##### 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, 2008 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)  (626) 585-6700
 (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
  Rule 12b-2
  Large accelerated filer
    o

Accelerated filer
    þ

Non-accelerated filer
    o

Smaller reporting company
    o(Do not check if a smaller reporting company)   Rule 12b-2 o þ
        Parts ofTitle of Document

Form 10-KProxy Statement for 2009
    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 SchedulesSIGNATURESEX-21EX-31.(A)EX-31.(B)EX-32.(A)EX-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
  80.1%-owned
  excess-of-loss
 10




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##### Table of Contents




    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; for 2007 to date, 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.
    Participation, since the beginning of 2008, in a retrocession
    agreement with NICO, to assume 10% of NICOs quota share
    reinsurance of Swiss Reinsurance Company and its major
    property-casualty affiliates (Swiss Re). Under this
    agreement, Wes-FIC has assumed 2% part of NICOs 20% quota
    share reinsurance of all Swiss Re property-casualty risks
    incepting over the five-year period ending December 31,
    2012 on the same terms as NICOs agreement with Swiss Re.
    Wes-FICs share of written premiums under the contract was
    $265.2 million in 2008, giving rise to earned premiums of
    $183.2 million, the latter representing 76.9% of
    Wes-FICs 2008 earned premiums and 22.9% of Wescos
    consolidated revenues. Wes-FICs float (funds held
    temporarily pending future payment of claims and related
    expenses) created under contract, is expected to substantially
    increase. Annual premiums over the five-year period could vary
    significantly depending on market conditions and opportunities.
    See Item 7, Managements Discussion and Analysis of
    Financial Condition and Results of Operations, beginning on
    page 22, for more information about the impact of
    Wes-FICs participation in the Swiss Re contract.     11




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12




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##### Table of Contents



FURNITURE RENTAL
    SEGMENT
  rent-to-rent rent-to-own)
  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   15




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An investment
    in Wesco is not an investment in Berkshire
    Hathaway.
    Wescos
    investments are unusually concentrated and fair values are
    subject to loss in value.
    Wescos subsidiary, Kansas Bankers Surety Company
    (KBS), and therefore, Wesco, is exposed to the
    possibility of losses from bank failures as KBS exits the line
    of insurance represented by deposit guarantee bonds which insure
    specific deposits above Federally insured limits.
      Wesco is dependent for its investment and all other
    capital allocation decisions on a few key people.
   16




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##### Table of Contents



Wescos Wes-FIC subsidiary is dependent upon the
    Berkshire Insurance Group for its management and personnel, and
    for opportunities to participate with the Insurance 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.
        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.
   17




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##### Table of Contents



Each of
    Wescos operating businesses faces intense competitive
    pressures.
    Unfavorable
    economic conditions could hurt Wescos operating
    businesses.
    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.
   
  Item 1B.
    Unresolved Staff
    Comments   
  Item 2.
    Properties      28-unit,
 18




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##### Table of Contents



Item 3.
    Legal
    Proceedings   
  Item 4.
    Submission of
    Matters to a Vote of Security Holders   
  PART II
 
  Item 5.
    Market for
    Registrants Common Equity, Related Shareholder Matters and
    Issuer Repurchases of Equity Securities      2008

2007Sales Price

Dividends

Sales Price

DividendsQuarter Ended

High

Low

Paid

High

Low

PaidMarch 31

$421

$368

$0.385

$501

$433

$0.375June 30

450

368

0.385

466

385

0.375September 30

401

352

0.385

413

375

0.375December 31

372

243

0.385

434

375

0.375$1.54





$1.50      19




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##### Table of Contents



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. 20




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##### Table of Contents



Item 6.
    Selected
    Financial Data   December 31,2008


2007


2006


2005


2004Assets:Cash and cash equivalents

$
297,643


$
526,722


$
1,257,351


$
1,194,113


$
1,161,163Investments Securities with fixed maturities


28,656



38,600



81,861



74,441



94,299Marketable equity securities


1,868,293



1,919,425



1,040,550



884,673



759,658Accounts receivable


57,489



42,841



37,204



39,203



34,809Receivable from affiliate


133,396



36,671



23,182



14,784



11,198Rental furniture


217,597



178,297



182,846



187,572



171,983Goodwill of acquired businesses


277,742



266,607



266,607



266,607



266,607Other assets


169,879



103,846



80,704



67,118



71,818Total assets

$
3,050,695


$
3,113,009


$
2,970,305


$
2,728,511


$
2,571,535Liabilities:Insurance losses and loss adjustment expenses Affiliated business

