for income taxes

$
51,765

$
45,233


$
141,225     2007


2006


2005Statutory Federal income tax rate


35.0
%


35.0
%


35.0
%Decrease resulting from Dividends received deduction


(4.2
)


(1.1
)


(0.9
)State income taxes, less Federal tax benefit


(0.1
)


(0.2
)


(0.1
)Other differences, net


1.5



(0.7
)


(1.6
)Effective income tax provision rate


32.2
%


33.0
%


32.4
%   Accounting for Uncertainty in Income Taxes  an
    interpretation of FASB Statement No. 109
  Dollar amounts in thousands
    except for amounts per share
 52




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##### Table of Contents



Note 9.
    Environmental
    Matters and Litigation      Muniz v. Precision Brand Products, Inc., et. al.
  Bendik v. Precision Brand Products, Inc. and Precision
    Steel Warehouse, Inc.
  Pote v. Precision Brand Products, Inc. and Precision
    Steel Warehouse, Inc.
      Dollar amounts in thousands
    except for amounts per share
 53




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##### Table of Contents



Note 10.
    Quarterly
    Financial Information    Quarter EndedMarch 31,

June 30,

September 30,

December 31,

Total For Year2007Revenues

$
150,681

$
156,256

$
156,664

$
167,323

$
630,924Net income

$
22,583

$
27,761

$
24,397

$
34,420

$
109,161Per capital share


3.17


3.90


3.43


4.83


15.332006Revenues

$
153,550

$
151,248

$
157,953

$
142,976

$
605,727Net income


23,415


23,747


23,513


21,358


92,033Per capital share


3.29


3.33


3.31


3.00


12.93Realized net investment gains 2007Before taxes (included in revenues)

$


$


$


$
24,240

$
24,240After taxes (included in net income)











15,756


15,7562006None    Note 11.
    Business Segment
    Data      excess-of-loss
  Dollar amounts in thousands
    except for amounts per share
 54




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##### Table of Contents



rent-to-rent
       Dollar amounts in thousands
    except for amounts per share
 55




---



##### Table of Contents



2007


2006

2005Insurance segment:Premiums earned

$
54,411


$
54,149

$
49,482Dividend and interest income


89,716



83,441


55,889Income taxes


28,300



27,693


19,590Net income


72,247



63,692


50,866Depreciation and amortization other than of discounts and
    premiums of investments


45



36


61Advertising expense


181



153


89Capital expenditures


32



51


45Assets at yearend


2,497,794



2,375,564


2,142,033Furniture rental segment:Revenues

$
396,170


$
400,305

$
383,900Income taxes


13,570



16,448


9,075Net income


20,316



26,884


20,676Depreciation and amortization other than of discounts and
    premiums of investments


39,891



40,923


37,912Advertising expense


18,002



15,392


13,177Interest expense


2,408



2,711


1,575Capital expenditures


3,971



1,988


3,972Assets at yearend


245,817



247,484


255,767Industrial segment:Sales, service and other revenues

$
61,361


$
63,053

$
61,334Income taxes


603



707


858Net income


915



1,211


1,198Depreciation and amortization


433



448


448Advertising expense


258



195


249Capital expenditures


357



583


409Assets at yearend


19,263



17,100


16,394Goodwill of acquired businesses (included in assets)

$
266,607


$
266,607

$
266,607Realized investment gains:Before taxes (included in revenues)

$
24,240


$


$
333,241After taxes (included in net income)


15,756






216,606Other items unrelated to business segments:Dividend and interest income

$
1,156


$
1,063

$
903Other revenues


3,870



3,716


3,541Income taxes


808



385


(4,933
)Net income (loss)


(73
)


246


5,233Depreciation and amortization


388



291


466Capital expenditures


419



83


606Assets at yearend


83,528



63,550


47,710Consolidated revenues (total of those set forth above)

$
630,924


$
605,727

$
888,290Consolidated assets (total of those set forth above)

$
3,113,009


$
2,970,305

$
2,728,511   Dollar amounts in thousands
    except for amounts per share
 56




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##### Table of Contents



WESCO FINANCIAL
    CORPORATION
  SCHEDULE I 
    CONDENSED FINANCIAL
  INFORMATION OF
    REGISTRANT
  BALANCE
    SHEET
 (Dollar
    amounts in thousands)
  December 31,2007

2006Assets:Cash and cash equivalents

$
17

$
19Investment in subsidiaries, at cost plus equity in
    subsidiaries undistributed earnings and unrealized
    appreciation


2,705,316


2,554,713$
2,705,333

$
2,554,732Liabilities and shareholders equity:Advances from subsidiaries

$
169,873

$
154,821Income taxes payable (recoverable)


479


(547
)Other liabilities


122


120Total liabilities


170,474


154,394Shareholders equity (see consolidated balance sheet and
    statement of changes in shareholders equity)


2,534,859


2,400,338$
2,705,333

$
2,554,732   STATEMENT OF
    INCOME
    (Dollar amounts in thousands)
  Year Ended December 31,2007


2006


2005Revenues

$



$



$
Expenses:Intercompany interest


7,251



6,006



3,779General and administrative


1,059



950



1,0158,310



6,956



4,794Loss before items shown below


(8,310
)


(6,956
)


(4,794
)Income taxes


(2,908
)


(2,434
)


(5,277
)Equity in undistributed earnings of subsidiaries


114,563



96,555



294,096Net income

$
109,161


$
92,033


$
294,579   See notes to consolidated financial statements.
 57




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##### Table of Contents



WESCO FINANCIAL
    CORPORATION
    SCHEDULE I  CONDENSED FINANCIAL
    INFORMATION OF REGISTRANT (Continued)STATEMENT OF CASH FLOWS
    (Dollar amounts in thousands)
  Year Ended December 31,2007


2006


2005Cash flows from operating activities:Net income

$
109,161


$
92,033


$
294,579Adjustments to reconcile net income with cash flows from
    operating activities  Change in income taxes payable
    currently


1,026



(6
)


(583
)Equity in undistributed earnings of subsidiaries


(114,563
)


(96,555
)


(294,096
)Other, net


1



80



(2,551
)Net cash flows from operating activities


(4,375
)


(4,448
)


(2,651
)Cash flows from financing activities:Advances from subsidiaries, net


15,052



14,834



12,764Payment of cash dividends


(10,679
)


(10,395
)


(10,110
)Net cash flows from financing activities


4,373



4,439



2,654Increase (decrease) in cash and cash equivalents


(2
)


(9
)


3Cash and cash equivalents  beginning of year


19



28



25Cash and cash equivalents  end of year

$
17


$
19


$
28   See notes to consolidated financial statements.
 58