##### Table of Contents







Form 10-K




|  |                                                                                         
|- | ----------------------------------------------------------------------------------------
|þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934





|  |                                                                                             
|- | --------------------------------------------------------------------------------------------
|o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934





WESCO FINANCIAL CORPORATION




|                                                                   |  |                                     
|------------------------------------------------------------------ |  | ------------------------------------
|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)                          







|                            |  |                                          
|--------------------------- |  | -----------------------------------------
|Title of Each Class         |  | Name of Each Exchange on Which Registered
|                           
|Capital Stock, $1 par value |  | American Stock Exchange                  















o þ


o þ


þ o


S-K 10-K 10-K. þ


12b-2


o þ o


12b-2 o þ








|                                                            |  |                                      
|----------------------------------------------------------- |  | -------------------------------------
|Title of Document                                           |  | Parts of Form 10-K                   
|Proxy Statement for 2007
    Annual Meeting of Shareholders |  | Part III. Items 10, 11, 12, 13 and 14

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PART I




|        |         
|------- | --------
|ITEM 1. | Business







| |   |                                                                                                                                                                                                                                                                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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.                                                                                                                                                                                                    











excess-of


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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | A quota-share agreement entered into in 1985 whereby Wes-FIC
    effectively reinsured  through the Berkshire
    Insurance Group, as intermediary-without-profit  2%
    of essentially all insurance business of a major property and
    casualty insurer written during a four-year coverage period that
    expired in 1989. Wes-FIC remains liable for its share of
    remaining unpaid losses and loss adjustment expenses.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | 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 2003 and 2004, to the extent of 10% in
    the hull and liability pools; for 2005, 10% of the hull and
    liability pools and 5% of the workers compensation pool;
    and, for 2006, 12.5% of the hull and liability pools and 5% of
    the workers compensation pool. For 2007, the participation
    in the hull and liability pools has increased to 16.67%. 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 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.



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rent-to rent-to


rent-to rent-to Rent-to rent-to month-to rent-to month-to






| |   |                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------
| |  | 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.                                                                                   





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rent-to rent-to rent-to












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off-the














10-K, 10-Q 8-K,


Item 1A.     Risk Factors




An investment in Wesco is not an investment in Berkshire
Hathaway.




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Wesco is dependent for its investment and all other
capital allocation decisions on a few key people.




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.




Wescos tolerance for risk in its insurance
businesses may result in a high degree of volatility in periodic
reported earnings.




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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




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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,










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|        |                  
|------- | -----------------
|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





|              |  |             |     |  |           |   |             |      |  |   |           |  |  |     |     |  |      |   |     |  |  |   |       | 
|------------- |  | ----------- | --- |  | --------- | - | ----------- | ---- |  | - | --------- |  |  | --- | --- |  | ---- | - | --- |  |  | - | ----- | 
|              |  | 2006        |     |  | 2005      |  
|              |  |             |     |  |           |  
|              |  | Sales Price |     |  |           |   | Sales Price |      |  |  
|              |  |             |     |  | Dividends |   |             |      |  |   | Dividends | 
|Quarter Ended |  | High        |     |  | Low       |   |             | Paid |  |   | High      |  |  | Low |     |  | Paid |  
|              |  |             |     |  |           |   |             |      |  |   |           |  |  |     |     |  |      |  
|March 31      |  | $           | 411 |  |           | $ | 377         |      |  | $ | 0.365     |  |  | $   | 405 |  |      | $ | 369 |  |  | $ | 0.355 | 
|June 30       |  |             | 408 |  |           |   | 361         |      |  |   | 0.365     |  |  |     | 388 |  |      |   | 341 |  |  |   | 0.355 | 
|September 30  |  |             | 437 |  |           |   | 367         |      |  |   | 0.365     |  |  |     | 360 |  |      |   | 330 |  |  |   | 0.355 | 
|December 31   |  |             | 505 |  |           |   | 429         |      |  |   | 0.365     |  |  |     | 395 |  |      |   | 339 |  |  |   | 0.355 | 
|              |  |             |     |  |           |   |             |      |  |   |           |  |  |     |     |  |      |  
|              |  |             |     |  |           |   |             |      |  | $ | 1.460     |  |  |     |     |  |      |   |     |  |  | $ | 1.420 | 
|              |  |             |     |  |           |   |             |      |  |   |           |  |  |     |     |  |      |  





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|        |                        
|------- | -----------------------
|Item 6. | Selected Financial Data



|                      |                                                                         |                              |                            |                   |           |           |        |           |         |           |        |           |         |           |        |           |         |           |        |           |         |           |        | 
|--------------------- | ----------------------------------------------------------------------- | ---------------------------- | -------------------------- | ----------------- | --------- | --------- | ------ | --------- | ------- | --------- | ------ | --------- | ------- | --------- | ------ | --------- | ------- | --------- | ------ | --------- | ------- | --------- | ------ | 
|                      |                                                                         | December 31,                 |                           
|                      |                                                                         |                              |                           
|                      |                                                                         | 2006                         |                            |                   | 2005      |           |        | 2004      |         |           | 2003   |           |         | 2002      |       
|                      |                                                                         |                              |                            |                   |           |           |        |           |         |           |        |           |         |           |       
|Assets:               |                                                                         |                              |                            |                   |           |           |        |           |         |           |        |           |         |           |        |           |         |           |        |          
|                      | Cash and cash equivalents                                               |                              | $                          | 1,257,351         |           |           | $      | 1,194,113 |         |           | $      | 1,161,163 |         |           | $      | 1,052,462 |         |           | $      | 349,812   |        
|                      | Investments 
    Securities with fixed maturities                      |                              |                            | 81,861            |           |           |        | 74,441    |         |           |        | 94,299    |         |           |        | 167,390   |         |           |        | 827,537   |        
|                      |                                                                         | Marketable equity securities |                            |                   | 1,040,550 |           |        |           | 884,673 |           |        |           | 759,658 |           |        |           | 754,634 |           |        |           | 626,768 |          
|                      | Accounts receivable                                                     |                              |                            | 60,386            |           |           |        | 53,987    |         |           |        | 46,007    |         |           |        | 60,168    |         |           |        | 67,425    |        
|                      | Rental furniture                                                        |                              |                            | 182,846           |           |           |        | 187,572   |         |           |        | 171,983   |         |           |        | 163,699   |         |           |        | 187,480   |        
|                      | Goodwill of acquired businesses                                         |                              |                            | 266,607           |           |           |        | 266,607   |         |           |        | 266,607   |         |           |        | 266,607   |         |           |        | 266,203   |        
|                      | Other assets                                                            |                              |                            | 80,704            |           |           |        | 67,118    |         |           |        | 71,818    |         |           |        | 73,435    |         |           |        | 81,750    |        
|                      |                                                                         |                              |                            |                   |           |           |        |           |         |           |        |           |         |           |       
|                      |                                                                         |                              | Total assets               |                   | $         | 2,970,305 |        |           | $       | 2,728,511 |        |           | $       | 2,571,535 |        |           | $       | 2,538,395 |        |           | $       | 2,406,975 |       
|                      |                                                                         |                              |                            |                   |           |           |        |           |         |           |        |           |         |           |       
|Liabilities:          |                                                                         |                              |                            |                   |           |           |        |           |         |           |        |           |         |           |        |           |         |           |        |          
|                      | Insurance losses and loss adjustment expenses 
    Affiliated business |                              | $                          | 29,761            |           |           | $      | 19,697    |         |           | $      | 14,910    |         |           | $      | 67,416    |         |           | $      | 50,299    |        
|                      |                                                                         | Unaffiliated business        |                            |                   | 48,549    |           |        |           | 42,283  |           |        |           | 41,252  |           |        |           | 35,110  |           |        |           | 22,766  |          
|                      | Unearned insurance premiums 
    Affiliated business                   |                              |                            | 14,062            |           |           |        | 12,301    |         |           |        | 14,118    |         |           |        | 8,646     |         |           |        | 23,115    |        
|                      |                                                                         | Unaffiliated business        |                            |                   | 15,298    |           |        |           | 16,092  |           |        |           | 11,223  |           |        |           | 20,347  |           |        |           | 25,566  |          
|                      | Deferred furniture rental income and security deposits                  |                              |                            | 20,440            |           |           |        | 22,204    |         |           |        | 20,358    |         |           |        | 19,835    |         |           |        | 21,562    |        
|                      | Accounts payable and accrued expenses                                   |                              |                            | 48,258            |           |           |        | 52,587    |         |           |        | 51,501    |         |           |        | 48,931    |         |           |        | 45,122    |        
|                      | Notes payable                                                           |                              |                            | 38,200            |           |           |        | 42,300    |         |           |        | 29,225    |         |           |        | 12,679    |         |           |        | 32,481    |        
|                      | Income taxes payable, principally deferred                              |                              |                            | 355,399           |           |           |        | 290,615   |         |           |        | 272,005   |         |           |        | 247,241   |         |           |        | 227,902   |        
|                      |                                                                         |                              |                            |                   |           |           |        |           |         |           |        |           |         |           |       
|                      |                                                                         |                              | Total liabilities          |                   | $         | 569,967   |        |           | $       | 498,079   |        |           | $       | 454,592   |        |           | $       | 460,205   |        |           | $       | 448,813   |       
|                      |                                                                         |                              |                            |                   |           |           |        |           |         |           |        |           |         |           |       
|Shareholders equity: |                                                                         |                              |                            |                   |           |           |        |           |         |           |        |           |         |           |        |           |         |           |        |          
|                      | Capital stock and additional paid-in capital                            |                              | $                          | 33,324            |           |           | $      | 33,324    |         |           | $      | 33,324    |         |           | $      | 33,324    |         |           | $      | 30,439    |        
|                      | Unrealized appreciation of investments, net of taxes                    |                              |                            | 344,978           |           |           |        | 256,710   |         |           |        | 427,690   |         |           |        | 426,542   |         |           |        | 374,571   |        
|                      | Retained earnings                                                       |                              |                            | 2,022,036         |           |           |        | 1,940,398 |         |           |        | 1,655,929 |         |           |        | 1,618,324 |         |           |        | 1,553,152 |        
|                      |                                                                         |                              |                            |                   |           |           |        |           |         |           |        |           |         |           |       
|                      |                                                                         |                              | Total shareholders equity |                   | $         | 2,400,338 |        |           | $       | 2,230,432 |        |           | $       | 2,116,943 |        |           | $       | 2,078,190 |        |           | $       | 1,958,162 |       
|                      |                                                                         |                              |                            |                   |           |           |        |           |         |           |        |           |         |           |       
|                      |                                                                         |                              |                            | Per capital share |           | $         | 337.14 |           |         | $         | 313.27 |           |         | $         | 297.33 |           |         | $         | 291.89 |           |         | $         | 275.03 | 
|                      |                                                                         |                              |                            |                   |           |           |        |           |         |           |        |           |         |           |       