$
164,424


$
39,687


$
29,761


$
19,697


$
14,910Unaffiliated business


50,844



54,158



48,549



42,283



41,252Unearned insurance premiums Affiliated business


94,544



15,041



14,062



12,301



14,118Unaffiliated business


13,251



15,225



15,298



16,092



11,223Deferred furniture rental income and security deposits


17,674



19,947



20,440



22,204



20,358Accounts payable and accrued expenses


61,145



49,476



48,258



52,587



51,501Notes payable


40,400



37,200



38,200



42,300



29,225Income taxes payable, principally deferred


230,657



347,416



355,399



290,615



272,005Total liabilities

$
672,939


$
578,150


$
569,967


$
498,079


$
454,592Shareholders equity:Capital stock and additional paid- in capital

$
33,324


$
33,324


$
33,324


$
33,324


$
33,324Accumulated other comprehensive income Net unrealized appreciation of investments, net of taxes


154,660



381,017



344,978



256,710



427,690Foreign currency translation adjustments, net of taxes


(1,897
)














Retained earnings


2,191,669



2,120,518



2,022,036



1,940,398



1,655,929Total shareholders equity

$
2,377,756


$
2,534,859


$
2,400,338


$
2,230,432


$
2,116,943Per capital share

$
333.96


$
356.03


$
337.14


$
313.27


$
297.33   21




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Year Ended December 31,2008


2007


2006


2005


2004Revenues:Furniture rentals

$
340,162


$
327,671


$
324,300


$
303,485


$
275,378Sales and service revenues


130,753



129,861



139,058



141,749



139,130Insurance premiums earned Affiliated business


218,094



35,530



32,643



32,450



19,371Unaffiliated business


19,870



18,881



21,506



17,032



35,218Dividend and interest income


79,079



90,872



84,504



56,792



36,844Realized net investment gains


7,006



24,240







333,241



Other


3,990



3,869



3,716



3,541



3,372798,954



630,924



605,727



888,290



509,313Costs and expenses:Cost of products and services sold


149,319



143,282



154,218



153,402



146,783Insurance losses and loss adjustment expenses Affiliated business


151,308



24,008



21,401



11,990



(2,251
)Unaffiliated business


20,892



4,269



9,944



9,482



22,209Insurance underwriting expenses Affiliated business


63,156



8,019



7,566



6,611



6,646Unaffiliated business


7,135



7,284



7,294



6,832



5,458Selling, general and administrative


300,231



280,728



265,327



262,594



261,434Interest expense


1,798



2,408



2,711



1,575



799693,839



469,998



468,461



452,486



441,078Income before income taxes and minority interest


105,115



160,926



137,266



435,804



68,235Income taxes


22,999



51,765



45,233



141,225



20,808Net income

$
82,116


$
109,161


$
92,033


$
294,579


$
47,427Amounts per share:Net income

$
11.53


$
15.33


$
12.93


$
41.37


$
6.66Cash dividends


1.54



1.50



1.46



1.42



1.38      
  Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations    OVERVIEW
   22




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day-to-day
    FINANCIAL CONDITION
         23




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RESULTS OF OPERATIONS
           24




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all after income tax effect
  Year Ended December 31,2008


2007


2006Insurance segment:Underwriting

$
(2,942
)

$
7,040


$
5,164Investment income


64,274



65,207



58,528Furniture rental segment


15,744



20,316



26,884Industrial segment


842



915



1,211Nonsegment items other than investment gains


(356
)


(73
)