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|                                                 |                                                       |                         |         |         |        |   |         |         |        |   |         |         |        |      |         |         |        |   |         |         |        | 
|------------------------------------------------ | ----------------------------------------------------- | ----------------------- | ------- | ------- | ------ | - | ------- | ------- | ------ | - | ------- | ------- | ------ | ---- | ------- | ------- | ------ | - | ------- | ------- | ------ | 
|                                                 |                                                       | Year Ended December 31, |        
|                                                 |                                                       |                         |        
|                                                 |                                                       | 2006                    |         |         | 2005   |   |         | 2004    |        |   | 2003    |         |        | 2002 |        
|                                                 |                                                       |                         |         |         |        |   |         |         |        |   |         |         |        |      |        
|Revenues:                                        |                                                       |                         |         |         |        |   |         |         |        |   |         |         |        |      |         |         |        |   |         |        
|                                                 | Furniture rentals                                     |                         | $       | 324,300 |        |   | $       | 303,485 |        |   | $       | 275,378 |        |      | $       | 275,949 |        |   | $       | 309,341 |       
|                                                 | Sales and service revenues                            |                         |         | 139,058 |        |   |         | 141,749 |        |   |         | 139,130 |        |      |         | 130,301 |        |   |         | 127,758 |       
|                                                 | Insurance premiums earned                            |                         |         |         |        |   |         |         |        |   |         |         |        |      |         |         |        |   |         |         |       
|                                                 |                                                       | Affiliated business     |         |         | 32,643 |   |         |         | 32,450 |   |         |         | 19,371 |      |         |         | 47,818 |   |         |         | 23,768 | 
|                                                 |                                                       | Unaffiliated business   |         |         | 21,506 |   |         |         | 17,032 |   |         |         | 35,218 |      |         |         | 58,833 |   |         |         | 40,859 | 
|                                                 | Dividend and interest income                          |                         |         | 84,504  |        |   |         | 56,792  |        |   |         | 36,844  |        |      |         | 44,763  |        |   |         | 70,652  |       
|                                                 | Realized net investment gains                         |                         |         |        |        |   |         | 333,241 |        |   |         |        |        |      |         | 53,466  |        |   |         |        |       
|                                                 | Other                                                 |                         |         | 3,716   |        |   |         | 3,541   |        |   |         | 3,372   |        |      |         | 3,187   |        |   |         | 3,299   |       
|                                                 |                                                       |                         |         |         |        |   |         |         |        |   |         |         |        |      |        
|                                                 |                                                       |                         | 605,727 |         |        |   | 888,290 |         |        |   | 509,313 |         |        |      | 614,317 |         |        |   | 575,677 |        
|                                                 |                                                       |                         |         |         |        |   |         |         |        |   |         |         |        |      |        
|Costs and expenses:                              |                                                       |                         |         |         |        |   |         |         |        |   |         |         |        |      |         |         |        |   |         |        
|                                                 | Cost of products and services sold                    |                         |         | 154,218 |        |   |         | 153,402 |        |   |         | 146,783 |        |      |         | 144,725 |        |   |         | 145,677 |       
|                                                 | Insurance losses and loss adjustment expenses        |                         |         |         |        |   |         |         |        |   |         |         |        |      |         |         |        |   |         |         |       
|                                                 |                                                       | Affiliated business     |         |         | 21,401 |   |         |         | 11,990 |   |         |         | (2,251 | )    |         |         | 34,599 |   |         |         | 17,666 | 
|                                                 |                                                       | Unaffiliated business   |         |         | 9,944  |   |         |         | 9,482  |   |         |         | 22,209 |      |         |         | 27,703 |   |         |         | 21,157 | 
|                                                 | Insurance underwriting expenses  Affiliated business |                         |         | 7,566   |        |   |         | 6,611   |        |   |         | 6,646   |        |      |         | 9,490   |        |   |         | 8,703   |       
|                                                 |                                                       | Unaffiliated business   |         |         | 7,294  |   |         |         | 6,832  |   |         |         | 5,458  |      |         |         | 10,705 |   |         |         | 11,210 | 
|                                                 | Selling, general and administrative                   |                         |         | 265,327 |        |   |         | 262,594 |        |   |         | 261,434 |        |      |         | 278,090 |        |   |         | 288,353 |       
|                                                 | Interest expense                                      |                         |         | 2,711   |        |   |         | 1,575   |        |   |         | 799     |        |      |         | 749     |        |   |         | 1,994   |       
|                                                 |                                                       |                         |         |         |        |   |         |         |        |   |         |         |        |      |        
|                                                 |                                                       |                         | 468,461 |         |        |   | 452,486 |         |        |   | 441,078 |         |        |      | 506,061 |         |        |   | 494,760 |        
|                                                 |                                                       |                         |         |         |        |   |         |         |        |   |         |         |        |      |        
|Income before income taxes and minority interest |                                                       |                         | 137,266 |         |        |   | 435,804 |         |        |   | 68,235  |         |        |      | 108,256 |         |        |   | 80,917  |        
|Income taxes                                     |                                                       |                         | 45,233  |         |        |   | 141,225 |         |        |   | 20,808  |         |        |      | 34,852  |         |        |   | 28,199  |        
|Minority interest in net loss of subsidiary      |                                                       |                         |        |         |        |   |        |         |        |   |        |         |        |      | (1,307  | )       |        |   |        |        
|                                                 |                                                       |                         |         |         |        |   |         |         |        |   |         |         |        |      |        
|Net income                                       |                                                       | $                       | 92,033  |         |        | $ | 294,579 |         |        | $ | 47,427  |         |        | $    | 74,711  |         |        | $ | 52,718  |        
|                                                 |                                                       |                         |         |         |        |   |         |         |        |   |         |         |        |      |        
|Amounts per capital share:                       |                                                       |                         |         |         |        |   |         |         |        |   |         |         |        |      |         |         |        |   |         |        
|                                                 |                                                       | Net income              |         | $       | 12.93  |   |         | $       | 41.37  |   |         | $       | 6.66   |      |         | $       | 10.49  |   |         | $       | 7.40   | 
|                                                 |                                                       | Cash dividends          |         |         | 1.46   |   |         |         | 1.42   |   |         |         | 1.38   |      |         |         | 1.34   |   |         |         | 1.30   | 
|                                                 |                                                       |                         |         |         |        |   |         |         |        |   |         |         |        |      |        






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|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis of Financial
    Condition and Results of Operations







day-to




Financial Condition






Results of Operations




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all after income tax effect


|                                             |                   |                         |        |        |        |  |         |        |         |  |       |        |        | 
|-------------------------------------------- | ----------------- | ----------------------- | ------ | ------ | ------ |  | ------- | ------ | ------- |  | ----- | ------ | ------ | 
|                                             |                   | Year Ended December 31, |       
|                                             |                   |                         |       
|                                             |                   | 2006                    |        |        | 2005   |  |         | 2004   |        
|                                             |                   |                         |        |        |        |  |         |        |        
|Insurance segment:                           |                   |                         |        |        |        |  |         |        |         |  |       |       
|                                             | Underwriting      |                         | $      | 5,164  |        |  | $       | 11,798 |         |  | $     | 14,618 |       
|                                             | Investment income |                         |        | 58,528 |        |  |         | 39,068 |         |  |       | 26,302 |       
|Furniture rental segment                     |                   |                         | 26,884 |        |        |  | 20,676  |        |         |  | 5,022 |       
|Industrial segment                           |                   |                         | 1,211  |        |        |  | 1,198   |        |         |  | 1,094 |       
|Nonsegment items other than investment gains |                   |                         | 246    |        |        |  | 5,233   |        |         |  | 391   |       
|Realized investment gains                    |                   |                         |       |        |        |  | 216,606 |        |         |  |      |       
|                                             |                   |                         |        |        |        |  |         |        |        
|                                             |                   | Consolidated net income |        | $      | 92,033 |  |         | $      | 294,579 |  |       | $      | 47,427 | 
|                                             |                   |                         |        |        |        |  |         |        |        

after




| |                  
| | -----------------
| | Insurance Segment



|                                                                         |             |                         |        |        |        |   |        |        |        |   |        |        |        | 
|------------------------------------------------------------------------ | ----------- | ----------------------- | ------ | ------ | ------ | - | ------ | ------ | ------ | - | ------ | ------ | ------ | 
|                                                                         |             | Year Ended December 31, |       
|                                                                         |             |                         |       
|                                                                         |             | 2006                    |        |        | 2005   |   |        | 2004   |       
|                                                                         |             |                         |        |        |        |   |        |        |       
|Insurance premiums written                                              |             |                         |        |        |        |   |        |        |        |   |        |       
|                                                                         | Reinsurance |                         | $      | 35,710 |        |   | $      | 29,054 |        |   | $      | 24,313 |       
|                                                                         | Primary     |                         |        | 19,800 |        |   |        | 21,199 |        |   |        | 20,729 |       
|                                                                         |             |                         |        |        |        |   |        |        |       
|                                                                         |             | Total                   |        | $      | 55,510 |   |        | $      | 50,253 |   |        | $      | 45,042 | 
|                                                                         |             |                         |        |        |        |   |        |        |       
|Insurance premiums earned                                               |             |                         |        |        |        |   |        |        |        |   |        |       
|                                                                         | Reinsurance |                         | $      | 33,323 |        |   | $      | 28,338 |        |   | $      | 34,217 |       
|                                                                         | Primary     |                         |        | 20,826 |        |   |        | 21,144 |        |   |        | 20,372 |       
|                                                                         |             |                         |        |        |        |   |        |        |       
|                                                                         |             | Total                   |        |        | 54,149 |   |        |        | 49,482 |   |        |        | 54,589 | 
|Insurance losses, loss adjustment expenses and underwriting
    expenses |             |                         | 46,205 |        |        |   | 34,916 |        |        |   | 32,099 |       
|Underwriting gain, before income taxes                                  |             |                         |        |        |        |   |        |        |        |   |        |       
|                                                                         | Reinsurance |                         |        | 2,538  |        |   |        | 6,857  |        |   |        | 17,146 |       
|                                                                         | Primary     |                         |        | 5,406  |        |   |        | 7,709  |        |   |        | 5,344  |       
|                                                                         |             |                         |        |        |        |   |        |        |       
|                                                                         |             | Total                   |        |        | 7,944  |   |        |        | 14,566 |   |        |        | 22,490 | 
|Income taxes                                                             |             |                         | 2,780  |        |        |   | 2,768  |        |        |   | 7,872  |       
|                                                                         |             |                         |        |        |        |   |        |        |       
|Underwriting gain                                                        |             | $                       | 5,164  |        |        | $ | 11,798 |        |        | $ | 14,618 |       
|                                                                         |             |                         |        |        |        |   |        |        |       

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Reinsurance  Wes-FICs property
    and casualty loss reserves derive from individual risk,
    multi-line and catastrophe reinsurance policies. Reserve amounts
    are based upon loss estimates reported by ceding companies,
    whose reserving techniques vary. Wes-FIC necessarily relies in
    part on the judgment of ceding companies management, to
    which Wes-FIC management may add additional IBNR reserves, which
    are primarily a function of reported losses from ceding
    companies and anticipated loss ratios established on an
    individual contract basis based on Wes-FIC managements
    judgment as to the likely impact on each contract of major
    events as they become known or the history of loss reserving by
    the ceding companies. Ceding companies report minimal detail to
    their reinsurers, such as data about most individual claims,
    case and IBNR reserves, dismissals and settlements. Ranges of
    reserve amounts as a result of changes in underlying assumptions
    are not prepared.
|
| | Primary insurance  Property and
    casualty loss reserves from Wescos primary insurance
    activities derive from individual risk policies written by KBS.
    Reserve amounts are estimated by its management on a
    case-by-case basis, and estimates of IBNR reserves, which
    amounted to $7.1 million at yearend 2006, 2005 and 2004,
    are based on managements judgment of the impact of current
    trends and other factors. Because of the low volume of losses
    reported annually, KBS management is intimately familiar with
    each, negating the need for extended actuarial studies and broad
    estimates of the nature typically performed by large primary
    insurers whose business volume requires such procedures for the
    development of their loss data. A range of reserve amounts as a
    result of changes in underlying assumptions is not prepared.                                                                                                                                                          







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|                                |  |                         |        |  |      |   |        |      |  |   |        | 
|------------------------------- |  | ----------------------- | ------ |  | ---- | - | ------ | ---- |  | - | ------ | 
|                                |  | Year Ended December 31, |       
|                                |  |                         |       
|                                |  | 2006                    |        |  | 2005 |   |        | 2004 | 
|                                |  |                         |        |  |      |   |        |      | 
|Investment income, before taxes |  | $                       | 83,441 |  |      | $ | 55,889 |      |  | $ | 36,058 | 
|Income taxes                    |  |                         | 24,913 |  |      |   | 16,821 |      |  |   | 9,756  | 
|                                |  |                         |        |  |      |   |        |      | 
|Investment income, after taxes  |  | $                       | 58,528 |  |      | $ | 39,068 |      |  | $ | 26,302 | 
|                                |  |                         |        |  |      |   |        |      | 





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Furniture Rental Segment




|                                             |                   |                         |         |         |      |   |         |         |  |   |         |         | 
|-------------------------------------------- | ----------------- | ----------------------- | ------- | ------- | ---- | - | ------- | ------- |  | - | ------- | ------- | 
|                                             |                   | Year Ended December 31, |        
|                                             |                   |                         |        
|                                             |                   | 2006                    |         |         | 2005 |   |         | 2004    | 
|                                             |                   |                         |         |         |      |   |         |         | 
|Revenues:                                    |                   |                         |         |         |      |   |         |         |  |   |         |        
|                                             | Furniture rentals |                         | $       | 324,300 |      |   | $       | 303,485 |  |   | $       | 275,378 | 
|                                             | Furniture sales   |                         |         | 69,551  |      |   |         | 72,394  |  |   |         | 67,772  | 
|                                             | Service fees      |                         |         | 6,454   |      |   |         | 8,021   |  |   |         | 10,844  | 
|                                             |                   |                         |         |         |      |   |         |         | 
|                                             |                   |                         | 400,305 |         |      |   | 383,900 |         |  |   | 353,994 |        
|                                             |                   |                         |         |         |      |   |         |         | 
|Cost of rentals, sales and fees              |                   |                         | 101,605 |         |      |   | 102,032 |         |  |   | 96,266  |        
|Selling, general and administrative expenses |                   |                         | 252,657 |         |      |   | 250,542 |         |  |   | 249,319 |        
|Interest expense                             |                   |                         | 2,711   |         |      |   | 1,575   |         |  |   | 799     |        
|                                             |                   |                         |         |         |      |   |         |         | 
|                                             |                   |                         | 356,973 |         |      |   | 354,149 |         |  |   | 346,384 |        
|                                             |                   |                         |         |         |      |   |         |         | 
|Income before income taxes                   |                   |                         | 43,332  |         |      |   | 29,751  |         |  |   | 7,610   |        
|Income taxes                                 |                   |                         | 16,448  |         |      |   | 9,075   |         |  |   | 2,588   |        
|                                             |                   |                         |         |         |      |   |         |         | 
|Segment net income                           |                   | $                       | 26,884  |         |      | $ | 20,676  |         |  | $ | 5,022   |        
|                                             |                   |                         |         |         |      |   |         |         | 



year-to




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Industrial Segment




|                                         |  |                         |        |  |      |   |        |      |  |   |        | 
|---------------------------------------- |  | ----------------------- | ------ |  | ---- | - | ------ | ---- |  | - | ------ | 
|                                         |  | Year Ended December 31, |       
|                                         |  |                         |       
|                                         |  | 2006                    |        |  | 2005 |   |        | 2004 | 
|                                         |  |                         |        |  |      |   |        |      | 
|Revenues, principally sales and services |  | $                       | 63,053 |  |      | $ | 61,334 |      |  | $ | 60,514 | 
|                                         |  |                         |        |  |      |   |        |      | 
|Income before income taxes               |  | $                       | 1,918  |  |      | $ | 2,056  |      |  | $ | 1,758  | 
|Income taxes                             |  |                         | 707    |  |      |   | 858    |      |  |   | 664    | 
|                                         |  |                         |        |  |      |   |        |      | 
|Segment net income                       |  | $                       | 1,211  |  |      | $ | 1,198  |      |  | $ | 1,094  | 
|                                         |  |                         |        |  |      |   |        |      | 





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year-to




last-in,






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Unrelated to Business Segment Operations




|                                                                       |                                                     |                                             |       |        |      |   |         |         |       |   |       |        |     | 
|---------------------------------------------------------------------- | --------------------------------------------------- | ------------------------------------------- | ----- | ------ | ---- | - | ------- | ------- | ----- | - | ----- | ------ | --- | 
|                                                                       |                                                     | Year Ended December 31,                     |      
|                                                                       |                                                     |                                             |      
|                                                                       |                                                     | 2006                                        |       |        | 2005 |   |         | 2004    |      
|                                                                       |                                                     |                                             |       |        |      |   |         |         |      
|Realized investment gains, before income tax effect                    |                                                     | $                                           |      |        |      | $ | 333,241 |         |       | $ |      |       
|Income taxes                                                           |                                                     |                                             |      |        |      |   | 116,635 |         |       |   |      |       
|                                                                       |                                                     |                                             |       |        |      |   |         |         |      
|                                                                       | Realized investment gains                           |                                             | $     |       |      |   | $       | 216,606 |       |   | $     |       |    
|                                                                       |                                                     |                                             |       |        |      |   |         |         |      
|Other nonsegment items 
    Rental income from commercial real estate |                                                     | $                                           | 3,716 |        |      | $ | 3,541   |         |       | $ | 3,372 |       
|                                                                       | Dividend and interest income                        |                                             |       | 1,063  |      |   |         | 903     |       |   |       | 786    |    
|                                                                       | Real estate and general and administrative expenses |                                             |       | (4,918 | )    |   |         | (4,143  | )     |   |       | (3,816 | )  
|                                                                       |                                                     |                                             |       |        |      |   |         |         |      
|                                                                       | Income (loss) before income taxes                   |                                             |       | (139   | )    |   |         | 301     |       |   |       | 342    |    
|                                                                       | Income taxes                                        |                                             |       | 385    |      |   |         | (4,932  | )     |   |       | (49    | )  
|                                                                       |                                                     |                                             |       |        |      |   |         |         |      
|                                                                       |                                                     | Net income from other nonsegment activities |       | $      | 246  |   |         | $       | 5,233 |   |       | $      | 391 | 
|                                                                       |                                                     |                                             |       |        |      |   |         |         |      









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|                                                          |  |       |         |              |      |   |         |           |  |   |           |  |  |              |        |  |  |   |        | 
|--------------------------------------------------------- |  | ----- | ------- | ------------ | ---- | - | ------- | --------- |  | - | --------- |  |  | ------------ | ------ |  |  | - | ------ | 
|                                                          |  |       |         | Payments Due |     
|                                                          |  |       |         |              |     
|                                                          |  | Total |         |              | 2007 |   |         | 2008-2009 |  |   | 2010-2011 |  |  | Subsequently |       
|                                                          |  |       |         |              |      |   |         |           |  |   |           |  |  |              |       
|Notes payable, including interest                         |  | $     | 38,549  |              |      | $ | 38,349  |           |  | $ |          |  |  | $            |       |  |  | $ | 200    | 
|Operating lease obligations                               |  |       | 105,285 |              |      |   | 25,503  |           |  |   | 40,751    |  |  |              | 24,620 |  |  |   | 14,412 | 
|Payment of insurance losses and loss adjustment expenses* |  |       | 78,310  |              |      |   | 78,310  |           |  |   |          |  |  |              |       |  |  |   |       | 
|Purchase obligations, other than for capital expenditures |  |       | 14,226  |              |      |   | 13,051  |           |  |   | 1,137     |  |  |              | 38     |  |  |   |       | 
|Construction of condominiums                              |  |       | 22,710  |              |      |   | 22,710  |           |  |   |          |  |  |              |       |  |  |   |       | 
|Other, principally deferred compensation                  |  |       | 5,176   |              |      |   | 537     |           |  |   | 38        |  |  |              |       |  |  |   | 4,600  | 
|                                                          |  |       |         |              |      |   |         |           |  |   |           |  |  |              |       
|Totals                                                    |  | $     | 264,256 |              |      | $ | 178,460 |           |  | $ | 41,926    |  |  | $            | 24,658 |  |  | $ | 19,212 | 
|                                                          |  |       |         |              |      |   |         |           |  |   |           |  |  |              |       







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Use of Estimates in Preparation of Financial Statements




Investments


held-to


Rental Furniture




Revenue Recognition






Losses and Loss Adjustment Expenses




33



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Goodwill






|         |                                                           
|-------- | ----------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures About Market Risk









34



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|                                               |              |                   |   |           |                   |  |   |           |  |  |          |           |  |  |   |           | 
|---------------------------------------------- | ------------ | ----------------- | - | --------- | ----------------- |  | - | --------- |  |  | -------- | --------- |  |  | - | --------- | 
|                                               |              | December 31, 2006 |   |           | December 31, 2005 | 
|                                               |              |                   |   |           |                   | 
|                                               |              | Increase          |   |           | Decrease          |  |   | Increase  |  |  | Decrease |          
|                                               |              |                   |   |           |                   |  |   |           |  |  |          |          
|Market value of marketable equity securities  |              |                   |   |           |                   |  |   |           |  |  |          |           |  |  |   |          
|                                               | As recorded  |                   | $ | 1,040,550 |                   |  | $ | 1,040,550 |  |  | $        | 884,673   |  |  | $ | 884,673   | 
|                                               | Hypothetical |                   |   | 1,352,716 |                   |  |   | 728,385   |  |  |          | 1,150,075 |  |  |   | 619,271   | 
|Shareholders equity                          |              |                   |   |           |                   |  |   |           |  |  |          |           |  |  |   |          
|                                               | As recorded  |                   |   | 2,400,338 |                   |  |   | 2,400,338 |  |  |          | 2,230,432 |  |  |   | 2,230,432 | 
|                                               | Hypothetical |                   |   | 2,603,245 |                   |  |   | 2,197,430 |  |  |          | 2,402,943 |  |  |   | 2,057,921 | 
|                                               |              |                   |   |           |                   |  |   |           |  |  |          |          