246Realized investment gains


4,554



15,756



Consolidated net income

$
82,116


$
109,161


$
92,033     Insurance
    Segment
    Year Ended December 31,2008


2007


2006Insurance premiums written Reinsurance

$
298,622


$
35,346


$
35,710Primary


17,850



19,493



19,800Total

$
316,472


$
54,839


$
55,510Insurance premiums earned Reinsurance

$
217,584


$
34,998


$
33,323Primary


20,380



19,413



20,826Total


237,964



54,411



54,149Insurance losses, loss adjustment expenses and underwriting
    expenses


242,491



43,580



46,205Underwriting gain (loss), before income taxes Reinsurance


(2,162
)


2,158



2,538Primary


(2,365
)


8,673



5,406Total


(4,527
)


10,831



7,944Income taxes


(1,585
)


3,791



2,780Underwriting gain (loss)

$
(2,942
)

$
7,040


$
5,164  25




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26




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27




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##### Table of Contents



Year Ended December 31,2008


2007


2006Investment income, before taxes

$
84,920


$
89,716


$
83,441Income taxes


20,646



24,509



24,913Investment income, after taxes

$
64,274


$
65,207


$
58,528          28




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Furniture Rental
    Segment
    Year Ended December 31,2008


2007


2006Revenues:Furniture rentals

$
340,162


$
327,671


$
324,300Furniture sales


61,800



61,704



69,551Service fees


8,081



6,795



6,454410,043



396,170



400,305Cost of rentals, sales and fees


97,997



91,407



101,605Selling, general and administrative expenses


287,498



268,469



252,657Interest expense


1,798



2,408



2,711387,293



362,284



356,973Income before income taxes


22,750



33,886



43,332Income taxes


7,006



13,570



16,448Segment net income

$
15,744


$
20,316


$
26,884            29




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##### Table of Contents



year-to-year
  Industrial
    Segment
    Year Ended December 31,2008


2007


2006Revenues, principally sales and services

$
60,872


$
61,361


$
63,053Cost of sales and services


51,323



51,875



52,613Selling, general and administrative expenses


7,948



7,968



8,52259,271



59,843



61,135Income before income taxes


1,601



1,518



1,918Income taxes


759



603



707Segment net income

$
842


$
915


$
1,211          30




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(last-in,
  Unrelated to
    Business Segment Operations
             31




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##### Table of Contents



OFF-BALANCE SHEET
    ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS
      Payments DueTotal


2009


2010-2011


2012-2013


ThereafterNotes payable, including interest

$
40,765


$
40,493


$
36


$
236


$
Operating lease obligations


122,517



30,449



46,932



24,699



20,437Payment of insurance losses and loss adjustment expenses*


215,268



55,396



76,241



51,138



32,493Purchase obligations, other than for capital expenditures


13,095



12,244



851







Purchase obligations for capital expenditures**


784



784











Other, principally deferred compensation


5,797



866



78



176



4,677Totals

$
398,226


$
140,232


$
124,138


$
76,249


$
57,607     *
    
    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
   32




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Investments
  held-to-maturity, available-for-sale. available-for-sale
            Rental
    Furniture
    Revenue
    Recognition
   33




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##### Table of Contents



Losses and Loss
    Adjustment Expenses
           34




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##### Table of Contents



December 31,


December 31,2008


2007Case reserves

$
61,757


$
58,160IBNR reserves


153,511



35,685Gross liability before ceded reinsurance


215,268



93,845Ceded reserves


(17,914
)*


(23,502
)*Net reserves

$
197,354


$
70,343     *
    
    Represents principally, Wes-FICs proportionate share of
    reinsurance purchased by the aviation pools.    Gross Unpaid Losses


Net Unpaid Losses*Dec. 31,


Dec. 31,


Dec. 31,


Dec. 31,2008


2007


2008


2007Swiss Re contract

$
127,215


$



$
127,215


$
Other reinsurance, principally aviation-related


73,356



74,925



55,442



51,823KBS primary


14,697



18,920



14,697



18,520Total

$
215,268


$
93,845


$
197,354


$
70,343     *
    
    Net of reinsurance recoverable, and before foreign currency
    translation effects.    The techniques and processes employed in estimating loss
    reserves are differentiated between reinsurance and primary
    insurance.
  Reinsurance
 35