35



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##### 





expects, anticipates, intends, plans,
believes, estimates, may, could,






|        |                                            
|------- | -------------------------------------------
|Item 8. | Financial Statements and Supplementary Data








|                                                                                                                                          |  |           |       | 
|----------------------------------------------------------------------------------------------------------------------------------------- |  | --------- | ----- | 
|                                                                                                                                          |  | Page      |      
|Financial Statements                                                                                                                      |  | Number(s) |      
|                                                                                                                                          |  |           |      
|Report of independent registered public
    accounting firm                                                                               |  |           | 41    | 
|Consolidated balance sheet 
    December 31, 2006 and 2005                                                                               |  |           | 42    | 
|Consolidated statement of
    income  years ended December 31, 2006, 2005 and
    2004                                                   |  |           | 43    | 
|Consolidated statement of changes in
    shareholders equity and comprehensive income 
    years ended December 31, 2006, 2005 and 2004 |  |           | 44    | 
|Consolidated statement of cash
    flows  years ended December 31, 2006, 2005 and
    2004                                               |  |           | 45    | 
|Notes to consolidated financial statements                                                                                                |  |           | 46-58 | 





|                                                                                                                                |  |          |   |  |           |  |       | 
|------------------------------------------------------------------------------------------------------------------------------- |  | -------- | - |  | --------- |  | ----- | 
|                                                                                                                                |  | Schedule |   |  | Page      | 
|Financial Statement Schedule                                                                                                    |  | Number   |   |  | Number(s) | 
|                                                                                                                                |  |          |   |  |           | 
|Condensed financial information of Wesco 
    December 31, 2006 and 2005, and years ended
    December 31, 2006, 2005 and 2004 |  |          | I |  |           |  | 59-60 | 

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|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements with Accountants on Accounting
    and Financial Disclosure





|         |                        
|-------- | -----------------------
|Item 9A. | Controls and Procedures





MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL
REPORTING


13a-15(f) 13a-15(c) Internal
Control  Integrated Framework






| |                            
| | ---------------------------
| | WESCO FINANCIAL CORPORATION





37



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM








Internal Control  Integrated Framework








Internal
Control  Integrated Framework Internal Control  Integrated
Framework











38



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Item 9B.     Other
Information




PART III




|         |                                                   
|-------- | --------------------------------------------------
|Item 10. | Directors and Executive Officers of the Registrant





|         |                       
|-------- | ----------------------
|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

S-K) 10-K


10-K 1-4720)












39



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SIGNATURES






|    |  |                                                                                                                     |  |                  
|--- |  | ------------------------------------------------------------------------------------------------------------------- |  | -----------------
|   
|By: |  | /s/ Charles T. Munger                                                                                               |  |                  
|    |  | Charles T. Munger
    Chairman of the Board and President (principal executive officer)                             |  | February 27, 2007
|   
|By: |  | /s/ Jeffrey L. Jacobson                                                                                             |  |                  
|    |  | Jeffrey L. Jacobson
    Vice President and Chief Financial Officer
    (principal financial and accounting officer) |  | February 27, 2007



|                                 |  |                  
|-------------------------------- |  | -----------------
|                                
|/s/ Carolyn H.
    Carlburg      |  |                  
|Carolyn H. Carlburg
    Director |  | February 27, 2007
|                                
|/s/ Robert E. Denham             |  |                  
|Robert E. Denham
    Director    |  | February 27, 2007
|                                
|/s/ Robert T. Flaherty           |  |                  
|Robert T. Flaherty
    Director  |  | February 27, 2007
|                                
|/s/ Peter D. Kaufman             |  |                  
|Peter D. Kaufman
    Director    |  | February 27, 2007
|                                
|/s/ Charles T. Munger            |  |                  
|Charles T. Munger
    Director   |  | February 27, 2007

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM














Internal Control 
Integrated Framework II









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WESCO FINANCIAL CORPORATION





CONSOLIDATED BALANCE SHEET


(Dollar amounts in thousands)


|                                                       |                                                                                                              |                            |           |           |           |   |           |           |           | 
|------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------ | -------------------------- | --------- | --------- | --------- | - | --------- | --------- | --------- | 
|                                                       |                                                                                                              | December 31,               |          
|                                                       |                                                                                                              |                            |          
|                                                       |                                                                                                              | 2006                       |           |           | 2005      |  
|                                                       |                                                                                                              |                            |           |           |           |  
|ASSETS                                                
|Cash and cash equivalents                              |                                                                                                              | $                          | 1,257,351 |           |           | $ | 1,194,113 |          
|Investments:                                           |                                                                                                              |                            |           |           |           |   |           |          
|                                                       | Securities with fixed maturities                                                                             |                            |           | 81,861    |           |   |           | 74,441    |          
|                                                       | Marketable equity securities                                                                                 |                            |           | 1,040,550 |           |   |           | 884,673   |          
|Accounts receivable                                    |                                                                                                              |                            | 60,386    |           |           |   | 53,987    |          
|Rental furniture                                       |                                                                                                              |                            | 182,846   |           |           |   | 187,572   |          
|Goodwill of acquired businesses                        |                                                                                                              |                            | 266,607   |           |           |   | 266,607   |          
|Other assets                                           |                                                                                                              |                            | 80,704    |           |           |   | 67,118    |          
|                                                       |                                                                                                              |                            |           |           |           |  
|                                                       |                                                                                                              | $                          | 2,970,305 |           |           | $ | 2,728,511 |          
|                                                       |                                                                                                              |                            |           |           |           |  
|                                                      
|LIABILITIES AND SHAREHOLDERS EQUITY                  
|Insurance losses and loss adjustment expenses         |                                                                                                              |                            |           |           |           |   |           |          
|                                                       | Affiliated business                                                                                          |                            | $         | 29,761    |           |   | $         | 19,697    |          
|                                                       | Unaffiliated business                                                                                        |                            |           | 48,549    |           |   |           | 42,283    |          
|Unearned insurance premiums                           |                                                                                                              |                            |           |           |           |   |           |          
|                                                       | Affiliated business                                                                                          |                            |           | 14,062    |           |   |           | 12,301    |          
|                                                       | Unaffiliated business                                                                                        |                            |           | 15,298    |           |   |           | 16,092    |          
|Deferred furniture rental income and security deposits |                                                                                                              |                            | 20,440    |           |           |   | 22,204    |          
|Accounts payable and accrued expenses                  |                                                                                                              |                            | 48,258    |           |           |   | 52,587    |          
|Notes payable                                          |                                                                                                              |                            | 38,200    |           |           |   | 42,300    |          
|Income taxes payable, principally deferred             |                                                                                                              |                            | 355,399   |           |           |   | 290,615   |          
|                                                       |                                                                                                              |                            |           |           |           |  
|                                                       |                                                                                                              |                            | 569,967   |           |           |   | 498,079   |          
|                                                       |                                                                                                              |                            |           |           |           |  
|Shareholders equity:                                  |                                                                                                              |                            |           |           |           |   |           |          
|                                                       | Capital stock, $1 par value  authorized,
    7,500,000 shares; issued and outstanding,
    7,119,807 shares |                            |           | 7,120     |           |   |           | 7,120     |          
|                                                       | Additional paid-in capital                                                                                   |                            |           | 26,204    |           |   |           | 26,204    |          
|                                                       | Accumulated other comprehensive income                                                                       |                            |           | 344,978   |           |   |           | 256,710   |          
|                                                       | Retained earnings                                                                                            |                            |           | 2,022,036 |           |   |           | 1,940,398 |          
|                                                       |                                                                                                              |                            |           |           |           |  
|                                                       |                                                                                                              | Total shareholders equity |           |           | 2,400,338 |   |           |           | 2,230,432 | 
|                                                       |                                                                                                              |                            |           |           |           |  
|                                                       |                                                                                                              | $                          | 2,970,305 |           |           | $ | 2,728,511 |          
|                                                       |                                                                                                              |                            |           |           |           |  

See notes to consolidated financial statements.


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WESCO FINANCIAL CORPORATION





CONSOLIDATED STATEMENT OF INCOME


(Dollar amounts in thousands except for amounts per share)


|                                                                                          |                                                 |                         |         |         |        |  |         |         |         |  |         |         |        |  
|----------------------------------------------------------------------------------------- | ----------------------------------------------- | ----------------------- | ------- | ------- | ------ |  | ------- | ------- | ------- |  | ------- | ------- | ------ | -
|                                                                                          |                                                 | Year Ended December 31, |        
|                                                                                          |                                                 |                         |        
|                                                                                          |                                                 | 2006                    |         |         | 2005   |  |         | 2004    |        
|                                                                                          |                                                 |                         |         |         |        |  |         |         |        
|Revenues:                                                                                 |                                                 |                         |         |         |        |  |         |         |         |  |         |        
|                                                                                          | Furniture rentals                               |                         | $       | 324,300 |        |  | $       | 303,485 |         |  | $       | 275,378 |       
|                                                                                          | Sales and service revenues                      |                         |         | 139,058 |        |  |         | 141,749 |         |  |         | 139,130 |       
|                                                                                          | Insurance premiums earned                      |                         |         |         |        |  |         |         |         |  |         |         |       
|                                                                                          |                                                 | Affiliated business     |         |         | 32,643 |  |         |         | 32,450  |  |         |         | 19,371 |  
|                                                                                          |                                                 | Unaffiliated business   |         |         | 21,506 |  |         |         | 17,032  |  |         |         | 35,218 |  
|                                                                                          | Dividend and interest income                    |                         |         | 84,504  |        |  |         | 56,792  |         |  |         | 36,844  |       
|                                                                                          | Realized investment gains                       |                         |         |        |        |  |         | 333,241 |         |  |         |        |       
|                                                                                          | Other                                           |                         |         | 3,716   |        |  |         | 3,541   |         |  |         | 3,372   |       
|                                                                                          |                                                 |                         |         |         |        |  |         |         |        
|                                                                                          |                                                 |                         | 605,727 |         |        |  | 888,290 |         |         |  | 509,313 |        
|                                                                                          |                                                 |                         |         |         |        |  |         |         |        
|Costs and expenses:                                                                       |                                                 |                         |         |         |        |  |         |         |         |  |         |        
|                                                                                          | Cost of products and services sold              |                         |         | 154,218 |        |  |         | 153,402 |         |  |         | 146,783 |       
|                                                                                          | Insurance losses and loss adjustment expenses  |                         |         |         |        |  |         |         |         |  |         |         |       
|                                                                                          |                                                 | Affiliated business     |         |         | 21,401 |  |         |         | 11,990  |  |         |         | (2,251 | )
|                                                                                          |                                                 | Unaffiliated business   |         |         | 9,944  |  |         |         | 9,482   |  |         |         | 22,209 |  
|                                                                                          | Insurance underwriting expenses                |                         |         |         |        |  |         |         |         |  |         |         |       
|                                                                                          |                                                 | Affiliated business     |         |         | 7,566  |  |         |         | 6,611   |  |         |         | 6,646  |  
|                                                                                          |                                                 | Unaffiliated business   |         |         | 7,294  |  |         |         | 6,832   |  |         |         | 5,458  |  
|                                                                                          | Selling, general and administrative expenses    |                         |         | 265,327 |        |  |         | 262,594 |         |  |         | 261,434 |       
|                                                                                          | Interest expense                                |                         |         | 2,711   |        |  |         | 1,575   |         |  |         | 799     |       
|                                                                                          |                                                 |                         |         |         |        |  |         |         |        
|                                                                                          |                                                 |                         | 468,461 |         |        |  | 452,486 |         |         |  | 441,078 |        
|                                                                                          |                                                 |                         |         |         |        |  |         |         |        
|Income before income taxes and minority interest                                          |                                                 |                         | 137,266 |         |        |  | 435,804 |         |         |  | 68,235  |        
|Income taxes                                                                              |                                                 |                         | 45,233  |         |        |  | 141,225 |         |         |  | 20,808  |        
|                                                                                          |                                                 |                         |         |         |        |  |         |         |        
|                                                                                          |                                                 | Net income              |         | $       | 92,033 |  |         | $       | 294,579 |  |         | $       | 47,427 |  
|                                                                                          |                                                 |                         |         |         |        |  |         |         |        
|Amounts per capital share based on 7,119,807 shares
    outstanding throughout each year: |                                                 |                         |         |         |        |  |         |         |         |  |         |        
|                                                                                          | Net income                                      |                         | $       | 12.93   |        |  | $       | 41.37   |         |  | $       | 6.66    |       
|                                                                                          | Cash dividends                                  |                         |         | 1.46    |        |  |         | 1.42    |         |  |         | 1.38    |       
|                                                                                          |                                                 |                         |         |         |        |  |         |         |        

See notes to consolidated financial statements.