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##### Table of Contents



Primary insurance
   36




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Goodwill of
    Acquired Businesses
    Realized
    Investment Gains and Losses
  other-than-temporary
 
  Item 7A.
    Quantitative and
    Qualitative Disclosures About Market Risk    EQUITY PRICE RISK
       37




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Coca-Cola
    December 31, 2008


December 31, 2007Increase


Decrease


Increase


DecreaseMarket value of marketable equity securities As recorded

$
1,868,293


$
1,868,293


$
1,919,425


$
1,919,425Hypothetical


2,802,440



934,147



2,879,137



959,712Shareholders equity As recorded


2,377,756



2,377,756



2,534,859



2,534,859Hypothetical


2,984,951



1,770,561



3,158,672



1,911,046       INTEREST RATE RISK
      FOREIGN CURRENCY RISK
  Coca-Cola
 38




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##### Table of Contents



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


42-43Consolidated balance sheet  December 31, 2008
    and 2007


44Consolidated statement of income  years ended
    December 31, 2008, 2007 and 2006


45Consolidated statement of cash flows  years ended
    December 31, 2008, 2007 and 2006


46Consolidated statement of changes in shareholders equity
    and comprehensive income  years ended
    December 31, 2008, 2007 and 2006


47Notes to consolidated financial statements


48-60     Financial Statement Schedule

Schedule Number


Page Number(s)Condensed financial information of Wesco December 31, 2008 and 2007, and years ended
    December 31, 2008, 2007 and 2006


I



61-62  
  Item 9.
    Changes in and
    Disagreements with Accountants on Accounting and Financial
    Disclosure   39




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Item 9A.
    Controls and
    Procedures     
  MANAGEMENTS
    REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
  Rule 13A-5(f) Rule 13a-15(c) Internal
    Control  Integrated Framework
        
  Item 9B.
    Other
    Information   
  PART III
 
  Item 10.
    Directors,
    Executive Officers and Corporate Governance   40




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##### Table of Contents



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
  3a 
    Articles of incorporation of Wesco (filed as exhibit 3a to
    Wescos
    Form 10-K
    for the year ended December 31, 1999) and Bylaws of
    Wesco (filed as exhibit 3.2 to Wescos
    Form 8-K
    dated December 5, 2007  Commission File
    No. 1-4720)                 41




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##### Table of Contents



SIGNATURES
     By:

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

February 25, 2009By:

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

February 25, 2009    /s/ Carolyn H. CarlburgCarolyn H. Carlburg
    Director

February 25, 2009/s/ Robert E. DenhamRobert E. Denham
    Director

February 25, 2009/s/ Robert T. FlahertyRobert T. Flaherty
    Director

February 25, 2009/s/ Peter D. KaufmanPeter D. Kaufman
    Director

February 25, 2009/s/ Charles T. MungerCharles T. Munger
    Director

February 25, 2009/s/ Elizabeth Caspers
    PetersElizabeth Caspers Peters
    Director

February 25, 2009   REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
      Internal Control  Integrated Framework
 42




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Internal Control  Integrated Framework
  
    43




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WESCO FINANCIAL
    CORPORATION
    CONSOLIDATED BALANCE SHEET(Dollar amounts in
    thousands)
  December 31,2008


2007ASSETSCash and cash equivalents

$
297,643


$
526,722Investments:Securities with fixed maturities


28,656



38,600Marketable equity securities


1,868,293



1,919,425Accounts receivable


57,489



42,841Receivable from affiliates


133,396



36,671Rental Furniture


217,597



178,297Goodwill of acquired businesses


277,742



266,607Other assets


169,879



103,846$
3,050,695


$
3,113,009LIABILITIES AND SHAREHOLDERS EQUITYInsurance losses and loss adjustment expenses Affiliated business

$
164,424


$
39,687Unaffiliated business


50,844



54,158Unearned insurance premiums Affiliated business


94,544



15,041Unaffiliated business


13,251



15,225Deferred furniture rental income and security deposits


17,674



19,947Accounts payable and accrued expenses


61,145



49,476Notes payable


40,400



37,200Income taxes payable, principally deferred


230,657



347,416672,939



578,150Shareholders 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


152,763



381,017Retained earnings


2,191,669



2,120,518Total shareholders equity


2,377,756



2,534,859$
3,050,695


$
3,113,009   See notes to consolidated financial statements.
 44




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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 31,2008


2007


2006Revenues:Furniture rentals

$
340,162


$
327,671


$
324,300Sales and service revenues


130,753



129,861



139,058Insurance premiums earned Affiliated business


218,094



35,530



32,643Unaffiliated business


19,870



18,881



21,506Dividend and interest income


79,079



90,872



84,504Realized investment gains


7,006



24,240



Other


3,990



3,869



3,716798,954



630,924



605,727Costs and expenses:Cost of products and services sold


149,319



143,282



154,218Insurance losses and loss adjustment expenses Affiliated business


151,308



24,008



21,401Unaffiliated business


20,892



4,269



9,944Insurance underwriting expenses Affiliated business


63,156



8,019



7,566Unaffiliated business


7,135



7,284



7,294Selling, general and administrative expenses


300,231



280,728



265,327Interest expense


1,798



2,408



2,711693,839



469,998



468,461Income before income taxes


105,115



160,926



137,266Income taxes


22,999



51,765



45,233Net income

$
82,116


$
109,161


$
92,033Amounts per capital share based on 7,119,807 shares
    outstanding throughout each year:Net income

$
11.53


$
15.33


$
12.93Cash dividends


1.54



1.50



1.46   See notes to consolidated financial statements.
 45




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##### Table of Contents



WESCO FINANCIAL
    CORPORATION
    CONSOLIDATED STATEMENT OF CASH FLOWS(Dollar amounts in
    thousands)
  Year Ended December 31,2008


2007


2006Cash flows from operating activities:Net income

$
82,116


$
109,161


$
92,033Adjustments to reconcile net income with net cash flows from
    operating activities Gross profit on sale of rental furniture


(22,447
)


(22,678
)


(25,468
)Investment gains


(7,006
)


(24,240
)


Depreciation and amortization


49,574



41,515



41,732Change in liabilities for insurance losses and loss adjustment
    expenses Affiliated business


124,737



9,926



10,064Unaffiliated business


(3,314
)


5,609



6,266Change in unearned insurance premiums Affiliated business


79,503



979



1,761Unaffiliated business


(1,974
)


(73
)


(794
)Change in receivable from affiliates


(96,725
)


(13,489
)


(8,398
)Change in income taxes payable


4,953



(27,075
)


17,014Other, net


(16,767
)


2,724



(1,743
)Net cash flows from operating activities


192,650



82,359



132,467Cash flows from investing activities:Purchases of securities with fixed maturities






(29,106
)


(42,804
)Purchases of equity securities


(349,071
)


(826,826
)


(18,856
)Purchases of rental furniture


(74,572
)


(73,809
)


(80,151
)Proceeds from redemptions and maturities of securities with
    fixed maturities


7,402



74,195



34,465Proceeds from sales of rental furniture


61,800



61,704



70,189Proceeds from sales of equity securities


60,203



25,126



Additions to condominium construction in process


(28,510
)


(26,059
)


(14,905
)Acquisitions of businesses, net of cash acquired


(81,428
)






Other, net


(8,863
)


(6,534
)


(2,672
)Net cash flows from investing activities


(413,039
)


(801,309
)


(54,734
)Cash flows from financing activities:Borrowings (repayments), net, under revolving credit facility


3,200



(1,000
)


(4,100
)Payment of cash dividends


(10,965
)


(10,679
)


(10,395
)Net cash flows from financing activities


(7,765
)


(11,679
)


(14,495
)Effect of foreign currency exchange rate changes


(925
)






Increase (decrease) in cash and cash equivalents


(229,079
)


(730,629
)


63,238Cash and cash equivalents  beginning of year


526,722



1,257,351



1,194,113Cash and cash equivalents  end of year

$
297,643


$
526,722


$
1,257,351Supplementary disclosuresInterest paid during year

$
1,744


$
2,309


$
2,589Income taxes paid, net, during year


17,960



79,011



28,484   See notes to consolidated financial statements.
 46




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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 31,2008