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WESCO FINANCIAL CORPORATION





CONSOLIDATED STATEMENT OF CHANGES IN


SHAREHOLDERS EQUITY


AND COMPREHENSIVE INCOME


(Dollar amounts in thousands)


|                                        |                                                             |                                  |   |           |         |   |   |           |         |   |   |           |        |  
|--------------------------------------- | ----------------------------------------------------------- | -------------------------------- | - | --------- | ------- | - | - | --------- | ------- | - | - | --------- | ------ | -
|                                        |                                                             | Year Ended December 31,          |  
|                                        |                                                             |                                  |  
|                                        |                                                             | 2006                             |   |           | 2005    |   |   | 2004      |        
|                                        |                                                             |                                  |   |           |         |   |   |           |        
|Capital Stock:                          |                                                             |                                  |   |           |         |   |   |           |         |   |   |          
|                                        | Balance at beginning and end of year                        |                                  | $ | 7,120     |         |   | $ | 7,120     |         |   | $ | 7,120     |       
|                                        |                                                             |                                  |   |           |         |   |   |           |        
|Additional Paid-in Capital:             |                                                             |                                  |   |           |         |   |   |           |         |   |   |          
|                                        | Balance at beginning and end of year                        |                                  | $ | 26,204    |         |   | $ | 26,204    |         |   | $ | 26,204    |       
|                                        |                                                             |                                  |   |           |         |   |   |           |        
|Retained Earnings:                      |                                                             |                                  |   |           |         |   |   |           |         |   |   |          
|                                        | Balance at beginning of year                                |                                  | $ | 1,940,398 |         |   | $ | 1,655,929 |         |   | $ | 1,618,324 |       
|                                        |                                                             | Net income                       |   |           | 92,033  |   |   |           | 294,579 |   |   |           | 47,427 |  
|                                        |                                                             | Cash dividends declared and paid |   |           | (10,395 | ) |   |           | (10,110 | ) |   |           | (9,822 | )
|                                        |                                                             |                                  |   |           |         |   |   |           |        
|                                        | Balance at end of year                                      |                                  | $ | 2,022,036 |         |   | $ | 1,940,398 |         |   | $ | 1,655,929 |       
|                                        |                                                             |                                  |   |           |         |   |   |           |        
|Accumulated Other Comprehensive Income: |                                                             |                                  |   |           |         |   |   |           |         |   |   |          
|                                        | Unrealized appreciation of investments                      |                                  | $ | 136,038   |         |   | $ | (263,026  | )       |   | $ | 1,862     |       
|                                        |                                                             | Applicable income taxes          |   |           | (47,770 | ) |   |           | 92,046  |   |   |           | (714   | )
|                                        |                                                             |                                  |   |           |         |   |   |           |        
|                                        | Other comprehensive income                                  |                                  |   | 88,268    |         |   |   | (170,980  | )       |   |   | 1,148     |       
|                                        | Accumulated other comprehensive income at beginning of year |                                  |   | 256,710   |         |   |   | 427,690   |         |   |   | 426,542   |       
|                                        |                                                             |                                  |   |           |         |   |   |           |        
|                                        | Accumulated other comprehensive income at end of year       |                                  | $ | 344,978   |         |   | $ | 256,710   |         |   | $ | 427,690   |       
|                                        |                                                             |                                  |   |           |         |   |   |           |        
|Comprehensive Income:                   |                                                             |                                  |   |           |         |   |   |           |         |   |   |          
|                                        | Net income                                                  |                                  | $ | 92,033    |         |   | $ | 294,579   |         |   | $ | 47,427    |       
|                                        | Other comprehensive income                                  |                                  |   | 88,268    |         |   |   | (170,980  | )       |   |   | 1,148     |       
|                                        |                                                             |                                  |   |           |         |   |   |           |        
|                                        | Total comprehensive income                                  |                                  | $ | 180,301   |         |   | $ | 123,599   |         |   | $ | 48,575    |       
|                                        |                                                             |                                  |   |           |         |   |   |           |        

See notes to consolidated financial statements.


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WESCO FINANCIAL CORPORATION


CONSOLIDATED STATEMENT OF CASH FLOWS


(Dollar amounts in thousands)


|                                              |                                                                                         |                                                                                            |                       |                                          |         |        |           |         |          |       |           |         |         |         |        | 
|--------------------------------------------- | --------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------ | --------------------- | ---------------------------------------- | ------- | ------ | --------- | ------- | -------- | ----- | --------- | ------- | ------- | ------- | ------ | 
|                                              |                                                                                         | Year Ended December 31,                                                                    |                      
|                                              |                                                                                         |                                                                                            |                      
|                                              |                                                                                         | 2006                                                                                       |                       |                                          | 2005    |        |           | 2004    |         
|                                              |                                                                                         |                                                                                            |                       |                                          |         |        |           |         |         
|Cash flows from operating activities:         |                                                                                         |                                                                                            |                       |                                          |         |        |           |         |          |       |           |        
|                                              | Net income                                                                              |                                                                                            | $                     | 92,033                                   |         |        | $         | 294,579 |          |       | $         | 47,427  |        
|                                              | Adjustments to reconcile net income with net cash flows from
    operating activities  |                                                                                            |                       |                                          |         |        |           |         |          |       |           |         |        
|                                              |                                                                                         | Gross profit on sale of rental furniture                                                   |                       |                                          | (25,468 | )      |           |         | (24,955  | )     |           |         | (25,956 | )      
|                                              |                                                                                         | Investment gains                                                                           |                       |                                          |        |        |           |         | (333,241 | )     |           |         |        |        
|                                              |                                                                                         | Depreciation and amortization                                                              |                       |                                          | 41,732  |        |           |         | 38,887   |       |           |         | 36,473  |        
|                                              |                                                                                         | Increase (decrease) in liabilities for insurance losses and
    loss adjustment expenses  |                       |                                          |         |        |           |         |          |       |           |         |         |        
|                                              |                                                                                         |                                                                                            | Affiliated business   |                                          |         | 10,064 |           |         |          | 4,787 |           |         |         | (52,506 | )     
|                                              |                                                                                         |                                                                                            | Unaffiliated business |                                          |         | 6,266  |           |         |          | 1,031 |           |         |         | 6,142   |       
|                                              | Increase (decrease) in unearned insurance
    premiums                                 |                                                                                            |                       |                                          |         |        |           |         |          |       |           |         |        
|                                              |                                                                                         | Affiliated business                                                                        |                       |                                          | 1,761   |        |           |         | (1,817   | )     |           |         | 5,472   |        
|                                              |                                                                                         | Unaffiliated business                                                                      |                       |                                          | (794    | )      |           |         | 4,869    |       |           |         | (9,124  | )      
|                                              |                                                                                         | Increase in income taxes payable                                                           |                       |                                          | 17,014  |        |           |         | 110,656  |       |           |         | 24,050  |        
|                                              |                                                                                         | Other, net                                                                                 |                       |                                          | (10,141 | )      |           |         | 6,605    |       |           |         | 23,715  |        
|                                              |                                                                                         |                                                                                            |                       |                                          |         |        |           |         |         
|                                              |                                                                                         |                                                                                            |                       | Net cash flows from operating activities |         |        | 132,467   |         |          |       | 101,401   |         |         |         | 55,693 | 
|                                              |                                                                                         |                                                                                            |                       |                                          |         |        |           |         |         
|Cash flows from investing activities:         |                                                                                         |                                                                                            |                       |                                          |         |        |           |         |          |       |           |        
|                                              | Purchases of securities with fixed maturities                                           |                                                                                            |                       | (42,804                                  | )       |        |           | (24,368 | )        |       |           | (2,907  | )      
|                                              | Purchases of rental furniture                                                           |                                                                                            |                       | (80,151                                  | )       |        |           | (97,297 | )        |       |           | (76,532 | )      
|                                              | Purchases of equity securities                                                          |                                                                                            |                       | (18,856                                  | )       |        |           | (51,886 | )        |       |           |        |        
|                                              | Proceeds from redemptions and maturities of securities with
    fixed maturities        |                                                                                            |                       | 34,465                                   |         |        |           | 29,676  |          |       |           | 72,592  |        
|                                              | Proceeds from sales of securities with fixed maturities                                 |                                                                                            |                       |                                         |         |        |           | 11,577  |          |       |           |        |        
|                                              | Proceeds from sales of rental furniture                                                 |                                                                                            |                       | 70,189                                   |         |        |           | 72,000  |          |       |           | 67,772  |        
|                                              | Acquisitions of businesses, net of cash and cash equivalents
    acquired               |                                                                                            |                       |                                         |         |        |           |        |          |       |           | (12,704 | )      
|                                              | Additions to condominium construction in process                                        |                                                                                            |                       | (14,905                                  | )       |        |           | (9,029  | )        |       |           | (2,236  | )      
|                                              | Other, net                                                                              |                                                                                            |                       | (2,672                                   | )       |        |           | (2,089  | )        |       |           | 299     |        
|                                              |                                                                                         |                                                                                            |                       |                                          |         |        |           |         |         
|                                              |                                                                                         |                                                                                            |                       | Net cash flows from investing activities |         |        | (54,734   | )       |          |       | (71,416   | )       |         |         | 46,284 | 
|                                              |                                                                                         |                                                                                            |                       |                                          |         |        |           |         |         
|Cash flows from financing activities:         |                                                                                         |                                                                                            |                       |                                          |         |        |           |         |          |       |           |        
|                                              | Borrowings (repayments) under revolving credit facility, net                            |                                                                                            |                       | (4,100                                   | )       |        |           | 13,100  |          |       |           | 16,900  |        
|                                              | Repayment of notes payable, net                                                         |                                                                                            |                       |                                         |         |        |           | (25     | )        |       |           | (354    | )      
|                                              | Payment of cash dividends                                                               |                                                                                            |                       | (10,395                                  | )       |        |           | (10,110 | )        |       |           | (9,822  | )      
|                                              |                                                                                         |                                                                                            |                       |                                          |         |        |           |         |         
|                                              |                                                                                         |                                                                                            |                       | Net cash flows from financing activities |         |        | (14,495   | )       |          |       | 2,965     |         |         |         | 6,724  | 
|                                              |                                                                                         |                                                                                            |                       |                                          |         |        |           |         |         
|Increase in cash and cash equivalents         |                                                                                         |                                                                                            | 63,238                |                                          |         |        | 32,950    |         |          |       | 108,701   |        
|Cash and cash equivalents  beginning of year |                                                                                         |                                                                                            | 1,194,113             |                                          |         |        | 1,161,163 |         |          |       | 1,052,462 |        
|                                              |                                                                                         |                                                                                            |                       |                                          |         |        |           |         |         
|Cash and cash equivalents  end of year       |                                                                                         | $                                                                                          | 1,257,351             |                                          |         | $      | 1,194,113 |         |          | $     | 1,161,163 |        
|                                              |                                                                                         |                                                                                            |                       |                                          |         |        |           |         |         
|Supplementary disclosures:                    |                                                                                         |                                                                                            |                       |                                          |         |        |           |         |          |       |           |        
|                                              | Interest paid during year                                                               |                                                                                            | $                     | 2,589                                    |         |        | $         | 481     |          |       | $         | 375     |        
|                                              | Income taxes paid (recovered) during year, net                                          |                                                                                            |                       | 28,484                                   |         |        |           | 34,648  |          |       |           | (7,142  | )      
|                                              |                                                                                         |                                                                                            |                       |                                          |         |        |           |         |         

See notes to consolidated financial statements.


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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


Accounting for Uncertainty in Income Taxes  an
interpretation of FASB Statement No. 109


Use of estimates in preparation of financial statements




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Cash equivalents




Investments


held-to




Accounts receivable




Rental furniture




Goodwill of acquired businesses




Inventories


last-in,




Dollar amounts in thousands except for amounts per share


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Revenue recognition






Losses and loss adjustment expenses






Income taxes payable






Dollar amounts in thousands except for amounts per share


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|        |            
|------- | -----------
|Note 2. | Investments



|                                               |  |                   |        |                |                   |   |        |           |                |   |            |  |  |   |        | 
|---------------------------------------------- |  | ----------------- | ------ | -------------- | ----------------- | - | ------ | --------- | -------------- | - | ---------- |  |  | - | ------ | 
|                                               |  | December 31, 2006 |        |                | December 31, 2005 |  
|                                               |  |                   |        |                |                   |  
|                                               |  |                   |        | Estimated Fair |                   |   |        |           | Estimated Fair |  
|                                               |  | Amortized         |        |                | (Carrying)        |   |        | Amortized |                |   | (Carrying) | 
|                                               |  | Cost              |        |                | Value             |   |        | Cost      |                |   | Value      | 
|                                               |  |                   |        |                |                   |   |        |           |                |   |            | 
|Mortgage-backed securities                     |  | $                 | 39,173 |                |                   | $ | 39,799 |           |                | $ | 45,569     |  |  | $ | 47,174 | 
|Other, principally U.S. government obligations |  |                   | 42,070 |                |                   |   | 42,062 |           |                |   | 27,272     |  |  |   | 27,267 | 
|                                               |  |                   |        |                |                   |   |        |           |                |   |            | 
|                                               |  | $                 | 81,243 |                |                   | $ | 81,861 |           |                | $ | 72,841     |  |  | $ | 74,441 | 
|                                               |  |                   |        |                |                   |   |        |           |                |   |            | 





|                           |  |           |        |                |            |   |        | 
|-------------------------- |  | --------- | ------ | -------------- | ---------- | - | ------ | 
|                           |  |           |        | Estimated Fair |           
|                           |  | Amortized |        |                | (Carrying) |  
|                           |  | Cost      |        |                | Value      |  
|                           |  |           |        |                |            |  
|Due in 2007                |  | $         | 42,070 |                |            | $ | 42,062 | 
|Mortgage-backed securities |  |           | 39,173 |                |            |   | 39,799 | 
|                           |  |           |        |                |            |  
|                           |  | $         | 81,243 |                |            | $ | 81,861 | 
|                           |  |           |        |                |            |  



|                             |  |                   |         |            |                   |   |           |      |            |   |         |  |  |   |         | 
|---------------------------- |  | ----------------- | ------- | ---------- | ----------------- | - | --------- | ---- | ---------- | - | ------- |  |  | - | ------- | 
|                             |  | December 31, 2006 |         |            | December 31, 2005 |  
|                             |  |                   |         |            |                   |  
|                             |  |                   |         | Fair       |                   |   |           |      | Fair       |  
|                             |  |                   |         | (Carrying) |                   |   |           |      | (Carrying) |  
|                             |  | Cost              |         |            | Value             |   |           | Cost |            |   | Value   | 
|                             |  |                   |         |            |                   |   |           |      |            |   |         | 
|The Procter & Gamble Company |  | $                 | 424,367 |            |                   | $ | 459,820   |      |            | $ | 424,367 |  |  | $ | 414,103 | 
|The Coca-Cola Company        |  |                   | 40,761  |            |                   |   | 347,670   |      |            |   | 40,761  |  |  |   | 290,458 | 
|American Express Company     |  |                   | 18,108  |            |                   |   | 117,888   |      |            |   | 18,108  |  |  |   | 99,992  | 
|Other                        |  |                   | 27,768  |            |                   |   | 115,172   |      |            |   | 8,912   |  |  |   | 80,120  | 
|                             |  |                   |         |            |                   |   |           |      |            |   |         | 
|                             |  | $                 | 511,004 |            |                   | $ | 1,040,550 |      |            | $ | 492,148 |  |  | $ | 884,673 | 
|                             |  |                   |         |            |                   |   |           |      |            |   |         | 







|                           |  |              |   |              |  |   |         |  
|-------------------------- |  | ------------ | - | ------------ |  | - | ------- | -
|                           |  | December 31, |   | December 31, | 
|                           |  | 2006         |   | 2005         | 
|                           |  |              |   |              | 
|Realized investment gains  |  | $            |  |              |  | $ | 333,255 |  
|Realized investment losses |  |              |  |              |  |   | (14     | )
|                           |  |              |   |              |  |  
|                           |  | $            |  |              |  | $ | 333,241 |  
|                           |  |              |   |              |  |  



Dollar amounts in thousands except for amounts per share


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|        |                    
|------- | -------------------
|Note 3. | Accounts Receivable



|                                     |  |              |        |   |              |   |        |  
|------------------------------------ |  | ------------ | ------ | - | ------------ | - | ------ | -
|                                     |  | December, 31 |        |   | December 31, |  
|                                     |  | 2006         |        |   | 2005         |  
|                                     |  |              |        |   |              |  
|Trade accounts receivable            |  | $            | 62,971 |   |              | $ | 56,372 |  
|Allowance for uncollectible accounts |  |              | (2,585 | ) |              |   | (2,385 | )
|                                     |  |              |        |   |              |  
|                                     |  | $            | 60,386 |   |              | $ | 53,987 |  
|                                     |  |              |        |   |              |  



|        |                 
|------- | ----------------
|Note 4. | Rental Furniture



|                              |  |              |         |   |              |   |         |  
|----------------------------- |  | ------------ | ------- | - | ------------ | - | ------- | -
|                              |  | December 31, |         |   | December 31, |  
|                              |  | 2006         |         |   | 2005         |  
|                              |  |              |         |   |              |  
|Cost of rental furniture      |  | $            | 278,177 |   |              | $ | 275,135 |  
|Less accumulated depreciation |  |              | (95,331 | ) |              |   | (87,563 | )
|                              |  |              |         |   |              |  
|                              |  | $            | 182,846 |   |              | $ | 187,572 |  
|                              |  |              |         |   |              |  



|        |         
|------- | --------
|Note 5. | Goodwill







Dollar amounts in thousands except for amounts per share


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|        |                                                      
|------- | -----------------------------------------------------
|Note 6. | Insurance Losses and Loss Adjustment Expenses Payable





|                                       |                     |                       |        |        |        |   |        |        |        |   |         |        |        | 
|-------------------------------------- | ------------------- | --------------------- | ------ | ------ | ------ | - | ------ | ------ | ------ | - | ------- | ------ | ------ | 
|                                       |                     | 2006                  |        |        | 2005   |   |        | 2004   |       
|                                       |                     |                       |        |        |        |   |        |        |       
|Gross liabilities at beginning of year |                     | $                     | 61,980 |        |        | $ | 56,162 |        |        | $ | 102,526 |       
|Less ceded liabilities                 |                     |                       | (6,142 | )      |        |   | (1,880 | )      |        |   | (500    | )     
|                                       |                     |                       |        |        |        |   |        |        |       
|Net balance at beginning of year       |                     |                       | 55,838 |        |        |   | 54,282 |        |        |   | 102,026 |       
|                                       |                     |                       |        |        |        |   |        |        |       
|Incurred losses recorded during year  |                     |                       |        |        |        |   |        |        |        |   |         |       
|                                       | For current year    |                       |        | 30,923 |        |   |        | 21,507 |        |   |         | 25,249 |       
|                                       | For all prior years |                       |        | 422    |        |   |        | (35    | )      |   |         | (5,291 | )     
|                                       |                     |                       |        |        |        |   |        |        |       
|                                       |                     | Total incurred losses |        |        | 31,345 |   |        |        | 21,472 |   |         |        | 19,958 | 
|                                       |                     |                       |        |        |        |   |        |        |       
|Payments made during year             |                     |                       |        |        |        |   |        |        |        |   |         |       
|                                       | For current year    |                       |        | 7,925  |        |   |        | 7,234  |        |   |         | 6,238  |       
|                                       | For all prior years |                       |        | 12,576 |        |   |        | 12,682 |        |   |         | 61,464 |       
|                                       |                     |                       |        |        |        |   |        |        |       
|                                       |                     | Total payments        |        |        | 20,501 |   |        |        | 19,916 |   |         |        | 67,702 | 
|                                       |                     |                       |        |        |        |   |        |        |       
|Net liabilities at end of year         |                     |                       | 66,682 |        |        |   | 55,838 |        |        |   | 54,282  |       
|Plus ceded liabilities                 |                     |                       | 11,628 |        |        |   | 6,142  |        |        |   | 1,880   |       
|                                       |                     |                       |        |        |        |   |        |        |       
|Gross liabilities at end of year       |                     | $                     | 78,310 |        |        | $ | 61,980 |        |        | $ | 56,162  |       
|                                       |                     |                       |        |        |        |   |        |        |       