2007


2006Capital 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

$
2,120,518


$
2,022,036


$
1,940,398Net income


82,116



109,161



92,033Cash dividends declared and paid


(10,965
)


(10,679
)


(10,395
)Balance at end of year

$
2,191,669


$
2,120,518


$
2,022,036Accumulated other comprehensive income:Unrealized appreciation (depreciation) of investments, net

$
(348,283
)

$
55,132


$
136,038Applicable income taxes


121,926



(19,093
)


(47,770
)Foreign currency translation adjustments


(2,687
)






Applicable income taxes


790







Other comprehensive income (loss)


(228,254
)


36,039



88,268Accumulated other comprehensive income at beginning of year


381,017



344,978



256,710Accumulated other comprehensive income at end of year

$
152,763


$
381,017


$
344,978Comprehensive income (loss):Net income

$
82,116


$
109,161


$
92,033Other comprehensive income (loss)


(228,254
)


36,039



88,268Total comprehensive income (loss)

$
(146,138
)

$
145,200


$
180,301   See notes to consolidated financial statements.
 47




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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
          Use of estimates
    in preparation of financial statements
   48




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##### Table of Contents



Cash
    equivalents
    Investments
      Accounts
    receivable
    Rental
    furniture
    Goodwill of
    acquired businesses
    Dollar amounts in thousands
    except for amounts per share
 49




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##### Table of Contents



Inventories
  last-in, first-in,
  Capitalized
    construction costs
    Revenue
    recognition
          Losses and loss
    adjustment expenses
    Dollar amounts in thousands
    except for amounts per share
 50




---



##### Table of Contents



Income
    taxes
          Dollar amounts in thousands
    except for amounts per share
 51




---



##### Table of Contents



Foreign
    currency
    Accounting
    pronouncements adopted in 2008 and 2007
  Accounting for Uncertainty in Income
    Taxes  an interpretation of FASB Statement
    No. 109
              Accounting
    pronouncements not yet in effect
    Dollar amounts in thousands
    except for amounts per share
 52




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##### Table of Contents



Note 2.
    Investments    December 31, 2008


December 31, 2007Estimated Fair





Estimated FairAmortized Cost


(Carrying) Value


Amortized Cost


(Carrying) ValueMortgage-backed securities

$
21,894


$
22,886


$
33,564


$
34,573Other, principally U.S. government obligations


5,606



5,770



3,914



4,027$
27,500


$
28,656


$
37,478


$
38,600       Estimated FairAmortized Cost


(Carrying) ValueDue in 2009

$
5,606


$
5,770Mortgage-backed securities


21,894



22,886$
27,500


$
28,656     December 31, 2008


December 31, 2007Fair (Carrying)





Fair (Carrying)Cost


Value


Cost


ValueThe Procter & Gamble Company

$
372,480


$
385,757


$
424,367


$
525,283The
    Coca-Cola
    Company


40,761



326,198



40,761



442,208Wells Fargo & Company


382,779



372,722



382,779



381,698Kraft Foods Incorporated


325,816



268,500



325,816



326,300US Bancorp


266,940



250,100



122,868



121,158Other


243,661



265,016



38,660



122,778$
1,632,437


$
1,868,293


$
1,335,251


$
1,919,425           Dollar amounts in thousands
    except for amounts per share
 53




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##### Table of Contents



Note 3.
    Accounts
    Receivable    December 31,


December 31,2008


2007Trade accounts receivable

$
59,875


$
44,771Allowance for uncollectible accounts


(2,386
)


(1,930
)$
57,489


$
42,841   Note 4.
    Rental
    Furniture    December 31,


December 31,2008


2007Cost of rental furniture

$
323,117


$
277,672Less accumulated depreciation


(105,520
)


(99,375
)$
217,597


$
178,297   Note 5.
    Goodwill    December 31,


December 31,2008


2007Balance at beginning of year

$
266,607


$
266,607Acquisitions of businesses and other


11,135



$
277,742


$
266,607       Note 6.
    Insurance Losses
    and Loss Adjustment Expenses Payable    Dollar amounts in thousands
    except for amounts per share
 54