Dollar amounts in thousands except for amounts per share


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|        |                                                
|------- | -----------------------------------------------
|Note 7. | Notes Payable and Other Contractual Obligations



|                          |  |              |        |  |      |   |        | 
|------------------------- |  | ------------ | ------ |  | ---- | - | ------ | 
|                          |  | December 31, |       
|                          |  |              |       
|                          |  | 2006         |        |  | 2005 |  
|                          |  |              |        |  |      |  
|Revolving credit facility |  | $            | 38,000 |  |      | $ | 42,100 | 
|Other                     |  |              | 200    |  |      |   | 200    | 
|                          |  |              |        |  |      |  
|                          |  | $            | 38,200 |  |      | $ | 42,300 | 
|                          |  |              |        |  |      |  









|        |             
|------- | ------------
|Note 8. | Income Taxes



|                                        |                                       |              |         |         |      |   |         |         | 
|--------------------------------------- | ------------------------------------- | ------------ | ------- | ------- | ---- | - | ------- | ------- | 
|                                        |                                       | December 31, |        
|                                        |                                       |              |        
|                                        |                                       | 2006         |         |         | 2005 |  
|                                        |                                       |              |         |         |      |  
|Deferred tax liabilities, relating to  |                                       |              |         |         |      |   |         |        
|                                        | Appreciation of investments           |              | $       | 186,553 |      |   | $       | 139,048 | 
|                                        | Cost basis differences in investments |              |         | 116,368 |      |   |         | 116,368 | 
|                                        | Other items                           |              |         | 40,004  |      |   |         | 47,679  | 
|                                        |                                       |              |         |         |      |  
|                                        |                                       |              | 342,925 |         |      |   | 303,095 |        
|Deferred tax assets                     |                                       |              | (20,353 | )       |      |   | (27,232 | )      
|                                        |                                       |              |         |         |      |  
|                                        | Net deferred tax liabilities          |              |         | 322,572 |      |   |         | 275,863 | 
|Taxes currently payable                 |                                       |              | 32,827  |         |      |   | 14,752  |        
|                                        |                                       |              |         |         |      |  
|Income taxes payable                    |                                       | $            | 355,399 |         |      | $ | 290,615 |        
|                                        |                                       |              |         |         |      |  



Dollar amounts in thousands except for amounts per share


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|         |                            |      |        |        |      |   |         |         |  |   |        |        | 
|-------- | -------------------------- | ---- | ------ | ------ | ---- | - | ------- | ------- |  | - | ------ | ------ | 
|         |                            | 2006 |        |        | 2005 |   |         | 2004    | 
|         |                            |      |        |        |      |   |         |         | 
|Federal  |                            | $    | 43,251 |        |      | $ | 141,406 |         |  | $ | 19,894 |       
|State    |                            |      | 1,982  |        |      |   | (181    | )       |  |   | 914    |       
|         |                            |      |        |        |      |   |         |         | 
|         | Provision for income taxes |      | $      | 45,233 |      |   | $       | 141,225 |  |   | $      | 20,808 | 
|         |                            |      |        |        |      |   |         |         | 
|Current  |                            | $    | 46,871 |        |      | $ | 38,816  |         |  | $ | 16,984 |       
|Deferred |                            |      | (1,638 | )      |      |   | 102,409 |         |  |   | 3,824  |       
|         |                            |      |        |        |      |   |         |         | 
|         | Provision for income taxes |      | $      | 45,233 |      |   | $       | 141,225 |  |   | $      | 20,808 | 
|         |                            |      |        |        |      |   |         |         | 



|                                    |                                              |      |      |      |      |  |      |      |   |  |      |      |  
|----------------------------------- | -------------------------------------------- | ---- | ---- | ---- | ---- |  | ---- | ---- | - |  | ---- | ---- | -
|                                    |                                              | 2006 |      |      | 2005 |  |      | 2004 |  
|                                    |                                              |      |      |      |      |  |      |      |  
|Statutory Federal income tax rate   |                                              |      | 35.0 | %    |      |  | 35.0 | %    |   |  | 35.0 | %   
|Decrease resulting from            |                                              |      |      |      |      |  |      |      |   |  |      |     
|                                    | Dividends received deduction                 |      |      | (1.1 | )    |  |      | (0.9 | ) |  |      | (3.3 | )
|                                    | State income taxes, less Federal tax benefit |      |      | (0.2 | )    |  |      | (0.1 | ) |  |      | (0.9 | )
|                                    | Other differences, net                       |      |      | (0.7 | )    |  |      | (1.6 | ) |  |      | (0.3 | )
|                                    |                                              |      |      |      |      |  |      |      |  
|Effective income tax provision rate |                                              |      | 33.0 | %    |      |  | 32.4 | %    |   |  | 30.5 | %   
|                                    |                                              |      |      |      |      |  |      |      |  





|        |                                     
|------- | ------------------------------------
|Note 9. | Consolidated Statement of Cash Flows







Dollar amounts in thousands except for amounts per share


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|                                                                |  |   |         |  
|--------------------------------------------------------------- |  | - | ------- | -
|Net cash flows from operating activities as previously reported |  | $ | 123,465 |  
|Reclassification                                                |  |   | (67,772 | )
|                                                                |  |   |        
|Revised net cash flows from operating activities                |  | $ | 55,693  |  
|                                                                |  |   |        
|Net cash flows from investing activities as previously reported |  | $ | (21,488 | )
|Reclassification                                                |  |   | 67,772  |  
|                                                                |  |   |        
|Revised net cash flows from investing activities                |  | $ | 46,284  |  
|                                                                |  |   |        



|         |                                     
|-------- | ------------------------------------
|Note 10. | Environmental Matters and Litigation





Muniz v. Precision Brand Products, Inc.,
et al.


Bendik v. Precision Brand Products, Inc. and Precision
Steel Warehouse, Inc.




Dollar amounts in thousands except for amounts per share


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Pote vs.
Precision Brand Products, Inc. and Precision Steel Warehouse,
Inc. Bendik






Dollar amounts in thousands except for amounts per share


55



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|         |                                
|-------- | -------------------------------
|Note 11. | Quarterly Financial Information



|                                |                                       |               |         |      |          |   |         |               |  |   |              |      |  |                |         |         |  |   |         |         | 
|------------------------------- | ------------------------------------- | ------------- | ------- | ---- | -------- | - | ------- | ------------- |  | - | ------------ | ---- |  | -------------- | ------- | ------- |  | - | ------- | ------- | 
|                                |                                       | Quarter Ended |         |      |         
|                                |                                       |               |         |      |         
|                                |                                       | March 31,     |         |      | June 30, |   |         | September 30, |  |   | December 31, |      |  | Total For Year |        
|                                |                                       |               |         |      |          |   |         |               |  |   |              |      |  |                |        
|2006                            |                                       |               |         |      |          |   |         |               |  |   |              |      |  |                |         |         |  |   |         |        
|Revenues                        |                                       | $             | 153,550 |      |          | $ | 151,248 |               |  | $ | 157,953      |      |  | $              | 142,976 |         |  | $ | 605,727 |        
|                                |                                       |               |         |      |          |   |         |               |  |   |              |      |  |                |        
|Net income                      |                                       | $             | 23,415  |      |          | $ | 23,747  |               |  | $ | 23,513       |      |  | $              | 21,358  |         |  | $ | 92,033  |        
|                                | Per capital share                     |               |         | 3.29 |          |   |         | 3.33          |  |   |              | 3.31 |  |                |         | 3.00    |  |   |         | 12.93   | 
|                                |                                       |               |         |      |          |   |         |               |  |   |              |      |  |                |        
|2005                            |                                       |               |         |      |          |   |         |               |  |   |              |      |  |                |         |         |  |   |         |        
|Revenues                        |                                       | $             | 133,550 |      |          | $ | 139,033 |               |  | $ | 143,700      |      |  | $              | 472,007 |         |  | $ | 888,290 |        
|                                |                                       |               |         |      |          |   |         |               |  |   |              |      |  |                |        
|Net income                      |                                       | $             | 18,427  |      |          | $ | 19,180  |               |  | $ | 17,866       |      |  | $              | 239,106 |         |  | $ | 294,579 |        
|                                | Per capital share                     |               |         | 2.59 |          |   |         | 2.69          |  |   |              | 2.51 |  |                |         | 33.58   |  |   |         | 41.37   | 
|                                |                                       |               |         |      |          |   |         |               |  |   |              |      |  |                |        
|Realized net investment gains  |                                       |               |         |      |          |   |         |               |  |   |              |      |  |                |         |         |  |   |         |        
|                                | 2006                                  |               |         |      |          |   |         |               |  |   |              |      |  |                |         |         |  |   |         |         | 
|                                | None                                  |               |         |      |          |   |         |               |  |   |              |      |  |                |         |         |  |   |         |         | 
|                                | 2005                                  |               |         |      |          |   |         |               |  |   |              |      |  |                |         |         |  |   |         |         | 
|                                | Before taxes* (included in revenues)  |               | $       |     |          |   | $       | 774           |  |   | $            |     |  |                | $       | 332,467 |  |   | $       | 333,241 | 
|                                | After taxes* (included in net income) |               |         |     |          |   |         | 503           |  |   |              |     |  |                |         | 216,103 |  |   |         | 216,606 | 
|                                |                                       |               |         |      |          |   |         |               |  |   |              |      |  |                |        






|  |            
|- | -----------
|* | See Note 2.



|         |                      
|-------- | ---------------------
|Note 12. | Business Segment Data