---



##### Table of Contents



2008


2007


2006Gross liabilities at beginning of year

$
93,845


$
78,310


$
61,980Less ceded liabilities*


(23,502
)


(11,628
)


(6,142
)Net balance at beginning of year


70,343



66,682



55,838Incurred losses recorded during year For current year


175,962



35,392



30,923For all prior years


(3,762
)


(7,115
)


422Total incurred losses


172,200



28,277



31,345Payments made during year For current year


19,433



9,255



7,925For all prior years


25,756



15,362



12,576Total payments


45,189



24,617



20,501Net liabilities at end of year


197,354



70,343



66,682Plus ceded liabilities*


17,914



23,502



11,628Gross liabilities at end of year

$
215,268


$
93,845


$
78,310     *
    
    Principally represents Wes-FICs proportionate share of
    reinsurance purchased by the aviation pools.  2002-2007,
  Note 7.
    Notes Payable and
    Other Contractual Obligations    December 31,2008


2007Revolving credit facility

$
40,200


$
37,000Other


200



200$
40,400


$
37,200     Dollar amounts in thousands
    except for amounts per share
 55




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##### Table of Contents



Note 8.
    Fair Value
    Measurements    Total Fair


Fair Value Measurements UsingValue


(Level 1)


(Level 2)


(Level 3)Investments in fixed maturity securities

$
28,656


$



$
28,656


$
Investments in equity securities


1,868,293



1,658,783







209,510     Investments inequity securitiesBalance at December 31, 2007

$
Unrealized gains included in other comprehensive income


4,510Purchases


205,000Balance at December 31, 2008

$
209,510   Note 9.
    Income
    Taxes    December 31,2008


2007Deferred tax liabilities, relating to Appreciation of investments

$
83,985


$
205,911Cost basis differences in investments


116,368



116,368Other items


60,277



43,150260,630



365,429Deferred tax assets


(31,061
)


(21,483
)Net deferred tax liabilities


229,569



343,946Taxes currently payable


1,088



3,470Income taxes payable

$
230,657


$
347,416   Dollar amounts in thousands
    except for amounts per share
 56




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##### Table of Contents



2008


2007


2006Federal

$
24,958


$
50,165


$
43,251State


(957
)


1,600



1,982Foreign


(1,002
)






Provision for income taxes

$
22,999


$
51,765


$
45,233Current

$
15,987


$
50,272


$
46,871Deferred


7,012



1,493



(1,638
)Provision for income taxes

$
22,999


$
51,765


$
45,233     2008


2007


2006Statutory Federal income tax rate


35.0
%


35.0
%


35.0
%Increase (decrease) resulting from Dividends received deduction


(14.6
)


(4.2
)


(1.1
)State income taxes, less Federal tax benefit


(0.3
)


(0.1
)


(0.2
)Other differences, net


1.8



1.5



(0.7
)Effective income tax provision rate


21.9
%


32.2
%


33.0
%     Note 10.
    Environmental
    Matters and Litigation          Dollar amounts in thousands
    except for amounts per share
 57




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##### Table of Contents



Note 11.
    Quarterly
    Financial Information    Quarter EndedMarch 31,


June 30,


September 30,


December 31,


Total For Year2008Revenues

$
160,196


$
211,342


$
207,001


$
220,415


$
798,954Net income

$
20,717


$
21,573


$
16,164


$
23,662


$
82,116Per capital share


2.91



3.03



2.27



3.32



11.532007Revenues

$
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



15.33Realized investment gains 2008Before taxes (included in revenues)

$



$



$



$
7,006


$
7,006After taxes (included in net income)














4,554



4,5542007Before taxes (included in revenues)

$



$



$



$
24,240


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














15,756



15,756   Note 12.
    Business Segment
    Data        Dollar amounts in thousands
    except for amounts per share
 58




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##### Table of Contents



Dollar amounts in thousands
    except for amounts per share
 59




---



##### Table of Contents



2008


2007


2006Insurance segment:Premiums earned

$
237,964


$
54,411


$
54,149Dividend and interest income


77,914



89,716



83,441Income taxes


12,055



28,300



27,693Net income


61,332



72,247



63,692Depreciation and amortization other than of discounts and
    premiums of investments