excess-of




Dollar amounts in thousands except for amounts per share


56



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rent-to








Dollar amounts in thousands except for amounts per share


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|                                                       |                                                                                       |      |           |           |      |   |           |           |   |   |           |           |  
|------------------------------------------------------ | ------------------------------------------------------------------------------------- | ---- | --------- | --------- | ---- | - | --------- | --------- | - | - | --------- | --------- | -
|                                                       |                                                                                       | 2006 |           |           | 2005 |   |           | 2004      |  
|                                                       |                                                                                       |      |           |           |      |   |           |           |  
|Insurance segment:                                     |                                                                                       |      |           |           |      |   |           |           |   |   |           |          
|                                                       | Premiums earned                                                                       |      | $         | 54,149    |      |   | $         | 49,482    |   |   | $         | 54,589    |  
|                                                       | Dividend and interest income                                                          |      |           | 83,441    |      |   |           | 55,889    |   |   |           | 36,058    |  
|                                                       | Income taxes                                                                          |      |           | 27,693    |      |   |           | 19,590    |   |   |           | 17,605    |  
|                                                       | Net income                                                                            |      |           | 63,692    |      |   |           | 50,866    |   |   |           | 40,920    |  
|                                                       | Depreciation and amortization other than of discounts and
    premiums of investments |      |           | 36        |      |   |           | 61        |   |   |           | 53        |  
|                                                       | Advertising expense                                                                   |      |           | 153       |      |   |           | 89        |   |   |           | 76        |  
|                                                       | Capital expenditures                                                                  |      |           | 51        |      |   |           | 45        |   |   |           | 76        |  
|                                                       | Assets at yearend                                                                     |      |           | 2,375,564 |      |   |           | 2,142,033 |   |   |           | 2,004,417 |  
|                                                       |                                                                                       |      |           |           |      |   |           |           |  
|Furniture rental segment:                              |                                                                                       |      |           |           |      |   |           |           |   |   |           |          
|                                                       | Revenues                                                                              |      | $         | 400,305   |      |   | $         | 383,900   |   |   | $         | 353,994   |  
|                                                       | Income taxes                                                                          |      |           | 16,448    |      |   |           | 9,075     |   |   |           | 2,588     |  
|                                                       | Net income                                                                            |      |           | 26,884    |      |   |           | 20,676    |   |   |           | 5,022     |  
|                                                       | Depreciation and amortization other than of discounts and
    premiums of investments |      |           | 40,923    |      |   |           | 37,912    |   |   |           | 35,643    |  
|                                                       | Advertising expense                                                                   |      |           | 15,392    |      |   |           | 13,177    |   |   |           | 18,245    |  
|                                                       | Interest expense                                                                      |      |           | 2,711     |      |   |           | 1,575     |   |   |           | 799       |  
|                                                       | Capital expenditures                                                                  |      |           | 1,988     |      |   |           | 3,972     |   |   |           | 4,091     |  
|                                                       | Assets at yearend                                                                     |      |           | 247,484   |      |   |           | 255,767   |   |   |           | 245,777   |  
|                                                       |                                                                                       |      |           |           |      |   |           |           |  
|Industrial segment:                                    |                                                                                       |      |           |           |      |   |           |           |   |   |           |          
|                                                       | Sales, service and other revenues                                                     |      | $         | 63,053    |      |   | $         | 61,334    |   |   | $         | 60,514    |  
|                                                       | Income taxes                                                                          |      |           | 707       |      |   |           | 858       |   |   |           | 664       |  
|                                                       | Net income                                                                            |      |           | 1,211     |      |   |           | 1,198     |   |   |           | 1,094     |  
|                                                       | Depreciation and amortization                                                         |      |           | 448       |      |   |           | 448       |   |   |           | 426       |  
|                                                       | Advertising expense                                                                   |      |           | 195       |      |   |           | 249       |   |   |           | 188       |  
|                                                       | Capital expenditures                                                                  |      |           | 583       |      |   |           | 409       |   |   |           | 314       |  
|                                                       | Assets at yearend                                                                     |      |           | 17,100    |      |   |           | 16,394    |   |   |           | 16,949    |  
|                                                       |                                                                                       |      |           |           |      |   |           |           |  
|Goodwill of acquired businesses (included in assets)   |                                                                                       | $    | 266,607   |           |      | $ | 266,607   |           |   | $ | 266,607   |          
|                                                       |                                                                                       |      |           |           |      |   |           |           |  
|Realized investment gains:                             |                                                                                       |      |           |           |      |   |           |           |   |   |           |          
|                                                       | Before taxes (included in revenues)                                                   |      | $         |          |      |   | $         | 333,241   |   |   | $         |          |  
|                                                       | After taxes (included in net income)                                                  |      |           |          |      |   |           | 216,606   |   |   |           |          |  
|                                                       |                                                                                       |      |           |           |      |   |           |           |  
|Other items unrelated to business segments:            |                                                                                       |      |           |           |      |   |           |           |   |   |           |          
|                                                       | Dividend and interest income                                                          |      | $         | 1,063     |      |   | $         | 903       |   |   | $         | 786       |  
|                                                       | Other revenues                                                                        |      |           | 3,716     |      |   |           | 3,541     |   |   |           | 3,372     |  
|                                                       | Income taxes                                                                          |      |           | 385       |      |   |           | (4,933    | ) |   |           | (49       | )
|                                                       | Net income                                                                            |      |           | 246       |      |   |           | 5,233     |   |   |           | 391       |  
|                                                       | Depreciation and amortization                                                         |      |           | 291       |      |   |           | 466       |   |   |           | 350       |  
|                                                       | Capital expenditures                                                                  |      |           | 83        |      |   |           | 606       |   |   |           | 288       |  
|                                                       | Assets at yearend                                                                     |      |           | 63,550    |      |   |           | 47,710    |   |   |           | 37,785    |  
|                                                       |                                                                                       |      |           |           |      |   |           |           |  
|Consolidated revenues (total of those set forth above) |                                                                                       | $    | 605,727   |           |      | $ | 888,290   |           |   | $ | 509,313   |          
|                                                       |                                                                                       |      |           |           |      |   |           |           |  
|Consolidated assets (total of those set forth above)   |                                                                                       | $    | 2,970,305 |           |      | $ | 2,728,511 |           |   | $ | 2,571,535 |          
|                                                       |                                                                                       |      |           |           |      |   |           |           |  



Dollar amounts in thousands except for amounts per share


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WESCO FINANCIAL CORPORATION


SCHEDULE I  CONDENSED FINANCIAL


INFORMATION OF REGISTRANT


BALANCE SHEET


(Dollar amounts in thousands)


|                                      |                                                                                                                             |                   |           |           |         |   |           |           |         | 
|------------------------------------- | --------------------------------------------------------------------------------------------------------------------------- | ----------------- | --------- | --------- | ------- | - | --------- | --------- | ------- | 
|                                      |                                                                                                                             | December 31,      |          
|                                      |                                                                                                                             |                   |          
|                                      |                                                                                                                             | 2006              |           |           | 2005    |  
|                                      |                                                                                                                             |                   |           |           |         |  
|Assets:                               |                                                                                                                             |                   |           |           |         |   |           |          
|                                      | Cash and cash equivalents                                                                                                   |                   | $         | 19        |         |   | $         | 28        |        
|                                      | Income taxes recoverable                                                                                                    |                   |           | 547       |         |   |           | 541       |        
|                                      | Investment in subsidiaries, at cost plus equity in
    subsidiaries undistributed earnings and unrealized
    appreciation |                   |           | 2,554,713 |         |   |           | 2,369,891 |        
|                                      |                                                                                                                             |                   |           |           |         |  
|                                      |                                                                                                                             | $                 | 2,555,279 |           |         | $ | 2,370,460 |          
|                                      |                                                                                                                             |                   |           |           |         |  
|                                     
|Liabilities and shareholders equity: |                                                                                                                             |                   |           |           |         |   |           |          
|                                      | Advances from subsidiaries                                                                                                  |                   | $         | 154,821   |         |   | $         | 139,987   |        
|                                      | Other liabilities                                                                                                           |                   |           | 120       |         |   |           | 41        |        
|                                      |                                                                                                                             |                   |           |           |         |  
|                                      |                                                                                                                             | Total liabilities |           |           | 154,941 |   |           |           | 140,028 | 
|                                      | Shareholders equity (see consolidated balance sheet and
    statement of changes in shareholders equity)                  |                   |           | 2,400,338 |         |   |           | 2,230,432 |        
|                                      |                                                                                                                             |                   |           |           |         |  
|                                      |                                                                                                                             | $                 | 2,555,279 |           |         | $ | 2,370,460 |          
|                                      |                                                                                                                             |                   |           |           |         |  

STATEMENT OF INCOME


(Dollar amounts in thousands)


|                                                 |                            |                         |        |       |        |   |         |       |         |   |        |       |        | 
|------------------------------------------------ | -------------------------- | ----------------------- | ------ | ----- | ------ | - | ------- | ----- | ------- | - | ------ | ----- | ------ | 
|                                                 |                            | Year Ended December 31, |       
|                                                 |                            |                         |       
|                                                 |                            | 2006                    |        |       | 2005   |   |         | 2004  |        
|                                                 |                            |                         |        |       |        |   |         |       |        
|Revenues                                         |                            | $                       |       |       |        | $ |        |       |         | $ |       |      
|                                                 |                            |                         |        |       |        |   |         |       |        
|Expenses:                                        |                            |                         |        |       |        |   |         |       |         |   |        |      
|                                                 | Intercompany interest      |                         |        | 6,006 |        |   |         | 3,779 |         |   |        | 1,953 |       
|                                                 | General and administrative |                         |        | 950   |        |   |         | 1,015 |         |   |        | 862   |       
|                                                 |                            |                         |        |       |        |   |         |       |        
|                                                 |                            |                         | 6,956  |       |        |   | 4,794   |       |         |   | 2,815  |      
|                                                 |                            |                         |        |       |        |   |         |       |        
|Loss before items shown below                    |                            |                         | (6,956 | )     |        |   | (4,794  | )     |         |   | (2,815 | )    
|Income taxes                                     |                            |                         | (2,434 | )     |        |   | (5,277  | )     |         |   | (985   | )    
|Equity in undistributed earnings of subsidiaries |                            |                         | 96,555 |       |        |   | 294,096 |       |         |   | 49,257 |      
|                                                 |                            |                         |        |       |        |   |         |       |        
|                                                 |                            | Net income              |        | $     | 92,033 |   |         | $     | 294,579 |   |        | $     | 47,427 | 
|                                                 |                            |                         |        |       |        |   |         |       |        

See notes to consolidated financial statements.


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WESCO FINANCIAL CORPORATION


SCHEDULE I  CONDENSED FINANCIAL


INFORMATION OF REGISTRANT (Continued)


STATEMENT OF CASH FLOWS


(Dollar amounts in thousands)


|                                                 |                                                                                     |                                                  |                                          |         |         |        |    |         |          |        |    |        |         |        |  
|------------------------------------------------ | ----------------------------------------------------------------------------------- | ------------------------------------------------ | ---------------------------------------- | ------- | ------- | ------ | -- | ------- | -------- | ------ | -- | ------ | ------- | ------ | -
|                                                 |                                                                                     | Year Ended December 31,                          |                                         
|                                                 |                                                                                     |                                                  |                                         
|                                                 |                                                                                     | 2006                                             |                                          |         | 2005    |        |    | 2004    |         
|                                                 |                                                                                     |                                                  |                                          |         |         |        |    |         |         
|Cash flows from operating activities:            |                                                                                     |                                                  |                                          |         |         |        |    |         |          |        |    |       
|                                                 | Net income                                                                          |                                                  | $                                        | 92,033  |         |        | $  | 294,579 |          |        | $  | 47,427 |        
|                                                 | Adjustments to reconcile net income with cash flows from
    operating activities  |                                                  |                                          |         |         |        |    |         |          |        |    |        |        
|                                                 |                                                                                     | Decrease in income taxes payable currently       |                                          |         | (6      | )      |    |         | (583     | )      |    |        | (226    | )     
|                                                 |                                                                                     | Equity in undistributed earnings of subsidiaries |                                          |         | (96,555 | )      |    |         | (294,096 | )      |    |        | (49,257 | )     
|                                                 |                                                                                     | Other, net                                       |                                          |         | 80      |        |    |         | (2,551   | )      |    |        | 73      |       
|                                                 |                                                                                     |                                                  |                                          |         |         |        |    |         |         
|                                                 |                                                                                     |                                                  | Net cash flows from operating activities |         |         | (4,448 | )  |         |          | (2,651 | )  |        |         | (1,983 | )
|                                                 |                                                                                     |                                                  |                                          |         |         |        |    |         |         
|Cash flows from financing activities:            |                                                                                     |                                                  |                                          |         |         |        |    |         |          |        |    |       
|                                                 | Advances from subsidiaries, net                                                     |                                                  |                                          | 14,834  |         |        |    | 12,764  |          |        |    | 11,803 |        
|                                                 | Payment of cash dividends                                                           |                                                  |                                          | (10,395 | )       |        |    | (10,110 | )        |        |    | (9,822 | )      
|                                                 |                                                                                     |                                                  |                                          |         |         |        |    |         |         
|                                                 |                                                                                     |                                                  | Net cash flows from financing activities |         |         | 4,439  |    |         |          | 2,654  |    |        |         | 1,981  |  
|                                                 |                                                                                     |                                                  |                                          |         |         |        |    |         |         
|Increase (decrease) in cash and cash equivalents |                                                                                     |                                                  | (9                                       | )       |         |        | 3  |         |          |        | (2 | )     
|Cash and cash equivalents  beginning of year    |                                                                                     |                                                  | 28                                       |         |         |        | 25 |         |          |        | 27 |       
|                                                 |                                                                                     |                                                  |                                          |         |         |        |    |         |         
|Cash and cash equivalents  end of year          |                                                                                     | $                                                | 19                                       |         |         | $      | 28 |         |          | $      | 25 |       
|                                                 |                                                                                     |                                                  |                                          |         |         |        |    |         |         

See notes to consolidated financial statements.


60