36



45



36Advertising expense


138



181



153Capital expenditures


4



32



51Assets at yearend


2,336,463



2,497,794



2,375,564Furniture rental segment:Revenues

$
410,043


$
396,170


$
400,305Income taxes


7,006



13,570



16,448Net income


15,744



20,316



26,884Depreciation and amortization other than of discounts and
    premiums of investments


43,195



39,891



40,923Advertising expense


16,762



18,002



15,392Interest expense


1,798



2,408



2,711Capital expenditures


7,197



3,971



1,988Assets at yearend


310,412



245,817



247,484Industrial segment:Sales, service and other revenues

$
60,872


$
61,361


$
63,053Income taxes


759



603



707Net income


842



915



1,211Depreciation and amortization


409



433



448Advertising expense


202



258



195Capital expenditures


456



357



583Assets at yearend


16,734



19,263



17,100Goodwill of acquired businesses (included in assets)

$
277,742


$
266,607


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

$
7,006


$
24,240


$
After taxes (included in net income)


4,554



15,756



Other items unrelated to business segments:Dividend and interest income

$
1,165


$
1,156


$
1,063Other revenues


3,990



3,870



3,716Income taxes


726



808



385Net income (loss)


(356
)


(73
)


246Depreciation and amortization


351



388



291Capital expenditures


95



419



83Assets at yearend


109,344



83,528



63,550Consolidated revenues (total of those set forth above)

$
798,954


$
630,924


$
605,727Consolidated assets (total of those set forth above)

$
3,050,695


$
3,113,009


$
2,970,305   Dollar amounts in thousands
    except for amounts per share
 60




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##### Table of Contents



WESCO FINANCIAL
    CORPORATION
  SCHEDULE I 
    CONDENSED FINANCIAL
  INFORMATION OF
    REGISTRANT
  BALANCE
    SHEET
 (Dollar
    amounts in thousands)
  December 31,2008


2007Assets:Cash and cash equivalents

$
33


$
17Investment in subsidiaries, at cost plus equity in
    subsidiaries undistributed earnings and unrealized
    appreciation


2,563,311



2,705,316$
2,563,344


$
2,705,333Liabilities and shareholders equity:Advances from subsidiaries

$
185,204


$
169,873Income taxes payable


62



479Other liabilities


322



122Total liabilities


185,588



170,474Shareholders equity (see consolidated balance sheet and
    statement of changes in shareholders equity)


2,377,756



2,534,859$
2,563,344


$
2,705,333   STATEMENT OF
    INCOME
    (Dollar amounts in thousands)
  Year Ended December 31,2008


2007


2006Revenues

$



$



$
Expenses:Intercompany interest


5,083



7,251



6,006General and administrative


1,277



1,059



9506,360



8,310



6,956Loss before items shown below


(6,360
)


(8,310
)


(6,956
)Income taxes


(2,225
)


(2,908
)


(2,434
)Equity in undistributed earnings of subsidiaries


86,251



114,563



96,555Net income

$
82,116


$
109,161


$
92,033   See notes to consolidated financial statements.
 61




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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 31,2008


2007


2006Cash flows from operating activities:Net income

$
82,116


$
109,161


$
92,033Adjustments to reconcile net income with cash flows from
    operating activities Change in income taxes payable currently


(417
)


1,026



(6
)Equity in undistributed earnings of subsidiaries


(86,251
)


(114,563
)


(96,555
)Other, net


202



1



80Net cash flows from operating activities


(4,350
)


(4,375
)


(4,448
)Cash flows from financing activities:Advances from subsidiaries, net


15,331



15,052



14,834Payment of cash dividends


(10,965
)


(10,679
)


(10,395
)Net cash flows from financing activities


4,366



4,373



4,439Increase (decrease) in cash and cash equivalents


16



(2
)


(9
)Cash and cash equivalents  beginning of year


17



19



28Cash and cash equivalents  end of year

$
33


$
17


$
19   See notes to consolidated financial statements.
 62